Following protracted considerations by various parts of the EU legislature, the EU Council of Ministers adopted a new Consumer Rights Directive on 10 October 2011. As can be seen below, the terms of this new Consumer Rights Directive will have a direct effect on the online operations of traders based in the UK and across the EU.
HOW DID WE GET HERE?
Over three years ago, in October 2008, as part of its ‘Review of the Consumer Acquis’, the European Commission adopted a proposal for a new Consumer Rights Directive1, 2. The proposal was that four existing Directives on:
- contracts negotiated away from business premises (Directive 85/577/EEC)3;
- unfair terms in consumer contracts (Directive 93/13/EEC)4;
- distance contracts (Directive 97/7/EC)5; and
- consumer sales and guarantees (Directive 1999/44/EC)6
be replaced by one consolidating Consumer Rights Directive7.
Originally it was intended that the Consumer Rights Directive would create a set of consumer rights across all EU member states that could be uniformly relied on by consumers, safe in the knowledge that all national laws in these areas would be harmonised. The objectives of the proposal were to enhance consumer confidence in the EU internal market and encourage businesses to trade cross-border, so that the EU internal market for B2C would function better8.
While these intentions still remain today, the scope originally proposed for the Consumer Rights Directive has been narrowed. In particular, original considerations on unfair terms have been put to one side. Despite this, the objectives remain valid and current and are to be achieved through: decreasing legislative fragmentation; tightening up the regulatory framework; and providing consumers with a high common level of consumer protection, and adequate information about their rights and how to exercise them.
WHAT DOES THE NEW CONSUMER RIGHTS DIRECTIVE COVER?
To fulfil the general objectives, the new Consumer Rights Directive sets out a series of rules that are applicable to most business-to-consumer contracts for sales of goods and services. These rules address matters on an EU-wide basis, seeking to bring harmony across member states’ laws on topics such as pricing, additional costs, unfair contract terms, contract cancellation, refunds, and returns.
The Consumer Rights Directive covers contracts concluded between a trader and a consumer, but a number of contract types remain outside the scope of the new Directive. In particular, contracts made at a distance that relate to financial services such as insurance, pensions, banking and credit are governed by a separate Directive subject to certain exceptions, including financial services, real property, gambling and healthcare contracts (Article 3(3))9.
As its name suggests, the new Consumer Rights Directive is intended to protect ‘any natural person who is acting for purposes that are outside his trade, business, craft or profession’ – a ‘consumer’. Despite this, flexibility is also provided for in the Recitals of the Consumer Rights Directive, where certain applications of the rules may be expanded to bring benefit to legal or natural persons who are not consumers, such as non-governmental organisations, startups or small and medium-sized enterprises.
Otherwise the main focus in scope of the new Consumer Rights Directive is on contracts that are made either: (i) ‘off premises’ from the supplier; or (ii) at a ‘distance’ by remote means.
Under the new Consumer Rights Directive, off-premises contracts for the purposes of the new Directive are defined as those concluded by a trader and a consumer where both are simultaneously in the other’s presence at a location anywhere other than the office of the trader10. To avoid doubt, solicited visits are covered by the definition. Doorstep selling regulation is subject to a de minimis rule under English law: doorstep contracts up to a value of £35 each are not regulated. This approach is followed in the new Consumer Rights Directive, where member states may exclude low-value doorstep contracts (below €50) from its scope.
A distance contract is one entered into by a trader and a consumer under an organised distance sales or service-provision scheme where there is no simultaneous physical presence of the trader and the consumer11. The distance contract must also be entered into by the parties through the use of means of distance communication, such as mail order, telephone, fax and, of course, purchases made through online retailers.
WHAT DOES THE NEW CONSUMER RIGHTS DIRECTIVE REQUIRE?
The new Consumer Rights Directive sets out several requirements that online retailers will have to incorporate into their operations.
- No pre-ticked boxes: where additional goods or services are offered to consumers in addition to the original product or service they have requested, such as gift packaging for the purchase, those options must be made available to consumers on an ‘opt-in’ basis only12. Online retailers will no longer be able to offer additional goods or services through the use of predetermined options, such as pre-checked tick boxes.
- Free services: online retailers that provide services described as ‘free’ must ensure that all aspects of the service are free or they must ensure that consumers explicitly confirm their understanding that a price is payable13.
- Full price transparency: total full prices for goods or services must be disclosed to consumers who are shopping online before they make an order or additional costs cannot be charged14.
- Digital products: online retailers must ensure that consumers are provided with full details of the characteristics of, and restrictions on use of, digital content15.
In addition, the Consumer Rights Directive introduces a range of general requirements with which online retailers must also comply. These include:
- Enhanced withdrawal from contract rights: consumers will generally now have16:
- a period of 14 days (increased from seven business days) to withdraw from contracts where they have bought, off premises or at a distance, goods and services without need for a reason for the withdrawal;
- the right to withdraw in this way is now 14 days from the date the consumer receives goods, not the date of contracting as is currently the case;
- the ability to exercise these rights when buying goods from professional sellers on online auction sites; and
- the ability to withdraw for up to one year if the supplier neglects to fully inform the consumer of the withdrawal right.
