The ‘safety net’ feature of the DMFSD is useful for all types of retail financial services products that are not (yet) covered by product-specific legislation
The ‘safety net’ feature of the DMFSD is useful for all types of retail financial services products sold online that are new to the market and are not (yet) covered by product-specific legislation. Recent years have shown that new products continuously appear on the online financial services market which have not been foreseen by product-specific legislation and are therefore unregulated for at least a few years. Examples of this can be found in all financial services sectors. For example, payday loans, peer-to-peer lending and interest-free credit entered the market after the introduction of the Consumer Credit Directive (CCD). As these products were not known at the time the CCD was drafted, they are not in scope of the directive. These products have proven to be very risky for consumers and have led to consumer detriment for years.
The DMFSD has important consumer protection elements that can protect consumers in such cases. For example, the DMFSD ensures that consumers receive pre-contractual information about a product which helps to mitigate mis-selling by ensuring that consumers are in a better position to make an informed decision and compare different offers. Moreover, it allows consumers to withdraw from a product after 14 days and protects them from unsolicited services, i.e. selling of financial services without the explicit consent of the consumer, and unsolicited communications.
Data from the EC evaluation study of the DMFSD shows that the DMFSD has not been enforced properly over recent years and that therefore it could not live up to its full potential. However, if it had been properly enforced, mis-selling of risky financial services online, such as the sale of payday loans, could have been mitigated.
Poor enforcement does not mean that the directive is not relevant/useful
The directive should not be repealed as it provides an important ‘safety net’ for consumers in circumstances where new products appear on the market which are not yet subject to specific regulation. In addition, the DMFSD provides important consumer protections in situations where product-specific legislation does not cover, or does not cover sufficiently, key consumer protection rules covered in the DMFSD.
In recent years, a number of new financial services products emerged on the online market which are currently not covered by product-specific legislation. Examples for this are payday loans, peer-to-peer lending products or crypto assets. As the retail financial services market is increasingly becoming digitalized, the trend of new/innovative financial services products emerging on the online market is likely to further accelerate in the years to come. Not having a minimum level of protection for consumers buying these products would leave consumers exposed to consumer protection risks.
In addition, if the DMFSD were repealed, regulatory gaps would emerge, leading to an uneven playing field for financial providers as a lack of harmonized rules would provide an undue competitive advantage for financial providers in Member States that provide a less protective framework. The repeal of this directive would also hamper cross-border sales of new financial services products online, as consumer protection rules help promote cross-border sales. Having harmonized consumer protection rules in place creates confidence for consumers to buy products from other Member States. In addition, harmonized pre-contractual information facilitates cross-border sales as it allows consumers to compare product offers cross-border.
We urge the Commission to not infer from the fact that the directive has been poorly enforced that it should be repealed but instead look into ways to strengthen this directive which is relevant and useful and find ways to improve its enforcement. For the purposes of stronger enforcement provisions, we would suggest using the same legal text used in Article 5 of the Mortgage Credit Directive (MCD). This article, amongst others, specifies that Member States shall designate a national competent authority empowered to ensure the application and enforcement of the directive in their jurisdiction.
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