1A New Deal for Consumers
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Committee’s assessment |
Politically important |
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Not cleared from scrutiny; updates requested |
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Document details |
(a) Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee: A New Deal for Consumers; (b) Proposal for a Directive of the European Parliament and of the Council amending Council Directive 93/13/EEC of 5 April 1993, Directive 98/6/EC of the European Parliament and of the Council, Directive 2005/29/EC of the European Parliament and of the Council and Directive 2011/83/EU of the European Parliament and of the Council as regards better enforcement and modernisation of EU consumer protection rules; (c) Proposal for a Directive Of The European Parliament And Of The Council on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC |
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Legal base |
(a) —; (b) (c) Article 114 TFEU, Ordinary legislative procedure; QMV |
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Department |
Business, Energy and Industrial Strategy |
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Document Numbers |
(a) (39619), 7875/18, COM(18) 183; (b) (39618), 7876/18 + ADDs 1–4, COM(18) 185; (c) (39617), 7877/18 + ADDs 1–5, COM(18) 184 |
Summary and Committee’s conclusions
1.1Following a regulatory fitness (REFIT) review of European consumer and marketing law, which found that action should be taken to improve enforcement of EU consumer protection rules as well as consumers’ awareness of their rights, the European Commission has adopted a “New Deal for Consumers”, which consists of two proposed directives and a communication.1
1.2The first of the two proposals for a Directive (7876/18), would amend the four main consumer Directives: the Consumer Rights Directive (CRD),2 the Unfair Contract Terms Directive (UCTD),3 the Unfair Commercial Practices Directive (UCPD)4 and the Price Indications Directive (PID).5 This proposed Directive envisages the following key changes to the consumer protection acquis:
- To improve traders’ compliance with EU consumer law through the introduction of penalties, including fines, for breaches of consumer law under each of the four cross-cutting Directives. Member States would be able to determine the level of the cap in their country, subject to a minimum ‘floor’ level of 4% of a trader’s annual turnover. Member States would be required to take account of certain criteria when deciding whether to impose a penalty and at what level, although these criteria would be non-exhaustive. 13 out of 17 Member State authorities and all 16 consumer organisations surveyed supported the introduction of penalties and the establishment of common criteria across the EU for imposing fines.
- To improve transparency online and ensure that consumers are aware of their rights when purchasing goods from an online platform. This would be achieved through amendments to the CRD which would require online marketplaces to inform consumers about: how offers presented to them when using the online marketplace have been ranked; whether the contract would be concluded with a trader or not; whether EU consumer law applies to their transaction; and, where the contract is concluded with a trader, who is responsible for guaranteeing the EU consumer law rights related to their contract.
- To reduce the regulatory burden for business in relation to the consumer’s right of withdrawal from distance sales through the removal of two obligations which have been found to be particularly burdensome: the requirements for the trader to accept the consumer’s withdrawal from the contract when they have used the good more than necessary to establish their nature, characteristics and functioning, and for the trader to reimburse the consumer before they have had receipt of the returned good.
- To amend the CRD to extend its application to digital services, such as cloud storage or an email account, for which a consumer has paid using their personal data. Consumers would have the same right to pre-contractual information and to cancel the contract within a 14-day right-of-withdrawal period as with conventional paid-for services.
- To clarify the rules on misleading marketing of ‘dual quality’ products, amending the UCPD so that it is made explicit that a commercial practice involving the marketing of a product as being identical to the same product marketed in several other Member States, where those products have significantly different composition or characteristics causing or likely to cause the average consumer to take a transactional decision that he would not have taken otherwise, is a misleading commercial practice which competent authorities should assess and address.
1.3The former Parliamentary Under Secretary of State and Minister for Small Business, Consumers and Corporate Responsibility at the Department of Business, Energy and Industrial Strategy (Andrew Griffiths) indicated in an explanatory memorandum6 regarding the package that the Government had worked closely with the EU on its REFIT review of EU and consumer marketing law and its parallel review of the CRD, and supports EU efforts to ensure that consumers’ rights are robust and that they can be enforced effectively.
1.4In the explanatory memorandum the Minister emphasises that the Member States retain significant levels of discretion under the proposal: regarding redress, for breaches of the UCPD, Member States would retain discretion as to which remedies they make available, subject only to the requirement to provide both contractual remedies (as a minimum, the right to termination) and non-contractual remedies (as a minimum, the right to compensation); for penalties, Member States would also retain discretion to set a higher cap than the 4% minimum, and the criteria to be used in deciding whether to impose a fine and at what level are non-exhaustive.
1.5The Minister also notes that the package addresses many of the same themes which the UK is currently consulting on in the ‘Consumer Green Paper: Modernising Consumer Markets’.7 The Green Paper confirms the Government’s intention to bring forward domestic legislation which will, according to the Minister:
- give civil courts the power to impose financial penalties on traders for breaches of consumer protection laws;
- enable all consumer law enforcers, including the CMA and Trading Standards, to ask the courts to impose fines either as a standalone remedy, or in conjunction with the existing civil remedies such as injunctive relief, enforcement orders or enhanced consumer measures; and
- the financial penalty proposed will go further than the current ‘floor’ level of 4% set out in the New Deal and be subject to a total cap of 10% of a firm’s worldwide turnover.
