By 13th June 2014 each Member State of the European Union is required to have legislation in place which gives effect to amendments required under the EU Consumer Rights Directive (2011/83/EC) which came into force on 22nd November 2011. The Directive harmonizes national legislation on consumer protection with the aim of helping consumers to be better informed and better protected when they buy goods and services from business sellers and this has given rise to major changes to consumers’ rights in individual Member States. In this article we consider the key changes and focus on the similarities and differences of the experience of their implementation in two Member States – Germany and the UK.
3 types of consumer contract
Certain contracts are exempt from the effect of the Directive, for example contracts for financial services and package travel/holidays, but these exemptions are of very limited scope. For consumer contracts within scope the Directive differentiates between, and applies differently to, three different types of contract, so in terms of compliance it is important to work out at the outset which of the rules your business will be subject to. The three types of consumer contracts are:
- On-premises contracts – contracts entered into where both parties are present at the seller’s place of business
- Off-premises contracts – generally, contracts entered into away from the seller’s premises and that are not distance contracts
- Distance contracts – generally, contracts concluded where the two parties are in different places throughout the negotiations. Contracts concluded online and most telephone and text contracts will be distance contracts
On 14th June 2013 the German parliament passed the Act on the Implementation of the Directive, which enters into force on 13th June 2014 after a transitional period of 1 year. The law modifies – among others – Sections 312 et seq. and Sections 355 et seq. of the German Civil Code.
Not only does the law affect single provisions, but it also modifies the structure of the Sections 312 et seq. of the German Civil Code as a whole. The provisions now apply to all kinds of consumer contracts: distance and off-premises contracts as well as – and this is new – consumer contracts in general, which means from 13th June 2014 on-premises sellers will also have to abide by certain provisions of the consumer protection law. This relates mainly to the obligation of sellers to provide consumers with certain information before they buy.
The UK has implemented the Directive’s provisions in new regulations on consumer contracts, the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013/3134. As for Germany, these regulations impose requirements on on-premises sellers in addition to those entering into off-premises and distance contracts. The current distance selling regulations will be repealed.
For all three types of contract sellers must ensure that certain specific information is provided to the consumer before they enter into the contract. For both Germany and the UK much of these information requirements existed under the old distance selling regulations, but now these requirements apply to on-premises contracts as well, albeit that for on-premises contracts the range of information that should be provided is more limited. Importantly, once such information has been given and the contract has been made, the seller is not permitted to change it without the consumer’s express agreement, effectively putting an end to the seller’s ability to determine elements of the contract after the consumer is bound (in most cases).
In both the UK and Germany where the relevant contract is for digital content the seller should also ensure that the information given to the consumer includes information on the digital content’s functionality, and any compatibility with hardware and software that the seller is or could reasonably be expected to be aware of.
For off-premises and distance contracts the seller should also provide the consumer with confirmation of the contract within a reasonable time after the conclusion of the contract.
Consumer withdrawal / cancellation rights
The most significant change for the majority of sellers relates to the consumer’s right of withdrawal from, or, in UK terminology, the right to cancel, distance and off-premises consumer contracts. Note that the right of withdrawal or cancellation has not yet been extended to on-premises contracts. From 13th June 2014 sellers will need to provide consumers with a model withdrawal/cancellation form and detailed information on their withdrawal or cancellation rights. In return consumers are obliged to exercise their right of withdrawal expressly and unequivocally. The withdrawal/cancellation period will be 14 days from the date of the contract across the European Union. Previously in Germany this withdrawal period was 14 days following notification of the consumer about the right of withdrawal in the course of concluding the contract, so that there is no significant change in Germany. However, this is a change in the UK where previously the cancellation period was either 7 working days or 7 calendar days, depending on the type of contract.
Where sellers do not properly inform consumers of their right of withdrawal/cancellation, the maximum withdrawal or cancellation period will now end after 1 year and 14 days at the latest. Limiting the consumer's right of withdrawal in time is new from a German legal point of view, while from a UK perspective this maximum period has been increased from 3 months to 12 months plus the original cancellation period.
Effect on contracts for digital content/services
In relation to purchases of intangible digital content, such as music or movie downloads, under German law the withdrawal period already commences upon conclusion of the contract. In this case the right of withdrawal will – under certain conditions – expire as soon as the seller has started executing the contract, meaning as soon as the consumer has started downloading the digital content. In addition there are a couple of exceptions to the right of withdrawal.
In the UK, where the contract is for intangible digital content, or for services, the seller should not allow, within the cancellation period, the consumer to begin downloading or streaming the digital content, or start to perform the service, until the consumer has expressly consented to receiving the digital content or service during the cancellation period, and acknowledged that in so doing they will be losing their cancellation right.
Where the consumer exercises their withdrawal or cancellation right the seller should refund the consumer within 14 days of either receiving the goods back, or receiving proof that the consumer has sent the goods back, whichever is the earlier. That refund should include the cost of outbound delivery (provided the standard delivery option was used), but need not include the cost of the return delivery to the seller unless the seller offered to bear this or did not tell the consumer that they would have to. In both the UK and Germany the seller is permitted to deduct an amount (up to the full contract price) from the refund for improper handling of the goods by the consumer i.e. where the consumer’s handling has gone beyond that which the goods would have received on a shop-floor.
