Documents considered by the Committee on 18th November 2016 Contents
3Digital Single Market: Consumer contract rights
Legally and politically important
Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Energy and Industry Strategy Committee
(a) Proposal for a Directive on certain aspects concerning contracts for the supply of digital content; (b) Proposal for a Directive on certain aspects concerning contracts for the online and other distance sale of goods
Article 114; ordinary legislative procedure; QMV
Business, Energy and Industrial Strategy
(a) (37389), 15251/15 + ADDs 1–2, COM(15) 634;
(b) (37390), 15252/15 + ADDs 1–2, COM(15) 635
Summary and Committee’s conclusions
3.1These proposed Directives aim to help deliver the Digital Single Market and boost e-commerce. They fully harmonise consumer contractual rights and remedies in relation to online trade in (a) digital content and (b) physical or “tangible” goods respectively.
3.2The Commission considers that the proposals will reduce legal uncertainty and compliance costs for businesses selling digital and other goods both online and cross border, so boosting consumer confidence in such trade. Both proposals are also legally significant because full harmonisation means that no Member State could give greater or lesser protection than set out in the Directive (such that certain aspects of consumer contract law would be fully harmonised across the EU). This means the proposals could have a significant impact in the UK both on consumers and businesses, particularly if they were to diverge significantly from existing consumer rights legislation, updated by the new Consumer Rights Act 2015 (CRA). The CRA specifically legislated for the supply of digital content and as such has established the UK as a leader in that field.
3.3Proposal (a) addresses sales to consumers of digital content (for example, downloads of digital music, films, apps, e-books) and services (for example, cloud computing and social media platforms) and includes transactions where personal data changes hands rather than money. Proposal (b) applies to online sales of tangible consumer goods (for example, the purchase of a waffle-maker from an online Belgian kitchen equipment supplier).
3.4In our last Report, we said that we would continue to conduct our scrutiny focussing on the following broad concerns and asked the Government to bear these in mind when providing future updates:
a)On proposal (a), the need for alignment with the CRA and the adoption of a proportionate instrument which will not stifle innovative UK tech businesses;
b)On proposal (b), that there is no reduction of long-established UK consumer protections on the sale of goods, which may suit the “maximum harmonisation” ambitions of the proposal;
c)That any internal inconsistencies and overlaps between both these proposals and the existing EU legislation on consumer protection will be managed properly, if needs be in a single overarching proposal—to avoid consumer and trader confusion arising from overly fragmented EU regulation; and
d)As an illustration of our concerns in (c), that the consistency and effectiveness is achieved on the issue of both private and public enforcement on both proposals, particularly in the light of the publication on 25 May of the Consumer Protection Co-ordination proposal.
3.5In our last Report, we also requested that we should have sight of the Government’s response to the REFIT review and the Government’s response to the review of the Consumer Rights Directive. The Government now responds to our questions and provides those documents which we summarise at paragraphs 3.15–3.18.
3.6We thank the Minister for her helpful letters on these proposals, including the enclosed submissions of the UK Government to the Commission’s EU Consumer REFIT and review of the Consumer Rights Directive.
3.7On proposal (a), we welcome:
a)the direction and focus of the negotiations so far on the question of consumer expectations in relation to “fitness for purpose” and “quality”, leaving damages remedies to regulation at national level and the need to reduce overlaps between this and the proposal on tangible goods (b); and
b)the Government’s focus on obtaining a text which aligns with the Consumer Rights Act and which does not, in the Minister’s words “stifle the innovative UK tech business”.
3.8We note that there appears to be general acceptance now that “free” digital content contracts will be covered by proposal (a) but that Government wants the type of data acting as payment to be closely defined and for practical remedies to reflect reasonable consumer expectations. We agree with the Government that legal clarity on obligations and rights in relation to such contracts will be key.
3.9We look forward to the Minister’s further updates as the negotiations on proposal (a) progress and when they commence on proposal (b).
3.10In relation to Brexit, we ask the Minister to indicate:
a)when she considers the legislative proposals are likely to be adopted; and
b)the extent to which the UK is likely to want to mirror in its post-Brexit domestic legislation the substance of the legislative proposals where there is a deviation from current UK law; and if so the extent to which this would require further agreement with the EU because it involves reciprocal cross-border rights and obligations.
3.11We retain the documents under scrutiny but draw this chapter and these documents to the attention of the Business, Energy and Industrial Strategy Committee.
Full details of the documents
(a) Proposal for a Directive on certain aspects concerning contracts for the supply of digital content: (37389), 15251/15 + ADDs 1–2, COM(15) 634; (b) Proposal for a Directive on certain aspects concerning contracts for the online and other distance sale of goods: (37390), 15252/15 + ADDs 1–2, COM(15) 635.
