New framework in the making for financial services contracts concluded at a distance —and what this could mean for Hungary

If ultimately agreed between the European Parliament and Council, legislation regarding financial services contracts concluded at a distance will see some changes. The European Parliament recently supported a new legal framework on financial services. The rules, in the form of a directive, will provide member states with new tasks. The aim of the new law is to adjust the overlaps presented by the array of sector-specific legislation, to combat the challenges of rapid digitalization, to ensure trust in distance selling and to ensure harmonized consumer protection in the European Union.

The new law is intended to cover consumer financial services contracts concluded at a distance and thus repeals Directive 2002/65/EC (COM (2022)0204–C9-0175/2022–2022/0147(COD)), which concerns the distance marketing of consumer financial services and amends Directive 2011/83/EU on financial services contracts concluded at a distance. Specific sectoral rules regarding finance services would continue to apply in the event of conflict.

How will financial services distance contracts change?

Traders and service providers will have to adapt their practices regarding distance contracts. The changes at present mostly affect retail financial services, such as insurance, payments services, investment products, etc. Most notably, the well-known EU Directive 2011/83/EU will be adjusted in a number of ways:

1. Scope—certain norms regarding distance contracts will apply.
2. Information requirements will be implemented for distance contracts.
3. Right to withdraw—a new article has been introduced: Exercise of the right of withdrawal from distance contracts concluded by the means of an online interface. Traders must ensure the consumers can withdraw from the distance contracts, and the withdrawal function (in the form of a button) must be unambiguous. A new list of information has been introduced that consumers must be able to provide or confirm during the process of acquiring the service. Traders must also send consumers a confirmation of the withdrawal.
4. A new chapter on “Rules Concerning Financial Services Contracts Concluded at a Distance” has been introduced. It includes:

• New rules on pre-contractual information requirements, the consumers’ right to withdraw, charges for pre-withdrawal services, adequate explanations, right to human intervention.

5.New rules on “Information requirements for distance contracts for consumer financial services”—traders must provide information to consumers within a reasonable amount of time before the contract can be concluded:

• A new list of 23 categories of required information is set, e.g.: practical instructions for exercising the right of withdrawal.

6.On the “Right of withdrawal from distance contracts for financial services”

• Consumers have a 14-calendar days to withdraw, 30 days in case of personal pension operations. The withdrawal period begins upon conclusion of the contract or receiving the terms and conditions. The right to withdrawal does not apply to certain types of services, policies, contracts (e.g.: services whose price depends on fluctuations in the financial market outside the trader’s control, short-term insurance policies, etc.).

7. On the “Payment for the service provided before withdrawal”

• In the event of withdrawal, consumers can only be required to pay if the service was in fact provided. No later than in 30 calendar days, the trader must return any undue payments; consumers are also obliged to return to the trader any money they received from the trader within the same period.

8. On “Adequate explanations”

• A free-of-charge explanation must be provided to consumers that allows them to assess whether the contract matches their needs and financial situation. This explanation must include a minimum set of information, e.g.: essential characteristics of the proposed contract, etc.

9. Concerning “Additional protection regarding online interfaces”

• Traders should not have online interfaces that deceive or manipulate consumers. Member states must address at least one of three practices: giving more prominence for certain choices, repeatedly asking consumers to make a choice, making the termination more difficult than subscribing to it.

The new directive is expected to enter into force by early 2024, after which member states have 24 months to adopt their national rules accordingly. These will be applicable 30 months from the entry into force of the directive. Thus, affected traders and service providers will have until mid-2026 to change their conduct of business accordingly.

Expected changes in the Hungarian regulatory framework

Based on our current understanding the rules pertaining to financial services contracts concluded at a distance in the EU and in Hungary will change significantly. The exact rules are not yet clear since Hungary will have some time between passage of the directive and implementation in Hungary. In line with the principles and rules of this new normative framework we except changes in the following relevant Hungarian rules:

Hungarian Civil Code, Chapter XVI. “Specific rules for concluding contracts by electronic means,” sections 6:82, 6:84, 6:85. E.g.: there might be an obligation on traders to provide pre-contractual information upon request in an appropriate and accessible format to consumers with disabilities, including those who have a visual impairment.

Government Decree 45/2014 (26.II.) on the detailed rules of contracts between consumers and businesses. Although this decree excludes most financial services from its scope, services not excluded (pension funds, etc.) might be affected. Thus, the rules might change, such as the withdrawal period being extended to 30 calendar days in distance contracts relating to personal pension operations.

Act XXV of 2005 on Financial Sector Service Contracts concluded through Distance Marketing

Section 3-5 (of notification of consumers):

The list of information required to be provided to consumers might be expanded, e.g.: information on the consequences of late or missed payments, name, address, website, and any other contact information of the relevant supervisory authority, etc.

Section 6-8 (of withdrawal):

If the consumer has not been duly informed, the withdrawal period in any event expires 12 months and 14 days after the conclusion of the contract instead of the current one year. The consumer would not be bound by the ancillary contract if the right of withdrawal is exercised.

New rules for contracts concluded via an online interface will be added, e.g.: need for a clearly labeled and visible withdrawal button, etc.