Storm erupts over financial distance sales

Date: 15/02/1996

THE debate over distance selling is likely to heat up again in the coming weeks as the European Commission considers whether to propose a directive curbing the sale of financial services by phone or fax.

A directive aimed at regulating distance sales of products is currently making its way through the legislative process, leaving a trail of arguments in its wake.

Euro MPs provoked a storm of protest from banks and phone companies when they threatened to extend the scope of the directive to cover financial services last December, a threat which was averted at the last minute by Consumer Affairs Commissioner Emma Bonino.

Arguing that insurance contracts could not and should not be treated in the same manner as, for example, books, she promised an action plan outlining how the Commission would improve consumer protection in the financial sector by the end of this month.

But those in favour of a directive on financial services are likely to be disappointed by the promised communication currently being drawn up by DGXV, the Directorate-General for the single market, and DGXXIV, responsible for consumer affairs. For not only is the communication unlikely to be ready on time, but it is doubtful that it will suggest that a distance selling law should be drafted for the financial sector.

Consumer groups and some MEPs are opposed to allowing the financial sector to use whatever selling tactics it deems fit. Pointing to the growing number of complaints from consumers claiming they were duped into buying unsuitable insurance contracts, savings plans or loans over the phone, they say citizens' interests are being sacrificed on the altar of the single market.

“The failure to propose legislation such as this will make citizens realise that, while they have a single market for products and services, they do not for consumer rights,” said Valerie Thompson of the European consumer organisation BEUC.

BEUC says laws should be introduced obliging financial companies to send consumers details in writing of the service before concluding the deal.

Banks, on the other hand, have argued that distance selling rules would make phone sales unworkable. In particular, they will continue to resist moves to grant customers “cooling off” periods, during which they may change their minds about contracts they have signed.

Banks claim that such an arrangement, which would allow customers to return investment bonds that had devalued, for example, would cause chaos on the markets. BEUC acknowledges cooling off periods would not be practical for all financial services, but insists they should be granted for some.