Documents considered by the Committee on 6 July 2016 Contents

4Cooperation on enforcement of consumer protection laws

Committee’s assessment

Legally and politically important

Committee’s decision

Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Innovation and Skills Committee and Justice Committee

Document details

(a) Commission Report assessing the effectiveness of the current Regulation on cooperation between national authorities responsible for the enforcement of consumer protection laws (2006/2004) (the CPC Regulation); (b) Proposal for a new CPC Regulation

Legal base

(a) —; (b) Article 114 TFEU; ordinary legislative procedure; QMV

Department

Business, Innovation and Skills

Document Numbers

(a) (37820), 9702/16, COM(16) 284; (b) (37814), 9565/16 + ADDs 1–3, COM(16) 283

Summary and Committee’s conclusions

4.1These two documents are part of the e-commerce package launched by the Commission to enable consumers and companies to buy and sell products and services online across the EU more easily and confidently. Proposal (b) builds on the current Regulation on coordination of enforcement of EU consumer protection law (the CPC Regulation) in force since 2007. It aims to increase consumer trust in cross border enforcement by improving national coordination, tackling in particular the threat posed to both consumers and legitimate business competitors by rogue online traders and their untrustworthy websites. The package include two other legislative proposals on preventing geo-blocking54 and cross-border parcel delivery55 which are also reported this week together with an overarching Communication.56

4.2Document (a) is a Commission report reviewing the current CPC Regulation as required by Article 21a of the Regulation. The current Regulation makes available to national enforcement authorities a number of minimum powers and procedures to tackle cross-border infringements of consumer legislation and to coordinate market surveillance and enforcement activities. It currently covers some 20 Directives and Regulations concerning existing EU consumer and marketing law. The report notes that there have been some successes under the current regime, including the commitments obtained by enforcement authorities:

4.3Document (b) is a proposal to reform the current CPC Regulation, based on the conclusions of the report (a). It aims to provide more powers to national authorities to better enforce consumer rights, such as checking if websites geo-block consumers or offer after-sales conditions not respecting EU rules (e.g. withdrawal rights), ordering the immediate take-down of scam websites and requesting information from domain registrars and banks to detect the identity of those rogue traders. In case of EU “widespread” breaches of consumer rights, the Commission will coordinate common actions with national authorities to stop unlawful practices, with the aim of saving the time and resources of Member States, businesses and consumers.

4.4The Government has engaged with both the Commission’s review and consultation, also producing a non-paper in May prior to the publication of the proposal (see the Background section to this chapter). It now provides us with an initial, supportive view of the proposal though it cautions that further detailed assessment of impacts, particularly of the extent of additional enforcement powers in relation to cross-border infringements exceed those currently enjoyed by the relevant UK authorities (such as Trading Standards and the Competition and Markets Authority) and the proposed scope of the Commission’s powers to adopt implementing acts. It does not raise any of the subsidiarity concerns on the published proposal which it had flagged as potential issues on the expected reform in the non-paper.

4.5We thank the Minister for her helpful Explanatory Memoranda of 15 June 2016 on these two documents. We also found the Government’s non-paper published in May to be very informative.

4.6However, as these documents were drafted before the outcome of the Referendum, we would be grateful if the Minister could respond in due course to these Brexit-related questions:

4.7Turning to the Minister’s EM, we commend her the well-argued subsidiarity assessment provided in her EM and note that the Government has no subsidiarity concerns. We are inclined to agree. The case for coordination of enforcement activity at EU level for cross-border consumer infringements, particularly in a digital single market, seems clear and is also substantiated adequately in the Commission’s Impact Assessment. It has also been long established by the existing CPC Regulation which has enjoyed some operational successes since it came into force in 2007. For the sake of completeness, we would invite the Minister to confirm that none of the potential subsidiarity issues floated in the Government’s non-paper have been raised by the published proposal.

4.8However, the question remains whether the extent of the minimum enforcement powers required by this proposal breaches the separate principle of proportionality in going beyond what is necessary for effective cross-border enforcement. The same applies to the threshold for compulsory coordination by the Commission and compulsory participation of Member States in enforcement action relating to “widespread infringements”. We therefore request that the Minister provides us with the further detailed assessment of those matters that the Government is undertaking, preferably so that we can report it to the House before the summer recess. Should this identify subsequent concerns, we may choose to raise these with the Commission through political dialogue.

