Financial services: changes to distance contracts
The European Union is modernising and simplifying the legal framework for financial services contracted with consumers at a distance. In response to technological developments, the new directive of November 2023 repeals the original sectoral directive of 2002 and moves the regulation of financial services contracts concluded at a distance to the Consumer Rights Directive (CRD). This will tighten the legal framework, as EU member states will no longer be able to derogate from the regulation unless explicitly allowed so by the directive.
Affected type of contracts
The new legal regulation will apply to consumers concluding distance contracts for financial services that do not fall under any EU sectoral legislation or are explicitly excluded from its scope. These, e.g., include reverse mortgages, which are exempted from the Mortgage Directive, certain savings and deposit products, and credit crowdfunding.
Rules taken over from the repealed directive
A large part of the provisions of the original 2002 directive are being transferred to the Consumer Rights Directive (CRD), in a modified version. These mainly concern the rules on pre-contractual information, including new obligations such as a reminder of the possibility to withdraw from the contract if the information has been provided less than one day before the contract has become binding. A new feature is the possibility of layering contractual terms and conditions, whereby the key information must be provided in the first layer, and details in subsequent layers (to be viewed upon clicking). In addition, the rules for withdrawing from the contract or modification of payments for services actually rendered before withdrawing from the contract have been taken over.
New obligations for distance financial services
Financial services contracted at a distance shall be subject to further rules in addition to selected existing CRD rules. Consumers will have the right to have the proposed financial services contracts properly explained to them before concluding them and may request human intervention when communicating with an online tool (e.g., a chatbot) after the conclusion of the contract. They will also be protected from 'dark patterns' – manipulative online interfaces that significantly impair consumers' ability to make informed decisions and their ability to assess the impact of a service on their financial situation. A crucial new obligation is that a withdrawal function must be available directly on the website or app, so that withdrawing from the contract shall be as easy as entering in the contract.
Effective date
The directive was published in the Official Journal of the EU on 28 November 2023. It must be transposed into national law s within two years of its effective date and will enter into force six months after the transposition deadline, i.e., no later than 19 June 2026.
The new legislation will not only mean new rights for consumers but also new obligations for service providers.