Distance Marketing of Financial Services and Protecting Consumers

Consumers of financial services are protected by the Financial Services (Distance Marketing) Regulations 2004.

What is the purpose of regulation?

These Regulations give effect to the EU’s Directive on the Distance Marketing of Financial Services, and aim to protect the consumer, whilst ensuring suppliers disclose sufficient information before and after the contract is concluded. 

Importantly, the consumer must be given what’s known as a ‘cooling off’ period. This is the opportunity to withdraw from the concluded contract without any liability being imposed on them during that cancellation period.

What is meant by ‘financial services’ for the purposes of the Regulations?

Financial services for the purpose of the Regulations include:

  • Pensions
  • Mortgages
  • Insurance
  • Banking services
  • Any other services concerned with finance

The definition of financial services used by the Regulations is wide, so those who are marketing services which they believe may be regarded as ‘financial’ under the Regulations should pay particular attention as to whether they come within the Regulations. Take legal advice if you have any doubts.

Note that the Regulations only apply to consumer contracts for financial services which are concluded through distance marketing communication methods since 31 October 2004.

What is meant by marketing by distance communication?

Marketing by distance communication is marketing which uses a means of distance communication to make the sale, including:

  • On-line sales
  • Telephone sales
  • Sales communicated by fax
  • Sales communicated by post
  • Any other form of contract that is concluded whereby the parties do not meet face-to-face

Complying with the Regulations

One of the most important obligations which businesses must comply with relates to the information provided before the conclusion of the contract.

What information must be provided before the conclusion of the contract?

The information that must be provided relates to three primary issues: the identity of the supplier, the details of the product, and the particulars of the contract

The Identity of the Supplier

The business must give the consumer the following information about the supplier’s identity:

  • The supplier’s name and main business
  • The geographical address where the supplier is established
  • Any other address relevant to the relationship with the supplier
  • If the supplier is not based in the same EU Member State as the customer, the identity and address of any representative they do have in that EU Member State
  • Company registration details
  • Details of any supervisory authority such as the Financial Services Authority (FSA), and any applicable registration number
  • Description of the main characteristics of the financial service

The Details of the Product

The following details of the product should also be provided to the consumer:

  • The total price to be paid by the consumer
  • Details of any possible fluctuations in price
  • Any additional taxes which may be imposed on the consumer
  • Any limitations of the period for which the information provided is valid

The Particulars of the Contract

Information about the particulars of the contract must also be provided to the consumer:

  • Arrangements for the payment and performance of any additional costs incurred by using distance communication
  • Details regarding a right of cancellation
  • The minimum duration of the contract
  • The laws of the Member State whose laws are being used as the basis of the contract by the supplier
  • The language the contractual clauses will be written in
  • The existence of guarantee funds or other compensation agreements

 

As a business, you must provide the consumer with this information clearly and in a comprehensible manner in a suitable form, whether on paper or by post, email, etc. However, this is not always possible in practice, for instance, if you distance market financial services over the telephone.

In this case, you should observe various aspects of good practice, for example, the caller should first give their name and state the fact that they are a sales representative on behalf of a specific company selling financial services. They can then explain the product giving key details such as the price and minimum duration. If the consumer is interested in the product, the required information should be sent to them before a contract is concluded.

What about the Terms and Conditions of Sale?

Once the consumer expresses a desire to conclude a contract, the business offering the financial service must ensure that the terms and conditions of the contract are provided to the consumer, in a timely manner. The contract cannot be concluded until the consumer agrees to the terms and conditions of sale. When the contract is concluded, various clauses in the terms and conditions (such as the process of cancellation) will come into effect.