Tuesday, 11 December 2018

Consumer organisations join forces against 'no show' practices by air carriers

A recent communication from BEUC informs about a coordinated initiative by several national consumer organisations directed against the so-called 'no show' clauses used by air carriers. According to these clauses air carriers are authorised to cancel complete multi-flight bookings if passengers miss parts of their journey. This can lead to cancellations of connecting flights or return flights in round-trip itineraries (already paid for by the passengers). According to BEUC, such clauses are contrary to national laws implementing Directive 93/13/EEC on unfair terms. Arguably, this interpretation has already found support from several national courts (e.g. in Germany, Spain and Austria).

Two aspects of this development are worth highlighting.

Firstly, it is not the first time 'no show' clauses have been brought to public attention. Most notably, partial ban of 'no show' clauses in contracts between air carriers and passenger (i.e. not just consumers) was envisaged in the proposed reform of Regulation 261/2004, put forward in 2013. The proposal, however, got stuck in the legislative pipeline. BEUC is now calling on the Commission to revisit the matter.

Noteworthy are furthermore the two types of strategies pursued by consumer organisations. On the one hand, there are measures taken directly against the companies concerned (formal requests to cease the practice, (threats of) taking legal action). Besides the abovementioned proceedings in Germany, Spain and Austria (interestingly, no requests for a preliminary ruling as far as I can see), this has reportedly been the case in Greece, Malta, Belgium, Denmark and the UK. On the other hand, there are complaints to national consumer authorities and calls for a CPC action.

It will be interesting to see whether and if so, which of these different avenues will prove successful. Equally relevant are, of course, the possible legislative developments at the EU level, including as part of the 2018 'New Deal for Consumers' package. It is far from certain, however, whether EU-wide proposals on collective redress will not suffer the same fate as the 2013 passenger rights reform. For the time being, consumers and consumer organisations have to make do with existing enforcement mix.

Brexit and consumers: the Court in C-621/18 Wightman

Dear readers,

A quick update. Yesterday the Court of Justice delivered its judgment in C-621/18 Wightman. The Court confirmed that the UK can indeed unilaterally withdraw its intention to leave the EU (see for a full analysis here), largely following AG Sanchez-Bordona's Opinion (on which we reported here).

Although the judgment is very generous, its real effect is yet to be seen. As always, we will keep you updated.

Saturday, 8 December 2018

Italy fines Facebook for data related unfair commercial practices

Yesterday the Italian Competition Commission fined Facebook 10 million EUR for breaching the relevant provisions of the Italian Consumer Code implementing the Unfair Commercial Practices Directive. The Competition Commission found that not-disclosing that consumers' data is provided for commercial purposes amounted to a misleading practice and that the pre-selected consent on data sharing comprised aggressive practices. Interestingly, in addition to the large fine, Facebook was also ordered to issue an apology to its users on its website and on its app (see for more here).

This is an important step in the aftermath of the Cambridge Analytica scandal (see for more here, and our report here), and it will be hopefully followed in other Member States where due to the global nature of social media, it is very likely that similar breaches occurred. This then leads us back to an 'old' problem of national enforcement of EU wide infringements of consumer law, and the question of whether there is a need to overhaul and improve the existing enforcement regime of EU consumer law by empowering the EU Commission to take enforcement actions against EU-wide infringements (which we discussed here). What do you think?

Friday, 7 December 2018

Ex officio control of unfair terms presupposes an effective remedy: CJEU order in PKO Bank Polski

On 28 November 2018, the EU Court of Justice issued an order in PKO Bank Polski (C-632/17), which concerns the same issue as Profi Credit Polska (C-176/17), a case we have reported on earlier. In short, the question raised by the referring Polish court was whether the order-for-payment procedure at issue is incompatible with Article 7(1) of the Unfair Contract Terms Directive (93/13/EEC), because:
(i) the procedural rules restrict the consumer's right to lodge an objection against such an order for payment in such a way that there is a significant risk that she will not exercise that right, and
(ii) in the absence of the consumer, the court does not have the power to examine (a) the unfairness of the terms of the underlying credit agreement and (b) compliance with the requirements deriving from the Consumer Credit Directive (2008/48/EC).

Thus, there were two problems:
  • The court's role is, in principle, limited to a review of formalities; it does not have available to it all the elements of fact and law arising from the credit agreement and thus, is not in the position to examine unfair terms. 
  • The legal relationship resulting from the credit agreement is reviewed only if the consumer lodges an objection; the objection must meet various procedural requirements in an extremely short period (two weeks); and the consumer-defendant must pay a court fee that is three times greater than the claimant; see also our blog on Profi Credit Polska

In Profi Credit Polska, the CJEU already held that the Member States' obligation "to lay down procedural rules that ensure observance of the rights which individuals [i.e. consumers] derive from Directive 93/13", which "implies a requirement that there be a right to an effective remedy", also enshrined in Article 47 of the EU Charter of Fundamental Rights. The two above-mentioned problems combined prevented the court from carrying out the required assessment under the EU consumer protection legislation at issue. This is reiterated in PKO Bank Polski. The CJEU concludes that the Polish order-for-payment procedure is precluded by Article 7(1) of Directive 93/13 and Article 10 of Directive 2008/48/EC.

