By Sarah Toyne BBC News Online consumer affairs reporter

The European Union has extended consumer protection legislation to cover financial services products, sold through "distance marketing", for the first time.

We are unsatisfied with the directive, as we don't believe that it grants commercial opportunities for UK companies or improves consumer protection

Association of British Insurers

The regulations will come into force in the UK in about two years, and are aimed at improving a consumer's right to seek redress if they are unhappy with products they have bought over the telephone, internet or via a fax.

Consumers will be given the right an up to 30-day "cooling off" period, during which they can change their mind and withdraw from the contract free of charge and without giving a reason.

The rules extend the "distance selling directive", which some experts view as one of the most important pieces of consumer legislation in recent years.

That directive was incorporated in UK law in October 2000.

Better protection

Complexity and political wrangling have delayed the extension of the directive to financial services.

The directive is aimed at not only improving the rights of consumers, but providing a common EU standard, which will help the trade of goods and services between member states.

The directive, which has taken more than two years to negotiate, was welcomed by Dominique Forest from BEUC, the European consumers' organisation.

"We need to see how it being implemented before celebrating but on the whole it is quite positive," Mr Forest told BBC News Online.

But the Association of British Insurers attacked the directive, warning of "concerns" over its implementation.

An ABI spokesman said: "We are unsatisfied with the directive, as we don't believe that it grants commercial opportunities for UK companies or improves consumer protection.

The association said it would be working with the Financial Services Authority, the main UK finance watchdog, on "any potential change in market practices".

The main rules are:

• Restrictions on cold calling by financial services firms, and unsolicited e-mails. Cold calling via fax machines will be banned.

• Firms must provide consumers with comprehensive information, including all fees, charges, expenses and additional surcharges, before a contract is concluded.

  Where an exact price can not be given, the basis for the calculation of the price must be given.

• Information about an out-of-court complaint and redress mechanism for the consumer and compensation arrangements must be given.

• The right for a consumer to withdraw from the contract during a cooling-off period of 14 days without penalty and without reason.

  Right of withdrawal does not include:

  Foreign exchange, money market instruments, transferable securities, units in collective investment undertakings, financial-futures contracts, forward interest-rate agreements (FRAs), interest-rate, currency and equity swaps, options on currency and on interest rates Travel and baggage insurance policies or similar short-term insurance policies of less than one month duration

  This period is extended to 30 calendar days for some life insurance products and personal pensions.

• Clear information on the rights of both parties to terminate the contract early.

• Payment by card: Consumers must be able to cancel a payment where fraudulent use has been made in relation to the distance selling. In the event of fraudulent use, the consumer should be re-credited with the sum paid or have it returned.

  Excluded

  While all these measures must be incorporated within UK law, member states have a right to choose whether to extend the right of withdrawal to all mortgage agreements.

  It is not clear if the UK will choose to do so.

  Some financial contracts will not be covered by the cooling off period.

  Consumers will not have a right to withdraw contracts for travel and baggage insurance policies or similar short-term insurance policies of less than one month duration.

  And more sophisticated financial products, such as futures contracts and options will be exempt from the withdrawal rule.