Council agrees negotiating position on financial services contracts concluded at a distance

The ministers for competitiveness agreed today on a negotiating mandate (general approach) for the directive concerning financial services contracts concluded at a distance.

The new directive updates current EU legislation (the 2002 directive on distance marketing of consumer financial services) to create a level playing field in the internal market for distance financial services while raising the level of consumer protection.

This directive is another step towards a future-proofed digital transition in the field of financial services. The update of the 2002 legislation ensures a high level of consumer protection and strengthens the legislative framework for the provision of innovative financial services for consumers in the single market.

Gunnar Strömmer, Swedish Minister for Justice

Consumer protection for finances in the digital age

With the development of IT technologies, an increasing number of financial services such as credit, insurance, investments or pension plans are promoted online, and the contracts of these services are concluded at a distance. This trend, which became more prevalent during the COVID-19 pandemic, necessitated amendments to the existing legislation. The Commission proposal, presented on 11 May 2023, repeals the 2002 directive and introduces the modernised provisions for financial services contracts concluded at a distance into the horizontally applicable Consumer Rights Directive (CRD). In addition, certain articles of the CRD (such as those on telephone communication, additional payments, enforcement and penalties) will apply to financial services sold at a distance.

Council position

While the Council’s General approach maintains the objectives of the Commission’s proposal, it introduces several improvements making it more coherent with existing sectoral legislation and clarifying some important points of the directive.

To ensure a high level of consumer protection and avoid any risk of lowering the level of protection for consumers in certain countries, the Council proposes minimum harmonisation as regards pre-contractual obligations which allow member states to have stricter national rules than those established by the directive.

The Council’s mandate clarifies the scope of application and the safety net-feature of the Directive, in particular for financial services that are excluded from other sectoral legislation or only partially covered by it.

The Council position also adds further provisions of the consumers rights directive, applying these to financial services contracts concluded at a distance. These include provisions on telephone contracts, inertia selling (the sending of unsolicited goods or services to potential customers to make a sale), or the possibility for member states to introduce language requirements in national law regarding pre-contractual information.

The withdrawal button

The directive facilitates the exercise of the right of withdrawal in relation to contracts concluded at a distance with the inclusion of a button (or similar function) with the label “withdraw from contract here” (or a corresponding formulation) in the financial service provider’s interface. At a second step, there is a confirmation button “withdraw now” to ensure that the consumer does not withdraw from the contract by mistake. The objective of this “withdrawal button” is to raise the consumers’ awareness and ensure that withdrawing from a contract is not more burdensome than to entering it.

The Council also proposes extending the provisions of this feature to the general chapter of the Consumer Rights Directive, so that “withdrawal buttons” are applied to all contracts concluded at a distance.

The consumer shall have a period of 14 calendar days to withdraw from the contract without penalty, 30 calendar days in in the case of personal pension operations. To align this provision with the Directive on Consumer Credits (currently under negotiation), the general approach proposes limiting this right of withdrawal to 12 months, and 14 days in the event that the consumer has not been informed about his or her right of withdrawal.

Other improvements

The general approach adopted today improves the rules of information disclosure and aims to modernise pre-contractual information obligations and make them future-proofed for financial services in the years to come. In case the trader uses online tools, like roboadvice or chatbots, the consumer must have the right to request human intervention to understand the effects that the contract may have on his or her financial situation.

The Council position enables member states to adapt the explanations that should be provided by financial services providers to the circumstances of the products and needs of the consumers.

Finally, the general approach adopted today extends the period of transposition, so the industry will benefit from an additional six months to make all the required changes to their IT-systems.

Next steps

The general approach agreed today formalises the Council's negotiating position. It provides the Council presidency with a mandate for negotiations with the European Parliament.

Background

The review of the 2002 directive on distance marketing of consumer financial services is part of the Commission’s new consumer agenda, which was supported by the Council in its related conclusions on 21 February 2021.