New Deal for Consumers | EU proposes substantial reforms to consumer law, including GDPR-level fines

Following a major evaluation of the EU consumer law directives, the EU has announced its long-awaited "New Deal for Consumers", which proposes the following key changes:

1. GDPR-level fines: The New Deal will give consumer law more "teeth" by bringing in GDPR-style maximum fines for breaches that cause "mass harm", of at least 4% of turnover in the Member State or Member States concerned by the coordinated enforcement action. Today, when a company breaks consumer rules, the penalties set out in national law vary widely across the EU. The purpose of this proposal is to introduce "deterrent" penalties for widespread cross-border infringements.

2. Group actions: Authorised consumer bodies (such as "Which?" in the UK) will be able to bring group actions to seek redress such as compensation, replacement or repair, on behalf of a group of consumers that have been harmed by an illegal commercial practice. This is designed to ensure consumers have effective remedies in cases such as the "Dieselgate" scandal. The proposals are designed to strike a balance between safeguarding consumers' interests and ensuring adequate safeguards from abusive litigation (for example, law firms should not be able to bring class actions under these proposals).

3. New consumer rights for contracts for free digital services: The EU has also extended the rules in the Consumer Rights Directive (as implemented in the UK by the Consumer Contracts Regulations) to contracts for free digital services, which means (amongst other things):

• a 14 day cancellation right applies to contracts where consumers receive digital services for free but have to provide their personal data as part of the contract. In practice it is questionable whether consumers need a cancellation right at all for a free service – when after all they can simply stop using the service, so it will be interesting to understand the scope of this provision and whether it relates to the return of any data provided, as opposed to just cancellation.
•  information requirements now apply to contracts for free digital services.

4. Harmonized remedies for unfair commercial practices: Consumers will have the right to claim individual remedies (such as financial compensation or termination of contract) when they are affected by unfair commercial practices, such as aggressive or misleading marketing. This protection currently varies across the EU but the approach will be harmonized under the new proposals.

5. Dual quality products: Somewhat unexpectedly the EU has taken the opportunity to specifically address the issue of so-called "dual quality" products.  This is particularly relevant for the food industry. "Dual quality foods" are global food brands which have different lower quality formulations for different markets.  This has been of great concern to Eastern European member states who feel their citizens are being misled by food and beverage multinationals because these companies are selling the idea of a globally consistent brand but actually giving the consumer a cheaper local version. The EU had published guidance on how existing consumer protection law applied to this matter last year however it was not expected that the EU would bring in specific legislation on this point or that that legislation would be to be part of the New Deal.

6. More transparency for consumers in online marketplaces: The proposed new rules will require online marketplaces to be more transparent around certain of their dealings and in particular, clearly inform consumers about:

• the identity of the party with whom they are concluding a contract (is it a professional trader or an individual?). In practice, this is likely to mean that the online marketplace should require third party suppliers of products on the online marketplace to indicate their status as traders or non-traders for the purposes of consumer law and to provide this information to the online marketplace;
• whether consumer rights stemming from EU consumer legislation apply or not to the contract concluded and which trader is responsible for compliance; and
• the main parameters determining ranking of offers presented to the consumer as result of their search query on the online marketplace – in particular the commission wants more transparency around search results that contain '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.

Some of the proposed changes will help businesses, including:

7. Certain consumer rights deleted: The following rights will be deleted as the current provisions are too far in favour of consumers:

• Consumers will no longer be allowed to return products that they have already used more than allowed (instead of merely trying them out); and
• Traders will no longer have to reimburse the consumers before actually receiving the returned goods. They will be able to withhold reimbursement until actual receipt of the returned goods.

8. Communicating with consumers: The new rules also introduce more flexibility in the way traders can communicate with consumers, allowing them to also use web forms or chats instead of e-mail, provided the consumers can keep track of their communication with the trader.

How will existing law be affected?

The New Deal comprises a Communication and two proposals for Directives:

• A proposal for a Directive on representative actions for the protection of the collective interests of consumers and repealing the Injunctions Directive 2009/22/EC. This Directive aims to improve tools for stopping illegal practices and facilitating redress for consumers where there are widespread infringements of their rights.
• A proposal to amend Directive 93/13/EEC on unfair terms in consumer contracts, Directive 98/6/EC on consumer protection in the indication of the prices of products offered to consumers, Directive 2005/29/EC concerning unfair business-to-consumer commercial practices and Directive 2011/83/EU on consumer rights. This proposal aims at improving the enforcement of and modernising EU consumer legislation in light of market developments, in particular the digital economy

Timing

The Communication indicates a desire for the proposals to become law by the end of May 2019. It seems likely that there will be a two year period for transposition before the provisions become law. If so, it is unlikely that the UK will be obliged to implement those provisions. This is on the basis that the Brexit transition period ends on 31 December 2020 (as has been agreed at a political level), and that the European Union (Withdrawal) Bill in the UK provides that EU law will be transposed into UK law post-Brexit only where it is both in force and in effect by the date of Brexit. This is subject to any provision of a future UK-EU trade agreement that might require specific or general alignment of regulation.

The Commission's proposals will now be discussed by the European Parliament and the Council and we will bring you further updates once more information is available.

Why this matters

The New Deal for Consumers will give consumers, more (and bigger!) "teeth" to enforce breaches of consumer law. Although the EU already has some of the strongest rules on consumer protection in the world, recent cases like the Dieselgate scandal, have shown that it is difficult to enforce them fully in practice.

For example, currently, breaches of consumer protection law do not generally attract substantial fines but in the future, maximum regulatory fines could be at least 4% of turnover in the Member State or Member States concerned. Group actions will also be possible. Companies will therefore need to ensure proper compliance with consumer protection law.

Food companies will need to review whether different formulations for different markets can be justified on the basis of different national preferences or whether they are really an unlawful attempt to mislead consumers as to the quality of the product.

Please contact us to discuss these new developments in EU consumer law and how it might impact your business.