1.6The second element of the New Deal for Consumers is the proposed Directive (EU) 7877/18 which would replace the existing Injunctions Directive with an instrument for the protection of consumers’ collective interests. The proposed Directive would cover both horizontal and sector-specific EU instruments which relate to the protection of consumers’ collective interests across sectors including financial services, energy, the environment and telecommunications. It would enable ‘qualified entities’, designated by Member States, to bring forward representative actions on behalf of consumers seeking measures which would oblige the trader to provide the consumer with compensation, a repair, replacement, price reduction, contract termination or a reimbursement of the price they have paid, as appropriate.
1.7In a separate explanatory memorandum submitted in relation to this proposal,8 the Minister notes that the Commission has made clear that it intends to avoid the potential for abusive litigation under the instrument, and that the entities should, as a minimum, be not-for-profit and have a legitimate interest in protecting consumers’ collective interests. The Minister states that the Government will work closely with the Ministry of Justice to ensure that any new rules introduced at EU level are proportionate to tackle consumer detriment and that the rules provide legal certainty.
1.8As drafted, both proposals provide for an 18 month period for the Member States to transpose them into national law (once the proposal has been negotiated and adopted); Member States would have to apply the provisions after a further 6 month period. If the transitional arrangements in the current draft Withdrawal Agreement become applicable, whether or not the UK will have to implement these provisions in national law, and to apply the provisions, before the transitional period ends, will depend on whether the institutions can make significant progress on the proposals before European Parliament elections in 2019, and whether there is an extension to the transitional period.
1.9The Communication9 which accompanies the legislative proposals also signals the Commission’s intention to agree bilateral or multilateral agreements for consumer-protection enforcement cooperation between the EU and third countries such as the USA, Canada and China. This cooperation would be facilitated by the stronger framework for the coordination of public enforcement authorities within the EU established by the revised CPC Regulation,10 which can be used as a basis for seeking cooperation agreements with third countries.
1.10On EU exit, the Minister states only that “the way consumer protections apply across the border with the EU in future is a matter for negotiations” and that it is not in either party’s interest “for rogue traders to target citizens based in the UK or EU.” On 12 July 2018 the Government published the White Paper “The Future Relationship between the United Kingdom and The European Union”, which set out the Government’s vision for the future economic partnership.11 In relation to consumer protection, the report states that that the UK “is committed to maintaining high standards”, and:
“To ensure that open trade between the UK and EU economies is not at the expense of consumers, and in the context of the future economic partnership, the UK proposes to commit to maintain reciprocal high levels of consumer protection. There should be cooperation on enforcement, including provisions to allow mutual exchange of information and evidence, and a framework to work collectively on areas of wider consumer detriment.”
1.11We have taken note of the Minister’s assessment of the New Deal for Consumers. The Minister emphasises that the Government has worked closely with the EU on its REFIT review of EU and consumer marketing law and its parallel review of the CRD, and that the package addresses many of the same themes which the UK is currently consulting on in its green paper on modernising consumer protection—including consumer protection in digital markets, redress, and penalties. The Government identifies no significant concerns with either of the proposed Directives, both of which it accepts comply with the principle of subsidiarity.
1.12The principal effect of the package is to strengthen enforcement of EU consumer protection rules. Enabling Member States’ competent authorities to impose fines of 4% (or more, at Member State discretion) of a business’s annual turnover for breaches of consumer law under each of the four cross-cutting consumer protection Directives will bring enforcement of consumer protection rules in line with the current data protection and competition enforcement in this respect. The proposed instrument that would replace the existing Injunctions Directive would enable consumer rights organisations to bring forward representative actions on behalf of consumers across the full range of horizontal and sector-specific EU consumer protection instruments. Taken together, these measures would significantly increase businesses’ incentives to comply with EU consumer protection rules.
1.13A variety of further updates and clarifications are proposed to ensure that consumer protection rules adequately reflect recent market developments. The proposed adaptations to developments in the digital economy are modest in scope, and would provide consumers with greater transparency when transacting online and also extend protections to online transactions in which the consumer pays for a service with their data. The removal of two disproportionate regulatory obligations is based on the Commission’s public consultation with SMEs and consumer associations. The provisions regarding the misleading marketing of ‘dual quality’ products will address widespread concerns about this practice in some Member States.
1.14Although the Minister does not identify any specific concerns, he indicates that the Government intends to closely monitor the proportionality of a number of aspects of the proposals as they develop, to ensure that:
- the proposed transparency requirements for online marketplaces do not pose a disproportionate burden on business;
- the removal of certain obligations on traders in relation to the customer’s right of withdrawal are fair for consumers; and
- any new rules regarding collective actions are proportionate to tackle consumer detriment and that the rules provide legal certainty.
