Directive (EU) 2023/2673 as regards financial services contracts concluded at a distance and repealing Directive 2002/65/EC

Directive (EU) 2023/2673 relating to consumer protection and requirements upon firms as to the conclusion of financial services contracts at a distance was published in the Official Journal (OJ) of the EU. The Directive primarily seeks to broaden the scope of the Consumer Rights Directive (Directive 2011/83/EU) to include such contracts and – at the same time – enhance consumer protection by stipulating some additional obligations for example concerning the content and timing of providing pre-contractual information or the way withdrawal rights must be facilitated.
As to the background:
Financial contracts concluded at a distance are currently covered in the Directive 2002/65/EC on Distance Marketing of Consumer Financial Services (DMFSD). Since the implementation of the Directive, the way financial contracts are negotiated and concluded and documents are served to clients has changed tremendously. In the meantime, new legislation have come into effect, specifically the Consumer Rights Directive, covering basically the same issues excluding, however, financial services.
The purpose of this Directive is thus to bring the two pieces of legislation together into one, while preserving or even extending some of the key consumer protection rules set out in the DMFSD. The Directive thereby repeals Directive 2002/65/EC on Distance Marketing of Consumer Financial Services altogether and introduces an entirely new chapter (Chapter IIIa) in the Consumer Rights Directive to provide adequate provisions as to financial services contracts concluded at a distance. The key provisions are briefly explained below:
(1) Provision of information prior to the conclusion of a contract: The Directive mandates that financial contracts concluded at a distance include information about the involved firm’s identity, contact details, a description of the financial service offered to the client, the total price and fees applicable to the contract, potential risks involved for consumers, their rights to withdraw from the contract, duration of the contract, termination clauses, applicable laws and regulations, language of communication, the complaint redress mechanisms available to consumers, and several others. Furthermore, the Directive specifies that the information must be clear and comprehensible, easy accessible, and provided on a durable medium. It may be worth noting in this context that the Commission explicitly allows member states to set out stricter provision, if they deem such necessary. Also, unlike before, it is up to firms to prove that they have disclose the necessary information to clients in case of disputes.
(2) The right of withdrawal from distance contracts for financial services: The Directive mandates that consumers be granted 14 calendar days to withdraw from a financial service contract concluded at the distance without penalty. This period is extended to 30 calendar days when contracts concerning „personal pension“ are involved. The withdrawal period starts either from the day of contract conclusion or from the day the consumer receives the contractual terms and required information (whichever is later). If the consumer hasn’t received this information, the withdrawal period extends to 12 months. Certain financial services are exempt from the right of withdrawal, including those involving fluctuations in the financial market outside the firm’s control such as services related to – as quoted:
– foreign exchange,
– money market instruments,
– transferable securities,
– units in collective investment undertakings,
– financial-futures contracts, including equivalent cash-settled instruments,
– forward interest-rate agreements (FRAs),
– interest-rate, currency and equity swaps, and
– options to acquire or dispose of any instruments referred to in this point, including equivalent cash-settled instruments. This category includes in particular options on currency and on interest rates.
Also, certain short-term insurance policies are excluded from the right to withdraw, and contracts fully completed at the consumer’s request before withdrawal. To exercise the right of withdrawal, the consumer needs to communicate its intention to withdraw within the specified withdrawal period. In case an ancillary service is linked to the financial service contract and the consumer withdraws, the consumer is not bound by the ancillary contract, and termination of the ancillary contract should be without cost.
(3) Provisions for the payments of „refunds“ if a customer subsequently withdraws from a contract: The Directive includes provisions to ensure that consumers are only charged for services actually provided before withdrawal, thereby prohibiting excessive or punitive charges for such services. It also establishes clear guidelines for refunding sums and returning funds to consumers upon withdrawal from the service contract. Specifically, the Directive mandates that any fund be returned to the customer within 30 calendar days upon receipt of a withdrawal notification by a client. Similarly, clients that have received funds as part of a contract concluded at a distance and subsequently withdraw from this contract must return the received funds within same timeframe.
(4) „Explanations“ that must be made by the financial service provider in connection with a contract: The Directive mandates that firms need to „explain“ a contract to the consumer prior to the conclusion. It is worth noting in this context that if online tools are used by firms to distribute a product or service, consumers have the right to request and receive human assistance during the pre-contractual stage. Also, firms are obliged to provide information to clients as to possible consequences in case of non-compliance on the part of the customer such as information of payment default or late payments.
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As these are only the key provisions outlined in the Directive, please refer to the original document for more detailed, comprehensive information.