Communication from the Commission - Financial services: enhancing consumer confidence - Follow-up to the Green Paper on 'Financial services: meeting consumers' expectations'
Date: 1997-06-26
Institutions: European Commission
Subjects: competition, consumer protection, financial institution, financial market, single market

COMMISSION  OF THE  EUROPEAN  COMMUNITIES 

Brussels, 26.06.1997 
COM(97) 309  final 

COMMUNICATION FROM THE COMMISSION 

FINANCIAL  SERVICES:  ENHANCING  CONSUMER  CONFIDENCE 

Follow-up to the Green Paper on 

'FinancialServices: Meeting Consumers' Expectations" 

Introduction 

This  Communication  sets  out  the  results  of  the  consultation  on  the  Commission's  Green 
Paper of May  1996 on "Financial  services: meeting  consumers'  expectations"1  and  provides 
the  Commission's  response.  The  number  and  quality  of  responses  to  the  Green  Paper 
consultation,  which  ran until  the end  of October  1996, have been  impressive.  The  results  of 
the Study  into the Impact and Effectiveness  of the Single Market2 became available  after  the 
presentation  of  the  Green  Paper.  Two  of the  studies  undertaken  by  independent  consultants 
assessed  the impact  of the  Single Market  on banking  and  insurance.  Since the  results  of  the 
study are relevant to the consultation on the Green Paper, they are included  in an Annex. In a 
number  of  cases,  action  has  already  been  taken  to  tackle  some  of  the  problems  that  were 
the 
identified 
Commission takes the view that further  initiatives are needed to give  full  effect  to the  Single 
Market and to meet consumers'  expectations. 

(for  example  on  cross-border  payments3).  In  other  cases,  however, 

Summary  of the Green Paper 

The  Green  Paper  was  published  on  22  May  1996. Its  main  aim  was  to  invite  comments  on 
the  extent  to  which  the  existing  framework  of  financial  services  legislation  provides  an 
adequate level of consumer protection or whether any further  initiatives are appropriate. 

The  Green  Paper  was  divided  into three  Parts.  In Part  I,  the  Commission  indicated  to  what 
extent  the  interests  of  the  consumer  had  been  taken  into  account  in  Community  legislation. 
In Part II, a number of concerns that had already become apparent were identified.  In Part III, 
the  Green  Paper  considered  briefly  future  trends  in  the  marketing  of  financial  services, 
including distance trading. 

In  particular,  the  Green  Paper  drew  attention  to  a  number  of  problems  encountered  by 
consumers that it argued needed to be examined  carefully  to see what action  should  be taken 
to  remedy  them.  These  problems  included  the  refusal  to  sell  financial  services  to  non 
residents;  the  poor  quality  of  service;  the  lack  of  information;  and  the  activities  of 
unregulated  intermediaries.  The  Green  Paper  argued  that  the  distance  contracts  of  financial 
services  merited  special  attention.  It  also  invited  comments  on  whether  the  introduction  of 
new  technology  and  new  marketing  techniques  in  the  area  of  financial  services  required 
additional  consumer protection rules. 

1  COM(96) 209 final  of 22 May  1996. 

2  COM(96) 520 final  of 30 October  1996. 

3  O..I. N° L 43 of  14 February  1997, page 25. 

Z 

Summary of the comments and  main concerns 

The Green Paper succeeded  in its objective  of triggering a wide-ranging  debate involving  the 
banking,  insurance  and  securities  sectors,  consumer  and  user  groups  as  well  as  national 
authorities.  All  in  all,  the  Commission  has  received  more  than  140  contributions 
(representing  over  1,500  pages).  The  Commission  also  organised  a  hearing  at  which  more 
than 200 representatives from  interested parties participated. 

Not  surprisingly,  the  response  to the consultation  identified  differences  of  view between  the 
main  parties  about  the  implications  for  consumers  as  well  as  on  the  way  forward.  The 
financial  services  industry  generally  emphasised  the  need  to  ensure  the  full  functioning  of 
the  Single Market:  existing directives need to be properly  implemented  and  fair  competition 
achieved.  The  importance  of  encouraging  innovation  in  products  and  services  and  the 
development  of  new  (electronic)  delivery  channels  which  will  change  conventional  client-
supplier relationships was underscored.  Such innovation is in the interest of both the industry 
and  the  consumer.  The  Economic  and  Monetary  Union  and  the  Information  Society  bring 
major  challenges  for  the  industry.  Prudence  should  be  exercised  before  new  (legislative) 
measures  are  to  be  proposed.  If  there  is  a  need  for  action  to  strengthen  consumer  rights, 
priority  should be given to voluntary  initiatives. 

Consumer  and user groups  generally  acknowledged  that the  stability  and  trustworthiness  of 
the  financial  and  monetary  system  in  the  EU,  established  by  the  legislation  on  financial 
services,  was  beneficial  to  both  consumers  and  service  providers.  But  there  was  serious 
criticism  of the specific  consumer  protection  content  of the current  legislation.  These  groups 
also  deplored  the  absence  of  an  overriding  approach  to  consumer  protection  in  the  Single 
Market  for  financial  services.  It  was  argued  that,  on  the  demand  side,  the  market  is 
characterised  by  disparity  (individual  consumers,  weak  consumer  mobilisation  on  the  one 
hand,  and  global  players  on the  other)  and  that  consumers  often  lack  technical  expertise  on 
products  of  an  increasingly  complex  nature.  Furthermore,  some  legal  provisions  in  use  in 
other  sectors  are  not  applicable  (e.g.  distance  contracts).  The  role  of  consumers  therefore 
needed to be  reinforced. 

