Distance marketing of consumer financial services In October 1998, the European Commission published a proposal for a Parliament and Council directive concerning the distance marketing of consumer financial services (e.g. insurance, banking and investment services). The Dutch Cabinet asked the Committee for Consumer Affairs (CCA) of the Social and Economic Council (SER) to draw up an advisory report on this proposal. In particular, the Cabinet wished to know whether such a proposal was, in fact, necessary for the functioning of the single market or for purposes of consumer protection, taking account of the principles of subsidiarity and proportionality. In addition, the Cabinet questioned various aspects of the implementation. The CCA published its advisory report in August 1999.

CCA: European regulatory framework required for the single market According to the Commission, the purpose of the proposal is to facilitate the free movement of financial services in the single market, to ensure a high level of protection for European consumers of such services, and to encourage the confidence of all the parties involved in the future of such services, especially those marketed by electronic means (e.g. the Internet). The CCA supports this aim. The single market is underdeveloped in this regard, in part owing to currency risks. The arrival of the euro will lead to a rise in cross-border consumer financial transactions, thereby increasing the need for a set of rules. A new European legal framework will also provide a logical addition to the existing European directive establishing distance selling rules for goods and services other than financial services (Directive 97/7). It can also lead to greater transparency in this market, especially with respect to questions of value for money. This will not only benefit consumers, but also the relatively efficient Dutch banks and insurance companies. In addition, creating a level playing field within the EU will only be to the advantage of the Dutch banking and insurance industry, given its relatively solid position. Conventional distance communication techniques, for example telephone, fax and post, are the traditional means of marketing financial services. For the time being that will continue to be so, although new electronic media such as the Internet will continue to gain ground in this area as well. Their ascendance will allow consumers to use financial services round the clock at any given time, and generally more efficiently and quickly than in the traditional manner. ICT is also giving the suppliers of such services new opportunities to reach consumers, while intermediaries in the financial

sector will face the challenge of providing added value when it comes to distribution or representation. One of the reasons that the CCA supports a European directive in this area is that it will help to encourage the confidence of all the parties involved in the future of electronic financial services. While providing a legal framework for electronic media, such a directive can also encompass distance marketing by means of the usual techniques of telephone, fax and post.

CCA: simplify the European legal framework Because of the specific nature of financial services, the Commission’s proposal differs from in some respects from Directive 97/7, which is more general in scope. Its relationship to a proposal for another directive, i.e. the electronic commerce proposal, is also largely unclear (see Electronic commerce in the internal market on this site). It now appears as if the Member States will be obliged to implement three different proposals (i.e. directives) – each setting out specific rights and obligations for the parties and each having its own subtle nuances – at three different points in time. The CCA regrets the way in which this approach has fragmented the legal framework for distance marketing in the European Union. Specifically, it could lead to legal uncertainty for both suppliers and consumers, and to a lack of transparency in the market. Transparent rules in this field are beneficial not only to the market parties but equally to legislative bodies. For these reasons, the CCA would prefer to see the (proposed) European legal framework simplified. In the short term, the three different regimes must be brought properly in line with one another and co-ordinated, so that upon their implementation, the Member States can enact practicable national legislation. Wherever possible, there should be considerable parallels between Directive 97/7 and the directive under discussion, with due consideration being given to the typical differences between the distance marketing of goods and the distance marketing of financial services. In the long term, after the market parties have worked with the three regimes for awhile, the Commission could then consider whether it would be sensible to take a uniform approach to all distance marketing, within a single European framework directive. It is, in any event, indisputable that the new communication techniques such as the Internet are excellently suited to cross-border communication. The need for greater European harmonisation in this area will therefore only increase. Any European framework directive establishing rules for all forms of distance selling will have to be based on selfregulation as much as possible. Indeed, the present proposal could have emphasised

self-regulation more than it has done (it mentions it only in relation to the out-of-court settlement of disputes).

CCA: agrees with rules covering all techniques The proposal encompasses all distance communication techniques used to market financial services, from conventional techniques (telephone, fax and post) to new techniques (the Internet). The CCA agrees with the broad scope of the proposal. When engaged in real time communication on the Internet, consumers may find that they have committed themselves to something before they are aware of what they are doing, while distance selling through conventional techniques increases the risk that consumers will decide without giving the matter proper thought, especially when faced with a battery of new marketing methods. There is another reason to include the conventional techniques in the European directive: the immaterial nature of financial services means that they are, in a certain sense, always furnished from a distance, making it more difficult for buyers to divine precisely what they can expect from the seller.

