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New EU Law on “New Deal for Consumers”

On 2 April 2019, the European Parliament and Council of EU Member States arrived at a provisional agreement on an EU Directive for tougher consumer protection rules, including regarding their enforcement. The main improvements to the already-existing body of EU consumer law are said to be heightened transparency for consumers when buying online, more robust enforcement and effective penalties, as well as clear rules to tackle the issue of dual quality of products in the EU.

Hong Kong sellers of all kinds of consumer goods operating within the EU-28 may recall that last year, on 11 April 2018, the European Commission issued a new package of consumer protection measures. The Commission labelled its legislative initiative the “New Deal for Consumers”, consisting of two proposed Directives:

1. The first focusing on better enforcement and modernisation of EU consumer protection rules, and

2. The second on representative actions for the protection of collective interests of consumers.

The initiative came about in the wake of the “Dieselgate” scandal, in which German carmaker Volkswagen is reported to have cheated over emissions testing. The package of measures also intended to address 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 package was designed to increase the protection afforded to consumers while also seeking to reduce administrative burdens for businesses throughout the EU.

The future Directive on better enforcement and modernisation of consumer rules (point 1. above), the provisional agreement of which has been achieved on 2 April 2019, bears the following salient features:

Increased penalties for widespread cross-border infringements: The Directive will introduce provisions regarding penalties for both:

(a) “widespread infringements” encompassing illegal practices that affect at least three EU Member States, and

(b) “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.

Companies selling to consumers should be aware that 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 Directive envisages that consumers will have the right to individual remedies when they are harmed by unfair commercial practices. In particular, according to the new law, 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 EU Directive introduces additional information requirements with regard to online marketplaces. For instance, if buying from an online marketplace, the law 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 concluded contract; 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).

“Dual quality products”: The new law 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 law seeks to include this as a “misleading commercial practice” within the existing EU consumer protection framework.

Removing burdens for businesses: The future law is intended to reduce administrative burdens for businesses, which should in turn be beneficial to Hong Kong traders across the EU. It grants traders more flexibility in choosing the most appropriate means for communication with consumers. It also removes two specific obligations on traders concerning the existing 14-day right of withdrawal which have been proven to constitute a disproportionate burden:

  • Firstly, the law 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 law removes the obligation for the trader to reimburse the consumer even before the trader has received the returned goods back from the consumer.

The provisionally agreed Directive will now be submitted to the European Parliament and EU Council for a formal rubber-stamping of its provisions, after which it will be published in the EU’s Official Journal. According to the Commission’s draft proposal, it is mentioned that Member States will have to adopt and publish, by 18 months from adoption of the new Directive, the laws, regulations and administrative provisions necessary to comply with the new Directive. Member States will then have to apply those provisions from 6 months after the transposition deadline.

As for the proposed Directive on collective actions, which is intended to introduce representative actions for the collective interest of consumers (point 2. above), the legislative process is continuing in the European Parliament and the Council. As regards this proposed Directive, which is also part of the European Commission’s New Deal for Consumers, it may be known that a number of EU Member States already provide for collective redress mechanisms. However, the proposed Directive 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 proposed Directive will extend 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.

Please click on the following for more information on the “New Deal for Consumers”.

Content provided by Picture: HKTDC Research
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