Canvassing is an activity governed by a strict set of rules designed to protect savers and investors. When these rules are not complied with, the consequences can be particularly serious for canvassers, but also for the institutions that employ them. Far from being a simple administrative irregularity, illegal canvassing exposes its perpetrators to an arsenal of civil, criminal and disciplinary penalties. It is therefore essential to understand general rules on direct selling of banking and financial services to gauge the extent of the risks involved. This article explains the nature and scope of these penalties.
Civil penalties for unlawful canvassing
In addition to criminal prosecution, failure to comply with canvassing rules can have significant civil consequences. The main aim of these is to compensate the person being canvassed for the loss suffered and to render ineffective any transactions entered into in breach of the law. Liability may be sought at several levels, affecting both the individual carrying out the act of canvassing and the entity on whose behalf he or she is acting.
The direct seller's civil liability (fault, loss, causal link)
The direct seller may be held liable under article 1240 of the French Civil Code. To do so, the victim must prove that three cumulative conditions have been met: fault, loss and a direct causal link between the two. Fault is generally easy to establish. Any breach of the legal or regulatory obligations incumbent on the direct seller constitutes a civil fault. Examples include failing to provide a canvassing card, providing misleading information or failing to observe the cooling-off period.
The loss can be of various kinds. Most often, it is material and corresponds to the financial loss suffered by the person canvassed (sums invested at a loss, expenses incurred). It can also be moral, particularly if the practices of the canvasser have caused significant stress or anxiety. Finally, the victim must show that the loss suffered is a direct result of the direct seller's fault. This causal link is often the most debated element before the courts, with the direct seller sometimes trying to argue that the financial loss is the result of the vagaries of the market rather than his own failings.
Liability of the principal (employer, principal)
Direct marketers rarely act on their own behalf. More often than not, they are the employees or agents of a financial institution, bank or consultancy firm. In such cases, the "principal" (the principal) may be held liable for the actions of his agent. This mechanism, set out in article 1242 of the Civil Code, enables the victim to take direct action against the company that commissioned the offending direct seller.
This liability is based on the risk that the company poses to third parties by employing direct marketers. It is said to be "ipso jure", which means that the principal cannot exonerate himself by proving that he has not committed a personal fault. The principal is liable if the fault of its agent is established and if it was committed in the course of the agent's duties. This solution protects the victim, who can then take action against an entity that is often more solvent than the direct seller. This situation is reminiscent of the mechanisms involving directors' and officers' liability for misconduct in their management.
Invalidity of contracts concluded as a result of unlawful canvassing (conditions, scope)
A particularly effective civil penalty is the nullity of a contract entered into as a result of irregular canvassing. The Monetary and Financial Code makes explicit provision for this penalty. For example, any contract entered into in breach of the rules on canvassing is null and void. Similarly, if the direct seller has received funds before the 14-day cooling-off period has expired, the contract is null and void.
The question has arisen as to whether a contract entered into by a person not entitled to carry on the business of banking (illegal exercise of the profession) can be annulled. Case law was divided for a long time. The First Civil Chamber of the Court of Cassation considered that the prohibition was intended to protect the general interests of the banking profession, and not the private interests of the customer, which prevented the latter from seeking nullity. Conversely, the Commercial Chamber held that these rules also protected the lessee, who could therefore invoke nullity. A mixed chamber ruling on 12 July 2013 found in favour of nullity, unifying the Court's position. As a result, contracts entered into in breach of the rules governing the banking monopoly are null and void and may be invoked by the customer.
Criminal penalties for unlawful canvassing
Lawmakers have criminalised a wide range of canvassing offences in order to highlight the seriousness of the harm done to public economic order and consumer protection. Offences are classified according to their seriousness, ranging from minor offences, often relating to formal failings, to major offences that go to the very heart of the activity.
Minor offences
The Monetary and Financial Code lists a series of offences that are classified as misdemeanours, even though they may seem less serious. However, these offences are considered sufficiently serious to warrant a criminal response. They include :
- Canvassing without holding a professional card.
