Full Harmonization, Minimum Harmonization and Limits to Europeanization: Financial Services

Full Harmonization

We have already seen that the CPUTR repealed key generally applicable rules on trade descriptions and misleading pricing. It also repealed a very large number of rules dealing with more specific types of practice.}} CPUTR, Schedule 4.}} One reason for all of these repeals was to foster simplicity, i.e., to avoid having complicated overlap and duplication as between the main piece of legislation (the CPUTR) and large numbers of pre-existing rules. However, another key reason for repealing as much as possible of the old law was the full harmonization clause in Article 4, which provides that 'Member States shall neither restrict the freedom to provide services nor restrict the free movement of goods for reasons falling within the field approximated by this Directive.'

The final section (below) will suggest that the UCPD concepts often offer the potential to provide greater protection than was provided by pre-existing law. Nevertheless, the more pre-existing law remaining on the statute book, the greater the risk that some of it might, in some or other way, exceed the level of protection offered by the UCPD concepts. So, in order to avoid this risk of offending against the full harmonization principle in Article 4, vast swathes of pre-existing law were repealed; this further reinforces the Europeanization process that has been the key narrative of this article so far.

Minimum Harmonization and the Limits of Europeanization: The Case of Financial Services

Notwithstanding the significant Europeanizing effect of the UCPD explained above, 'home grown' UK rules may continue to play the main regulatory role in the areas of financial services and immovable property; which are exempted by Article 3(9) from the full harmonization principle that applies generally under the UCPD. In these sectors, there is, in effect, the minimum harmonization that has generally applied in the past to consumer protection directives.[1]

We will focus here on financial services as it is such an important element of the consumer economy. The 'home grown' regime here operates within a well-established institutional structure and (and, as is permitted by Article 3[9]) may well set higher standards of protection than those in the UCPD.[2]

We will concentrate on the regime regulating secured credit.[3] Secured credit and other financial services are regulated by the new Financial Conduct Authority (FCA), replacing the old Financial Services Authority (FSA).[4] This is done under the rules in the FCA Handbook (specific and detailed rules dealing with specific practices);[5] the general principles for business;[6] the Treating Customers Fairly (TCF) Outcomes;[7] and the CPUTR (the regime implementing the UCPD).[8]

Certainly it is difficult to make definitive comparisons between the very open-textured general principles for business, the TCF Outcomes and the similarly open-textured (but differently worded) definitions of 'unfair' practices from the UCPD. Comparison is further complicated by the huge volume of more specific rules (contained in the FCA Handbook), which support and complement the more general FCA principles of fairness.[9] The problem here is to say whether (as well as reflecting the broad FCA principles), these Handbook rules can be said to represent a natural 'unpacking' of the broader UCPD standards of fairness; or whether they go beyond this and provide greater protection.

Nevertheless, we would suggest that the FCA principles may often set higher standards than the UCPD. First of all, let us consider the rules on misleading actions. Violation of the UCPD 'misleading action' provision must involve information as to one of the matters on the list contained in Article 6(1) (a)-(g). This could be considered to be an exhaustive list; and, although it is very broad in scope, it does not necessarily cover every potential type of information. However, a practice might certainly be considered to be misleading, and therefore unfair, under the FCA regime despite involving information by the list in Article 6(1). FCA general principle 7 refers to the obligation to 'communicate information to [consumers] in a way which is clear, fair and not misleading'; and this applies whatever the subject matter of the information.

Also, under the UCPD, it is not sufficient to establish that the practice would mislead the average consumer. It must, in addition, be shown that the impact of the practice is or is likely to be such that the average consumer would take a 'transactional decision' different from that which they would take otherwise.[10] This requirement can make a difference to whether a practice is unfair or not. For instance, a price or other charge that is understated by a few pence arguably still misleads the average consumer; but may be unlikely to cause him or her to contract for a service or product that they would not have bought in any case. If not, the understated price or charge will not be misleading under the UCPD. However, it would arguably be misleading under the FCA regime; which contains no 'transactional decision' requirement.

Turning to 'misleading omissions', first of all, the UCPD test turns on whether the information is 'material' and is 'needed' by the 'average consumer'. The TCF Principles say simply that consumers should be provided with 'clear information and [...] kept appropriately informed. Secondly, as with misleading actions, there is only a misleading omission under the UCPD where the omission is likely to cause the average consumer would take a 'transactional decision' different from that which they would take otherwise.[11] As indicated above, there is no such requirement in the FCA general principles. Third, the old FSA wrote to the payment protection insurance industry to remind them of typically unacceptable practices at the point of sale which had come to the FSA's attention. One of these was that 'The firm did not take reasonable steps to ensure the customer only bought a policy for which he was eligible to claim benefits.'[12] There is at least room for debate as to whether information as to eligibility would necessarily be 'needed' or 'material' under the UCPD test.

