EU Member States will need to introduce new laws implementing a Directive intended to modernise the vast raft of consumer law applicable within the EU as part of plans to protect consumers from unfair and opaque business practices and to bolster consumer rights. The rapid expansion of e-commerce and consumers' reliance on the digital market means that, in this space, current consumer legislation is seen as falling short of achieving its objective of adequately protecting the consumer. The Directive (also known as the “Omnibus Directive” as it revises a number of existing consumer-focused Directives) aims to address this gap between consumer law and reality by closing loopholes, broadening the scope for consumer protection in the digital sphere and harmonising the penalties for imposing unfair contract terms on consumers. The potential for significant penalties will put consumer protection compliance high on the agenda, in the same way as the introduction of higher fines under GDPR did.
Given Brexit, is the Omnibus Directive relevant to traders within the UK?
Member States will be required to implement the Omnibus Directive into their national laws by 28 November 2021 and apply the measures it contains from 28 May 2022. As the trajectory of Brexit remains unclear, it is not yet certain whether the UK will implement the ream of proposed changes (e.g. whether the UK Government would, post-Brexit, choose to align with these changes). However, UK traders selling into the EU Member States will, of course, still be affected and therefore need to understand the incoming changes. They should appreciate the concerted approach to legislating for transparency, openness and fairness to the consumer, in particular.
Proposed changes: how will traders be affected?
The Omnibus Directive primarily intends to address identified imbalances created by the swift development of the digital and online markets. It recognises the value that traders receive in selling their services to consumers in exchange for consumer data (i.e. without financial cost to the consumer). Consumers of free digital services will therefore be protected by the same rights applicable to those using paid-for digital services, for example, having the right to cancel a contract for digital services within 14 days of purchase. Such traders must also provide consumers with the requisite pre-contract information already required in respect of paid-for digital services.
The Omnibus Directive also takes aim at aggressive, misleading and unfair commercial practices in a variety of ways:
- It adds new blacklisted commercial activities to the Unfair Commercial Practices Directive: these broadly prohibit traders from submitting or commissioning fake reviews, or deleting negative ones, require transparency from traders as to how they rank search results in response to consumers’ online queries (i.e. how do they use paid for search advertising to generate search results), and require traders to take reasonable and proportionate steps to verify user reviews before claiming that they are genuine.
- Further requirements centre around maximising trader transparency: for example, traders must disclose their use of personalised pricing mechanisms on online marketplaces, not market goods as “identical” to goods in other Member States when in reality they differ in composition or character (i.e. prohibiting companies from selling inferior products in different Member States by relying on their global brand image), and provide detailed information as regards any discounts.
- It includes specific provisions to prohibit aggressive distance-selling practices and unsolicited home visits (predominantly to protect the elderly and vulnerable) and to provide consumers with individual remedies for unfair contract terms (e.g. compensation for damage and price reductions).
Further, the Omnibus Directive aims to harmonise the imposition of penalties for various breaches under consumer law (i.e. relating to breach of unfair contract terms, a trader’s obligations under the Unfair Commercial Practices Directive and the Price Indication Directive). The penalties that traders will be obliged to pay will depend on certain criteria such as: the scale and gravity of the infringement, whether that trader is guilty of repeated infringements, whether that trader has taken steps to mitigate its breach etc.
Member States may, after assessing the breach in light of these criteria, impose fines of up to 4% of a trader’s annual turnover in the Member State/s concerned (or, if no annual turnover can be established, fines of up to EUR 2,000,000). As with the potential fines available for breaches under GDPR, this will focus the mind for many businesses and highlights the importance ascribed to individual rights and protections (whether in respect of consumers contracting with traders or individuals providing data to organisations).