- Providing inaccurate or incomplete information to potential customers.
- The absence of the direct seller's signature and name on the documents given to the customer.
- Failure to respect the right of withdrawal, in particular by failing to submit the appropriate form.
- Receipt of any payment or consideration whatsoever from the customer before expiry of the 14-day cooling-off period.
Each of these acts, taken in isolation, constitutes a criminal offence liable to prosecution.
Major offences
Other offences are considered more serious because of the nature of the prohibition transgressed. These major offences undermine the foundations of financial sector regulation. They include
- Canvassing by a person who is not authorised to do so, either because they do not have a mandate or because they are banned from doing so.
- Offering financial products that are not on the list of products authorised for direct marketing. This list is set by law to exclude the riskiest products.
- Offering products or services from service providers who do not have the necessary authorisation to supply them in France.
These practices are particularly dangerous because they can be part of a pattern of commercial and financial fraud more extensive, aimed at knowingly misleading savers with illegal or fictitious offers.
Penalties applicable to natural persons
Direct marketers convicted of unlawful direct marketing are liable to severe penalties. The main penalties under the Monetary and Financial Code can be up to 6 months' imprisonment and a fine of €7,500. For the most serious offences, such as offering prohibited products, the penalties are increased to higher levels. In addition to these main penalties, supplementary penalties may be imposed, such as a ban on exercising a commercial or industrial profession, or a ban on civic, civil and family rights.
Penalties applicable to legal persons
The legal entity (the company employing the direct seller) may also be held criminally liable. The fine incurred by a legal entity is, in principle, equal to five times the fine for natural persons. Thus, for an offence punishable by a fine of €7,500, the company risks a fine of €37,500. Specific additional penalties may also be imposed, such as dissolution of the company, prohibition from carrying on the activity in connection with which the offence was committed, closure of establishments or exclusion from public contracts.
Powers of investigation and control
To ensure that penalties are effective, the public authorities have extensive powers of investigation to detect, record and prosecute canvassing offences.
The competent authorities
Controls are mainly carried out by officials from the Directorate-General for Competition, Consumer Affairs and Fraud Control (DGCCRF). These officials are empowered to investigate and record breaches of the Monetary and Financial Code throughout France. They act either on their own initiative or following complaints from consumers. Other authorities, such as the Autorité des marchés financiers (AMF) and the Autorité de contrôle prudentiel et de résolution (ACPR), also have supervisory powers over the entities and intermediaries that fall within their remit.
Survey procedures
DGCCRF officials have considerable powers to carry out their investigations. They have access to all business premises, and can request and take copies of any document that may be useful to their investigation (contracts, registers, invoices, correspondence). They may also take evidence and seize documents or equipment if necessary. In the event of any obstacle to their duties, such as a refusal to disclose documents, they may request the assistance of the police. These investigations may lead to the drafting of an official statement of offence, which is then forwarded to the public prosecutor, who will decide whether or not to institute criminal proceedings.
Disciplinary sanctions
A final category of penalties, administrative in nature, may be imposed by the financial sector regulatory authorities. Any breach of the laws, regulations and professional obligations applicable to direct marketing may be sanctioned by the AMF or the ACPR. These penalties are independent of criminal and civil penalties.
They are aimed at regulated professionals (credit institutions, investment firms, financial investment advisers, etc.). The competent authority's sanctions committee can impose various measures: a warning, a reprimand, a temporary or permanent ban on carrying out certain activities, or even the withdrawal of authorisation. Financial penalties may also be imposed, and the amounts may be very high, in proportion to the seriousness of the breaches and the financial situation of the company penalised.
The complexity of the regulations and the seriousness of the penalties incurred in the event of illegal canvassing make rigorous legal defence essential. In the event of civil, criminal or disciplinary proceedings, recourse to the support of a lawyer with expertise in banking and financial law is essential if you are to assert your rights and build an appropriate defence strategy.
Sources
- Monetary and Financial Code
- Civil Code
- Penal code
- Consumer Code
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