Now turning to aggressive practices, there are a number of requirements that are specific to the UCPD 'aggressive practices' clause that do not need to be established for there to be unfairness under the FCA regime. These requirements may mean that the FCA regime provides a higher level of protection than the UCPD regime. So, under the UCPD, one route to establishing an aggressive practice is to show that there is 'coercion or harassment' leading to an actual or likely 'significant restriction' on the average consumer's 'freedom of choice or conduct'.[13] Otherwise, it must be shown that there is 'undue influence'; for which there must be 'exploitation' of a 'position of power' through 'pressure', which 'significantly' impairs (or is likely to so impair) the average consumer's 'freedom of choice or conduct'; specifically, here, by 'significantly' limiting the ability of this average consumer to take an 'informed decision'.[14] None of these criteria are mentioned in discussing fairness/unfairness in general under the FCA regime. So, it is plausible that practices (pressure selling, aggressive enforcement etc.) might fail to meet these particular UCPD criteria but still be sufficient to amount to unfairness under the more open-textured FCA regime.

Then, as with misleading practices, there is the requirement of 'transactional decision making' which applies to all UCPD concepts. In the case of any practice claimed to be aggressive under the UCPD provisions, it must be shown that the result of the coercion, harassment or undue influence would be (or be likely to be) that consumers would take a transactional decision different to the one they would have taken otherwise.[15] As we have seen, the concepts of fairness under the FCA regime do not contain such a requirement. So, there could be aggressive behaviour that is of a more one-sided, unilateral nature, where the business simply imposes a detrimental outcome on a consumer or withdraws a service from a consumer. This has the potential to be viewed as unfair under the general FCA concepts of fairness; but it would be more difficult to show that it affects consumer transactional decision making as such (as required under the UCPD).[16]

What is clear from the above discussion is that regulation of secured credit operates within a well-established domestic institutional structure and may well set higher standards of protection than those in the UCPD. For these reasons, along with the minimum harmonization allowed by Article 3(9), this homegrown regime is likely to remain the dominant force in financial services regulation;[17] with the European UCPD norms being unlikely to play a major role.

  • [1] E.g., the Doorstep and Distance Selling Directives (above n 16), the Consumer Sales Directive (above n 17) and the Unfair Contract Terms Directive (above n 18).
  • [2] For similar conclusions in relation to immovable property, see Civic Consulting/ EU Commission, DG Justice (F Alleweldt, S Kara, P Rott, C Willett and H Gamper), Study on the Application of Directive 2005/29/EC on Unfair Commercial Practices in the EU, 2013, Synthesis and Country Reports, available at ec.europa.eu/justice/consumer-marketing/files/ucpd_final_report_part_1_synthesis.pdf and ec.europa.eu/justice/ consumer-marketing/files/ucpd_study_country_reports.pdf.
  • [3] For similar conclusions in relation to unsecured credit, see Civic Consulting, ibid.
  • [4] See Financial Services Act 2012, amending the Financial Services and Markets Act (FSMA) 2000. Credit (secured and unsecured) is also regulated in overlapping ways by the Consumer Credit Act 1974.
  • [5] Available at fsa.gov.uk/Pages/handbook/index.shtml.
  • [6] FCA, Full Handbook, Principle 2.1, available at https://fsahandbook.info/FSA/ html/handbook/PRIN/2/1.
  • [7] FCA, Treating Customers Fairly, available at fsa.gov.uk/Pages/ Doing/Regulated/tcf/index.shtml; and see J Black, M Hopper and C Band, 'Making a Success of Principles Based Regulation' (2007) Law and Financial Markets Review 191; T. Williams, 'Open the Box: An Exploration of the Financial Service Authority's Model of Fairness in Consumer Financial Transactions', in J Devenney et al., above n 7, at 227; and P Cartwright, 'Conceptualising and Understanding Fairness: Lessons from and for Financial Services', in J Devenney et al., above n 7, at 205.
  • [8] On the approach of the FSA (now FCA) to the UCPD/CPRs generally see fsa.gov.uk/Pages/About/What/International/ucp/index.shtml. Note also that the OFT is the main enforcer under the CPRs, but there is an agreement between the OFT and the old FSA (which will presumably carry over to the new FCA) on division of responsibilities for financial services matters - see Concordat between the OFT and FSA, November 2009, available at https://webmail.dmu.ac.uk/exchweb/bin/redir.asp?URL=fsa.gov. uk/pubs/other/concordat_fsa_oft_08.pdf.
  • [9] The Handbook subdivides into separate 'sub'-books containing hundreds of rules on such issues as mortgages and home finance; insurance; banking; client assets; building societies; collective investment; credit unions; and dispute resolution.
  • [10] See above, n 53.
  • [11] Art 7(1).
  • [12] FSA, Consultation Paper 10/6, The Assessment and Redress of Payment Protection Insurance Complaints Feedback on CP09/23 and Further Consultation, Appendix 3, Point 6.
  • [13] Art 8.
  • [14] Arts 8 and 2(j).
  • [15] UCPD art 5.
  • [16] See discussion in C Willett, 'Fairness and Consumer Decision Making under the Unfair Commercial Practices Directive', above, n 2 on possible ways around this problem.
  • [17] The FSA regime appears to be very much the first 'port of call' for the FSA, the UCPD regime being viewed as a relatively residual 'back up'.
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