EBF contribution to the public consultation on the EU Commission s Green Paper on the Consumer Acquis Review

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1 AMS/DB N 411 European Commission Directorate General Health and Consumer Protection Rue de la Loi 200 B Brussels SANCO-B2@ec.europa.eu Brussels, 24 May 2007 Subject: EBF contribution to the public consultation on the EU Commission s Green Paper on the Consumer Acquis Review Dear Sir/Madam, The European Banking Federation (EBF) is pleased to send you herewith its contribution to the public consultation on the Green Paper on the Review of the EU Consumer Acquis. We praise the Commission for this initiative that aims at introducing more consistency in EU law and promoting a more efficient legal background for the achievement of the internal market where consumers are, together with the industry, the main actors. We encourage the Commission to elaborate a coherent approach to the consumer protection legislation that helps lifting barriers to the development of the internal market for consumers. Indeed, one of the consequences of adopting harmonised rules at EU level should be a higher and more confident offer of products and services across EU member states. We see in fact no benefit in improving the level of consumer protection if the offer of products and services in Europe is not allowed to develop in parallel and regardless the method of distribution chosen. In the light of this, we consider it useful to take part in this consultation even if most of the sectoral Directives relevant to the financial industry are not covered by the scope of the Green Paper. We apologise for the delay in sending you our contribution and are grateful for the extra time you have allowed us in order to finalise the internal consultation of our membership. We remain at your entire disposal, should you wish to discuss further any of the content of the document enclosed. Yours faithfully, a.i.s.b.l. Enclosure: 1 10 rue Montoyer B Brussels +32 (0) phone +32 (0) fax Guido Ravoet Secretary General

2 P7040DEAMS EBF CONTRIBUTION TO THE PUBLIC CONSULTATION ON THE EU COMMISSION S GREEN PAPER ON THE REVIEW OF THE CONSUMER LAW ACQUIS Set up in 1960, the European Banking Federation (FBE) is the voice of the European banking sector. It represents the interests of over 4500 European banks, large and small, from 29 national Banking Associations, with assets of more than EUR billion and over 2.3 million employees. Introduction The European Banking Federation considers important to contribute to the consultation open by the EU Commission on the Green Paper on the Review of the Consumer Acquis. Indeed, despite the scope of the Green Paper that encompasses 8 Directives among which only one - the Unfair Terms Directive - is of relevance to the financial sector, we deem it necessary to express our views in particular on the general approach to adopt in order to review current legislation with a view to achieve a better consumer protection and the opening up of the internal market. It is indeed our understanding that other relevant directives have not been included in this exercise either due to a regulatory review run in parallel (Distance Marketing Directive), or to legislative proposals currently under discussion under the co-decision procedure (Consumer Credit Directive), or for a policy plan still to be defined (e.g. for mortgage products or bank accounts). Accordingly, the present contribution will focus on those issues that are of a general nature and will not cover the more specific aspects related to the sales contract or the other specific sectoral directives. On the consumer protection legislation already existing and under review in this Green Paper, we urge the EU legislator to elaborate a coherent approach to the consumer protection legislation that could help lifting some barriers to the development of the internal market for consumers, including those that currently affect the provision of financial services across Europe. Indeed, one of the consequences of adopting harmonised rules at EU level should be a higher and more confident offer of products and services across EU member states. We see in fact no benefit in improving the level of consumer protection if the offer of products and services in Europe is not allowed to develop in parallel and regardless the method of distribution chosen. At a more general level, we encourage the EU legislator to focus on conducting empirical research into what a reasonable customer needs in terms of retails services and to formulate accordingly a strategy for what type of consumer protection instruments should be made available to consumers. Therefore we urge the EU Commission to integrate more detailed research into genuine consumer needs in the Consumer Policy Strategy. 1. General Legislative Approach Question A1: In your opinion, which is the best approach to the review of the consumer legislation? a.i.s.b.l. We consider that a mixed approach as described under option 2 combining, where necessary, a horizontal instrument with intervention on sectoral directives, would be the best solution to bring consistency into the protection of consumers. 10 rue Montoyer B Brussels +32 (0) phone +32 (0) fax

