“New Deal for Consumers”: European Commission Proposal

On 11 April 2018, the European Commission (the “Commission”) issued a new package of proposals designed to increase the protection afforded to consumers while also seeking to reduce administrative burdens for businesses. The Commission labelled its legislative initiative somewhat ambitiously a “New Deal for Consumers”.

The main provisions proposed cover: (i) collective actions; (ii) dual quality products; (iii) wide-spread cross-border infringements; (iv) individual remedies; (v) online marketplaces; (vi) digital services; (vii) reduced administrative burdens for businesses; and (viii) off-premise sales.

Collective Actions

As part of its package introduced on 11 April 2018, the Commission published a new proposal on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC (the "Proposal"). In light of increasing cross-border trade and EU-wide commercial strategies, the Proposal aims to facilitate redress for consumers if there are widespread infringements of their rights in more than one EU Member State.

Under Directive 2009/22/EC, it was possible for qualified entities designated by EU Member States, such as consumer organisations or independent public bodies, to bring representative actions with the aim of stopping both domestic and cross-border infringements of EU consumer law. However, the aim of the Proposal is to extend this possibility in order to allow consumers to obtain redress, such as compensation, repair, replacement, price reduction, contract termination, or reimbursement of the price paid.

According to the Commission, the proposed model for representative actions incorporates numerous safeguards in order to prevent it from being misused.

First, representative actions may only be taken by qualified entities. These qualified entities will have to satisfy minimum reputational criteria: they must be properly established; not for profit; and have a legitimate interest in ensuring compliance with the relevant EU law. EU Member States will be required to monitor on a regular basis whether a designated qualified entity continues to comply with the criteria and failure to do so will lead to the loss of the status of qualified entity.

Second, representative actions for redress will only be possible if based on a final decision of a national court or authority which establishes that the trader has breached the law. This prevents frivolous and vexatious claims.

Third, no punitive damages should be awarded and compensation for consumers will be limited to actual harm suffered.

Finally, qualified entities must be transparent about their sources of funding in order to enable the court or administrative authority to ensure that there are no conflicts of interest or risks of abuse in a given case and to assess whether the third party has sufficient resources in order to meet its financial commitments to the qualified entity should the action fail.

The Proposal further provides that the infringing trader is, at its own expense, required to inform affected consumers about any final decision (injunction, redress or settlement), its legal consequences and, if relevant, the subsequent steps to be taken by the consumers concerned.

In relation to cross-border representative actions, the Proposal establishes that the representative action may be brought to the competent court or administrative authority of a EU Member State by several qualified entities from different EU Member States, acting jointly or represented by a single qualified entity, for the protection of the collective interest of consumers from different EU Member States. By contrast, the Proposal appears to remain silent on rules governing jurisdiction and parallel litigation in cases where entities bring different representative actions before the courts of different Member States.

Finally, the interaction between the Proposal and Commission Recommendation 2013/396/EU of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms ("Recommendation 2013/396/EU") remains unclear. According to the Explanatory Memorandum provided for in the Proposal, the "[P]roposal takes into account [Recommendation 2013/396/EU]". However, the Explanatory Memorandum also indicates that not all the procedural elements from Recommendation 2013/396/EU have been reproduced in the Proposal. According to the Explanatory Memorandum, Recommendation 2013/396/EU lays down a set of common principles for collective redress mechanisms that apply to all breaches of Union law across all policy fields, while the Proposal is "limited to infringements that may affect the collective interests of consumers, and the pre-existing features of the representative action model in the current Injunctions Directives".

“Dual Quality Products”

The Commission’s proposed package of measures also seeks to address the issue known as “dual quality products” which concerns products being marketed under the same brand and packaging across several EU Member States but where the quality is not uniform across the different markets. In relation to dual quality products, the proposal updates Directive 2005/29/EC of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (“UCPD”).

The amendment seeks to include as a “misleading commercial practice” the marketing of a product as being identical to the same product marketed in several other EU Member States, if those products have a significantly different composition or characteristics causing or likely to cause the average consumer to take a transaction decision that he would not have taken otherwise.

This follows on the heels of action which the Commission took in September 2017 when it adopted guidance on how to apply and enforce the relevant EU food and consumer protection laws to dual quality products.

Moreover, the Commission’s Joint Research Centre is currently finalising a common testing methodology which will help national authorities enforce these EU rules. The tests involve the composition of a common basket of products which are marketed in most EU Member States and include chemical and sensory testing. The Commission aims to present the first results by the end of 2018.

Penalties for Widespread Cross-Border Infringements

The Commission’s proposed package introduces provisions regarding penalties for both “widespread infringements” encompassing illegal practices that affect at least three EU Member States and “widespread infringements with a Union dimension” encompassing practices which harm a large majority of EU consumers. The maximum available fine will be 4% of a trader’s annual turnover in the EU Member State(s) concerned. Provision for such a penalty is introduced into the following directives: (i) the UCPD; (ii) Directive 2011/83/EU of 25 October 2011 on consumer rights (the “CRD”); (iii) Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts; and (iv) Directive 98/6/EC of 16 February 1998 on consumer protection in the indication of the prices of products offered to consumers.

Individual Remedies for Consumers

The proposed package envisages that consumers will have the right to individual remedies when they are harmed by unfair commercial practices. In particular, according to the proposal, EU Member States should make both contractual and non-contractual remedies available under the UCPD. As a minimum, the contractual remedies should include the right to contract termination and non-contractual remedies should encompass the right to compensation for damages.

Transparency for Consumers in Online Marketplaces

The proposal introduces in the CRD additional information requirements with regard to online marketplaces. When buying from an online marketplace, the proposal makes sure that consumers will have to be clearly informed about: (i) the main parameters determining ranking of the different offers; (ii) whether the contract is concluded with a trader or an individual; (iii) whether consumer protection legislation applies; and (iv) which trader (third party supplier or online marketplace) is responsible for ensuring consumer rights related to the contract (such as the right of withdrawal or legal guarantee).

Consumer Rights for “Free” Digital Services

The proposal extends the scope of the CRD to digital services for which consumers do not pay money but provide personal data, including cloud storage, social media and e-mail accounts. As a result, consumers should have a right to pre-contractual information and should be given the ability to cancel the contract within a 14-day withdrawal period.

Removing Burdens for Businesses

The proposed package amends the CRD by granting traders more flexibility in choosing the most appropriate means for communication with consumers. It also removes two specific obligations on traders concerning the 14-day right of withdrawal which have been proven to constitute a disproportionate burden:

  •     First, the proposal removes the obligation for the trader to accept the right of withdrawal even if a consumer has used the ordered goods instead of only trying them out in the same way he or she could have done in a bricks-and-mortar shop;
  •     Second, the proposal removes the obligation for the trader to reimburse the consumer even before the trader has received the returned goods back from the consumer.

EU Member States’ Freedom to Adopt Rules on Specific Forms and Aspects of Off-Premise Sales

The proposal clarifies that the UCPD does not prevent EU Member States from adopting rules to protect the legitimate interests of consumers with regard to some particularly aggressive or misleading marketing or selling practices in the context of unsolicited visits by a trader to a consumer’s home or with regard to commercial excursions organised by a trader with the aim or effect of promoting or selling products to consumers. Such restrictions must be justified on grounds of public policy or respect for private life.

More information on the “New Deal for Consumers” is available through the following link: http://europa.eu/rapid/press-release_IP-18-3041_en.htm.

By Koen T’Syen and Charlotte Woolfson