The  views  of national  authorities  were  somewhere  between  these  two  approaches:  in  some 
cases,  more  weight  was  given  to  industry  requirements  (suggesting  more  flexible  solutions 
and  the  complete  functioning  of  the  Single  Market);  in  others,  emphasising  the  requests 
made  by  the  consumer  side  (for  further  measures  to  protect  their  interests,  for  example  on 
distance contracts). 

The  European Parliament  adopted  its report  on the  Green  Paper  on  19 February  19974. The 
Parliament  argued  for  a  balanced  approach,  emphasising 
importance  of  open 
competition,  whilst  at the  same time  giving  support  to the consumer  groups'  position  on the 
present  legislation.  The  Parliament  looked  for  a  two-pronged  approach:  a  framework 
regulation  on  issues  common  to  all  or  most  financial  services  (such  as  information  and 
market  transparency,  protection  of  legal  rights,  competence  and  integrity  of  intermediaries, 
and  the  right  of access  to  services)  and  specific  directives  on,  notably,  distance  contracts  of 
financial  services. 

the 

Parliament  Resolution  of  17  February  1997  on  the  Commission  Green  Paper  on  financial  services  -
meeting consumers'  expectations,  PE 220.154/fin. 

The Economic and Social  Committee (ESC) adopted  its Opinion  on 30 October  19965. In  its 
opinion,  the  Committee  sought  the  adoption  of  a  White  Paper  on  consumer  policy  in  the 
financial  services sector, highlighting the main consumer needs (such as right to  information, 
legal  protection  and  redress)  as  well  as  the  measures  to  be  adopted.  In  particular,  the  ESC 
expressed  support  for  directives  on distance  contracts  of  financial  services,  mortgage  credit, 
insurance contracts and electronic payments. 

The Commission's  overall  approach 

The  Commission  has  carefully  analysed  the  contributions  in  the  light  of  the  results  of  the 
1996  impact  Study6.  The  contribution  made  by  the  Single  Market  in  financial  services  has 
been  generally  beneficial:  it  has  promoted  competition  and  increased  consumer  choice. 
Stringent  supervision  of  the  activities  of  EU  financial  service  providers  by  Member  States' 
authorities  has reinforced  the  financial  strength  of the  sector.  A  stable  and  reliable  financial 
services  industry  remains  vital  for  the  confidence  of  the  consumer  who  entrusts  his  or  her 
money to it. Yet,  it is also clear  that more remains  to be done to ensure that  consumers  reap 
the full  benefits  and to tackle remaining problems. 

The  first  task  - and  one that  is  not  confined  to  financial  services  - is to  ensure  that  existing 
legislation  is  implemented  and  enforced.  The  Single  Market  is based  on  confidence.  Proper 
enforcement  of  common  rules  is the  only  way  to  achieve  this  goal.  There  are  still  delays  in 
the  implementation  of crucial  legislation  in insurance  and  investment  services, as  confirmed 
in  the  Action  Plan  for  the  Single  Market7.  Enforcement  of  legislation  and  Treaty  rules  will 
remain  a  priority  for  the  Commission.  Second,  the  provision  of  cross-border  financial 
services  is  still  beset  by  too  many  obstacles.  Different  tax  structures  and  differences  in  tax 
treatment across borders, in particular  in the area of insurance and mortgage credit, can act as 
an  impediment  to  the  working  of  the  Single  Market.  National  rules  adopted  to  protect  the 
"general  good"  that  disregard  the  principles  established  by  the  Court  of  Justice  for  the 
application  of  this  concept  can  also  create  new  hurdles  to  trade,  stifling  competition, 
restricting  choice  and  raising  costs  for  the  consumer.  Where  genuine  concerns  are  at  stake, 
the integrity of the Single Market may require Community  harmonisation  to achieve the twin 
objectives  of  a  high  level  of  consumer  protection  in  the  EU  and  unrestricted  access  to  the 
Single  Market.  In  some  cases,  solutions  can  be  found  through  voluntary  co-operation 
between  the  interested  parties:  this  should  be  encouraged  as  much  as  possible.  However, 
voluntary  action  is  sometimes  not  enough:  action  also  needs  to  be  taken  either  by  the 
Member  States or at the level of the Union. 

5  O.J. N° C 56 of 24  February  1997, page 76. 

6 

See footnote  n° 2. 

7  CSE(97)1  final  of 4 June  1997. 

Furthermore,  the  Commission  is  committed  to  encourage  intensively  the  development  of 
Electronic  Commerce,  as  announced  in  its  Communication  on  A  European  Initiative  in 
Electronic Commerce8. Electronic Commerce offers  enormous opportunities  for  cross-border 
trading  in Europe  and  for  improving  international  competitiveness  and  all  the more so in the 
context of the european  monetary  union  . A clear regulatory  framework  will  give  consumers 
the confidence  to use it and businesses the incentive to make the necessary  investment. 

