Under UK rules implementing the EU distance marketing of financial services directive, the full terms and conditions of all financial services products, including insurance policies, must be supplied to the consumer in durable form, in good time before the conclusion of the contract. But there are two exceptions.
Topic: Financial Services
Who: The Financial Services Authority
When: September 2004
In its recent publication "Handbook Notice 36" the FSA has, in the light of the fast-approaching new rules for distance marketing of consumer financial services, announced some Handbook changes and given further guidance
Does branch interaction prevent it being a "distance contract"?
In our previous report in marketinglaw on the Financial Services (Distance Marketing) Regulations 2004 ("the Regulations"), we commented on HM Treasury's Guidance on the type of arrangements that might come within the "distance contract" definition.
We reported on HM Treasury's decision to sit on the fence as to whether a transaction would be caught by the Regulations if the consumer happens to pick up a sales leaflet from, for example, a building society branch office and/or hands back the application form, completed at home, at the seller's branch, without any substantive discussion with any member of branch office staff, who maybe does no more than confirm they will pass the form to head office or wherever.
FSA takes different view
Taking a different tack from the government, the FSA confirms that its Guidance on the issue is not on the fence. It advises that "depending on the particulars of a firm's business process", in most cases even this non-material face to face encounter between the consumer and the provider is likely to prevent the transaction as a whole from being a distance contract.
Provision of full terms and conditions
The Distance Marketing of Consumer Financial Services Directive ("DMD") makes it clear that there will be two circumstances in which the provider of the product will not have to supply the full terms and conditions (in an insurance context the full terms of the policy cover) in a durable medium, in good time before the conclusion of the contract.
These two exemptions are first of all sales in a telesales context, and here the exemption will only apply if the consumer explicitly consents to receive short form information over the telephone, which meets the requirements of the rules.
"Channel doesn’t enable pre-contract disclosure" exemption
The second exemption applies in cases where the contract has been concluded at the consumer's request using a means of distance communication which does not enable the provision of the full terms and conditions in a durable medium in good time before the contract's conclusion.
The FSA has received enquiries as to whether this second exemption can be taken advantage of by way of judicious drafting of a direct response mailing, for example.
This might include a box, which the consumer is asked to tick to confirm that they want immediate conclusion of the contract as soon as their response is received by the provider. Would this allow the provider to get away with only providing the full terms and conditions immediately after the conclusion of the contract, instead of in a durable medium in good time beforehand?
"Nothing doing" says the FSA
The FSA's answer is firmly in the negative, at least where post is the communication channel. In general, it says, postal means of communication allow the supply of terms and conditions in a durable medium with relative ease. This means that in the FSA's view, unless there are exceptional circumstances that apply, it could not see this exception as extending to situations where it was simply expensive or inconvenient to provide full disclosure as to the product's terms and conditions, in a durable medium, in good time before conclusion of the contract.
Why this matters:
It is helpful that the FSA has made life slightly easier for those wanting to know exactly when they need to comply with the new distance marketing rules.
To be on the safe side, it must be right that most businesses will be already organising their off line and on line direct response sales pieces accordingly. This is because most of the new requirements including prescribed disclosures and cancellation rights, apply to all distance contracts concluded on or after 31 October 2004.
In other words, marketers will be looking to minimise the incidence of uncomfortable situations in which consumers receive distance sales communications before 31 October 2004, under the old regime, but move to strike a deal after 30 October 2004, when for example the obligation to provide full terms and conditions in a durable medium, in good time pre contract, will apply.
"Channel doesn't allow disclosure" relaxation must have practical use
On the aspect of communication channels not allowing pre contract disclosure as required, one can see why the FSA has taken the view that it has. Otherwise it would have been far too easy to drive a coach and horses through the relevant provisions of the DMD. But marketers will still be taking advice on when this relaxation of the rules does apply, as it must have been drafted into the DMD for some purpose.
Also, there may be other ways of skinning the proverbial feline and organising it so that distance marketers can avoid having to provide full terms and conditions in the first communication with the prospective customer and still conclude the deal by way of one customer response. Those marketers wanting to investigate these possibilities will, again, no doubt, be taking legal advice. Osborne Clarke can assist here.