The Minister’s letters of 10 October 2016
3.12The Minister for Small Business, Consumers and Corporate Responsibility (Margot James) provides separate responses in relation to both proposals. She prefaces both with a reminder of the Government’s standard statement about its continued membership in the EU before Brexit.
Document (a)—the digital content Directive
3.13On this document the Minister provides the following update and response to the concerns we listed as (b)–(d) in our last Report and referred to in paragraph 3.4 above:
- At the end of the Dutch Presidency the JHA Council agreed a First Reading paper, which the Minister encloses;
- The Presidency set out broad areas of agreement after the first complete read-out in Council in the paper and areas where further clarification or compromise was needed to enable Member State agreement;
- The Government was pleased to note that the paper reflected all of the areas, mentioned in previous Ministerial correspondence and which were in need of further discussion in order to achieve a suitable balance between consumer rights and trader obligations;
- The paper, which was drafted with the participation of the incoming Slovakian Presidency, was designed to provide a steer for future negotiations, so the Government can be reassured that areas important to the UK will be the subject of further detailed discussion;
- The Government welcomes significant progress in one area in particular. In respect of assessing conformity with the contract, the Government has preferred an approach based on established consumer expectations: that a product should always be fit for purpose, as described and of a quality it is reasonable to expect in the circumstances. The Commission’s proposal relied on an initial assessment by consumers of deficiencies in the contract before being able to rely on objective criteria similar to the above. It is now clear that the UK “has achieved considerable purchase with other Member States” and that, in due course, the Government believes “suitable changes will be agreed”;
- The Government has taken account of the concerns highlighted in the evidence session of the EU Justice Sub-Committee of the European Union Committee of the House of Lords and can report some developments in respect of them. All those issues emphasised in our last Report have been discussed in the Working Group and are mentioned in the Presidency’s First Reading paper;
- As reported by the Presidency, the Commission’s proposal to harmonise specific damages provisions in the proposal received very little support from Member States and it seems likely therefore that Council’s position will be to remove the subject of damages from the scope of the Directive. Member States will therefore be able to regulate damages in this field as they see fit. This is relevant also to point d) of the concerns we highlighted in paragraph 3.4;
- On point c) of our concerns highlighted in paragraph 3.4 there is a general acceptance by Member States that “free” content (i.e. content paid for with access to a consumer’s data, as opposed to cash) should be covered. As the Presidency’s paper mentions, the issue of appropriate remedies will be discussed in more detail. The Government’s objectives in this area remain: to ensure clarity as to coverage by more closely defining the type of data which should be considered payment, and to set practical remedies which reflect consumer expectations in the circumstances;
- Turning to alignment with the Consumer Rights Act 2015 (CRA) and the adoption of a proportionate proposal which will not inhibit innovative UK tech business, the Minister confirms that the Government will continue to take every available opportunity to argue for this and for practical remedies reflecting normal consumer expectations. In doing so, notwithstanding the broader scope of the proposal, the Government hopes that normal business behaviour would not need to change significantly from that required under the CRA;
- Issues of internal overlaps between this and the proposal on the online sale of tangible goods, and existing rules on the supply of goods is a “very live concern” among other Member States as well as the UK, reflecting the need for coherence across EU consumer contract regulation. The Commission is alert to this as part of the background of its EU consumer and marketing law REFIT;
- The Commission launched its REFIT in May to consider the need for improvements to existing legislation. The review includes a public consultation looking at all the dossiers in question and a series of consultations on individual dossiers. The results of these exercises will inform subsequent proposals to update consumer law, due June 2017;
- The Directives included in the REFIT are:
- Misleading and Comparative Advertising Directive: prohibits misleading business to business advertising and regulates advertising by comparison with competitors’ products;
- Unfair Commercial Practices Directive: prohibits misleading and aggressive commercial practices by traders to consumers before during and after any contract has been agreed;
- Unfair Contract Terms Directive: prohibits unfair standard terms in contracts;
- Sales and Guarantees Directive: stipulates minimum contractual rights in case of defective goods;
- Price Indication Directive: requires indication of the selling price and of the unit price, including in advertising; and
- Injunctions Directive: provides for a mechanism for enforcement of consumer protection rules in case of infringement by traders.
Document (b)—the online and distance sale of goods Directive (tangible goods)
3.14In relation to this proposal, the Minister says:
- The Commission and the Slovakian Presidency are continuing to prioritise the digital content proposal;
- This is to ensure that the tangible goods proposal can take into account the results of the Commission’s REFIT analysis of the consumer acquis, once they are available. The UK has welcomed this approach;
- In response to the concern expressed in our last Report that there should be no reduction in consumer protection as a result of EU harmonisation, the Government believes that the right balance needs to be found between realising the potential of the Digital Single Market as set out in the Commission’s strategy and maintaining a high level of consumer protection and confidence in the UK; and
- The Government also reassures us that it will be taking fully into account the views of stakeholders, representing both consumers and traders as it develops a negotiating position.