Apart  from  the  well-known  benefits  expected  from  the  introduction  of  the  Single  Currency, 
the  changeover  to  the  euro  will  greatly  contribute  to  the  increase  of  transborder  activity  by 
ensuring  price  transparency  and  better  competition  between  service  providers.  Indeed,  to 
facilitate  the transition from  national currencies to the euro, the Commission  has adopted two 
draft  regulations  on  the  legal  statute  of  the  euro,  including  the  principle  of  continuity  of 
contracts. 

To respond to these issues and to the comments generally expressed  by consumer groups, the 
Commission  considers that it is as much a change of attitude which  is called  for as a targeted 
programme  of legislation.  This  Communication  therefore  sets out a number  of proposals  for 
new  or  amended  directives.  Legislation  is  not,  however,  appropriate  for  all  the  problems 
identified.  Other  means,  notably  a  dialogue  between  the  industry  and  consumers,  are  more 
appropriate  to  improve  information,  market  transparency  and  the  potential  for  resolving 
consumer  problems  and  complaints.  Action  must  be  undertaken  quickly  to  agree  such 
measures and to see that they work  efficiently. 

The detailed points  raised 

The consultation  highlighted  a number  of issues which merit particular  attention.  In the case 
of  each  issue,  the  specific  comments  made  by  interested  parties  are  summarised,  and  the 
Commission  then gives its response. 

a) 

Distance contracts for financial  services 

The use of distance contracts of financial  services is growing rapidly. Direct marketing of car 
insurance  products  and  investment,  for  example,  is already  well  established  in  a number  of 
European  countries. Open computer networks such as the Internet are likely to prove the key 
medium  for  distance  trading  of  financial  products9.  With  the  further  spread  of  personal 
computers  in  Community  households  and  the  surge  of  additional  communication  facilities, 
the  "virtual"  bank  is  becoming  a  distribution  channel  that  is  highly  attractive  for  both 
consumers and, given the expected efficiency  gains, the providers of financial  products. 

COM(97)  157 of  16 April  1997. 

This  is  also  addressed  in  the  Commission  Communication  on  a  European 
Commerce  (COM(97)  157 of  16 April  1997). 

Initiative  in  Electronic 

Such  developments  create  new  opportunities  both  for  consumers  and  for  the  providers  of 
financial  services.  But  there  are also  risks. The  main  concerns  raised  in the  consultation  by 
consumer  groups  relate  to  toe  law  applicable;  the  need  for  information  for  customers;  the 
possibility  of  cooling-off  periods  (where  appropriate);  the  threat  of  inertia  selling;  and 
unsolicited  selling.  Initiatives  taken  at  national  level  to  protect  the  consumer  need  to  be 
consistent  with  one  another, Test  they  differ  substantially  and  thus  fragment  the  Single 
Market  aad  inhibit  cross-border  activity.  The  financial  services  industry  has  repeatedly 
expressed  concern about such developments. 

The  Commission  recognises  that  there  is  a need  to  provide  for  consumer  protection  in  the 
case  of  distance  contracts  for  financial  services.  It  will  help  to  raise  the  confidence  of 
consumers  whilst  enabling  providers  of  financial  services  to  market  their  products  without 
unnecessary  obstacles  across'the  EU  as a whole.  The  general  distance  contracts  Directive10 
does  not  cover  financial  services,  although  they  were  included  in the  original  and  amended 
Commission proposals. Therefore,  the Commission  indicated that it would examine the need 
for  and  content  of  binding  legislation  specific  to this  area.  It was considered  that,  given  the 
increasing  complexity  and  diversity  of  the  European  financial  sector,  the  consumer 
protection  aspect  of  financial  services  in  general  and  the  particular  question  of  distance 
contracts merited specific  consideration. In the light of the above consultation, and  having 
regard  to  the  Parliament's  Resolution  of  17  February  1997,  the  Commission  has 
decided  to  make  a  proposal  for  a  specific  Directive  covering  financial  services  by 
autumn  1997. This proposal confirms  the differences  between distance contracts in  financial 
services  and  other  types  of  distance  contracts  covered  in  the  general  Directive.  These 
differences  include  the  right to withdraw  a contract,  which  is not  appropriate  if the  price  of 
the financial  product  depends on market fluctuations  or if the contract has already  come  into 
effect  (such  as  in  motor  insurance).  The  proposal  will  also  take  account  of  measures  that 
have  already  been  proposed.  These  include,  in  particular,  the  Directive11  concerning  the 
processing  of  personal  data  and  the  protection  of  privacy  in  the  telecommunications, sector 
("ISDN  Directive"),  where  the  objective  is  to  remove  barriers  to  the  free  movement  of 
services,  personal  data  and  telecommunication  equipment.  This  particularly  concerns 
provisions  on 
the  use  of  certain 
in  relation 
telecommunications  services for the purpose of direct marketing. 

the  protection  of  subscribers 

to 

b) 

Lack of consumer  information and means of redress 

Competition  cannot  work  effectively  unless  there  is  clear  information  for  consumers,  and 
there are adequate  opportunities  for  redress. Although  existing directives  already provide  for 
consumer  information  relating  to some services (e.g. on consumer  credit, cross-border  credit 
transfers  and  life  insurance),  the  consultation  has  shown  that  there  is  sometimes  a  lack  of 
information  or the  information  provided  is not  fully  comprehensive  or clear.  In  some  cases, 
the  legislation  does  not  provide  for  adequate  means  for  redress.  Consumers  must  have 
confidence  that  rapid  and  reliable  means  of  redress  are  available  in  the  event  of  disputes, 
particularly  where low amounts are  involved. 

