Happy New Year? Higher fines for consumer protection offences are on their way

The eagerly awaited first legislative instalment of the EU's New Deal for Consumers package was published somewhat quietly and with surprisingly little fanfare on 18 December 2019. It came into force on 7 January 2020 and applies from 28 May 2022, with member states needing to adopt legislation by 28 November 2021. This relatively short Directive certainly packs a punch, comprising only nine articles, of which four contain the nitty-gritty. This article summarises the changes made to key consumer protection legislation, what businesses need to be aware of and what they need to prepare for.

The Articles and what they amend:

Key points

Penalties for breaches of consumer law

• The Directive seeks to address the lack of consistent, effective and proportionate measures at national levels, and for cross-border infringements. It sets out common non-exhaustive and indicative criteria for the level of penalty to be imposed, which are inserted into all four Directives. These include:
  • nature, gravity, scale and duration of the infringement
  • any redress provided by the trader to consumers for the harm caused
  • any previous infringements by the same trader
  • the financial benefits gained, or losses avoided by the trader
  • in cross-border cases, any penalties imposed by other countries for the same infringement
  • any other aggravating or mitigating factors.
• Significantly, to act as a deterrent, the maximum level of fine to be imposed under national law must be at least 4% of the company's annual turnover in the country or countries concerned. This does not prevent higher levels from being set, and fines can also be based on global turnover. Where annual turnover is not available, the maximum fine is to be at least €2 million. These penalty provisions are inserted into the UTD, the UCPD and the CRD.

Information requirements on online marketplace platforms

• Concerns around the lack of clarity on the status of sellers using online marketplaces and therefore the rights of consumers in individual transactions have been addressed by amendments to the CRD.
• The new provisions require the marketplace to provide the following information pre-contract, in a clear and understandable manner:
  • Whether the third party seller is a trader or non-trader, based on the declaration made to them by the third party.
  • When the third party declares that it is a non-trader, a short generic statement to the effect that consumer rights stemming from EU consumer protection law do not apply to the contract. Detailed information on the specific consumer rights which do not apply is not required, aside from the information required under the CCRs.
  • How contractual obligations are shared between the third party supplier and the online marketplace. The marketplace can either make clear that the third party trader is solely responsible for those rights or where applicable, describe its own specific responsibilities – for example, if it is responsible for delivery or if it should be notified of the cancellation of the contract by the consumer.

Ranking of online search results

The UCPD has been amended to require:

• Traders providing online search results (including intermediaries and comparison websites) must disclose whether a higher ranking has been influenced by paid-for advertising or another form of direct or indirect payment (eg the receipt of increased commission per transaction) in return for a higher ranking.
• Traders enabling consumers to search for goods and services offered by different traders or consumers must provide information about the default main parameters determining the ranking of offers presented to the consumer as a result of the search query and their relative importance as opposed to other parameters. That information should be succinct and made easily, prominently and directly available. Parameters determining the ranking means any general criteria, processes, algorithms or other mechanisms used in connection with the ranking.

Customer reviews and endorsements

• The Directive reflects the ongoing focus on fake or paid-for customer reviews by including the following provisions in the UCPD:
  • when traders provide access to consumer reviews, they must provide clear information on whether processes or procedures are in place to ensure that those reviews are from consumers who have actually used or purchased the products, how verification checks are made and how reviews are processed. This includes explaining if all reviews, both positive and negative, are posted, and whether those reviews have been sponsored or influenced by a contractual relationship with a trader.
  • It is now an unfair commercial practice to mislead consumers by stating that reviews of a product were submitted by consumers who actually used or purchased that product when no reasonable and proportionate steps were taken to ensure that they originated from such consumers.
  • Traders are also prohibited from submitting fake consumer reviews and endorsements, as well as from manipulating consumer reviews and endorsements, for example, by publishing only positive reviews and deleting the negative ones. This includes using social endorsements, where a user’s positive interaction with online content is linked to different but related content, giving the appearance that the user is also positive towards the related content.

Digital content and services

• The definitions of digital content and digital services in the CRD have been aligned to those in Directive (EU) 2019/770 – ie 'digital content’ means data which is produced and supplied in digital form; and ‘digital service’ means a service that allows the consumer to create, process, store or access data in digital form; or a service that allows the sharing of or any other interaction with data in digital form uploaded or created by the consumer or other users of that service.
• The consumer's right to cancel will apply to both digital content and digital services, but content remains subject to the loss of those cancellation rights where the customer has given express consent for the performance to start during the cancellation period.
• In addition, the rights under the CRD are extended to contracts where consumers supply personal data for digital content/services and is not paid-for, unless the data is only used for the supply and no other purpose.

Dual-quality products

• The UCPD has been amended to make clear that it is an unfair commercial practice to market goods as being identical to goods marketed in other member states, where that good has significantly different composition or characteristics, unless this can be objectively justified. This aligns with the existing position on dual-quality food products.

Price reductions

• The PID is amended to require traders to state the previous selling price where they are running a price reduction promotion. That previous price must be the lowest price applied for at least 30 days before the price reduction, although if the product has been on the market for less than 30 days, a shorter period can be provided for.
• Member States can also provide that, where the price reductions are progressively increased, the previous selling price should be the price at which the product was sold before the first price reduction.
• Given the current Pricing Practice Guidance issued by the CTSI, this is an area where the UK is ahead of the EU in terms of the regulation of price promotions, so it will be interesting to see whether the Government chooses to amend the legislation to reflect the position.

Conclusion

As traders can see, the changes to the penalty regime and hikes in the level of fines which will apply for breaches of consumer law are pretty ferocious. Businesses should take stock of their terms and conditions and customer review procedures and update these as required before the May 2022 deadline, to avoid being hit by hefty fines. Many will be disappointed to note that the Directive does not remove the obligations to accept cancellation where goods have been used, or to provide reimbursement before goods have been received back. On a lighter note, the references to fax numbers in the CRD have finally been removed.

Given the focus on cross-border elements, particularly on the penalties to be imposed, we expect the Government to amend UK legislation in accordance with the Directive, as to be out of step on consumer law post-Brexit is not something we would expect the Government to advocate, given the importance of UK businesses being able to trade with consumers across the EU. It would also be out of kilter with the Government's stated intentions, set out in the Green Paper on Modernising Consumer Markets, on the introduction of legislation to give civil courts the power to impose financial penalties of up to 10% of global turnover, and to ensure that existing consumer protections provided through EU laws implemented in the UK will be maintained post-Brexit.