Distance marketing directive of consumer financial services

This page contains information on - 

• The DMD
• Background

• Focus on pre-contractual information

• "Country of origin" basis

The DMD 

The Distance Marketing Directive (DMD) was adopted on 26 June 2002 (No 2002/65/EC).  It was published in the Official Journal of the Commission on 23 September 2002 and was due to come into force in Member States on 9 October 2004 (but see below for actual implementation dates in the UK). 

The DMD applies to secured and unsecured loans. It therefore covers loans which are regulated by the Financial Services Authority (FSA), under its Mortgage Conduct of Business rules (MCOB), and the Department for Business, Enterprise and Regulatory Reform (BERR) in relation to loans regulated under the Consumer Credit Act 1974.

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Background  

The DMD builds on an existing Directive (Directive 97/7/EC on the protection of consumers in respect of distance contracts) governing the distance marketing of non-financial goods and services (the DSD). It also complements the E-Commerce Directive (ECD) which was implemented in August 2002 (Directive 2000/31/EC on electronic commerce). The impact of the DMD in the area of financial services is potentially wide-ranging because it applies to "any service of a banking, credit, insurance, personal pension, investment or payment nature".  Its purpose is to establish a clear regulatory framework for the marketing of financial services at a distance – that is, non-face-to-face transactions via the internet, email and telephone, both within the UK and across the EU. The DMD:

• lays down common rules for selling services such as contracts for credit cards, investment funds and pension plans to consumers by phone, fax or internet;
• prohibits abusive marketing practices which oblige consumers to buy services they have not solicited;
• introduces an obligation to provide consumers with comprehensive information before a contract is concluded (see below); and
• recognises consumers' rights to withdraw from the contract during a 14-day cooling-off period (30 days in the case of life insurance and individual pensions) without any penalty or need to provide a reason.  NB this "cooling off" period will not apply to regulated mortgage contracts covered by the FSA's Conduct of Business rules (MCOB) (see below).

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Focus on pre-contractual information

The DMD's main requirements focus on pre-contract disclosure, before the customer is contractually committed. Broadly, the information must include information about: 

• the supplier, including details of any professional the consumer deals with instead of the supplier;
• the financial service, including a description of the main characteristics of the financial service and the total price to be paid by the consumer;
• the contract, including any rights of withdrawal (if applicable); any rights to terminate the contract early and any clause relating to the law applicable to the contract;
• any out-of-court complaints arrangements for seeking redress and compensation (other than those covered by the Deposit Guarantee and Investor Compensation Directives – Directives 94/19/EC on deposit guarantee schemes and 97/9/EC on investor compensation schemes respectively).

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"Country of origin" basis

The DMD is to be implemented on a "country of origin" basis: that means that the supplier's home State must implement and enforce the Directive's provisions. UK provisions will therefore apply to suppliers based in the UK. They will not apply to another EU supplier entering a distance contract for financial services from an establishment in another Member State – that State's rules will apply. Nor will UK rules apply to the provision at a distance of financial services to a consumer in the UK by a non-EU firm which has an establishment in another Member State. For example, if a US-based firm which has a branch in France enters into a distance contract from that branch with a consumer in the UK, it will not be subject to the DMD. The Treasury has proposed that non-EU firms which supply financial services at a distance should be subject to the DMD: it would be open to the UK to impose its own requirements on such contracts, and the Treasury considers that it should do so in order to protect UK consumers. 

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