4.9Separately, if the implementation of the regulation means that UK enforcement authorities will have powers in relation to EU cross-border infringements that they do not possess in relation to purely domestic infringements, we would be interested to know whether the Government is likely to consider levelling up those domestic powers or whether this would be regarded as a transitional issue which would be resolved on exit from the EU?

4.10We would also be grateful if the Minister could let us know in due course the outcome of the stakeholder meetings arranged by the Government and taking place this month and in July.

4.11We are concerned about the extent of some of the proposed implementing powers for the Commission, not least how the enforcement powers are to be exercised and the role of designated bodies. We ask whether the Government has considered whether such implementing act powers comply with Better Regulation guidance, IIA. If so, we request that the Government attempt to ensure that the powers are as tightly limited as possible.

4.12We note the relevance of the Commission’s REFIT review of six existing pieces of consumer protection legislation and the corresponding public consultation58. We also note the Roadmap for the evaluation of the Consumer Rights Directive.59 We would be interested to learn whether the Government considers that negotiations on the current proposal, given its relevance to the existing EU consumer-related legislation and any overlapping enforcement issues, should be postponed until the results of those assessments are known in the first and second quarters of 2017.

4.13In the meantime, we retain these documents under scrutiny but draw them to the attention of the Justice Committee since they concern the protection of legal rights of consumers and to the Business, Innovation and Skills Committee which is conducting an inquiry into the Digital Economy.

Full details of the documents

(a) Commission Report to the European Parliament and the Council Assessing the effectiveness of Regulation (EC) No. 2006/2004 of the European Parliament and the Council of 27 October 2004 on the cooperation between national authorities responsible for the enforcement of consumer protection laws (the Regulation on consumer protection cooperation): (37820), 9702/16, COM(16) 284; (b) Proposal for a Regulation of the European Parliament and of the Council on cooperation between national authorities responsible for the enforcement of consumer protection laws: (37814), 9565/16 + ADDs 1–3, COM(16) 283.

Background

Commission’s review and consultation

4.14The Commission held an external evaluation of the Regulation, which was completed in 2012. An extended consultation of all relevant stakeholders was completed in February 2014. The conclusions were published on 1st July 2014.

UK non-paper—May 2016 “The Review of the EU Regulation on Consumer Protection Cooperation”

4.15The Government published a non-paper on reform of the CPC Regulation in May 2016 to share with the Commission, Member States and UK enforcement authorities including the CMA, Trading Standards. It made the following four recommendations for improving the current Regulation, then expanding on each:

Stronger minimum investigative and enforcement powers

4.16The UK proposed that a stronger set of powers for conducting investigations and enforcement should apply to national enforcers or across borders where the home Member State has agreed to conduct a joint enforcement action. The Commission would have a coordination role in large scale joint enforcement actions, but not a direct enforcement role.

Redefinition of the scope of the Regulation

4.17The UK considered that duplication of effort in enforcement activity could be avoided by amending the Regulation to define several types of infringement clearly, for example, short-lived infringements60 and ceased infringements.61

4.18The Regulation should also more clearly define when an enforcement body needs to take action, when an enforcement body needs to support a fellow enforcer and/or when the Commission needs to become involved. At present, the procedure for co-ordinating cross-border enforcement activity only applies where the interests of consumers are harmed in at least two Member States.

4.19The Commission should have an important facilitative role in large scale joint actions, but it would not be consistent with the principle of subsidiarity for them to direct enforcement action.

4.20Clarification of the role and practice of the Commission was required, including information working practices such as the Commission sending letters to potentially infringing traders and shaping strategy for engaging with them. The UK would wanted to see the introduction of an infringement threshold which had to be reached before a case is referred to the Commission.

4.21A new procedure for widespread and large scale EU infringements, requiring joint actions, should be created.62 The need for action should be clearly indicated by the results of the EU “enforcer sweeps”63 and by following a detailed EU level Impact Assessment to determine prioritisation of infringements based on consumer harm/costs.

4.22The UK also suggested adding Article 20 of the EU Services Directive to the list of legislation covered by the Regulation, possibly together with the new geo-blocking proposal.

