Summary. The EU Commission has announced legislative reform which includes a proposal for consumer organisations to bring collective class-style actions on behalf of consumers, and fines for consumer law infringements of up to 4% of a trader's turnover.
If adopted, these changes have the potential to have a big impact on a company's risk profile across the EU as well as influencing the management of consumer relations.
The new proposal will also amend several consumer laws including the Unfair Contract Terms Directive, the Price Indications Directive, the Unfair Commercial Practices Directive and the Consumer Rights Directive. In addition, there is a parallel proposal to replace the Injunctions Directive.
Suggested changes to consumer law
1. Representative actions by non-profit groups. Consumer organisations and independent public bodies will be able to bring representative actions for redress on behalf of groups of consumers. As summarised in our November 2017 alert (available here), the Commission previously indicated that it would move to make such changes if Member States did not act to facilitate collective action. The Commission has emphasised that the collective redress mechanism is different from what it sees as an excess of opportunistic litigation associated with class actions in the US. Whether the differences are sufficient to address the potential for abuse is a question that should be addressed over the course of the consultation process. Importantly, treble or punitive damages are prohibited and only specific eligible non-profit entities will qualify to have standing to bring a representative action. Member States will be able to determine if the structure in their jurisdiction will be "opt in" so as to bind only those consumers who choose to participate, or "opt out" so as to bind all consumers unless they positively confirm that they do not wish to be bound by an action led by a consumer organisation. Consumers associations will be able to secure injunctive relief and recover damages by way of a "redress order", seeking to create a "one stop shop" for consumers and recovery in mass harm situations across the EU.
2. Increased penalties. National authorities will be able to impose more effective and dissuasive penalties for cross-border infringements of consumer law where the infringement impacts consumers in several Member States. For serious cross-border breaches, national authorities will have the power to impose a fine of at least up to 4% of a trader's turnover in those Member States.
3. Individual remedies. Consumers should have the right to terminate a contract and claim compensation when they are harmed by unfair commercial practices, including compensation claims against a manufacturer and not just the retailer.
4. Transparency for consumers in online marketplaces. Online marketplaces promote products sold to consumers either by the online marketplace or via third party sellers (who can be either professional traders or individual consumer sellers). Consumers may not be aware who they are contracting with when buying the product. New information obligations will require online marketplaces to inform consumers about (a) the main parameters for ranking offers on the marketplace; (b) if the entity selling on the marketplace is a trader or individual (c) whether consumer protection legislation applies and if the third party seller or the online marketplace is responsible for ensuring consumer rights under the contract.
5. Extending consumer rights to "free" digital services e.g. cloud storage and social media. Consumers will have same right of pre-contractual information and 14-day withdrawal right regardless if they pay for a digital service with money or provide personal data in return for the service.
6. More flexibility on communication with consumers. Traders will have more flexibility in how to communicate with consumers such as web forms or chats as an alternative to email (provided that it allows the consumer to keep a record of the communication).
7. Reimbursement for returned goods. Traders will be allowed to withhold reimbursement until actual receipt of the returned goods.
Next Steps. The Commission has suggested that the European Parliament and the Council both agree the proposed changes over the next year and before the European Parliament elections in May 2019.