Regulatory Outlook | Consumer Protection | February 2019

Current issues

Pre-contractual information needed for connected consumer products

EU law requires companies that sell directly to consumers to provide certain pre-contractual information, to ensure that consumers are treated fairly and understand when they are about to enter into a binding contract which requires them to pay.

This has been reinforced by a German court decision upholding a decision that Amazon Dash buttons breach consumer law requirements to display the required pre-contractual information.

The German ruling is not a binding precedent for the UK courts.  However, since there is little UK case law on this matter and it relates to the same underlying EU directive, any UK court would likely find the German decision persuasive.

This judgment sets down an interesting marker for the future.  Connected, smart appliances have the potential to bring increasing simplicity and ease – we might never run out of key household products if our sensor-equipped appliances registered that something was running low and automatically reordered for us.  However, the judgment is a reminder that convenience cannot trump consumer law, and businesses need to keep their consumer products and offerings under review.

Social media influencers: CMA crackdown

The Competition and Markets Authority has concluded its long-running investigation into whether social media influencers were clearly disclosing paid-for endorsements.

The result is that formal commitments have been obtained from 16 celebrities to ensure they will now say clearly if they have been paid or received any gifts or loans of products which they endorse.

Any business engaging with influencers needs to ensure that they are compliant with all requirements.

Geo-blocking Regulation

The Geo-blocking Regulation has taken effect and will stop most companies from preventing access to national versions of their websites within the EU.

The Regulation took effect from 3 December 2018 and addresses “unjustified” geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment.

Underlying all the requirements of the Regulation is the principle of non-discrimination; meaning that, where a customer wishes to access and buy services from a national website, they should be treated in the same way as customers physically based in that Member State.

New Deal for Consumers: substantial reforms to consumer law, including GDPR level fines

As a consequence of scandals such as 'Dieselgate', there is a widespread feeling that consumer law is poorly enforced and that the sanctions for breach are inadequate.  As a consequence, at both the EU and the UK level, there are proposals to enhance the enforcement powers of regulators under a 'New Deal for Consumers' legislative initiative.

The EU has proposed GDPR-style fines of up to 4% of worldwide turnover for any breaches of consumer law which cause "mass harm".  At the same time, the UK government's modernising consumer markets green paper proposes giving the civil courts the power to fine businesses for breaches of consumer law up to a maximum of 10% of a company's worldwide turnover.

The proposed Directives under the initiative are in draft form and are not expected to be approved by the EU for some time.  As a consequence, we would not anticipate enhanced enforcement powers being available to regulators for some time.  Similarly, the UK government has not yet finished consulting on its green paper.

Draft Compliance and Enforcement Regulations

The draft Compliance and Enforcement Regulations, which are currently awaiting their first reading in the European Parliament, seek to increase enforcement powers for regulators in the EU. Of particular note is the proposal to introduce the concept of a "reference person", which would require anyone selling consumer products governed by harmonised legislation into the EU to have an EU-based authorised representative taking on the compliance responsibilities of a manufacturer. While a seemingly small change, the proposal has proved controversial with SMEs from third countries, who feel it is an additional compliance burden.

The progress of the draft regulations has currently stalled following disquiet from third countries about the proposed regulatory burden. However, if approved they would likely come into force on 1 January 2020.

The proposal to require manufacturers to have a reference person based in the EU is controversial. This would allow EU regulators to more easily enforce against manufacturers based in third countries selling directly into the single market. Additionally, the regulations would result in greater co-operation of enforcement agencies and tougher customs controls on products imported from third countries.

In focus: No deal Brexit

What would be the impact of a no deal Brexit for UK businesses trading with the EU?

For online retailers, the main impact would be that they would no longer be able to benefit from the "Country-of-Origin" (COO) principle under the eCommerce Directive.

The eCommerce Directive regulates certain legal aspects of “information society services” across the EEA, which includes online retailers. The Directive was introduced to facilitate eCommerce across EEA countries, and remove barriers to trade. To achieve this, it establishes the COO principle. This is a reciprocal arrangement which provides that any EEA-based information society service should only be subject to certain laws in the EEA state in which it is established.

After the UK leaves the EU, it will no longer be included within the COO regime. This means that UK-based online retailers will need to comply with the laws in each "country of destination" in relation to their online activities.

UK-based businesses will also no longer be obliged to offer access to cross-border alternative dispute resolution (ADR) procedures, nor link to the EU's online dispute resolution (ODR) platform.

Beyond this, though, the impact in relation to consumer protection regulation is likely to be relatively limited. The existing consumer regime in each EU Member State will remain as it was pre-Brexit, so any compliance requirements placed on a UK business trading with those EU Member States will remain.

Following a no deal Brexit, the UK would not be obliged to implement any new EU consumer protection law, such as that under the European Commission's "New Deal for Consumers". However, it remains to be seen whether any future trade deal, or domestic political considerations, might lead the UK to remain in regulatory alignment in relation to consumer protection.

What would be the impact of a no deal Brexit for non-UK businesses trading with the UK?

Much of the UK's consumer law is derived from EU legislation. However, upon a no deal Brexit all current EU law in force at that time will become "EU retained law" and will be incorporated into the UK's statute books. This means that in general upon Brexit, UK consumer law will not change except:

• where specific statutes are implemented in the UK (for example the draft Consumer Protection (Amendment etc.) (EU Exit) Regulations 2018) which amongst other things will revoke the operation in the UK of the EU Online Dispute Resolution Regulation, as discussed above; and
• where there is an EU or EEA dimension to the legislation (eg Portability, Geoblocking) in which case the international element of that legislation will no longer apply to the UK after Brexit.

What should businesses be doing now to prepare for a no deal Brexit?

• Understand what impact the loss of the COO regime might have on their business; and
• Be aware of any further legislative developments and the future direction of travel in relation to new EU consumer protection law.