10  Directive 97/7/EC  on the protection  of consumers  in respect of distance contracts, O.J. N°L  144 of 4 June 

1997, page  19. 

11  Council  Common  Position  N° 57/96, O.J. N° C 315 of 24 October  1996, page 30. 

6 

The Commission takes the view that, before considering  legal  initiatives  on the provision  of 
information,  interested parties should be given the opportunity  to agree on improvements to 
the  situation.  Those  most  closely  involved  know  best  what  information  is  useful  to 
consumers  whilst  avoiding  unnecessarily  onerous  requirements  on  financial  institutions  in 
terms  of  information  provision  (the  costs  of  which  will  ultimately  be  passed  on  to  the 
consumer).  Rapid  progress  is  called  for through a constructive  dialogue  between  European 
financial  industry  associations  and  consumer  representatives,  with  a  view  to  promoting 
solutions  such  as  codes  of  conduct,  wherever  possible.  Such  dialogue  has  recently  been 
launched for certain sectors, but now needs to be expanded. In arriving at any non-legislative 
agreement, however, the Commission would expect that full  account be taken of the level  of 
consumer  protection  that  is  already  available  and  that  particular  emphasis  be  paid  to  the 
clarity and accuracy of the information to be provided. 

The  Commission  therefore  calls  for  a  clear  commitment  from  the  industry  and 
consumers  to agree voluntarily  improvements  in the provision  of information.  Progress 
in implementing  any agreements  will be monitored  over the next  18 months  (i.e.  before 
mid-1999).  If  sufficient  progress  is  not  voluntarily  made  during  this  period  on  all  or 
any  specific  aspects,  the  Commission  will  propose  further  initiatives,  including 
legislation, as it has done, for example, in the area of cross-border credit transfers. 

To  improve  the  access  for  consumers  to  redress,  the  Commission  seeks  a  clear 
commitment  from  the  industry  to  set  up  or  complete  schemes,  in  co-operation  with 
consumers,  that  deal  with  consumer  complaints.  The  first  results  of  this  dialogue  will 
be  presented  to  the  Commission  by  end-1997.  The  Commission  will  also  encourage 
more  intensive  co-operation  between  representatives  of  different  ombudsman  schemes 
with  a view  to  exchanging  experiences  and  best  practice.  The  Commission  will  again 
monitor  progress  in  the  period  to  mid-1999,  to  assess  whether  problems  can  be 
adequately  solved  on  a  self-regulatory  basis  or  whether  further  initiatives,  including 
legislation, are necessary. 

c) 

Refusal to sell financial  services 

The  consultation  identified  two  distinct  problems:  refusal  to  sell  financial  services  to  non 
residents  in some  cases; and a lack  of access to financial  services,  inter alia  for  low  income 
people. On the first  problem,  in the vast majority  of cases, providers  off^r  financial  services 
across borders because  it is in their commercial  interest to do so. However, there are genuine 
commercial  reasons  for  financial  service providers  not to sell their  services to  non-residents. 
For  example,  there  may  be  uncertainty  about  the  level  of  risk  involved  in  motor  and  life 
insurance.  There  may  also  be  difficulty  in  assessing  the  financial  standing  of  the  buyer. 
Alternatively,  there  may  be  a  disproportionate  cost  to  the  seller,  such  as  the  lack  of  a 
distribution  network  or  the  need  to  appoint  a  fiscal  representative.  The  Commission 
recognises that private companies are free to decide with whom to do business, provided  that 
the  exercice  of  this  freedom  does  not  give  rise  to  anti-competitive  behaviour.  However, 
when  Community  legislation  is infringed,  the Commission  will  take  appropriate  action, 
in co-operation with  the Member States, including infringement  procedures. 

Access  to  a  bank  account  is one  of  the  primary  needs  of  life  like  electricity  or  a  telephone. 
But there are still  many  European  citizens who are not able to obtain  a bank  account  or any 
other  financial  services,  ^teps  have  already  been  taken  in  a  number  of  Member  States  to 
improve  the  situation  for  social  policy  reasons.  For  example,  in  some  Member  States 
financial  institutions have signed up to codes of conduct designed to solve the problem.  The 
Commission supports  such  efforts  at national  level, which  is where any action  required 
needs to be. 

d) 

Unregulated intermediaries 

Both industry and consumer groups have reported cases of "aggressive selling" and of illegal 
activities  by  unregulated  intermediaries.  Cases  of  this  kind  cause  considerable  distress  to 
consumers;  they  als,o  harm  the  reputation  of  the  financial  institutions  on  behalf  of  whom 
these  intermediaries  act.  A number  of specific  problems have been  identified:  it  may  not  be 
clear for which company  an intermediary  acts; the information  provided  by the  intermediary 
may not be clear or adequate; the cost of credit facilities  offered  by the intermediary  may  be 
much  higher  than  the  market  average;  the  intermediary  may  lack  the  competence  and 
integrity  needed to provide  sensible advice; there is also a risk that intermediaries  could  take 
advantage  of consumers  who are  in a precarious  financial  position,  and to whom  alternative 
sources of credit are not available. 