Our summary of the Government’s submissions to the Consumer REFIT and the review of the Consumer Rights Directive
3.15Enclosed with the Minister’s letters were the two Government submissions which we requested on the Consumer EU law and legislation REFIT and the review of the Consumer Rights Directive (CRD). We now summarise their content.
3.16As the Minister says in her letter on proposal (a), the key provisions of CRD are: requirements to provide certain pre-contractual information to consumers; withdrawal rights in respect of distance and doorstep sales and the prohibition of overcharging for using any given means of payment. The Directive generally aims to achieve full harmonisation, but a few articles allow Member States to diverge from their scope. The Commission aims to evaluate how the Directive is viewed by consumers and businesses and how it is applied in Member States. The CRD was implemented in the UK by the Consumer Contracts Regulations 2013 (S.I 2013, No.3134).
3.17On the CRD, the Government’s submission is detailed and wide ranging. However, we lost some general points of relevance to the current proposals:
- Some businesses have raised questions about a number of provisions where there are different interpretations across the EU which causes confusion. These include withdrawal and refund rights and confirmation of cancellation rights;
- Of particular relevance to proposal (a), there is also confusion as to the interpretation of various rights relating to digital content. These include in particular: the question of what falls within the definition of digital content as opposed to provision of a service (the example is given of subscription to a TV channel), express agreement to contract changes and deadlines for the confirmation for off-premises and digital contracts as these affect timeframes for withdrawal rights. The Government also says the relationship between the proposed digital content Directive and the CRD should be expressed clearly so that businesses and consumers are in no doubt as to their obligations and rights respectively; and
- The Government questions whether all the information requirements and 14 day withdrawal rights provided by the CRD should be applied to contracts for digital content, where content is being provided “free” in exchange for consumer data (and not money)—for example in the case of access to Facebook, Twitter, cloud storage of photos. This submission should be read in the light of what the Minister now says about there being general acceptance by Member States that such contracts should fall within proposal (a).
3.18On the REFIT on EU consumer law, some key points from the Government’s submission are:
- That the UK’s long-established right for consumers to reject faulty goods and get a refund within 30 days of purchase is an essential part of the UK consumer law framework—it boosts consumer confidence when buying unfamiliar brands or at smaller retailers and increases competition and product standards;
- Any revision of existing EU consumer legislation will be most effective if solutions are proportionate, strike a good balance between burdens on business and consumer protection and take into account Member States consumer environments; and
- The submission suggests a number of tools (regulatory and non-regulatory) which, in the UK experience, can tackle barriers to consumer protection. These include: a clear, consistent statutory regime which is easier for consumers to apply and understand—in the UK the CRA; voluntary codes of practice tailored to a trade sector which, if breached, can amount to a breach of the law of unfair commercial practices; traders internal complaints procedures; researching how unfair “small print” clauses, especially as part of online contracts, can be made easier for consumers to understand (the Government has been working with consumers organisations on this); harmonising consumer and marketing rules and encouraging alternative dispute resolution.
- In terms of possible future changes, the Government urges an evidence-based approach:
- Whilst it welcomes streamlining of existing law which would make it easier for traders to comply with the law, not impose extra burdens on business or reduce consumer protection, it notes the different intended effects of the Unfair Commercial Practices Directive and the CRD and warns against confusing them;
- It sees some potentially difficult issues with a single horizontal instrument as certain sectoral laws have a complex relationship with existing consumer and marketing law which would need to be taken into account. Sector specific rules also enable enforcers to take appropriate action to protect consumers. If sector specific legislation clearly sets out its relationship to horizontal rules then it is unlikely that there will be problematic gaps and overlaps;
- It points out that in England and Wales the limitation period for contractual remedies is six years from the date on which the contract is made and five years from discovery in Scotland;
- If a liability period of two years was introduced then consumers of the sorts of goods that a reasonable person would expect to last longer than two years (e.g. fridge/freezers) would lose access to remedies previously enjoyed;
- Existing law offers the right balance between protection from misleading advertising and trader deception whilst maintaining freedom to contract to meet business needs; and
- Clarity is needed over the definition of consumer and trader.
Previous Committee Reports
(a) and (b): Sixth Report HC 71-iv (2016–17), chapter 3 (15 June 2016); (a) Twenty-third Report HC 342-xxii (2015–16), chapter 4 (10 February 2016); (b) Twenty-third Report HC 342-xxii (2015–16), chapter 5 (10 February 2016).