Scope:

Directive 2002/65/EC on the distance marketing of consumer financial services

Evaluation findings:

The evaluation provided evidence on whether the current legal framework of Directive 2002/65/EC, on the distance marketing of consumer financial services (DMFSD) is still fit for purpose, via an assessment of its effectiveness, efficiency and simplification and burden reduction, relevance, coherence and EU added value. The evaluation assessed the overall functioning and practical application of the DMFSD and its continued relevance in view of market and legal developments and the current needs of stakeholders. The evaluation finds that the DMFSD has been partially effective in increasing consumer protection and of limited effectiveness in contributing to consolidate the single market due to barriers that are beyond its remit. The DMFSD has EU added value and its objectives are still relevant. However, digitalisation exacerbated some aspects not fully addressed by the DMFSD, including how and when information should be provided. Simultaneously, needs originally addressed by the DMFSD are currently addressed by other EU legislation that significantly overlaps with the DMFSD.

Estimated savings and benefits

The benefits of the DMFSD to consumers appear to be proportionate to its costs, according to the economic model developed and the stakeholders consulted by the consultation in the context of the evaluation study. Since the adoption of the Directive, the benefits of the DMFSD have remained relatively stable throughout the time due to two opposite forces: the constant and significant increase in purchases of financial services at distance (upward force) and the introduction of other EU horizontal and product-legislation that significantly overlaps with the DMFSD (downward force).

The trend of net benefits has been positive due to the increase in the demand of financial services using distance means of communication. However, in 2010, 2016 and 2018 the net benefits dropped 20%, 1% and 6% due to the introduction of other legislation (i.e., the Consumer Credit Directive and Product Safety Directive (PSD) I in 2010, the Mortgage Credit Directive and Solvency II in 2016, and the Payment Service Directive II, the Insurance Distribution Directive (IDD) and Regulation on Packaged retail and insurance-based investment products (PRIIPs) in 2018).

The estimated net benefits of the DMFSD (i.e. the difference between the benefits and costs described above) are about EUR 69 to427 million (present value), while the cost-benefit ratio is between 1.1 and 1.5. The net benefit of the DMFSD has been positive (with the exception of the years 2004-2007 when countries transposed the Directive and financial providers and public administrators incurred on one-off costs to adjust to the new requirements), indicating that in every year since 2007 the benefits have outweighed the costs. The trend of net benefits has been positive due to the increase in the demand of financial services using distance means of communication.

Which objectives did the Commission pursue?

The proposal aims at repealing the current Directive 2002/65/EC on distance marketing of financial services, modernising the relevant rights and including them into horizontal legislation, namely Directive 2011/83/EU on consumer rights. Its objectives are:

⮚ Full harmonisation: The same high level of consumer protection across the single market is best ensured through full harmonisation, unless otherwise provided by the directive.

⮚ Pre-contractual information: Receiving key information in a timely manner and in a clear and comprehensible way (electronically or on paper). The proposal aims at regulating what, how and when pre-contractual information is to be provided.

⮚ Strengthen the right of withdrawal: First, a withdrawal button is to be provided by the trader when the consumer concludes, by electronic means, a financial services contract at a distance; second, and linked to when the pre-contractual information is to be provided, a notification of the right of withdrawal will be provided by the trader in case the pre-contractual information is received less than a day from the conclusion of the contract.

⮚ Online fairness: The proposal establishes rules concerning adequate explanations and rules providing additional protection regarding online interfaces. It aims to ensure that traders do not benefit from consumer biases.

⮚ Enforcement: The proposal extends the rules on enforcement and penalties currently applicable in Directive 2011/83/EU on consumer rights (‘the Consumer Rights Directive’) to financial services contracts concluded at a distance.

Estimated savings and benefits

Overall, consumers would be affected positively. Consumer trust would increase thanks to measures on how and when information should be presented, and on the reminder of the right to withdrawal. Additionally, the new Directive would ensure consumer empowerment by limiting practices exploiting behavior patterns such as the use of default options. The proposal would entail costs for businesses, but its resulting legal certainty is also expected to reduce the burden on them. According to the impact assessment, the preferred option would also have a positive effect on the reduction of consumer detriment (at least EUR 170-210 million) and on consumer trust. It would entail some costs for financial service providers (at least around EUR 19 million) and public authorities (at least around EUR 6 million).

Introducing more robust rules on the right to withdrawal could create more opportunities for consumers to submit complaints making slightly higher costs for processing those complaints. However, the repeal would reduce costs in terms of communications to consumers which are higher because certain providers seem to send information twice to comply both with the DMFSD and with sector specific legislation. Nevertheless, the proposal's simplified framework which ensures the safety net feature would result in a more level playing field for industry across borders. Introducing revised rules within the Consumer Rights Directive would provide harmonised provisions across all financial services sectors when the product is bought at a distance: implementing simplified rules on pre-contractual information and right to withdrawal would mitigate the fragmentation caused by differences in national regulations.

As regards reduced burden for public administrations, the higher degree of legal clarity and the simplified regulatory framework is expected to reduce the number of complaints and increasing the level of certainty and compliance, which would render enforcement procedures more efficient. Specific measures to reinforce coordination and improve conditions for enforcement are also expected to result in efficiency gains in relation to the enforcement of the Directive’s obligations. Specific impacts on SMEs have not been identified to be significant.