A  basic  distinction  needs  to  be  made  between  financial  intermediaries  and  insurance 
intermediaries.  With  the  exception  of  activities  falling  within  the  scope  of  the  consumer 
credit  directive,  the  activities  of  financial  intermediaries  are  not  at  present  covered  by 
Community  directives,  nor  subject  to  the  supervisory  regime,  although  they  may  be 
regulated  at national  level. On the other hand, insurance  intermediaries, an important  link  in 
the distribution of insurance products, have been regulated to a limited extent at EU level. 

Both the industry and consumer groups who responded to the Green Paper considered that an 
EU initiative is required to maintain the "good reputation" of the financial  services sector, on 
the  grounds  that  national  regulations  differ  substantially  and  may  not  be  fully  effective, 
particularly  when  financial  services  are  being  sold  across  borders.  Furthermore,  existing 
national  rules  applying  to  these  intermediaries,  to  the  extent  that  they  differ  significantly, 
may  constitute  a  barrier  to  the  free  provision  of  services  cross-borders.  Therefore,  for 
financial  intermediaries,  the  Commission  is  currently  considering  regulation,  also 
taking into account the results of a study carried out in 199612 in this field, to deal with: 
1)  access  to  the  profession  (for  example,  qualification  requirements,  compulsory 
licensing  or  registration);  2)  the  exercise  of  the  activity  (for  example,  rules  enhancing 
the proper submission  of information  to the customer); and 3) the relationship  between 
the credit institution  and the intermediary. 

12  "Etude  sur  le  rôle  et  les  activities  des  intermédiaires  de  crédit  aux  consommateurs",  by  F.  Domont-Naert 

and  P. Dejemeppe,  September  1996. 

8 

insurance 

intermediaries,  the  Council  adopted  a  Directive13 

For 
in  1976  allowing 
intermediaries  to  establish  themselves  in  another  Member  State  or  to  provide  services  on  a 
cross-border basis. Member States which do have conditions in place for access and  exercise 
of  the  profession  must  accept  as  equivalent  the  relevant  practical  experience  and 
qualifications  of a foreign  intermediary  or accept  its statements of good repute and  financial 
standing.  The  Commission  has  also  adopted  a  Recommendation14  on  the  status  and 
professionalism  of  the  insurance  intermediary.  The  Recommendation  encourages  Member 
States  to  lay  down  rules  regulating  the  profession;  to  register  persons  meeting  the 
professional  requirements;  and  to  make  a  distinction  between  dependent  and  independent 
intermediaries. The vast majority  of Member States now have rules in place which wholly or 
partially  meet  the  objectives  of  the  Recommendation.  Only  two  countries  (Denmark  and 
Germany)  have  no  rules  in this  area.  The  Commission  will  review  the  Directive  and  the 
extent of implementation  of the principles set out in the Recommendation, and consider 
whether further  steps  are needed, including the possibility  of widening the scope of the 
Directive in respect of the access and exercise of the profession. 

e) 

Consumer  credit 

The  existing  directives  on  consumer  credit  already  provide  a  general  framework  on 
consumer  protection.  Taking  account  of  developments  in  the  market,  the  Commission 
published  a report15  in May  1995 on the application of the  1987 consumer credit Directive16, 
indicating  possible  areas  for  improving  the  existing  framework  and  bringing  it  up  to  date. 
Furthermore,  the  Commission  published  a report17  in  April  1996  on  the  application  of  the 
1990 Directive concerning the calculation of the Annual Percentage Rate of Charge (APR)18. 
In  April  1996,  the  Commission  proposed  a  Directive19  amending  the  1987  Directive  (as 
amended  by  the  1990 Directive)  mainly  involving  the  introduction  of  a single,  Community 
mathematical  formula  calculating  the  APR,  on  which  the  Consumer  Council  of  10  April 
1997  reached  a Common  Position20.  Furthermore, the  Council  decided  that  it  is  appropriate 
to  study without  delay to what extent  a further  degree of harmonisation  of the cost  elements 
of  consumer  credit  is  necessary  and  agreed  on  a  declaration  inviting  the  Commission  to 
entrust  a group of ad hoc experts with such a study. The Council  is to be informed  regularly 
on  the  progress  made.  The  Commission  has  presented  an  amended  proposal21,  taking  into 
account  the  European  Parliament's  Opinion  at  first  reading  of  20  February  199722,  the 
political  agreement  of  the  Council  of  25  November  1996  and  the  ESC  Opinion  of  26 

