Debbie Heywood

Senior Counsel – Knowledge

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Debbie Heywood

Senior Counsel – Knowledge

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18. April 2019

GDPR-level fines for breach of EU consumer protection law nears final approval

The EU's Consumer Enforcement and Modernisation Directive has reached the final stage of the legislative process. It will overhaul four consumer protection Directives, introduce new information requirements on online traders, and a new penalty regime with fines of up to 4% of turnover in relevant Member States for non-compliance.

What's the issue?

The European Commission has been revising the EU's consumer protection regime, particularly for online contracts, as part of its Digital Single Market project.

While the UK has already updated its consumer laws by introducing the Consumer Rights Act 2015, much of the EU-wide regime fails to deal with the reality of online contracts, particularly as far as digital content and services are concerned.

What's the development?

The Council's Permanent Representatives Committee has approved the draft Enforcement and Modernisation Directive (sometimes called the Omnibus Directive). Revised text has been published and is unlikely to change before approval by the European Parliament, expected on 16 April. Following publication in the Official Journal, there will be a 24 month implementation period.

The Directive:

  • Amends four existing consumer protection Directives:
    • Unfair Commercial Practices Directive (UCPD) – implemented in UK by the CPUT Regulations.
    • Consumer Rights Directive (CRD) – implemented in UK mostly by Consumer Contracts Regulations 2013 (CCRs).
    • Unfair Contract Terms Directive (UCTD) – implemented in UK by the Consumer Rights Act 2013 (CRA).
    • Price Indications Directive (PID) – implemented in UK by Price Making Order 2004.
  • Requires the Commission to ensure consumers can use the single digital gateway to access information about their rights and to submit complaints through the Online Dispute Resolution platform.
  • Introduces fines of up to 4% of turnover in the relevant Member State(s) for non-compliance.
  • Introduces new information obligations on online traders.
  • Introduces new categories of contract – digital services and goods with digital elements.

What does this mean for you?

Many of the changes made by the Directive mirror provisions which already exist under UK law but there are also some major differences, including the introduction of a new penalties regime, and of new categories of consumer contracts.

If the UK is still an EU Member State by the transposition deadline (in just over two years' time), it will be required to make changes to its consumer protection regime. It may, however, choose to make the changes in order to align with the EU in any event. Either way, businesses selling to EU consumers will need to understand the changes.

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Changes made across the four Directives

A number of changes are made across the four Directives being amended:

  • Penalties – of up to 4% of annual turnover in the Member State(s) concerned or, if turnover information is unavailable, up to EUR 2m will be introduced for breach.
  • New information obligations are imposed on online traders – these are positive obligations under the CRD; failure to provide required information in an invitation to purchase will be a misleading omission; and failure to provide the information altogether will be a blacklisted commercial practice under the UCPD. Some of the requirements apply to all traders, others only to online marketplaces. Categories of information which must be provided include:
  • Criteria used to rank search results
    • Whether the trader verifies reviews and if so, how.
    • The status of the seller (whether or not they are a trader).
    • Information about consumer rights (online marketplaces only).
    • The division of contractual obligations between the seller and the online platform (online marketplaces only).
  • Potential to derogate in certain areas – Member States will have the option to derogate from Directives in limited areas:
    • Contracts concluded as a result of unsolicited home visits or excursions organised by a trader.
    • Rules of online marketplaces – further information obligations can be imposed provided they are proportionate, non-discriminatory and justified by consumer protection.
    • Solicited visits for home repairs – Member States can impose limits on cancellation rights under certain circumstances.

Changes to the Consumer Rights Directive

  • New categories of contract to align with draft Digital Content and Digital Services Directive – New definitions of contract categories are introduced:
    • Digital Services – services that allow the consumer to create, process, store or access data in digital form, or services that allow the sharing of any other interaction with data in digital form uploaded or created by users of that service – they are distinguished by the continual involvement of the service provider whereas a digital content contract involves a single act of supply. Normal cancellation rights will apply to digital services contracts so the consumer will be able to test the service during the standard 14 day cancellation period (rather than having to forfeit cancellation rights at the time of supply as with a digital content contract).
    • Goods with digital elements – tangible movable items that incorporate or are interconnected with digital content or a digital service in such a way that the absence of that digital content or digital service would prevent the goods from performing their functions (eg smart watches).

Broadly, the definition of goods with digital elements is added to the definition of goods.

The CRD will apply to contracts for digital services in exchange for personal data unless the personal data is being used only to supply the digital content or service, or to comply with legal requirements.

The CRD will not apply where the trader only collects meta data (unless that leads to the formation of a contract under local law), nor where the consumer is exposed to advertisements in order to gain access to digital content or a digital service without having concluded a contract (although Member States can introduce their own rules in this area).

  • Information requirements – these will also apply to the new categories of contract. Notably:
    • traders will have to remind consumers of the legal guarantee of conformity to pre-contractual information, not just for goods, but also for digital content and digital services.
    • Information about technical interoperability will have to be supplied for goods with digital elements, and digital services.
    • The new information obligations on online marketplaces (set out above) will also be included in the CRD.
    • Where applicable, consumers entering into online or distance contracts must be told about any personalised pricing carried out on the basis of automated decision making.
    • The provisions around the types of contact information traders must provide is being updated, including to delete references to faxes.
    • The model cancellation form is being updated and the CRD will be amended to clarify that the form need not be provided for distance contracts made using a means of distance communication with limited space or time display but can be made available elsewhere.
  • Waiving of cancellation rights – some clarification changes are made, including to clarify that where the consumer requests the supply of services before expiry of the cancellation period, the trader must get an acknowledgment from the consumer that they will lose their cancellation rights once the services are completed. This is already present in the CCRs.

Changes to the Unfair Commercial Practices Directive

  • Dual quality productsinclusion of express provisions that selling dual quality products (products which are described in the same way but are actually different) may be a misleading practice.
  • Consumer redress – Member States must provide consumers with the right to direct redress from traders (already present in the UK's CPUT Regulations).
  • Ticket botsa ban on using ticket bots to buy tickets for resale (already present in UK law).

New blacklisted commercial practices which will always be unfair:

    • Failing to take reasonable and proportionate steps to check that product reviews are submitted by consumers who have actually used or purchased a product.
    • Submitting or commissioning fake reviews.
    • Failing to disclose any payment (including for advertising and whether direct or indirect) which enhances the ranking of a search result.

Changes to the Unfair Contract Terms Directive

The only changes relate to penalties.

Changes to Price Indications Directive

Any announcement of a price reduction must indicate the prior lowest price for a determined period of time before the priced reduction was applied.The default time period is one month although Member States can introduce different periods for certain types of goods or where the product has been available for less than 30 days.

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