3 Of course, we recognise that this might limit the content of such an instrument to those aspects that are horizontal in nature and can be dealt with separately from the vertical specific provisions. A horizontal instrument, if meant to apply across the sectors, would have a limited scope to only few items (e.g. the notion of consumer, the modalities for exercising the right of withdrawal) that can be considered a common denominator to all the consumer acquis, including in that case also financial services. 2. Scope of a Horizontal Instrument Question A2: What should be the scope of a possible horizontal instrument? In order to ensure legal certainty to both consumers and professionals, any horizontal instrument should apply to both domestic and cross-border situations as provided under option 1 Only in this way the simplification of the legislative framework could be achieved for the benefit of both consumers and industry. More specifically: From the consumer perspective: the basic protection needs of a consumer depend mainly on demographic factors like income, age and education rather than on nationality. Regardless of their nationality and of the place where they make a purchase (domestic or cross border), consumers should have the same basic rights. This will enable them to perceive the European Union s markets as one single market at least to some extent. From the businesses perspective: should the harmonized rules apply exclusively to cross border transactions, this would lead again to legal fragmentation since there would be two different sets of rules depending on whether the transaction is cross-border or domestic. Being obliged to comply with up to 27 different national consumer protection rules is an important cost factor that may hinder competitive national products to be offered in other markets. Moreover, any attempt to further integrate the European market should be neutral towards the method of distribution which the industry may choose. Deciding to harmonise only consumer protection rules applicable to cross-border transactions would have the effect of creating a preferential treatment for those businesses which chose cross border distribution as compared to those opting for a physical presence in the targeted market. 3. Degree of Harmonisation Question A3: What should be the level of harmonisation of the revised directives/the new instrument? The aim of any review of consumer protection rules should be to achieve full harmonisation of the most important aspects for the internal market from our perspective, the market of financial services -. This should not lead to standardisation of products but to common rules for the key elements of consumer protection, so that providers can develop and market products on a pan-european basis while relying on a sufficient level of legal certainty that developing, marketing and distributing products do not have to cope with 27 different legal systems. In order to achieve this, the EBF has been promoting a model of targeted full harmonisation which corresponds to option 1 as described in the Green Paper. Indeed, as stated in our reports of September 2004 and June 2005 commenting on the follow-up of the Financial Services Action Plan, it is our view that full harmonisation of key retail banking elements, i.e. elements that are essential to foster cross-border competition, as the most effective means of creating a genuine European internal market for retail banking services, to the benefit of consumers and businesses alike. Subject to adequate harmonisation, country of 2

4 origin rules based on the principle of mutual recognition can play a role for remaining issues and on a caseby-case basis 1. Of course, it is our view that both in a horizontal instrument and in sectoral directives, any fundamental issue should be fully harmonised, thereby leaving to mutual recognition a limited application to non essential elements. 4. Horizontal Issues 4.1 Definition of consumer and professional Question B1: How should the notions of consumer and professional be defined? Option 1 should be adopted for defining the notions of consumer and professional. Member states should not be given any room for adopting diverging national rules. It should be noted in this regard that it is surprising that the Commission does not mention the work-in-progress proposals for a Common Frame of Reference (CFR) which have already been submitted on, inter alia, this question by the Study Group on a European Civil Code. Any duplication of work should be avoided. 4.2 Consumers acting through an intermediary Question B2: Should contracts between private persons be considered as consumer contracts when one of the parties acts through a professional intermediary? In the absence of a definition of intermediary, we believe a distinction should be drawn between the case where the main parties to the contract are two consumers, one of whom is acting through an intermediary (e.g. two private parties, a seller and a buyer, that contract for the sale of a real estate via a real estate agent), and those cases where an intermediary is acting on behalf of a professional (e.g. banks distributing their financial products to consumers through agents). Only in the first case the contractual relationship can be, in our view, assimilated to some extent to a C2C contract. Accordingly, in this type of relationships consumer protection measures might appear to be too stringent and not always justified. Without a uniform definition of intermediary, any extension of provisions to cover this type of cases could encompass contractual relationship where the intermediary is not acting on behalf of any of the parties but simply puts them in contact without playing any active role in the conclusion of the contract. Any extension of consumer protection rules to cases where intermediaries intervene as in the last one just described would be, in our view, unjustified. Conversely, in the second case the role of the intermediary does not change the contractually weak position of the consumer vis-à-vis the other contractual (professional) party and is already, in most of the countries, submitted to the same or similar requirements as those imposed to the professional as regards duties and obligations. This is particularly the case in the banking sector. We thus consider option 1 more appropriate. 4.3 The concepts of good faith and fair dealing in the Consumer Acquis 1 See EBF Report on State of integration of Europe s financial markets, page 19 and EBF Report on Green Paper on Financial Services Policy ( ), page 8. 3

