The EU Commission proposed Wednesday a European collective redress right as part of a ‘New Deal for Consumers’ to ensure that all consumers within the countries in the European Union fully benefit from their rights under Union law.
Despite having some of the strongest rules on consumer protection in the world, the Commission says recent cases such as the Dieselgate scandal have shown that it is difficult to enforce them fully in practice.
“In a globalised world where the big companies have a huge advantage over individual consumers we need to level the odds,” said Consumer Commissioner Vera Jourova: “Representative actions, in the European way, will bring more fairness to consumers, not more business for law firms. And with stronger sanctions linked to the annual turnover of a company, consumer authorities will finally get teeth to punish the cheaters.”
The Commission says the ‘New Deal for Consumers’ will empower qualified entities to launch representative actions on behalf of consumers and introduce stronger sanctioning powers for Member States’ consumer authorities. It will also extend consumers’ protection when they are online and clarify how EU law to clarify that dual quality practices misleading consumers are prohibited.
The package will mean:
- Strengthening consumer rights online
- More transparency in online market places –When buying from an online market place, consumers will have to be clearly informed about whether they are buying products or services from a trader or from a private person, so they know whether they are protected by consumer rights if something goes wrong.
- More transparency on search results on online platforms –When searching online, consumers will be clearly informed when a search result is being paid for by a trader. Moreover, online marketplaces will have to inform the consumers about the main parameters determining the ranking of the results. New consumer rights for “free” digital services –When paying for a digital service, consumers benefit from certain information rights and have 14 days to cancel their contract (withdrawal right). The New Deal for Consumers will now extend this right to ‘free’ digital services for which consumers provide their personal data, but do not pay with money. This typically would apply to cloud storage services, social media or email accounts.
- Giving consumers the tools to enforce their rights and get compensation
- Representative action, the European way – Under the New Deal for Consumers it will be possible for a qualified entity, such as a consumer organisation, to seek redress, such as compensation, replacement or repair, on behalf of a group of consumers that have been harmed by an illegal commercial practice. In some Member States, it is already possible for consumers to launch collective actions in courts, but now this possibility will be available in all countries in the European Union.
For example, in a Dieselgate-type scenario, victims of unfair commercial practices, such as misleading advertising by car manufacturers not in compliance with EU regulatory framework for type approval of vehicles or environmental legislation will be able to obtain remedies collectively through a representative action under this Directive. Such collective redress was previously not provided under Union law.
This model has strong safeguards and is distinctly different from US-style class actions. Representative actions will not be open to law firms, but only to entities such as consumer organisations that are non-profit and fulfil strict eligibility criteria, monitored by a public authority. This new system will make sure European consumers can fully benefit from their rights and can obtain compensation, while avoiding the risk of abusive or unmerited litigation.
- Better protection against unfair commercial practices –The New Deal for Consumers will ensure that consumers in all European Union Member States have the right to claim individual remedies (e.g. financial compensation or termination of contract) when they are affected by unfair commercial practices, such as aggressive or misleading marketing. This protection currently varies greatly across the EU.
- Introducing effective penalties for violations of EU consumer law
EU consumer authorities are not well equipped to sanction practices creating ‘mass harm situations’ that affect a large number of consumers across the EU. Currently, the level of penalties differs widely depending on the Member State, and is often too low to actually have a deterrent effect, particularly on companies operating cross-border and on a large scale.
Under the proposal, national consumer authorities will have the power to impose effective, proportionate and dissuasive penalties in a coordinated manner. For widespread infringements that affect consumers in several EU Member States, the available maximum fine will be 4 % of the trader’s annual turnover in each respective Member State. Member States are free to introduce higher maximum fines.
- Tackling dual quality of consumer products
Following up on the Commission’s guidelines from September 2017, the New Deal for Consumers will update the Unfair Commercial Practices Directive in order to make explicit that national authorities can assess and address misleading commercial practices involving the marketing of products as being identical in several EU countries, if their composition or characteristics are significantly different.
- Improved conditions for businesses
The New Deal will remove unnecessary burden for businesses, including by lifting obligations on companies as regards the consumer’s withdrawal right. For instance, consumers will no longer be allowed to return products that they have already used instead of merely trying them out, and traders will no longer have to reimburse the consumers before actually receiving the returned goods.
The new rules also introduce more flexibility in the way traders can communicate with consumers, allowing them to also use web forms or chats instead of e-mail, provided the consumers can keep track of their communication with the trader.
The Commission’s proposals now need to be discussed by the European Parliament and the Council.