An improved mutual assistance mechanism

4.23The UK would like a new mutual assistance mechanism to be able to mitigate the difficulties created by different procedural rules for national enforcement authorities. It would like to see a clarified request structure, newly defined functions of enforcers, clearer processes for enforcers to follow and strengthened cooperation with national competent authorities.

Greater ability to share alerts and information

4.24The UK would like a more systematic categorisation and dissemination of alerts and surveillance information throughout the network. Alerts should be based on expected action, for example “Alert for action” and be subject to some follow-up obligation, such as exchange of information and a feedback mechanism so it is clear why an alert has not been acted on.

Summary of document (a)

4.25The Report identifies three main weaknesses in the framing and operation of the current CPC Regulation:

4.26The report also recommends that additional EU consumer legislation should be included in the Annex to a new CPC Regulation: the Rail Passenger Rights Regulation; the Regulation on rights of disabled persons and persons with reduced mobility when travelling by air; and pricing provisions of the Air Services Regulation, the Payment Accounts Directive and Article 20 of the Services Directive.

4.27It also suggests the following amendments to be made in the new CPC Regulation:

Summary of document (b)

4.28The proposed Regulation provides a mechanism for exchanging relevant information and, where necessary, taking enforcement action to stop consumer law infringements in cross-border situations. Competent Authorities (CAs) obliged to act upon mutual assistance requests addressed to them through the CPC Network and Member States must ensure that adequate resources are allocated to the Competent Authorities to meet those obligations. The Competition and Markets Authority (CMA) is the UK’s principal CA, but other bodies cover various sectors.

4.29The essential objective of the new proposal remains the same: that is, to continue “to guarantee a consistently high level of consumer protection throughout the EU and to reinforce consumers’ confidence in the internal market”. It includes the following proposals:

i)Expanding provisions on the designation of CAs, and specifying a range of ‘minimum powers’ that they should have in order to enable co-operation over enforcement of specified EU consumer legislation.64 These powers are mostly already available to UK enforcement agencies such as Trading Standards and the CMA, but there are also new civil powers (though no criminal sanctions) to impose penalties including fines and penalty payments and to close down websites run by third parties;

ii)Two types of mutual assistance mechanism: (a) requests for information and (b) requests for enforcement measures, enabling one national CA to ask another for information and/or to take enforcement measures. The proposal also enables resolutions to situations that can cause delay or difficulties in enforcement, sets out grounds for a national CA to refuse a request and enables the Commission to issue an opinion on such a refusal;

iii)New mechanisms for investigation and enforcement of ‘widespread infringements’, in which the Commission may take a co-ordinating role;

iv)A new surveillance mechanism to be operated by the Commission, so Member States can exchange information on infringements and raise alerts;

v)Limits on the use to which information or enforcement may be put, while allowing the creation of a database and system for exchanging information on infringements. Member States may not claim expenses from those requesting assistance, unless the assistance results in losses because cases were dismissed or held by a court to be unfounded;

vi)Requiring Member States to submit biennial national enforcement plans (replacing the current biennial enforcement reports), focussing on national and cross border enforcement priorities and national resources committed to enforcement of the Regulation. The Commission would monitor the implementation of the plans; and

vii)CAs must co-operate in implementing the EU consumer law measures set out in a list to the Annex to the proposal. Adding Article 20 of the Services Directive to the list will extend mutual assistance obligations to cases where unjustified discrimination on the grounds of nationality or residence is alleged in the provision of services. This complements the addition of the geo-blocking proposal to the list.

Impact Assessment—subsidiarity justification

4.30The Commission has also published an Impact Assessment and a corresponding executive summary. It sums up the justification for EU action as follows:

“The borderless nature of digital technologies poses challenges for the enforcement of consumer rights by public authorities whose action is constrained by their jurisdictional boundaries. On the other side, big online players implement their business models at the EU level, if not at the global level, directly. To ensure consistent enforcement of consumer rights across the EU and to tackle efficiently infringements of consumer rights legislation spanning over several Member States, it is necessary to coordinate public enforcement activities. The issue being addressed has therefore intra-EU aspects which cannot be sufficiently achieved by the Member States’ individual actions because they cannot ensure cooperation and coordination by acting alone. Cooperation between national authorities responsible for the enforcement of consumer protection law can therefore be better achieved at the Union level. Furthermore, action at the EU level would produce clear benefits (compared to Member States’ action) in terms of effectiveness and efficiency, as the improved Regulation could step up the use of this network-based cooperation model to ensure smarter enforcement of common consumer protection rules across the EU. There would be savings emanating from the EU-wide management of a widespread infringement (ca. EUR 180,000 in case of a successful action and EUR 815,000 in cases of a failed action) compared to individual responses by several Member States. The initiative would also improve the functioning of the Digital Single Market by contributing to reducing the consumer detriment that results from non-complaint practices, which amount to ca. EUR 770 million in the five consumer sectors.”

