The Case of the Directives on Electronic money and on the Distance Marketing of Financial Services
B. Interactions between PSD2 and Directive 2002/65/EC Directive 2002/65/EC on the distance marketing of financial
services is the remaining dinosaur of the members of the first wave of EU consumer protection laws. In contrast to the former Directives 97/7/EC on the distance marketing of goods and
“ordinary services”21 and Directive 85/577/EEC on consumer contacts concluded outside of business premises,22 it has been left untouched by the EU’s effort to modernize, simplify and unify consumer legislation through the Consumer Rights Directive 2011/83:23 Art. 3 para. (3) lit. (d) of the Consumer Rights Directive explicitly exempts contacts for financial services (as defined by art. 2 para. (12) of that directive) from the scope of its
21 Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts, OJ L 144/19.
22 Directive of 20 December 1985 to protect the consumer in respect of con-tracts negotiated away from business premises (85/577/EEC), OJ L 372/31.
23 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights etc., OJ L 304/64.
PSD2 and other EU-Directives in the Banking and Financial Sector
application because the legislator did not want to interfere with existing specialized legislation in the field of financial services.24 This exemption, in conjunction with the abolition of Directive 85/577/EEC by art. 31 of the Consumer Rights Directive, has the unforeseen consequence that consumers who have entered into contracts for financial services outside of business premises no longer have a right of withdrawal under EU law.25 As regards framework contracts concluded between consumers on the one hand and payment services providers under PSD2 or E-money institutions under EMD2 on the other hand by means of telecommunication, solely Directive 2002/65/EC applies. This has two major consequences:
First, Directive 2002/65/EC follows a two-step-approach regarding the pre-contractual information duties of the business – a concept which is unique to this directive and unknown especially under the Consumer Rights Directive: On the first level, a financial service provider offering distance contracts must provide general information as to himself and his products in a manner “suitable to the distribution channel”, i.e. on his website. This general and preliminary information shall enable the consumer to decide on an informed basis whether to pursue the possible conclusion of a contract with the relevant business.
Art. 39 and art. 110 PSD2 modify these rules with a view to the specifics of payment services. The second level of information duties as regulated by art. 5 of Directive 2002/65 relates to the phase immediately prior to the conclusion of a distance contract:
The financial services provider – must in due time before a specific contract for financial services is to be agreed upon – inform the
24 See recital (32) Consumer Rights Directive.
25 By its famous decision dated 13 December 2001 in the case C-481/99 „Ge-org und Helga Heininger/Bayerische Hypo- und Vereinsbank AG“, the CJEU had correctly stated that Directive 85/577/EEC was applicable also to consumer con-tracts for financial services (including mortgage credits).
consumer not only (once again?) on all aspects already covered by art. 3 of the directive, but also on the terms and conditions of the specifically envisaged contract the consumer is about to conclude. This second set of information has to be given on paper or on another durable medium accessible to the consumer, thus enabling the latter to store and reproduce the information in the future. The CJEU has provided guidance on this subject by its “BAWAG”-judgment from 2017.26
The most powerful means of consumer protection is enshrined in art. 6 of Directive 2002/65 on the consumer’s unconditional right of withdrawal, which parallels art. 9 of the Consumer Rights Directive. The consumer may withdraw from the contract within 14 days after the later of (i) the time of conclusion of the contract and (ii) the time the necessary pre-contractual information under art. 5 of the directive has been correctly and completely given. In case the payment service provider has not complied with his information duties, the consumer may withdraw from the contract for a potentially indeterminate period. This unacceptable consequence has led national legislation and jurisprudence to subject the right of withdrawal to the rules on forfeiture (Verwirkung).27 But purely national remedies do not suffice to generally immunize framework agreements concluded on the internet or by phone against the consequences of late withdrawals based on incorrect or missing pre-contractual information: Such immunization is necessary as a late withdrawal would deprive all authorizations for individual payment transactions of their contractual foundation which clearly is imcompatible with the idea that authorized and executed payments are “untouchable”
26 CJEU 25.1.2017, case C-375/15 „BAWAG PSK“, for details see Freitag, ZIP 2018, p. 1805, 1807 et seq.
27 See with regard to the former directive 85/577/EEC the judgement CJEU 10.04.2008, case C-412/06 “Hamilton” no. 32, et seq.
PSD2 and other EU-Directives in the Banking and Financial Sector
under art. 80 PSD2. One must therefore argue that PSD2 as lex posterior and lex specialis prevails over the earlier and more general Directive 2002/65.
Finally, it is worth mentioning that Art. 6 para. (2) lit. (a) of Directive 2002/65 excludes the right of withdrawal „if the service includes financial services whose price depends on fluctuations in the financial market outside the suppliers control, which may occur during the withdrawal period, such as services related to foreign exchange”. This exemption applies to payment transactions under art. 43 et seq. PSD2 to be executed in a foreign currency involving a floating exchange rate. In contrast, it seems doubtful whether one may deprive the consumer of his right to withdraw from a framework agreement only because a single future authorization for an individual payment may possibly relate to a payment in a foreign currency.
This leads to the conclusion that Directive 2002/65/EC on the distance marketing of financial services is in imminent need of an overhaul as it no longer reflects current standards of EU-consumer legislation. The Commission has therefore for just cause launched a public consultation on potential changes to the directive in 2019.
In my opinion, it would be advisable to integrate the contents of Directive 2002/65/EC into the general regime of the Consumer Rights Directive. This would lead to more legal certainty and simplification as the rules applicable to distance contracts would be united in one single legal act. A unification of the rules applicable to distance contracts for “ordinary” services and for financial services would also allow for a streamlining of the applicable material regimes, namely with regard to the lapse of the right of withdrawal after a maximum period of 12 months and 14 days after the conclusion of the contract as well as in case the service provider has started to execute the contract upon the consumer’s express wish.
Furthermore, the pre-contractual information duties under art. 3 of Directive 2002/65/EC, which does not serve a useful purpose, could be eliminated in the process.