4 May 2018
European Commission Proposes New Consumer Protection Rules: “New Deal for Consumers”
On 11 April 2018, the European Commission issued a new package of consumer protection measures which will be of interest to Hong Kong companies trading within the EU. The Commission labelled its legislative initiative as the “New Deal for Consumers”. The initiative consists of two proposed directives, the first focusing on better enforcement and modernisation of EU consumer protection rules and the second on representative actions for the protection of collective interests of consumers.
In the wake of “Dieselgate” (where carmaker Volkswagen is reported to have cheated over emissions testing), the Commission claims to be dedicated to strengthening enforcement mechanisms for consumer protection rules. Moreover, the initiative addresses consumer protection over the internet and the topical issue of “dual quality products”, where product quality is found to be lower in some (mainly Eastern European) Member States, than in others. Ultimately, the initiative is designed to increase the protection afforded to consumers while also seeking to reduce administrative burdens for businesses throughout the EU.
The key aspects of the initiative are as follows:
Collective actions: The Commission has put forward a legislative proposal introducing representative actions for the collective interest of consumers. While a number of EU Member States already provide for collective redress mechanisms, the proposal would constitute the first EU-wide class-action regime.
Under existing EU rules, it is possible for qualified entities designated by EU Member States to bring representative actions with the aim of stopping both domestic and cross-border infringements of EU consumer law. The proposal extends this so it will be possible for consumers to obtain redress, such as compensation, repair, replacement, price reduction, contract termination, or reimbursement of the price paid.
The Commission emphasises that the proposed model is distinctly different from US-style class actions and incorporates numerous safeguards in order to prevent it from being misused. For instance, 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. Moreover, no punitive damages should be awarded and compensation for consumers will be limited to actual harm suffered.
Increased penalties for widespread cross-border infringements: The proposal 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, i.e. in two-thirds of Member States or more, and amount to two-thirds of the EU population or more. The maximum available fine will be 4% of a trader’s annual turnover in the EU Member State(s) concerned.
Individual remedies for consumers: The proposal envisages that consumers will have the right to individual remedies when they are harmed by unfair commercial practices. In particular, according to the proposal, consumers should have access to both contractual and non-contractual remedies encompassing, as a minimum, the right to contract termination and the right to compensation for damages.
Transparency for consumers in online marketplaces: The proposal introduces additional information requirements with regard to online marketplaces. For instance, if buying from an online marketplace run by a Hong Kong seller, the proposal makes sure that EU-based consumers will have to be clearly informed about: (a) the main parameters determining ranking of the different offers; (b) whether the contract is concluded with a trader or an individual; (c) whether consumer rights stemming from EU consumer law apply or not to the contract concluded; and (d) 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 existing framework to digital services for which consumers do not pay money but provide personal data, such as in the case of cloud storage, social media and e-mail accounts. Therefore, 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.
“Dual quality products”: The proposal addresses 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. The amendment seeks to include this as a “misleading commercial practice” within the existing EU consumer protection framework.
Removing burdens for businesses: The proposal should, it is claimed, lead to reduced administrative burdens for businesses, which should in turn be beneficial to Hong Kong traders across the EU. The proposal grants 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:
Firstly, the proposal removes the obligation for the trader to accept the right of withdrawal in the situation where a consumer has used an ordered good instead of only trying it out in the same way he or she could have done in a brick-and-mortar shop;
Secondly, 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.
Please click on the following for more information on the “New Deal for Consumers”.