In recent months, much discussion has taken place among legal professionals and the business sector in the Czech Republic about the amendment to the Consumer Protection Act (Act No. 634/1992 Sb.). The amendment is to increase consumer protection against unfair business practices, mainly in promotional events, and brings consumers a new and inexpensive alternative for resolving the majority of their disputes with traders. Let’s have a look at the implementation of the provisions into Czech law, bearing in mind that the new regulation has been compulsorily adopted in all other EU Member States (by means of Directive 2013/11/EU of the European Parliament and of the Council on alternative dispute resolution for consumer disputes, and Regulation (EU) No. 524/2013 of the European Parliament and of the Council on online dispute resolution for consumer disputes).

With effect from 1 February 2016, the amendment is to provide Czech consumers with faster, more effective enforceability of their rights in special out-of-court proceedings. Compared to court protection, the out-of-court proceedings are less demanding both in terms of money and time. Unlike consumers, entrepreneurs are not enthusiastic about the amendment, because they will have to bear an additional administrative burden that is now hard to estimate. In addition, they will have new obligations, the discharge of which will be reviewed by the Czech Trade Inspection Authority (“CTIA”), which will also impose high penalties for non-compliance. A big cause for concern for entrepreneurs is the fact that out-of-court consumer disputes will be resolved by an authority that is also the authority monitoring the fulfilment of all obligations of a trader to consumers. Therefore, many traders are worried about the potential misuse of information obtained by the CTIA in the out-of-court proceedings for administrative proceedings (if any). Only time will tell whether this concern is justified or not.

Obligations for entrepreneurs

The amendment imposes a new obligation on traders to inform consumers in a clear, comprehensive, and easily accessible manner (including via their websites) about the competent authority for out-of-court consumer dispute resolution. Traders have been bound by this general notification obligation since 1 February 2016, on which date the dispute resolution system was launched with the Czech Trade Inspection Authority. The amendment provides a three-month deadline following this date during which companies’ business terms must be adjusted (which, once amended, will also fulfil the notification obligation). Traders must, in addition, inform consumers repeatedly in the event of an imminent dispute that fails to be resolved directly – this must be either in paper form, or on any other permanent data carrier. Non-compliance with the amendment by a failure to discharge any of the above obligations may cost the trader up to CZK 1,000,000 (approx. EUR 37,000).

Out-of-court dispute resolution authorities

Besides the existing authorities for out-of-court consumer dispute resolution (the financial arbitrator, the Czech Telecommunication Office and the Energy Regulatory Office), whose powers are regulated by special laws, the Czech Trade Inspection Authority is to become competent for all other consumer disputes. To this end, the CTIA has hired dozens of new employees. In addition to the CTIA, the amendment assumes that consumer disputes will be resolved by other entities, authorised by the Ministry of Industry and Trade. In practice, this will include mainly professional associations, such as the Czech Bar Association, that is to resolve disputes between legal professionals and consumers, with effect from 5 February 2016. The Czech Bar Association will apply its existing conciliation rules, and has entrusted its Conciliation Committee with dispute resolution.

Consumer dispute resolution procedure

Out-of-court resolution of a consumer dispute before the CTIA or an authorised entity may only be initiated upon a consumer’s application. The application can also be filed electronically within one year of the first exercise of the disputed right against a trader. Within 15 business days of notification, the trader will be required to provide the CTIA or the authorised entity with its statement regarding the consumer’s application and to work closely and provide assistance for an efficient course of the dispute resolution. Again, a failure to fulfil the obligations will result in a penalty of up to CZK 1,000,000 (approx. EUR 37,000).

A change compared to the existing rules of alternative dispute resolution is mainly the time limit imposed on the disputes – they may not take longer than 90 days from initiation (the time limit can be extended by a further 90 days for particularly complex disputes). In addition, alternative consumer dispute resolution will not be subject to any fee. Ideally, the out-of-court proceedings will result in an agreement between the trader and the consumer. The CTIA will not have a power to resolve the disputes (such as would the courts) but will only be authorised to bring the parties to agreement by conciliation. The parties should be encouraged to reach agreement by CTIA’s professionally competent, independent and unbiased employees with a university degree in law. The CTIA or the authorised entity, will have a statutory authority to define detailed procedures for out-of-court dispute resolution, and will be required to clearly and comprehensibly notify the public about the procedure, along with the key points of the out-of-court dispute resolution (mainly via their updated website).

Procedures applied by the Czech Trade Inspection Authority are not deemed to substitute judicial proceedings, and may not deprive consumers or traders of their rights to seek remedy at court. This right inures to both parties at any time during the course of the out-of-court settlement of the consumer dispute, irrespective of its stage. However, if the consumer applies to the Czech Trade Inspection Authority, or any authorised authority after the litigation is initiated in respect of the dispute, the application will be rejected.

Consequences for entrepreneurs and consumers

Every diligent entrepreneur who makes contracts with consumers should be prepared for the amendment governing consumer disputes, which took effect on 1 February 2016. Larger businesses may also expect the number of consumer disputes to increase in the future. Consumers should choose carefully the entity they are going to purchase goods and services from, while there are many options as to how to find reputable entrepreneurs. Currently, no one has ventured to make a qualified estimate of how many disputes will be resolved by the CTIA in a year, and whether the new resolution method will be considered successful. What is certain is that the amendment provides consumers with a relatively powerful mechanism via which to exercise their rights.