13  O.J. N° L 26 of 31 January  1977, page  14. 

14  O.J. N° L  19 of 28 January  1992, page 32. 

15  COM(95)  117 final  of  11 May 1995. 

16  O.J. N° L 42 of  12 February  1987, page 48. 

17  COM (96) 79 final  of  12 April  1996. 

18  O.J. N° L 61 of  10 March  1990, page 14. 

19  O.J. N° C 235 of  13 August  1996, page 8. 

20  Doc. 7313/97, CONSOM  33 of  14 April  1997. 

21  O.J. N°C  137 of 3 May  1997, page 9. 

22  Parliament  Resolution  of 20 February  1997, PE 257.006. 

September  199623.  During  the  consultation,  consumer  groups  have  argued  that  the  1987 
Directive  on consumer  credit needs to cover all  forms  of credit,  including  innovative  forms, 
and  that  it  needs  to  deal  with  the  problem  of  over-indebtedness.  In  reviewing  the  1987 
Directive,  the  Commission  will  take  account  of the  comments  of  the  interested  parties. 
Concerning 
the  problem  of  over-indebtedness,  certain  pilot  projects  will  be 
implemented  as from  1998, some of which will aim at improving  consumer  information 
and education. 

f) 

Mortgage  credit 

The financial  industry  has recognised  that the Single Market  for  mortgage  credit  is still at an 
embryonic stage of development. It believes that this is due to differences  in the treatment of 
taxes, differences  in  subsidy  arrangements  and  in national  laws on property.  Furthermore,  it 
is  generally  recognised  that  any  action  to  enhance  consumer  protection  will  not  of  itself 
remove such obstacles. 

However, consumer groups have argued that in this sector, the potential offered  by the  Single 
Market  is  yet  to  be  fully  exploited:  there  is  a  lack  of  information;  difficulties  in  making 
meaningful  comparisons (especially on the cost of mortgage credit); and differences  between 
national  regulations  on  consumer  protection.  To  allow  the  consumer  to  benefit  from  the 
Single  Market,  consumer  groups  argued  that  such  barriers  should  be  removed  and  a 
minimum  set  of  harmonised  rules  should  be  introduced.  The  issues  of  information  and  its 
quality will be included in the dialogue between the industry and consumers. 

Any  further  initiative  in this area must take account  of the wide  diversity  of mortgage  credit 
in the  EU.  Therefore,  before  taking  any  further  initiative  at the  beginning  of  1998,  the 
Commission will consider the results of works launched. 

g) 

Victims of car accidents abroad 

Consumer  and  industry  groups  have both called  for  the removal  of the remaining  barriers to 
the free movement  of insurance products. In particular, they considered that there should be a 
Commission  initiative  to protect  residents  of  one  Member  States  who  have  suffered  loss  or 
injury  caused  by  a vehicle  registered  and  insured  in a Member  State  other  than  that  of  their 
residence. The European  Parliament  has also passed  a resolution  requesting  the  Commission 
to improve the situation for such victims. 

The  Commission  agrees  that  there  is  a  need  for  action  and  will  therefore  propose  a 
Directive  (the  Fourth  Motor  Insurance  Directive)  by  autumn  1997.  This  will  provide 
that a direct action  of the victim to the insurer should  be introduced  throughout  the EU 
and  that  claims  representatives  will  be  nominated.  Information  centres  will  also  be 
established  to  deal  with  the  business  of  motor  vehicle  insurers  in  general.  The  adoption  of 
this Directive should  make a significant  contribution to solving the problem. 

23  O.J. N° C 30 of 30 January  1997, page 94. 

10 

h) 

Insurance  contracts 

The consumer  and  industry  respondents to the Green  Paper considered  that  further  measures 
are  necessary  to  set  common  minimum  requirements  for  insurance  contracts  to  consumers: 
such  measures  should  make  it  easier  for  consumers  to  compare  insurance  contracts  across 
borders without  any  harmonisation  of contract  law leading to an undesirable  standardisation 
of  products  and  to  a  stifling  of  innovation.  This  issue  will  be  included  in  the  dialogue 
between the industry and consumers. 

i) 

Payment  services 

Acceptance  by  consumers  and  achieving  total  confidence  are  essential  for  the  introduction 
and  success  of  any  new  means  of  payment.  Transparent  and  secure  electronic  payment 
mechanisms  in  turn  will  facilitate  the  changeover  to  the  Single  Currency,  in  particular 
throughout 
the  transitional  period.  In  November  1988,  the  Commission  adopted  a 
Recommendation24  which  set  out  minimum  responsibility  and  liability  standards  for  the 
relationship  between  issuers  and  holders  of  payment  cards.  In  the  case  of  traditional  bank-
access  products  (i.e.  credit,  debit  and  deferred  debit  payment  cards),  the  responses  to  the 
Green  Paper  indicated  that  the  Recommendation  has,  in  general,  been  followed  by  the 
industry although  in some Member  States more efforts  need to be made. However,  consumer 
groups stressed problems arising with some provisions, particularly  the extent  of the  parties' 
respective  liabilities  in the event of the loss or theft  of a payment  instrument, and the burden 
of  proof  in  the  event  of  disputes.  In  the  case  of  innovative  bank-access  products,  the 
consultation  indicated  that  the  Recommendation  has  not  been  as  widely  implemented. 
Moreover,  the provisions  on the  parties'  respective  responsibilities  need  to  be  reinforced  by 
requirements on adequate consumer information  and on access to effective  means of redress. 

