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Distance contracts for financial services

European legislation establishes principles relating to financial services which may be provided at a distance. Such harmonisation of principles offers better protection for any consumer negotiating or entering into a contract with a supplier established in another Member State.

ACT

Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directives 90/619/EEC, 97/7/EC and 98/27/EC [See amending acts].

SUMMARY

Scope

The Directive covers contracts for retail financial services (banking, insurance, payment and investment services, including pension funds) that are negotiated at a distance (e.g. by telephone, fax or over the Internet), i.e. by any means which do not require the simultaneous physical presence of the parties to the contract.

Right to reflect

The Directive gives the consumer the right to reflect before concluding a contract with a supplier. The supplier is thus required to transmit a draft contract to the consumer, in writing or on a durable medium (e.g. floppy disk, CD-ROM or e-mail), including all the contractual terms and conditions. The reflection period is 14 days, during which all the terms and conditions remain valid. The parties are nonetheless free to agree on a longer period or to negotiate other conditions.

Right to withdraw

The consumer has the right to withdraw within 14 days (30 days in the case of life assurance and personal pension operations) in the following circumstances:

  • when the contract has been signed before the consumer has received prior notice of the contractual terms and conditions (e.g. consumer takes out an insurance policy in order to obtain immediate cover);
  • when the consumer has received the contractual terms and conditions but has been unfairly induced to conclude the contract during the reflection period.

If the consumer exercises the right of withdrawal after having already agreed to partial performance of the service, he may be required to pay the supplier for the service rendered. If the service has been rendered in its entirety before the right of withdrawal is exercised, that right can no longer be exercised and the consumer will have to pay for the service. Consumers must be informed in advance of the price to be paid (or of the basis on which it will be calculated).

In order to avoid speculative manoeuvres, the right of reflection or withdrawal does not apply to services whose price is liable to fluctuate as a result of developments on financial markets (e.g. the securities market).

Right to reimbursement

Certain financial services, notably futures (e.g. an instruction given by a consumer to purchase a certain number of shares at a fixed price), may sometimes be totally or partially unavailable at the time of performance of the contract. In this case, the consumer is entitled to reimbursement of the sums paid over to purchase the services.

Cancellation of payment by card in the event of theft

In the event of fraudulent use of his credit card, the consumer may request cancellation of the payment or reimbursement of any amount already paid.

Protection against unsolicited supply of services

Customers are protected by Directive 2005/29/EC, which regards the unsolicited supply of services as an unfair commercial practice. Failure to reply to an offer to supply services does not put the customer under an obligation and does not constitute tacit consent.

Complaints procedures

Member States must ensure that adequate and effective complaints and redress procedures (court, administrative and out-of-court) are put in place for the settlement of possible disputes between suppliers and consumers.

Sanctions

Member States must also ensure that operators and suppliers of communication means put an end, technology permitting, to illicit activities performed using means of distance communication.

Background

The proposal for a Directive is intended to supplement European Parliament and Council Directive 97/7/EC, which ensures appropriate consumer protection in respect of most products and services other than financial services (excluded in view of their specific characteristics). It aims to rectify this legal omission by establishing common rules to govern the conditions under which distance contracts for financial services are concluded.

REFERENCES

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2002/65/EC

09.10.2002

09.10.2004

JO L 271 of 09.10.2002

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal

Directive 2005/29/EC

12.06.2005

12.12.2007

JO L 149 of 11.06.2005

Directive 2007/64/EC

25.12.2007

1.11.2009

OJ L 319 of 5.12.2007

Successive amendments and corrections to Directive 2002/65/EC have been incorporated in the basic text. This consolidated version  is for reference purpose only.

Last updated: 15.06.2011
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