What is happening?
The EU has committed to improving consumer protection in a strategy sometimes labelled the “New Deal for Consumers”. As part of that strategy, the Enforcement and Modernisation Directive, also known as the Omnibus Directive (Directive) came into force on 7 January 2020. Member States have until 28 November 2021 to adopt the Directive, and until 28 May 2022 to bring it into force. The Directive expands the scope of existing consumer rights legislation applying to physical goods and services to also cover digital goods, content and services – and introduces GDPR-level fines for non-compliance.
Following Brexit, the UK will not have to transpose the Directive into UK law and any UK implementation will remain to be seen. However, the Directive will apply to digital goods and services within the EU so it will have extraterritorial effect in the UK for retailers providing those goods and/or services to consumers in the EU.
In a previous edition of Retail Compass, we considered in detail the various EU directives being updated as part of the New Deal for Consumers – namely the Directive on Representative Actions, the Digital Content Directive and the Sale of Goods Directive. For an overview of these, see our article entitled ‘EU consumer law reform: the “next GDPR”?’. This includes a summary of the new consumer protections being introduced, including consumer redress measures and bringing collective actions.
Why does it matter?
Retailers who provide goods and/or services to consumers in the EU should note in particular the following updates brought in by the Directive:
If retailers don’t comply with the Directive, they can face steep fines at similar levels to those levied under the GDPR. Firms can be issued penalties of a minimum of 4% of a company’s annual turnover in the relevant Member State or €2m if a calculation of turnover is not possible.
Prohibition on fake reviews
The Directive will prohibit the submission or commissioning of fake reviews, or deleting negative ones, and retailers will have to take reasonable and proportionate steps to verify user reviews before claiming that they are genuine. This puts a clear onus on retailers to ensure reviews are legitimate, and not to skew their perspective to only the positive – and also to hold verifiable evidence of reviews.
Was/now pricing: minimum timeframes
The Directive also addresses the issue of was/now pricing, setting a requirement that base prices must have been available for at least 30 days (or longer), and to disclose where a price is altered for a consumer based on automated decision-making (ie personalised pricing). However, there will be exceptions for goods which are liable to deteriorate or expire rapidly and it is unlikely that the transparency requirement will apply to techniques such as ‘dynamic’ or ‘real-time’ pricing and/or digital goods or services.
Digital goods and content
The following is of particular relevance to retailers selling goods or services with a digital element. Through updates to the Digital Content Directive and the Sale of Goods Directive, the Directive will also align consumer protections in relation to digital goods and services with their physical counterparts:
- Goods: the Sale of Goods Directive regulates goods, now including those with a digital element (eg smartwatches). Some significant issues include: requirement to be fit for purpose; consumers must receive all reasonably expected accessories and instructions, and any updates necessary to keep goods with digital elements, digital content and digital services in conformity; a two-year guarantee period in relation to defects following delivery; and the burden of proof in relation to non-conformity is shifted to the trader (eg goods defective within one year of delivery will be taken to have not conformed to it on delivery).
- Content: consumers of free digital content services (ie where individuals provide personal data as consideration) will benefit from consumer rights, which include: (i) the right to cancel a contract for digital services within 14 days; and (ii) the right to receive the necessary pre-contractual information. Although subject to some limited exceptions, consumers’ personal data will now equate with money or digital currency as a valuable consideration in the online marketplace.
What action should you consider?
- Consider reviewing and updating your processes for verifying consumer reviews; reviews will be expected to be verifiable and relevant consumers informed of your process for verification (for example, where reviews are hosted or within consumer T&Cs).
- Do not extrapolate positive reviews for one product/content vs another.
- Ensure influencers can substantiate reviews and avoid commissioning false reviews (such as by incentivising leaving a 5-star review for a chance to win a holiday – see the ASA’s ruling in the UK on Vindicta Digital, September 2018).
- Be aware that certain products categories are restricted in terms of who can provide reviews, for example neither health professionals nor celebrities should be used to endorse medicines.
- For reviews relating to UK sales, also consider the UK’s Committee of Advertising Practice’s (CAP) guide to testimonials and endorsements entitled Avoiding Fake Views.
- As per the CAP guidance, consider holding evidence that any testimonials, endorsements/reviews are real (unless they’re obviously fictitious) and that they accurately reflect what the person said. CAP advises advertisers to obtain the consent of the person featured in the testimonial or endorsement and to retain their contact details for as long as any related ads are used.
- Retailers may consider using a third party consumer review platform in order to try to shift the compliance burden around documenting customer reviews. However, we suspect many platforms will be alive to the new requirements and therefore seek to limit their role to hosting reviews rather than taking responsibility for compliance with the Directive.
- Review and update your pricing processes as you will need to ensure that all ‘was’ prices have been available at least 30 days (in respect of EU sales).
- Consider whether you currently use any personalised pricing, as this will need to be disclosed into listings where necessary.
- Remember the new was/now rules only apply to goods, not to (eg) digital content and digital services.
Digital goods and content
Review your existing T&Cs relating to any digital goods/services you sell to EU consumers as these will now need to incorporate consumer rights, including a right to cancel the contract and the provision of pre-contractual information.
A final note on Brexit/UK sales...
The UK is not bound to implement the Directive and it is not yet clear how far the UK will embrace the changes ie, in relation to sales to UK consumers. In respect of the Directive, the UK Government has published the Green Paper “Modernising Consumer Markets” (April 2018). This broadly mimics the Directive but currently the proposal is for a cap on financial penalties of 10% of a firm’s worldwide turnover (ie even higher than those set under the Directive). However, in respect of representative actions by consumers: if widely used across the EU, we expect the UK is likely to see an increase (or at least greater interest) in collective actions for consumer law infringement, especially if spurred on by European consumer success.