With rapid changes happening in the financial services industry even before the onset of the Covid-19 pandemic, digital banking is on the rise, as well as other innovations aiming to make things easier. This is where fintechs come in, as they allow consumers better access and understanding of their finances and payments.
DLA Piper is a global law firm with experience in experience in arbitration, banking, competition and trade, as well as corporate crime and corporate finance. Here, Pierre Berger, Partner, Head Financial Services & Insurance Sector, DLA Piper Belgium; Pauline Kustermans, Lead Lawyer, Financial Services & Insurance, DLA Piper Belgium; and Marie Goossens, Lawyer, Financial Services & Insurance, DLA Piper Belgium share their thoughts on bank-integrated subscription cancellation solutions.
Over the last decade, the financial services industry has been changing rapidly. More often, banks, insurance companies and other more traditional market participants engage in collaborations with new market entrants and fintech companies to redefine their business model. The focus here is mostly on reaching a wider and more divergent customer base, by diversifying the existing product range and making digital banking more user friendly.
This growing interaction between traditional financial institutions, fintechs and customers is also well reflected by the integration of several customer-friendly service platforms (such as financial and subscription management tools) in existing banking environments, which the customer can access to get a clear overview on his recurring costs, manage running subscriptions (such as Netflix, Spotify or fitness) etc.
This evolution has been greatly promoted by the introduction of PSD2, i.e. Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, which has opened the door to innovative services and new providers in the payments market.
More particularly, under PSD2, banks are required to grant access to payment accounts for payment initiation service providers (PISPs) and account information service providers (AISPs) (subject of course to the consent of the end-user).
Over the last few years, DLA Piper has assisted multiple market players in finding the optimal legal and operational balance for enrolling these types of integrated products (including subscription cancellation services) throughout Europe. Based on this experience and market practice, this contribution aims to set forth a certain common thread from a (European) legal perspective on bank-integrated subscription cancellation solutions.
General principles and market practices concerning bank-integrated subscription cancellation solutions
From a legal perspective, subscription cancellation solutions boil down to the customer granting permission to the third-party fintech company (mostly authorised as PISPs and/or AISPs) to change or cancel the subscription on the customer’s behalf. The mandate will be granted by the customer either directly to the FinTech, or indirectly via the bank (with the right to sub-delegate).
To date, the regulation of cancellation services/practices in general and in specific industry sectors is mainly the prerogative of the European Member States. The same applies for the general principles of contract law and powers of attorney, that have not (yet) been subject to EU harmonisation. At a European level, the European Consumer Rights Directive, the Unfair Contract Terms Directive (hereinafter the “UCTD”) and the Unfair Commercial Practices Directive (hereinafter the “UCPD”) are of importance for the provision of subscription cancellation services. A holistic reading of these European and national sources brings us to the following general (EU) practices and market evolutions in relation to the subscription cancellation services.
Principle 1: Customers can rely on a third party to cancel their subscriptions based on a mandate
It is generally accepted, under the legal frameworks of the European Member States, that the cancellation of subscriptions can be executed by third parties on behalf of a customer. This principle is being supported by the fact that the subscription management platform taking care of the cancellation is not seeking to rely on any third party rights it may have under the initial contract (as concluded between the customer and the service provider), but, that it is solely acting on behalf of the customer on the basis of a power of attorney in order to effect the latter’s cancellation rights under the subscription agreement.
In this respect, national law may lay down formalities for the power of attorney granted by the customer to the third party to cancel the subscription on his/her behalf. These formalities may have an impact on the validity of the power of attorney, its opposability to other parties or its enforceability. In most European Member States however (including Belgium, the Netherlands, Romania, Poland, Czechia, Austria) giving a mandate to a third party for subscription cancellation services is generally not subject to any specific formalities and is “form-free”. The mandate given by the customer to the subscription management platform in these countries can therefore be given in a number of ways, including for example by signing a letter of attorney, ticking a check-box, a clause in the bank’s general terms and conditions, or even orally.
For reasons of proof towards the service provider, it is best for the third party to obtain a written and signed mandate from the customer that establishes the identity of the customer and the specific mandate given to the third party. Written and signed should not be limited to paper form and wet-ink signatures, but may also include digital solutions.
Principle 2: The likelihood of a successful cancellation is higher when following the procedures in the service provider’s terms and conditions
Once the third party has obtained the mandate from the consumer to act on his/her behalf, the question arises as to how the cancellation should take place and what formalities the subscription management platform must consider when cancelling the subscription.
In practice, we see different business models in the market, varying from a customised approach (where a subscription management platform checks each individual service provider’s terms and conditions) and a ‘one size fits all’ approach (where no individual checks are being carried out and cancellation is requested following the third party’s own procedure).
In general, the analysis of the EU-wide legal framework in the different Member States indicates that, based on the principle of contractual freedom, the cancellation formalities in a service provider’s individual terms and conditions will generally prevail, provided, however, that unfair contract terms (including unfair cancellation methods) will be held null and void in accordance with the UCTD. With the cancellation of subscriptions, a term might be considered as unfair if the service provider’s standard contract terms include procedures for the termination of the contract which are unjustifiably difficult.
Whether a specific contractual term for termination is unjustifiably difficult and therefore unfair, will have to be assessed on a case-by-case basis in light of the specific terms and conditions of the service provider in question and the national provisions implementing the UCTD.
Despite this general rule of the primacy of a service provider’s terms and conditions, market practice nevertheless shows that a consumer’s ability to exercise its cancellation rights is an area of increasing focus for several EU and local policymakers and that policymakers are increasingly keen to encourage the use and development of banking applications to manage customer subscriptions:
- At a European level, for example, the UCPD explicitly prohibits unfair commercial practices, including ‘making it excessively difficult for consumers to cancel subscriptions. Imposing conditions such as a registered letter to cancel a subscription which has been contracted in a few clicks could be considered as unfair under the UCPD.
- In the United Kingdom, the Competition in Markets Authority is currently investigating customer cancellation concerns in the context of the Covid-19 pandemic. Whilst this taskforce is primarily focused on the exercise of consumer cancellation rights concerning weddings, holiday accommodation and childcare services, the initiative nevertheless shows that a consumer’s ability to exercise cancellation rights is an area of increasing focus in the UK.
- In the Netherlands, contract law is generally in favour of subscription management platforms using the one size fits all approach described above. More particularly, under Dutch consumer law, consumer statements are form-free. Termination notices may therefore be sent in any form, e.g. by email, telephone or hard copy, to any address that is available of the recipient.
- Lastly, in Belgium, the Telecom-Act, prescribes that a cancellation of a TV, mobile or internet subscription can be executed “by any written means and without giving any reason” and a service provider will be obliged to send a written confirmation to the customer that the subscription service has been terminated. Again, this shows that, at least in certain sectors, there is the political appetite of policymakers to ensure that customers’ cancellation rights are not unduly restricted.