Minimum harmonisation or total harmonisation? Opinions differ within the CCA regarding the system of harmonisation and associated legal basis to be applied in the relevant directive. The CCA’s consumer members and five independent members would like to see a system of minimum harmonisation being applied in the directive. In their view, a single basic European law for the distance marketing of financial services should not preclude stricter national legislation in this field, provided that such national legislation is actually intended to protect consumer interests and is not simply a trade barrier in disguise. They advocate the application of Article 153 of the EC Treaty as the legal basis: in this Article, unlike in Article 95, minimum harmonisation is guaranteed. The trade and industry members of the CCA, on the other hand, believe that Article 95 of the EC Treaty on the single market – the legal basis for Directive 97/7 – provides the appropriate legal basis in this instance as well. According to these members, European directives based on this article should not only facilitate an unhampered supply in the single market, but also offer consumers throughout the EU a high level of protection. If the aim is to improve the single market, then these members are in favour of a system of total harmonisation (i.e. the Member States would be prohibited from introducing or enforcing any stricter national provisions).

CCA: not all intermediaries are the same The proposal assumes a system of intermediaries allied with the suppliers, and not a system of ‘independent intermediaries’ as in the Netherlands. According to the CCA, such independent intermediaries should not be lumped into the same category as the suppliers’ representatives, nor should all independent intermediaries be thought of as the same. Because these intermediaries have their own legal status, and because their responsibilities differ from one financial sector to the next, the CCA would prefer to see independent intermediaries dealt with separately in the directive, with their obligations being viewed as separate from those of the suppliers. This would also make it possible to clearly define the respective responsibilities of the supplier and the independent intermediary within a single European directive, so that consumers are not caught out. After all, they are dealing with a single financial service (contracted at a distance).

CCA: general right of withdrawal instead of a period of reflection The proposal provides for the consumer’s right to a fixed legal period of reflection before agreeing to a contract. The CCA fears that a period of reflection would actually lead to confusion, especially because the contract itself would still be concluded under national law. The period of reflection should therefore be replaced by a general

retroactive right of withdrawal (the present proposal sets out a right of withdrawal in specific cases). A clear period of withdrawal will be consistent with consumers’ expectations; they would already have a valid contract in hand giving them a much stronger legal position than if they were allowed a period of reflection regarding nothing more than a quotation. The fact that consumers would already have a contract, however, does make the right to withdrawal vulnerable to fraud and abuse, especially in the case of financial services vulnerable to interest rate and market movements. Consumers might try to use that right to protect themselves against fluctuations in interest or other market circumstances by forcing the supplier to bear the brunt of such risks. The CCA thus believes that the directive should offer a solution that does justice to the interests of both the supplier and bone fide consumers, possibly by means of a separate regime.

CCA advocates the use of an exhaustive list with information elements In addition to a general right of withdrawal after concluding a contract, the CCA also views consumer information as a suitable alternative to the legal period of reflection.

The information requirements set out in the proposal should be brought in line with existing practice and rules, in particular Directive 97/7, albeit that certain exceptions to the obligation to provide information can be justified in the case of financial services. After all, any single list of general information requirements would not do justice to what are sometimes major differences between different financial services. The CCA therefore advocates the inclusion in the directive of an exhaustive list of aspects about which information must in any event be provided in the case of particular financial services. One initiative in this direction is the European Parliament’s amendment to the proposal, which would obligate the supplier to provide information about eleven specified aspects in a ‘summary of the principal contract conditions’. An exhaustive list of this kind can serve as the point of departure for a voluntary dialogue about additional information.

CCA: no options for Member States with respect to cold calling Cold calling is when a consumer is contacted without his prior consent. In the proposal, the Member States can choose between two options designed to combat cold calling: opt-in (communication is permitted only if the consumer so requests) and opt-out (communication is permitted as long as the consumer does not refuse). The CCA questions whether new rules are required on this point, which has already been dealt with in the ISDN directive; if so, then the CCA does not believe that the Member States should be given any options. The CCA does agree that consumers must be protected against the negative repercussions of being provided with unsolicited financial services, partly with a view to creating sufficient parallels between the proposed directive and Directive 97/7.

CCA: agrees with rules for the settlement of disputes, no rules for burden of proof The CCA agrees with the proposal that the Member States should ensure ‘adequate and effective complaints and redress procedures’ for the distance selling of financial services. It also agrees that the directive should join the group of directives that allow consumer organisations to take cross-border prohibitive action on the grounds of a 1998 directive. The Netherlands already has adequate national rules for the settlement of consumer disputes pertaining to financial services, even when these involve distance contracts. In the event of court proceedings, the proposal provides for reversing the burden of proof in the consumer’s favour. This deviates from the Netherlands’ ‘flexible’ law of

evidence. The CCA prefers to avoid establishing rules for the burden of proof in the relevant directive, as is the case in Directive 97/7. Market parties in the Netherlands can manage quite well with the country’s ‘flexible’ law of evidence as provided for in the Dutch Civil Code. Should it be decided to reverse the burden of proof anyway, the CCA notes alternatively that the supplier should then be required only to argue plausibly that it has performed its obligations, instead of having to prove that it did so, a requirement that is sometimes impossible to meet.