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EU Commission’s “New Deal” for consumers: What’s new for businesses?

1. Introduction

On 11.04.2018 EU Commission announced the “New Deal for Consumers”. The New Deal is a proposal for two new EU Directives which will overhaul the EU Consumer Law framework. The first proposed Directive [COM(2018) 185] will amend four existing Directives that are part of the EU consumer protection Law. The proposed amendments concern the Unfair Commercial Practices Directive (2005/29/EC), the Consumer Rights Directive (2011/83/EU), the Unfair Contract Directive (93/13/ECC) and the Price Indication Directive (98/6/EC). The amendments concerning the last two Directives are minor and are only concerning penalties. The second proposed Directive [COM(2018) 184] will repeal the Directive 2009/22/EC and will modernize the framework for representative actions for the protection of the collective interests of consumers.

The “New Deal” brings major changes on the rights and legal options of businesses, especially those of the internet/digital sector.

2. New and bigger fines for businesses

The major impact the New Deal will have on businesses is the increase of the non-compliance cost for any business that doesn’t comply with the amended EU Consumer Law. The proposed amendment of Directive 2005/29/EC provides National Authorities with major fine imposing powers. Specifically, National Authorities will be able to impose a fine of 4% of a trader’s annual turnover, in the case of a “widespread infringement” or a “widespread infringement” with a “Union dimension” within the meaning of Regulation 2017/2934. The 4% fine is the lowest maximum fine a National Authority can impose, but Member States can legislate even higher percentage for the maximum fine possible on the case of a “widespread infringement” or an “widespread infringement” with a “Union dimension”. In the case of infringements of national provisions, the Member States are free to legislate penalties on the condition that those penalties are effective, proportionate and dissuasive.

3. Changes on what constitutes “misleading practice”

The New Deal will amend Directive 2005/29/EC on misleading practices. If the amendments are approved, “dual quality of products” will constitute a misleading practice. “Dual quality of products” is a commercial practice where a business markets a product to many national markets as identical but, in practice, the product is significantly different in each national market either due to different composition or due to different characteristics. The practice will constitute a misleading practice if the marketing of the product as identical caused “the average consumer to take a transactional decision that he would not have taken otherwise”. Businesses which market a product to many Member States are in danger of major fines if national authorities accuse them of doing the said practice.

Furthermore, the amendments will allow the restriction or the complete ban of aggressive marketing/selling in a national market. Member States will now have the option to adopt rules against unsolicited visits by a trader to a consumer’s home or commercial excursions organized by a trader with the aim or effect of promoting or selling products to consumers. Member States will have to justify the restrictions on grounds of public policy or respect for private life.

4. Individual remedies of consumers – representative action

The New Deal will add new rights for consumers concerning litigation on the case of unfair commercial practices. If the amendments are approved, Member States will have to make available to consumers both contractual and non-contractual remedies. In case of a contractual remedy, the minimum option for consumer must be the right to contract termination. In case of a non-contractual remedy, the minimum option for consumer must be the right to compensation damages.

Business, which do not comply with the EU Consumer Law, will face the danger of a representative action by a “qualified entity”, e.g. national consumer unions or national authorities. A qualified entity will have the possibility to seek different measures which include an injunction order or a redress order. Injunction orders establishing that a practice constitutes an infringement will not depend on whether the practice is committed intentionally or by negligence. The redress order can obligate the business to provide for compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid, as appropriate and available under national laws.

The new amendments do not establish a class action option as in USA law.

5. Special rules for the internet/digital sector

The New Deal bring major amendments concerning the digital services and internet marketplaces.

Online marketplaces will have the obligation to provide additional information to consumers concerning: a. the main parameters determining ranking of the different offer, b. whether the contract is concluded with a trader or an individual, c. whether the consumer protection legislation applies and d. which trader (third party supplier of online marketplace is responsible for ensuring consumer rights related to the contract (such as the right of withdrawal or legal guarantee).

In the case of any online platform which use a search engine application, the consumer must always be informed about the nature of the search results. The online platform will have to inform consumer clearly about which results are “natural or organic”, “paid placements” (where third parties pay for higher ranking) or “paid inclusion” (where third parties pay to be included in the list of search results).

Furthermore, the “New Deal” will extend the application of Directive 2011/82/EU to digital services for which consumers do not pay money but they provide their personal data. Those services include mainly cloud storage applications, social media and e-mail accounts. The extension of the application of the said Directive to those services means that consumers will have the right to pre-contractual information and the right to cancel the contract within a 14-day withdrawal period. The service providers will have to uphold those consumer rights regardless of whether they are paid, or they provide those services free of charge. The proposed extension is complementary to the General Data Protection Regulation 2016/679. The right to terminate the contract for digital services within the 14-day period withdrawal period will remove the contractual basis for the processing of personal data under the GDPR. This will in turn trigger the application of the rights provided by the GDPR for consumer, e.g. the right to be forgotten and the right to data portability. The service providers will have the obligation to uphold those consumer rights.

Beside the aforementioned new obligations, the New Deal will provide more flexibility to traders and remove some burdens that now exist in EU Consumer Law. Traders can use new means of online communication such as web forms or chats as alternative to traditional forms of communication such as e-mail. In case the trader chooses to use those alternative forms of communication, he has the obligation to provide to consumer the track record of the consumer-trader communication. The obligation for the trader to accept the right of withdrawal even where a consumer has used an ordered good instead of only trying it and the obligation for the trader to reimburse the consumer, even before the trader has received the returned goods back form the consumer, are removed by the proposed amendments.

6. Conclusion

The “New Deal” brings major changes to the EU Consumer Law. Most of the proposed amendments are about the digital/internet sector and are establishing new obligations for the trader/service provider. Businesses will have a higher cost of non-compliance and can face major fines from national authorities, if the amendments are approved. In case of non-compliance, the business will face the danger of litigation by a qualified entity which can take the form of an injunction or a redress order.

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