1.15On EU exit, the Minister states that “the way consumer protections apply across the border with the EU in future is a matter for negotiations” but that it is not in either party’s interest “for rogue traders to target citizens based in the UK or EU.” We note that the Government’s White Paper “The Future Relationship between the United Kingdom and The European Union” published on 12 July 2018 states that, as part of the future economic partnership, “the UK proposes to commit to maintain reciprocal high levels of consumer protection” including “cooperation on enforcement, including provisions to allow mutual exchange of information and evidence, and a framework to work collectively on areas of wider consumer detriment.”
1.16We ask the Government to provide the Committee with an update regarding both proposed Directives when the shape of any anticipated General Approach or mandate becomes clearer. As part of this update, we particularly request that the Government clarify whether the text achieves satisfactory outcomes on the three points which the Minister identified as requiring further monitoring (see paragraph 14).
1.17In the same update, we ask the Government to provide further clarification of how it envisions UK-EU consumer protection working in practice within the context of the future relationship. We particularly ask the Government to clarify:
- Whether any existing EU arrangement with a country outside the EEA, and not including Switzerland, currently provides a level of reciprocal consumer protection that the Government would consider to be adequate within the scope of the future economic partnership, and if so, to elaborate on this arrangement;
- Whether any current EU agreements with third countries, other than the EEA and Switzerland, provide for a high level of participation in the intra-EU legal cooperation mechanisms and infrastructure that facilitate the protection of European consumers (e.g. RAPEX, the EU Rapid Alert System for dangerous non-food products; the European Consumer Centre Network, an EU-wide network of advice centres for consumers shopping across borders; cooperation facilitated by the Consumer Protection Cooperation Regulation)?
- How the Government envisages that consumer protection arrangements within the future UK-EU economic partnership would differ from, for example, the provisions of the EU-Ukraine Association Agreement12 (see particularly Chapter 20 and Annex XXXIX)?
- Whether, assuming that a transitional period is agreed as part of a withdrawal agreement, the Government would continue to implement and apply the rules of the proposed Directives in this package if the deadline for full transposition of the Directives’ provisions into national law were to fall within the transitional period, but the deadline for Member States to apply the Directive’s provisions were to fall after the transitional period had ended?
1.18We would also request the Government to clarify whether there is any overlap or conflict with the proposed Directive (b) and:
i)the proposed Directive concerning contracts for the supply of digital content13 currently being negotiated;
ii)the UK’s Consumer Rights Act 201514
both generally and in relation to the proposed extension of the existing Consumer Directive to digital services for which a consumer has paid using their personal data?
1.19We retain these proposals under scrutiny. In the meantime, we ask for a response to the above EU exit implications by 19 September 2018, and an update in relation to the two draft Directives when sufficient progress has been made in Council negotiations for the outline of any General Approach to be clear.
Full details of the documents
(a) Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee: A New Deal for Consumers: (39619), 7875/18, COM(18) 183; (b) Proposal for a Directive of the European Parliament and of the Council amending Council Directive 93/13/EEC of 5 April 1993, Directive 98/6/EC of the European Parliament and of the Council, Directive 2005/29/EC of the European Parliament and of the Council and Directive 2011/83/EU of the European Parliament and of the Council as regards better enforcement and modernisation of EU consumer protection rules: (39618), 7876/18 + ADDs 1–4, COM(18) 185; (c) Proposal for a Directive Of The European Parliament And Of The Council on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC: (39617), 7877/18 + ADDs 1–5, COM(18) 184.
Previous Committee Reports
None.
1 European Commission, A New Deal for Consumers: Commission strengthens EU consumer rights and enforcement (11 April 2018).
2 Directive (EU) 2011/83 of the European Parliament and of the Council of 25 October 2011 on consumer rights.
4 Directive (EC) 2005/29 concerning unfair business-to-consumer commercial practices in the internal market.
5 Directive (EC) 1998/6 on consumer protection in the indication of the prices of products offered to consumers.
6 Explanatory Memorandum from the Minister, BEIS (4 May 2018).
7 BEIS, Modernising consumer markets: Consumer Green Paper (11 April 2018).
8 Explanatory Memorandum submitted by the Minister, BEIS (4 May 2018).
9 Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee: a New Deal for Consumers 7875/18.
10 Regulation (EU) 2017/2394 of the Council and European Parliament of 12 December 2017 on cooperation between national authorities responsible for the enforcement of consumer protection laws and repealing Regulation (EC) No 2006/2004.
11 HM Gov, The future relationship between the United Kingdom and the European Union (12 July 2018).
12 Association Agreement between the European Union and its Member States, of the one part, and Ukraine, of the other part OJ 29.5.2014 L 161/3.
13 See (37389), 15251/15 + ADDs 1–2, COM (15) 634: Proposal for a Directive of the European Parliament and of the Council on certain aspects concerning contracts for the supply of digital content. The Committee already has under scrutiny
14 We note that the Consumer Rights Act 2015 only applies to digital content/services supplied for money and not personal data.
Published: 24 July 2018