Exemptions to this right
Notwithstanding that they may have been purchased by way of an off-premises or distance contract, in order to protect sellers there are certain contracts for goods and services to which the consumer’s withdrawal or cancellation right does not attach both in the UK and Germany, for example perishable goods and goods which have been personalised for the consumer.
Consumer payment obligations and additional charges
In both jurisdictions, where a business wishes to charge for optional add-on products and services, for example an extended warranty or gift wrapping service, they must get express consent from the consumer to make the additional charge for the add-on item. Consent cannot be inferred from the consumer not changing a default option; this means that businesses must not use pre-ticked boxes to add such extras on to the main contract.
Also, where the business in question offers a telephone helpline for consumers to phone in order to discuss their contract, calls to this line may not be charged at more than the basic rate. An exception to this rule may be where a business offers a technical support helpline but in this case it should offer a separate line for the former purpose.
The “hot button” issue
Another significant change to most European countries' legislation will be the so called “hot button issue”. From 13th June 2014 businesses throughout the European Union will not only have to disclose the total cost of the goods, services or digital content (including taxes) upfront, but also make sure that consumers are aware that they will enter into a contract with a payment obligation by labelling the confirm order button accordingly. Article 8(2) of the Directive suggests that the final button should read “Order with obligation to pay” - or something similarly unambiguous that it is a contractual agreement out of which a payment obligation arises.
The “hot button” issue is new to most European states, including the UK, who may look to the experience in Germany where the corresponding law came into force on 1st August 2013. It has already had quite some effect on German online businesses as they had to redesign their ordering processes to ensure that information is visible to consumers in a clear, comprehensible and prominent manner and that any order buttons are labelled with unequivocal payment obligation wording. Whilst initially the Directive’s suggested, and very formal, text was not always warmly received, it is now common practice to have “Jetzt kaufen”/”Buy now” or "jetzt kostenpflichtig bestellen”/“order now with an obligation to pay” buttons. Complying with these new provisions is even more crucial for online retailers in Germany as unlike other German consumer protection legislation, these requirements derived from the Directive are not only enforced by regulators or competitors, but instead failure to comply renders the entire contract invalid.
Unlike with cancellation rights, where the consumer intended to buy a product and changed its mind, here the intention is to protect consumers from entering into the contract to buy goods without intending to. If the correct “hot button” language is not used, such contracts will be unenforceable from the outset, including where they relate to bespoke or digital goods.
The Directive also prohibits businesses charging consumers a surcharge for the use of a particular method of payment to the extent that such surcharge is in excess of the costs borne by the business for allowing the use of that payment method – so high credit card processing fees should be a thing of the past. This change has been in force in the UK pursuant to the Consumer Contracts (Payment Surcharges) Regulations 2012 since 6 April 2013. Germany has adopted a slightly different approach: under the German legislation an agreement that obligates consumers to pay a surcharge for using a certain method of payment shall be invalid if: (i) there is no reasonable method of payment that is free of charge, or (ii) the fees exceed the cost borne by the business for the use of such means.
So what do you need to do now?
Businesses must act to ensure that they are ready for the new rules coming in from 13th June 2014 or they risk facing a range of sanctions including reputational damage, warning letters for unfair business practices, investigations by the regulatory body, injunctions or even compensation claims from consumers.
If you are a business who sells goods or services to consumers you should be:
- Ensuring that you have mechanisms in place to provide all the information you are required to give consumers before you enter into a contract with them
- Reviewing your terms and conditions of sale for compliance with the new rules, in particular in relation to consumer withdrawal or cancellation rights
- Training your staff on the new rules and any amendments you have made to your contractual documentation
- Reviewing any websites through which sales are made to consumers to ensure that click buttons which bind consumers to contracts are appropriately labelled and there are no pre-ticked boxes that increase charges for consumer orders
In Germany, the major changes, the “hot button" issue and related information requirements, have already been implemented in advance and businesses have therefore widely implemented the relevant changes to their online businesses. However, the new law still brings some amendments which businesses should start implementing to be prepared for June when the new legislation will come into force. These amendments mainly relate to additional information requirements - including for on-premises contracts - and the amended language regarding the right of withdrawal. Many businesses have already started reviewing their websites and amending their terms and conditions to comply with the new rules.
In the UK we are undergoing a period of sweeping change in consumer protection and much of the discussion to date has centred around the draft Consumer Rights Bill, a major shake-up of UK consumer law; consolidating current consumer law and introducing new statutory implied terms, a new tiered remedy system for defective goods and new consumer rights in relation to digital content, amongst other things. Many of the changes implementing the Consumer Rights Directive were previously discussed in connection with the Consumer Rights Bill, but the Bill’s slower than expected progress through parliament meant the changes had to be implemented by way of regulations, as described. The focus on the Consumer Rights Bill and its delay should not distract UK businesses from the significant changes already, or imminently, coming into effect in order to implement the Consumer Rights Directive.
The Consumer Rights Bill is expected to be passed in 2014 although as yet the proposed implementation date of this legislation is unknown. Government consultation suggests that there will be a suitable transition period for businesses to adapt to the new rules and we will report on the Bill’s provisions once finalised, however businesses should expect further reviews of their documentation and processes in order to remain compliant in the ever-changing consumer protection landscape.