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Consumer Protection Code
July 2008

What is the Consumer Protection Code?

The Consumer Protection Code ("the Code") is the most significant non-legislative measure concerned with the advertisement and sales of financial services in Ireland. The Code consists of a set of principles to be followed by regulated entities when providing financial products and services, giving financial information and advice, advertising financial products or services or handling of complaints by financial services providers. The Code effectively consolidates existing rules while also introducing some new provisions.

Scope of the Code?

The Consumer Protection Code is wider in scope than the Consumer Credit Act as the definition of "Consumer" is wider and its´ focus is broader than the provision of "consumer credit".

The Code applies to banks, building societies, insurance companies, insurance and mortgage intermediaries and to credit unions, investment firms and stockbrokers (when providing certain services only).

Penalties for Breach of the Code

The new Code is legally binding and contraventions are subject to possible administrative sanctions under the Central Bank Act 1942. Such administrative sanctions could lead to fines of up to €5 million for companies or personal fines of up to €500,000 for persons concerned in the management of such companies. The Financial Regulator will monitor compliance by various means including a consumer focused inspection programme, mystery shopping, through information brought to its attention by customers and by ensuring that directors and managers are fully responsible for compliance with the Code.

The Consumer Protection Code

The Consumer Protection Code contains 7 chapters. The first chapter outlines the General Principles of the Code. Twelve general principles are outlined and apply to all dealings with customers in Ireland. Under these principles regulated entities must treat customers honestly, fairly and professionally, act in the customer´s best interest when providing or recommending particular products, give the information required in order that the customer may make an informed decision and handle any complaints made quickly, efficiently and fairly. There is also an obligation to make full disclosure of all relevant information, including all charges and not to deliberately mislead a customer as to the real/perceived advantages or disadvantages of any product or service and to comply with the spirit of the Code.

The second chapter deals with Common Rules for all regulated entities and includes a requirement of knowing your customer, acting in the best interest of your customer and assessing the suitability of a product for the consumer. These requirements mean that regulated entities cannot simply rely on the rule of Caveat Emptor in relation to the sale of such products. This modification of the law is quite significant and possibly one of the most significant aspects of the Code.

There is also a requirement in relation to provision of information to the customer and all information provided must be clear and comprehensible and the method of presentation must not disguise, diminish or obscure important information. There is a limit set on the use of unsolicited contact or cold calling and where telephone calls are being recorded by a financial service provider, consumers must be informed at the outset of each recorded call. Making sales of a financial product contingent on the purchase of another product is prohibited.

Chapter 3 to 5 outline detailed rules for specific sectors of the financial services industry and in respect of particular financial products

Chapter 7 deals with Advertisements and outlines detailed requirements for regulated entities advertisements. Under the general advertisement requirement of the Code Advertisements must be fair and not misleading, must not influence a customer´s attitude by inaccuracy, ambiguity or exaggeration. The design and presentation of the advertisement must be clearly understood. An advertisement which uses introductory rates must state the date on which these rates will expire. Any forecast included in an advertisement must not be misleading.

There is certain information that financial service providers are required to give prior to purchasing a product or service. This information must include the terms and conditions and details of any fees or charges that apply. Traditionally people may have been put off by the small print, but this should no longer be the case as the Code requires that all printed information which a financial services firm provides must be clear and in a font size that is easy to read. This is possibly the most visible result and impact of the Code as general expansion of advisory text and warnings contained in advertisements for financial services are evident.

Conclusion

These changes represent an attempt by the Financial Regulator to standardise the approach which regulated firms take to dealing with consumers across a broad spectrum of financial services and mark a change in the relationship between the consumer and regulated sectors. Much of the Code reflects existing best practice. However, in some cases, it represents an extension of requirements from some financial service sections to others. It is expected that the Code will result in a more consistent treatment of consumers across various financial service sectors.