Furthermore,  a  completely  new  generation  of  products,  i.e.  electronic-money  products,  has 
emerged  since  the  1988  Recommendation  was  adopted.  Indeed,  electronic  money  products 
differ  from  remote  access  products  in  that  they  can  normally  be  used  without  requiring 
access to an account. 

24  O.J. N°L  3 17 of 24 November  1988, page 55. 

11 

As  a  first  step  the  Commission  intends  to  up-date  (by  autumn  1997)  the  1988 
Recommendation,  taking  into  account  the  development  of  electronic  money  products. 
The Recommendation  will be revised in the following  areas: 

• 

• 

• 

it will  lay  down  minimum  transparency  requirements that  should  apply  to all  new  means 
of  payment,  i.e.  the  minimum  information  that  must  be  provided  to  holders/users  in 
advance  (contracts)  and,  to  the  extent  necessary,  subsequent 
transaction 
(statements); 

to  the 

it  will  call  for  the  creation  of  complaints  and  redress  procedures  applying  to  all  new 
means  of  payments,  to  address  consumer  complaints  related  to  the  service/product 
concerned; and 

it  will  set  out  the  parties'  respective  obligations  and  liabilities  applying  to  remote  access 
products,  which  are  intended  to  support  and  give  weight  to  the  objective  of  greater 
transparency. 

Failing appropriate  implementation  of the up-dated Recommendation  before the end of 
1998, the Commission  intends to replace it by a binding instrument. 

Furthermore, the  Commission, the EMI and the Member  States are currently  considering  the 
appropriate  framework  for  the  issuance  of  electronic  money.  In  the  light  of  this  discussion 
the  Commission  intends to present  by the end of  1997 (i.e. the target  date  for  completion  of 
the work) a proposal  for  a Directive  on the issuance of electronic money,  so as to ensure the 
stability  and  soundness  of  issuers  of  such  payment  products.  Following  this  proposal,  the 
Commission will assess (in the course of  1998) whether there will be any need for  additional 
legislative  initiatives  in  the  area  of  payment  services  as  may  be  necessary  to  safeguard 
consumer  interests. 

Conclusions 

The  Green  Paper  has  stimulated  a  major  debate.  This  has  led  to  a  greatly  enhanced 
understanding  of  consumer  expectations  in financial  services and how  such  expectations  are 
currently  met.  In  this  Communication  the  Commission  has  summarised  the  responses 
received  and  identified  particular  problems  which  need  to  be  addressed.  In  some  cases, 
solutions  can  be  found  through  voluntary  co-operation  between  the  interested  parties:  this 
should  be  encouraged  as  much  as  possible.  However,  voluntary  action  is  sometimes  not 
enough:  action  needs  to  be  taken  either  by  the  Member  States  or  at  the  level  of  the  Union. 
The Communication  sets out the Commission's views as to what action needs to be taken, by 
when and at what  level. The summary of the action is set out  hereafter. 

12 

Topics 

Action 

Deadline 

Distance  contracts 
financial  services 

for  proposal for a Directive 

proposal by autumn  1997 

Unregulated  financial 

Directive under consideration 

decision  on  further  action 

intermediaries 

by early  1998 

Insurance intermediaries 

up-date the  1976 Directive 

proposal by early  1998 

Visitors 
insurance 
Consumer 
and redress 

- 

motor  proposal for a Directive 

proposal by autumn  1997 

information  agreements  arranged  between 
industry  and  consumers.  The 
Commission  will  monitor  Commission by end-1997 
progress;  if  insufficient,  it  will 
propose  legislation 

first  results  of  the  dialogue 
the 
to  be  presented 

to 

New means of payment 

the  Commission  adoption  by 
1988  autumn  1997;  assessment 
The  of progress by end-1998 

and 
of 

extend 
the 

up-date 
coverage 
Recommendation. 
Commission  will  monitor 
progress  in the Member  States; 
if insufficient,  it will propose a 
Directive  to  complement  the 
the 
provisions 
Recommendation  (in  addition, 
a  proposal  for  a  Directive  on 
the 
electronic 
money is under preparation) 

issuance  of 

of 

Consumer credit 

review the  1987 Directive 

proposal by mid-1998 

Over-indebtedness 

Mortgage credit 

monitor  situation  at  national  pilot  projects  on  over-
level and consider  feasibility  of 
be 
pilot projects 

indebtedness 
implemented  as from  1998 

to 

information  on mortgage  credit  decision  on  further  action 
will be discussed  in the context  by early  1998 
of  the  dialogue  on  consumer 
redress. 
information 
Further  measures  may  be taken 
in light of work. 

and 

Access 
services 

to 

financial  monitor  situation  in  Member  Assessment  of  the  situation 

States 

before  mid-1999 

/? 

