Committee of MEPs call on tougher rules on financial products advertising

In an approved report (15-page / 186KB PDF) aimed at obtaining a European Parliament resolution on "a strategy for strengthening the rights of vulnerable consumers", the Committee on the Internal Market and Consumer Protection said that current regulatory requirements placed on financial services operators are "clearly insufficient" to ensure that most consumers receive the right information about financial products and their "suitability" to them.

The committee said the complex nature of the financial services market meant that most consumers would be considered "vulnerable", whether that was due to "mental, physical or psychological disability, age, credulity or gender" or because "they have difficulties in accessing and comprehending relevant consumer information". It called on the European Commission and EU member states to introduce tougher rules on advertising around financial products to combat the problem.

"There are instruments that establish requirements in regard to product information and suitability, but in the case of vulnerable consumers (especially in the case of seniors) said measures are clearly insufficient," the report said. "In addition, it is notable that in international forums (G20, OECD), statements have been made about the need to protect consumers through information and regulation of the financial markets, the complexity of which entails that in the majority of cases any consumer is vulnerable."

"Advertisements for financial investment products often fail to sufficiently explain their underlying risks and overemphasise possible benefits that often fail to materialise, thereby exposing consumers of financial services products to loss of their capital," it said. "[The Committee] calls on the Commission to introduce stricter advertising standards for sophisticated financial products aimed at retail investors who may not have a good understanding of financial risk, including the requirement to explicitly state any losses that the investor may incur."

The report called on all stakeholders in the financial services market to "develop effective financial literacy programmes" whilst businesses in the sector should do more to "provide clear and simple explanations about the nature of the products and services they provide".

The committee also said that it was concerned about the "impact" that "the routine use of online behavioural advertising and the development of intrusive online advertising practices" is having on vulnerable consumers and called on the European Commission to "conduct a detailed analysis of the impact of misleading and aggressive advertising on vulnerable consumers, in particular children and adolescents, by the end of 2012."

Concern was also raised about the vulnerability of children and adolescents who use "communication technologies". The committee said "protection measures" should be put in place to stop those individuals running up "excessive bills".

EU member states and the Commission "must develop a strategy for strengthening the rights of vulnerable consumers", the committee said. The strategy "must monitor closely the social habits and the changes in social and consumer behaviours that may place certain groups or individuals in vulnerable situations, in order to prevent and put an end to such behaviours, when they occur, by adopting specific protection measures," it said.

"The [committee's] rapporteur asks the European Commission and the Member States to adopt in their legislation specific measures to ensure appropriate protection of vulnerable consumers, going beyond mere information, especially in those areas where the level of vulnerability has been shown to be greater (telecommunications, access to justice, energy, transport, food, financial services, etc.), and specifically in the Consumer Agenda and the Consumer Programme 2014-2020," the report said. "This task should involve not only the authorities but also businesses and providers in order to facilitate a more transparent, less opaque contractual balance."

"The creation of a strategy for strengthening the rights of the most vulnerable consumers, in order to permit their participation in the Single Market, contributes not only to the social inclusion of such consumers and to advancement toward a more just and tolerant society, but also to ensuring a more dynamic, safe and competitive interior market. However, this specific protection of vulnerable consumers should not, in any case, lead to the creation of two different levels of protection," the report said.

The EU's Directive on unfair business-to-consumer commercial practices places a general prohibition on "unfair commercial practices". The Directive has been implemented in the UK by the Consumer Protection from Unfair Trading Regulations.

Under the Directive, commercial practices are deemed to be unfair if they are "contrary to the requirements of professional diligence" and "materially distorts or is likely to materially distort the economic behaviour with regard to the product of the average consumer whom it reaches or to whom it is addressed, or of the average member of the group when a commercial practice is directed to a particular group of consumers."

The Directive also contains provisions relating to misleading actions and omissions by companies, which are considered as unfair commercial practices. A commercial practice is said to be misleading if "it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information [about factors including the nature or characteristics of products, traders' commitments and the manner in which price is calculated] is factually correct" and leads a consumer to buy something they otherwise would not have purchased.

The "factual context" in which firms' commercial practices take place can also lead those practices to be misleading, under the terms of the Directive under certain circumstances.

Businesses that fail to include "material information that the average consumer needs, according to the context" to make an "informed" purchasing decision which would cause or would likely cause an average consumer to buy something they would otherwise not have, are considered to have engaged in misleading commercial practices under the terms of the Directive.

'Material information' can mean a range of information, including in relation to "the main characteristics" of a product, the address and identity of the trader, the inclusion of information about extra taxes or charges affecting price as well as withdrawal or cancellation rights, according to the Directive.

Misleading omissions may also be said to have been made where businesses provide "unclear, unintelligible, ambiguous or untimely" material information to consumers in certain circumstances.

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