The Government’s view on document (a)

4.31In an Explanatory Memorandum (EM) of 15 June 2016, the Parliamentary Under-Secretary of State and Minister for Intellectual Property at the Department of Business, Innovation and Skills (Baroness Neville-Rolfe) states that:

“The publication of the report has no direct policy implications and is mainly factual. The report’s facts do correspond with the UK’s thoughts on the effectiveness of the existing Regulation.”

The Government’s view on document (b)

4.32In another EM of the same date, the Minister provides a summary of the new CPC Regulation set out at paragraph 4.29. She also provides the Government’s view of the Digital Single Market context of the proposal:

“In his January 2015 paper, the Prime Minister called on the EU to ‘take bold steps to create an open, flexible market with a regulatory framework that reflects the dynamic nature of the digital economy’. In EM8672/15, the government identified the Digital Single Market is an area where the EU can add value in supporting growth, employment and productivity. As such, the government welcomed the Commission’s Digital Single Market strategy, but urged a focus on reducing the burdens of regulation on business, and a continued focus on better regulation and evidence based policy making.”

4.33She then refers to the recommendations made by the Government in its non-papers (see the “Background” section to this chapter).

4.34On the important issue of compliance with the subsidiarity principle, the Minister does not raise any concerns:

“The cross-border aspects of Union consumer law cannot be sufficiently achieved by the Member States’ individual actions and Member States alone cannot ensure efficient cooperation and coordination of their enforcement activities.

“The use of the powers stemming from this Regulation is limited to intra-Union and widespread infringements where the powers available to authorities by national law cannot be effectively employed for reasons of jurisdiction. The proposed minimum powers to cooperate in the cross-border context need to stem from a Union-level instrument that surpasses national jurisdictional limitations. The introduction of the minimum powers by each Member State individually would not allow their use across national borders. This is why the minimum powers are to be used in the cross-border context. These jurisdictional limitations of enforcement actions of individual Member States are already recognised in Articles 2, 5, 6, 7 and 18 of the current CPC Regulation.

“Although the Commission has a role in leading and coordinating widespread infringements, this will only occur once the threshold has been reached. Member States will still be the primary leaders in coordinated actions on widespread infringements, if the infringement does not meet the threshold for EU dimension. The involvement of the Commission in such actions would be optional and would take place only when Member States deem the Commission’s support necessary or where it would be justified due to the scale or seriousness of the harm caused by the infringement.

“As under the current CPC Regulation, the proposal does not cover purely domestic infringements occurring in a single Member State only.”

4.35The Minister considers the proposal’s relationship with both EU fundamental rights and existing UK law. On fundamental rights she notes that:

4.36The Minister identifies that there is one main, potential impact on UK law: the extent to which the “minimum powers” of CAs (set out in Article 8(2)) exceed those already afforded to UK authorities. She explains:

“Under Part 8 of the Enterprise Act 2002 (‘the 2002 Act’), enforcement orders can be made against traders who have breached EU consumer laws, or an undertaking that they will cease the infringement may be given. These form the ‘enhanced consumer measures’ introduced by the Consumer Rights Act 2015.

“Under Schedule 5 to the Consumer Rights Act 2015, ‘EU enforcers’ (a defined term which includes the CMA, local weights and measures authorities and the Department of Enterprise, Trade and investment in Northern Ireland) acting in their capacity as ‘CPC enforcers’, have powers to require the production of documents and to seize and detain goods if they have failed to comply with an enforcement or interim order, or an undertaking.”

4.37A comparative assessment would therefore need to be undertaken of the proposed “minimum” powers and existing enforcement powers of UK authorities in order to assess impact and implementation requirements. In particular, she says that:

“wide powers requiring information in any format, purchasing goods under a cover identity, suspending or closing down a website, service or account, imposing penalties including fines and penalty payments, offering consumers the option to terminate the contract/other means of redress to consumers harmed by infringement of consumer laws, restitution of profits, publication of final decisions and ‘naming and shaming’ traders, as well as consulting consumers about proposed measures, would to a greater or lesser extent, all represent a departure from existing enforcement powers.”