- Payment mechanism fees: consumers can no longer be charged fees by traders for the use of payment mechanisms used to complete transactions, such as credit card fees, where such sums are in excess of the costs to the trader of providing the payment mechanism17.
- Refunds: consumers can expect to receive refunds (including delivery costs paid) within 14 days of exercising rights to withdraw from any contract18.
- Costs of returns: a consumer will not have to bear the cost of returning goods once they exercise the right of withdrawal unless the trader has clearly informed that consumer of the obligation to pay19. When informing the consumer, the trader will be expected to estimate, if not confirm, the maximum cost of returning goods to allow consumers to make informed buying decisions.
Online retailers will also have to have regard to the general changes to consumer contracting that are being implemented to attempt to bring about greater consistency in EU cross-border trading. The Consumer Rights Directive introduces:
- specific measures for smaller trade-based businesses: requirements to provide information to consumers may be waived by EU member states for tradespeople providing small-scale home repairs below a minimum threshold (currently €200);
- standard forms of lists of information: traders now can follow the Directive’s model instructions on the information to be provided to consumers concerning the exercise of the right of withdrawal, so hopefully simplifying traders’ compliance processes throughout the EU;
- common rules: clarification for traders on rules that apply to both off-premises (street or doorstep trading) contracts and distance (mail, telephone and online) contracts across the EU; and
- a model EU-wide withdrawal form: this will allow consumers, if they choose, to use a model withdrawal form prescribed by the Directive to withdraw from distance contracts wherever concluded in the EU.
As might be expected, traders cannot ask consumers to waive their rights under the Consumer Rights Directive or any national implementing legislation20.
HOW WILL THE UK IMPLEMENT THE DIRECTIVE?
Publication of the new Consumer Rights Directive in the EU’s Official Journal is due by late 2011. Following this publication, the UK government will have two years to implement the rules into national legislation. However, it has already indicated that it intends to implement the requirements of the Consumer Rights Directive as part of a ‘wrap up’ of current consumer rights legislation21. This process would see the creation of a new UK ‘Consumer Bill of Rights’ that clarifies our national laws on:
- contracts for goods and services;
- unfair contract terms;
- digital content; and
- protection of consumers’ rights.
In proposing this way forward, the UK government is keen to move away from what it perceives to be a ‘complex and confusing’ state of affairs that is ‘bad for consumers and bad for business’ where 12 different consumer protection Acts and Regulations apply today with overlap and lack of clarity22.
The UK government expects that consolidation of regulation will lead to: i) economies of compliance for traders with a ‘one-stop’ set of considerations for consumer contracts; and ii) clarity for consumers in understanding their rights in relation to such contracts.
IS THIS BAD NEWS FOR ONLINE RETAILERS?
The initial reaction of many online retailers to any new law is that they face an increased compliance load. It is true that the new Consumer Rights Directive adds to the regulatory burden as set out above. However, there is at least a partial counterbalance of this in the Directive as consumers’ rights have also been clarified and narrowed. In particular:
- consumers are liable for any diminution in the value of goods caused by their handling of the goods where not for inspection and testing purposes;
- consumers are now required to return goods under cancelled contracts within 14 days of cancelling the contract;
- until it receives the goods (or a consumer can prove the goods have been sent for return) an online retailer can withhold a refund; and
- if a consumer opts for a delivery by means other than the least expensive type of standard delivery offered by the online retailer, the online retailer need only refund a sum for delivery equivalent to the least expensive type of standard delivery.
From this, online retailers can gain some comfort that, while more is being required of them, consumers are also required to comply with higher standards than previously if they are to cancel contracts.
- See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2006:0744:FIN:EN:PDF.
- See http://ec.europa.eu/consumers/rights/docs/COMM_PDF_COM_2008_0614_F_EN_PROPOSITION_DE_DIRECTIVE.pdf.
- See http://eur-lex.europa.eu/Notice.do?val=115941:cs&lang=en&list=115941:cs,&pos=1&page=1&nbl=1&pgs=10&hwords=&checktexte=checkbox&visu=#texte.
- See http://eur-lex.europa.eu/Notice.do?val=294482:cs&lang=en&list=294482:cs,&pos=1&page=1&nbl=1&pgs=10&hwords=&checktexte=checkbox&visu=#texte.
- See http://eur-lex.europa.eu/Notice.do?val=218497:cs&lang=en&list=218497:cs,&pos=1&page=1&nbl=1&pgs=10&hwords=&checktexte=checkbox&visu=#texte.
- See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:1999:171:0012:0016:EN:PDF.
- See /in-house-lawyer/wp-content/uploads/sites/9/2011/12/pe00026.en11-1.pdf.
- Ibid, as stated in its explanatory memorandum to the draft Consumer Rights Directive.
- Directive 2002/65/EC concerning the distance marketing of consumer financial services – see http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2002:271:0016:0024:EN:PDF.
- Ibid at Article 2(8).
- See footnote 7 at Article 2(7).
- Ibid at Article 22.
- Ibid at Article 5.1(c).
- Ibid at Article 5.1(g).
- Ibid at Article 9.1.
- Ibid at Article 22.
- Ibid at Article 13.1.
- Ibid at Article 14.1.
- Ibid at Article 25.
- See http://nds.coi.gov.uk/content/Detail.aspx?ReleaseID=421254&NewsAreaID=2.