5 Question C: Should a horizontal instrument include an overarching duty for professionals to act in accordance with the principles of good faith and fair dealing? The debate within the CFR on any possible provision related to the concept of good faith has shown how difficult it is to find a common ground for the use at EU level of such a concept that has not developed in the same way across national legal systems. We consider more appropriate to avoid the introduction of an overarching provision on good faith in any future horizontal instrument, according to option 2. As the Commission correctly points out, the disadvantage of such a general clause would indeed be that it would not encompass precisely the rights and obligations imposed on each party. In addition, it could be interpreted differently among member states Should however the choice eventually be taken to introduce such a concept, it should at least envisaged for both parties according to option The scope of application of the EU rules on unfair terms Extension of the scope to individually negotiated terms Question D1: To what extent should the discipline of unfair contract terms also cover individually negotiated terms? Community rules should continue to apply exclusively to non-negotiated or pre-formulated clauses according to option 3. Individual contractual agreements should continue to be excluded from the unfairness test, also with a view to encourage consumers to develop their contractual negotiation skills. 4.5 List of unfair terms Question D2: What should be the status of any list of unfair contract terms to be included in a horizontal instrument? For the sake of legal certainty benefiting both consumers and providers, we favour option 3 which would allow to harmonise across Member States the contractual terms that are considered unfair and have to be avoided. Our support to option 3 is given on condition that such a list does not assemble the unfair contract terms of the 27 Member States but only those that are common to all States. A streamlined, mandatory list would have the dual advantage of providing legal certainty and being practical to implement. Failing this, the current indicative list should be maintained (option 1). 4.6 Scope of the unfairness test Question D3: Should the scope of the unfairness test of the directive on unfair terms be extended? The unfairness test should be kept in its present form as described in option 2. We are particularly against any extension of the unfairness test to the adequacy of the price. In a market economy pricing is one of the key areas of private decision-making autonomy and is thus subject primarily to control by competition. Any price control by the courts is therefore to be strongly rejected. 4

6 4.7 Information requirements Question E: What contractual effects should be given to the failure to comply with information requirements in the consumer acquis? While we refer to our answer to question F1 for what regards the distinction between cooling off period and right of withdrawal, with reference to the consequences of the failure to comply with information requirements we consider that the different types of consumer contracts and the various modalities for the conclusion thereof (face-to-face or at distance) may well justify a different regime for the consequences of a breach of the duty to provide pre-contractual information. Then Option 3 maintaining this aspect under the sectoral approach appears to us still the most reasonable. Should this aspect be harmonised also across sectors, then an extension of the period for the exercise of the right to withdraw could be envisaged as mentioned under option 1, provided that legal certainty is preserved. Indeed, we consider that any extension of that kind that might leave the contractual relationship endlessly hostage of a right of withdrawal the start of which could be postponed even years after its conclusion is not acceptable. Indeed, the right of withdrawal would be misused if it served as a remedy to breach of contractual obligations; it is itself an exception to the general contract law principle pacta sunt servanda and should remain confined to this goal, as explained below. 4.8 Right of withdrawal The cooling-off periods Question F1: Should the length of the cooling-off periods be harmonised across the consumer acquis? With respect to the terminology, we would like to draw the Commission s attention on a discrepancy between the legal concepts of cooling-off period and right of withdrawal, and the way the various Directives refer to them as interchangeable concepts. From a legal point of view, while the cooling off period refers to a situation occurring before the conclusion of the contract and can apply during the pre-contractual phase, the right to withdraw from the contract can be exercised only after the latter has been duly signed and concluded. Such a difference is not of a minor importance for legal certainty, in particular in order to establish the consequences of the exercise of any of them vis-à-vis the main and the third parties. In the light of that observation, we first encourage the Commission to review the current directives in order to clear such a legal inconsistency in the (at least English) terminology. Secondly, we would like to remind that the introduction of a right of withdrawal to which the various sectoral Directives make reference regardless the way it is named is per se an exception to the fundamental contractual principle of pacta sunt servanda. The main underlying reason for having introduced a right to withdraw in favour of the consumer is the fact that the latter has been recognised in some circumstances as being the weak party in the contractual relationship who therefore is in the need to have a special protection in the form of a free exit from that relationship in case such a weakness had not allowed the consumer to negotiate the contract on a level playing field with the (professional) counterparty and thus to have agreed to contract on a well-informed basis. The necessity to introduce a right to withdraw for the consumer and the length of such a period during which the consumer is given the chance to change his mind would be in our view more appropriately left within the sectoral directives and not included in a possible horizontal instrument, as proposed under option 3. 5