Annex 

The impact of the Single Market on banking and  insurance 

In  analysing  the  results  of the  study  into the  impact  and  effectiveness  of  the  Single  Market 
on banking and insurance, two important points should be noted. First, it is relatively early to 
review  the  impact  of  the  Single  Market  on  this  sector.  Banking  services  generally  were 
liberalised  in  1993;  the  market  for  insurance  services  dates  only  from  July  1994;  the 
liberalisation  of  investment  services  is even more recent  and  dates  only  from  January  1996. 
The  dynamic  process  of  change  is  continuing.  The  second  point  is  that  the  Single  Market 
programme  has  not  been  the  only  source  of  impact  on  the  financial  services  sector.  The 
effects  of the economic cycle and technological  changes have also inevitably  had  an  impact. 
Nonetheless,  the  studies  have  attempted  to  sift  out  the  Single  Market's  particular 
contribution to the development of financial  services in the European Union. 

The study on banking shows a small but noticeable impact in the form of a more  competitive 
market-driven banking environment  facilitated  by the Single Market programme. Many trade 
barriers  have  been  removed;  the  clearest  effects  are  in the  Southern  Member  States.  Whilst 
most  of  the  impact  is  in  wholesale  banking,  with  reduced  prices  for  corporate  loans, 
competition  has  also  increased  in  the  retail  market.  Consumers  now  have  a  wider  range  of 
products  and  services  to  choose  from,  e.g.  direct  banking  and  capital  redemption  products. 
Prices  of  several  banking  products  have  converged  at  a  lower  level:  e.g.  the  price  range  of 
credit  cards  has  narrowed  by  about  30%. The  study  also  shows  a  slight  fall  in the  price  of 
retail  loans  and  mortgages,  retail  deposit  prices  and  fee  levels.  However,  large  price 
differences  remain for current accounts and personal equity-transaction costs, e.g. over  100% 
for cross-border credit transfers  in 1994. 

In the  insurance  sector,  which  accounts  for  7% of the  EU's  GDP, the  picture  is mixed.  The 
Third  Directives  have  removed  restrictions  on  tariffs  and  advertising,  making  it  easier  for 
insurance  firms  to  set  up  operations  outside  their  home  market  and  for  consumers  to 
purchase  insurance  services  across  borders.  In  the  non-life  sector,  the  market  is  now  more 
open  and  new entrants  have already  started to offer  their products  (e.g.  in motor  insurance). 
Nonetheless,  important  obstacles  still  prevent  the  Single  Market  from  delivering  its  full 
potential  to  consumers.  In  life-assurance,  for  example,  the  absence  of  tax  harmonisation  is 
one of the main reasons which hinder consumers from  buying foreign  policies. 

The  principal  aim  underpinning  the  Single  Market  legislative  measures  related  to  financial 
services  is open competition.  Open competition  is the spur to competitiveness  and the key to 
a  vigorous  economy.  It  is  the  consumer's  best  friend.  In  a  number  of  ways,  market 
mechanisms  in  the  financial  services  sector  are  not  yet  working  optimally.  Several  reasons 
can  be  given.  First,  there  are  still  important  delays  in  the  transposition  of  directives  by  the 
Member  States, although the situation has improved recently  (currently,  72% of directives  in 
banking  and  85%  in  insurance  have  been  implemented  by  all  Member  States).  The 
Commission  has  launched  infringement  procedures  (17  in  banking  and  12  in  insurance) 
against  Member  States  for  late  or  incomplete  transposition.  A  number  of  cases  (3  in 
insurance) are before  the Court of Justice. 

M 

Second, local rules, often justified and defended  as being in the "general  good" to protect the 
consumer,  still  remain  in place. Adapting  products and  marketing  to  fit  these  different  rules 
is  a  serious  disincentive  to  the  industry  to  engage  in  cross-border  activities.  Everyone  -
consumers, producers and distributors - suffers  from  over-rigid or too divergent rules as they 
tend  to  reduce  or  eliminate  competition.  To  clarify  the  scope  for  local  "general  good" 
provisions  the  Commission  will  soon  adopt  a Communication  covering  the  banking  sector. 
Work on a Communication for the insurance sector is in hand. 

Third, additional  obstacles to the Single Market in financial  services result from  the  different 
tax  treatment  given  to  certain  financial  products  or  services  (e.g.  mortgage  credit).  The 
advantages  of  cross-border  shopping  can  be  offset  by  the  fact  that  the  taxation  regime 
remains that of the country where the consumer has his residence. As has been stressed  in the 
Green Paper, progress on taxation has been limited. However, the Commission  will  continue 
to press for removal of fiscal  obstacles to the operation of the Single Market, in particular  for 
financial  services.  This  will  undoubtedly  be  one  of  the  topics  for  discussion  in  the  newly 
created Taxation Policy  Group of high-level  representatives  of Finance Ministers, chaired  by 
Commissioner  Monti. 

/> 

ISSN 0254-1475 

COM(97) 309 final 

DOCUMENTS 

EN 

09  10  06 

Catalogue number  :  CB-C0-97-336-EN-C 

ISBN  92-78-21949-5 

Office  for  Official  Publications of the European  Communities 

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