4.38Such an assessment would also need to include proposals which give the Commission:

“a corresponding power to adopt implementing acts (similar to making Regulations under UK law, but with less scrutiny) in relation to the exercise of minimum powers (Article 10), the role of designated bodies (Article 13(6)), detailed procedures for common actions for widespread infringements (Article 20) and procedures for such infringements with a ‘Union dimension’ (Article 27).”

4.39The Minister judges the potential financial implications of the proposal to be minimal since the proposal is only building on an existing EU Regulation. She adds:

“The Commission believes that due to the current Regulation, Competent Authorities currently bear higher administrative costs as a consequence of cross-border cooperation inefficiencies (such as higher investigation costs). Due to the stepped-up enforcement coordination, national authorities will avoid duplicating their efforts and make significant savings. The Commission believes that pooling of resources to address widespread infringements will lead to savings: for instance, one coordinated action can replace 28 national actions, resulting, according to the Commission, in net savings varying from ca. EUR 180,000/£139,496 (in case of successful coordinated action) to approximately EUR 815,000/£631,609 (in case of failed action).”

4.40On consultation, the Minister tells us about the Commission’s review and consultation and the Government’s non-paper (see “Background”) and adds:

“As per the Referendum purdah guidance, BIS plans to hold normal stakeholder meetings in June and July to discuss the proposal with trusted stakeholders such as; the UK Consumer Protection Partnerships, the CMA’s Consumer Concurrency Group/CPC Enforcement Forum, and British Business and consumer interests. The lack of these discussions would be detrimental to detailed negotiations that are starting this month as stated in the ‘timetable’ section below.”

4.41On the future timetable for the proposal, the Minister says:

“The proposal will be covered by the Competitiveness Council. The Dutch Presidency has scheduled two Working Groups in June. The negotiations will carry over to the Slovak Presidency, but it is not yet clear to what extent they will prioritise the file.”

Previous Committee Reports

None.


54 Geo-blocking occurs when companies and online retailers apply barriers and impose restrictions to consumers on the basis of their nationality or place of residence. See the Proposal for a Regulation on addressing geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market and amending Regulation (EC) No. 2006/2004 and Directive 2009/22/EC: COM(16) 289, 9611/16.

55 Proposal for a Regulation of the European Parliament and the Council on cross-border parcel delivery services: COM(16) 285, 9706/16.

56 See chapters 3 and 5, respectively. The overarching Communication A comprehensive approach to stimulating cross-border e-commerce for Europe’s citizens and businesses, COM(16) 320 is accessible here.

57 More information on such actions is provided on the Commission’s website on coordinated enforcement action.

58 Information on this REFIT evaluation and public consultation launched on 12 May is accessible here. The six pieces of consumer legislation to be reviewed are: the Unfair Commercial Practices Directive, the Sales and Guarantees Directive, the Unfair Contract Terms Directive, the Price Indication Directive, the Misleading and Comparative Advertising Directive) and the Injunctions Directive.

59 The Evaluation and Fitness Check for the Consumer Rights Directive is accessible here.

60 A trader moves to a different jurisdiction before an enforcement case is finished resulting in a new case being opened in the new jurisdiction. This process can happen multiples times.

61 An infringement that has been investigated and “stopped” but due to a change in company/domain name, it may still operate.

62 Including a better definition of the role of case coordinator (where national authority or Commission), the expectation that they will lead on a binding CPC position and apply a follow-up protocol.

63 The Commission’s “Consumer Enforcement” website states that an “EU sweep” is “an EU-wide screening of websites in particular online sector. It is conducted in a form of simultaneous, coordinated checks to identify breaches of consumer law and to subsequently ensure its enforcement. Following such investigation, the relevant national authorities take proper enforcement actions: they contact companies about suspected irregularities and ask them to take corrective action or face legal action. Sweep actions reveal whether EU consumer protection laws are doing what they were designed to do. This kind of tool also enables to test the effectiveness of the enforcement action”.

64 Set out in the Annex to the proposal.




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11 July 2016