7 Along the same lines of reasoning, should this element be harmonised, we could envisage to support option 1 only provided that the period for exercising the right of withdrawal is reduced to 7 days, as is the case already in the majority of the existing directives of the Consumer Aquis that grant a right of withdrawal The modalities of exercising the right of withdrawal Question F2: How should the right of withdrawal be exercised? Differently from the length of the withdrawal period, the modalities for its exercise could and should be harmonised across the various sectoral Directives as expressed in option 2, in order to ensure that consumers get used to how to exercise their right and professionals are not indefinitely exposed to the risk that contracts are voided by terms for withdrawing that can be reopened due to claims on incorrect information on modalities. In the view of the overwhelming majority of our members, a model notice of right of withdrawal that would be recognised in all EU member states should be introduced via a horizontal instrument. At the very least, the principle according to which the modalities to exercise the right of withdrawal should be clearly indicated in the contract, might be included in a horizontal instrument and made it harmonised across sectors The contractual effect of withdrawal Question F3: Which costs should be imposed on consumers in the event of withdrawal? We consider that according to the modalities applied, the costs might vary according to the type of contract (from the cost for a simple registered mail to communicate the withdrawal, to the one for sending back a good that was not conform to the contract, to the payment of interests on fund received if any before the withdrawal). Generalising the level of costs for the consumer seems to us unfeasible, since it depends on the type of contract. We thus favour option 3 as regards costs. Furthermore, we would like to underline a distinction between the costs the consumer has to bear if he wants to withdraw, and the reimbursement of any sum he may have received following the valid conclusion of the contract, in particular for the provision of financial services. The obligation of reimbursement of such sums is of course a consequence of the withdrawal and must not be assimilated to the notion of costs of the withdrawal, which would consist in most cases of financial transactions, in payment of interests upon those sums. 4.9 General contractual remedies 2 In particular, we see room for harmonising the formulation in the following meaning: - having the form harmonised, e.g. the written form; - having the type of written form harmonised, e.g. registered letter or other durable medium ensuring certainty of the date of sending and/or receipt - having the statement to be made in a written communication of the intention to withdraw harmonised, e.g. "The underwriter, XX, communicates by the present letter his intention to withdraw..."etc - having all of this inserted in an annex to a horizontal instrument where duration and starting date for the exercise are, for instance, left blank by reference to sectoral directives. In addition, a standard reference to such an annex could also harmonise the way the professional have to inform the consumer at pre-contractual stage about the exercise of such a right, without prejudice to the different periods and specificities due to sectors. 6

8 Question G1: Should the horizontal instrument provide for general contractual remedies available to consumers? The differences between the various consumer contracts and the remedies put in place already by the legislation at national level suggest not trying to harmonise them but to leave them to either sectoral approach or the general contractual remedies in place in any country. Option 1 should then be favoured General right to damages Question G2: Should the horizontal instrument grant consumers a general right to damages for breach of contract? Option 1 seems to us the most appropriate, in the light of the existence, in all countries, of the right to claim damages in case of breach of professional liability. 5. Specific rules applicable to Consumer Sales Due to the sector specific nature of the issues raised under this chapter, EBF will not comment on it. 6. Other Issues Question N: Is/are there any other issue(s) or area(s) that requires to be explored further or addressed at EU level in the context of consumer protection? We would suggest exploring the benefit of harmonising the consequences of the declaration of unfairness of contractual terms, namely the possibility of harmonising the invalidity of such clauses. * * * 7