The Directive on Distance Selling of Consumer Financial Services

European economic and monetary union will be upon us in less than 60 days. It was hoped that Europe’s financial market would be revolutionised and barriers to cross-border trade would be removed. However, barriers exist which prevent Banks and other financial services companies from selling their product throughout the EU freely. The European Commission has published a paper which seeks to make progress on removing the barriers. Once the benefits of EMU are felt by the participating (and non-participating Member States), the pressure to remove barriers to the cross-border selling of financial services will be increased in order to ensure that the full benefits of the single currency are felt.

One proposal is the Directive on distant selling of financial services. The Commission states that the purpose of distance contracts is to help consumers and suppliers make the most of the Internal Market. There is a need to adopt harmonised rules at Community level.

The directive aims to put consumers in a position:

• to examine the contract before giving their consent;
• to compare the offers before making their choice;
• to withdraw when they have concluded a contract without having read the contractual terms and conditions or when the supplier has unfairly induced them to conclude a contract during the reflection period.

Suppliers must be in a position to conclude distance contracts with consumers.

The directive covers, amongst other things, consumer credit and mortgage credit.

The Consumer Credit Act 1974

The Consumer Credit Act and the regulations made under it set down detailed requirements on:

• advertising and marketing
• entering into contracts with consumers
• how loan agreements are to be documented
• requirements to give consumers copies of the loan agreement

The directive appears to call for fundamental changes to the Consumer Credit Act to ensure that lenders can use electronic commerce to enter into loans with consumers.

The process of creating and registering land mortgages (including those not regulated by the Consumer Credit Act) may also be affected by the proposals as they currently stand.

The requirements of the Mortgage Code would need to be reviewed to ensure that the appropriate balance was achieved between the lender and the consumer.