Search continues for formula to settle row over distance selling

Date: 16/03/2000

By Renée Cordes

More than a year after the European Commission unveiled its first blueprint for regulating financial services sold via the Internet, telephone or fax, it is still struggling to find the right recipe for reform.

Its first two proposals failed to satisfy member states, financial-service providers and consumer groups that the proper balance had been struck between protecting customers and ensuring a well-functioning single market.

Over the next few months, the Commission will examine EU governments' answers to numerous questions about the laws they already have in place governing this burgeoning sector before deciding on the best way forward. Internal market ministers asked the Union executive to carry out this review after failing to agree on its initial proposals last year.

"There certainly is a desire to push this as a high priority," said one official, who added that the Commission hoped to come forward with a new proposal during the second half of this year.

The aim of the planned measures is to harmonise national laws governing the 'distance selling' of financial services to encourage cross-border activity while at the same time ensuring that consumers are adequately protected regardless of where the service provider is located.

The Commission has pledged to scrutinise national laws which give a high degree of consumer protection closely - especially those relating to the information which companies must provide before the consumer signs a contract - and may propose extending the toughest measures currently in force across the EU as the whole.

The rush to put legislation in place governing these kinds of sales is intensifying as advances in technology make it increasingly possible for an industry which until fairly recently relied heavily on face-to-face contact to sell financial products to customers hundreds or even thousands of kilometres away.

The Commission came forward with its first proposal in October 1998, followed by a second in July last year. Under the latest version, companies using distance selling techniques would be allowed to operate across all 15 member states as long as they met key consumer protection requirements, most notably relating to the provision of adequate information.

This approach has won the support of the UK, France, Luxembourg and the Netherlands, but other member states argue that they should be allowed to impose additional consumer protection requirements.

EU governments are also divided over the scope of the proposal and the degree to which exemptions should be granted for specific financial services such as, for example, mortgages.

The Commission initially proposed giving borrowers a restricted right to withdraw from contracts, but only in cases where the financial services provider had either unfairly induced the consumer to sign the contract or did not disclose the terms of the deal. It also called for foreign-exchange services, short-term non-life insurance and certain kinds of mortgages to be excluded from the scope of the planned rules.

While banking sources welcomed the Commission's most recent draft proposals as a good basic legal framework, consumer groups have been pressing governments to continue to fight for the right to impose stricter legislation at the national level.

"This is a very fast-moving area and if you are going to have any changes in the law, it is more likely to come from one member state at a time than from all 15 at once," said Jim Murray, head of European consumer lobby group BEUC.

But Jaap Kamp, senior executive vice-president at ABN Amro's office in Brussels, disagrees. He argues that a patchwork of national rules which vary widely from country to country could create an administrative nightmare for service providers trying to do business across borders.

More than a year after the European Commission unveiled its first blueprint for regulating financial services sold via the Internet, telephone or fax, it is still struggling to find the right recipe for reform. Article forms part of a survey on the Information Society.