We can tentatively draw two conclusions from the CJEU's decisions:
  1. While the CJEU (still) does not make a clear distinction between Article 7(1) of Directive 93/13 (which requires "adequate and effective means" against unfair terms) and Article 47 of the Charter, it appears that the first presupposes the latter. If a case is not brought before the court, it cannot perform unfair terms control (either ex officio or at the consumer's request). In case of an "inversion of the dispute", i.e. it is the defendant – here: the consumer-debtor who must initiate adversarial proceedings by lodging an objection, the court must determine whether the procedural rules infringe the consumer's right to an effective remedy (or rights of the defence, for that matter) as guaranteed by Article 47 of the Charter. If the obstacles are too high, there is a significant risk that consumers will not lodge and objection. 
  2. The CJEU seems to suggest that the national court must be able to perform ex officio control, whether the consumer involved invokes the existence of unfair terms or not. This is in line with its earlier case law, see e.g. Banesto and Radlinger. But how does the referring Polish court obtain the necessary information? One possible answer is that the creditor must submit the underlying credit agreement in evidence. This calls into question the entire order-for-payment procedure, which is based on only a banking ledger excerpt. Is such an excerpt sufficient? And what should happen in the absence of the consumer? Should she be required to lodge an objection at all? The CJEU does not answer these questions. 
In its case law on other types of debt collection proceedings, the CJEU did not consider an "inversion of the dispute" to be contrary to EU (consumer) law in itself, as long as there were judicial remedies available to consumer. We have brought this up in previous blog posts.
However, PKO Bank Polski shows why a reliance on the consumer's initiative might be problematic, exactly because of the procedural obstacles discussed in light of Article 47 Charter. Removing those obstacles is a first step. Preventing creditors from circumventing judicial control – by allowing them to resort to extrajudicial enforcement procedures or to withhold information from the court – would be the next.

Wednesday, 5 December 2018

Brexit and consumers: AG Sanchez-Bordona in C-621/18 Wightman

Dear readers,

Yesterday AG Sanchez-Bordona delivered his Opinion in a landmark case C-621/18, in which a group of citizens lead by Mr Wightman challenged the revocability of UK decision to withdraw from the EU, that is, the now famous Art. 50 TEU. AG Sanchez-Bordona proposes that the Court of Justice should find that the case is admissible to the Court and that it should instruct the referring Scottish court that Art. 50 TEU allows the unilateral notification of the intention to withdraw from the EU.

Given that this case does not raise consumer law issues per se, we are not going to provide a detailed analysis (see for detailed account here). The case however may be of an utmost importance for consumer in Britain (see how Brexit may affect consumer protection here) and thus this case deserves a mention on our blog.

And who knows, perhaps it will be a catalyst for a major change? We will see soon and keep you posted!

Tuesday, 27 November 2018

Google tracks every step you take

Norwegian Consumer Council and seven European consumer organisations have filed a complaint today against Google, arguing that Google uses deceptive design and misleading information in order to acquire users' consent to constant tracking (New study: Google manipulates users into constant tracking). How would the users be tracked? Well, if you have an Android phone or use Google accounts on other devices, then it is likely that you are one of the victims of constant tracking, as Google accounts have 'location history' and 'web&app activity' integrated in their settings. You may have been prompted/manipulated to switch on such location history, without having realised that. Having read the above information you may think that Google has 'simply' access to your GPS data. Would you know though how detailed this data is (incl. determining which floor you are at in a particular building, which room in the house) and that it may be linked to other information, e.g., your online search results? The combined data may, of course, then be used for targeted advertising, increasing its effectiveness. Would you know how to switch it off and how to avoid having it be switched on again? If this short post does not make you want to check your phone and its settings, maybe you should look up the whole report on the study of Google tracking practices that has been published: Every step you take.

Thursday, 22 November 2018

‘Nuts and bolts’ of extraordinary circumstances - AG Tanchev in Germanwings (C-501/17)

What happens when a tyre of an air plane gets punctured by a screw lying on a runway, damaging the plane? Is it an event that could be classified as an extraordinary circumstance releasing the airlines from an obligation to pay compensation to passengers whose flight was delayed for more than 3 hours due to the need to change the tyre? AG Tanchev addressed these questions today in the Germanwings case (C-501/17) and concluded that such an event falls within the scope of the notion of extraordinary circumstances, just as the Commission and the German and Polish governments suggested.  

AG Tanchev starts by highlighting the need for the judgment, due to the diverting national case law on what constitutes an extraordinary circumstance. The previous ECJ judgments did not clarify all matters. Technical defects of a plane remain controversial, even after the most recent judgments, such as in the Pešková and Peška case. The ECJ holds the line that a technical defect is an extraordinary circumstance if the event that caused it was not inherent in the normal activity of the air carrier and was beyond his actual control. These two requirements need to be jointly satisfied (para 41 and 48). Correctly he notes that technical defects may constitute an extraordinary circumstance also when they result from other events than hidden manufacturing defects (para 47). We could see that as well on the example of the above-mentioned case, where the defect was caused due to a bird colliding with the plane (which was seen as an extraordinary circumstance) and in case Siewert, where the mobile boarding stairs collided with the plane (which was not an extraordinary circumstance). 

AG Tanchev sees the difference between these two above-mentioned judgments in the fact that the use of mobile boarding stairs was inherent in the normal activity of the air carrier, as he willingly used such stairs. As in the given case the screw was lying on the tarmac without the knowledge of the air carrier and against his will, the damage caused by it did not qualify as falling within the normal activity of the air carrier (para 55-56). Is this argument convincing? The passenger argued that the use of runways is inherent in the normal activity of the air carrier. AG Tanchev compares it to the use of the airspace, where the collision with the bird was not perceived as ‘intrinsically linked’ to operating a plane (para 57). I am uneasy with this reasoning and this comparison. Perhaps I am mixing up the two requirements, of inherency and of control, but I see the difference between holding air carriers liable for what happened unexpectedly in the air and on the ground, and the ECJ case law to date also could be interpreted as upholding that distinction. The latter, i.e. the ground conditions, remains more controllable. It is true that the runways, their maintenance and cleaning, are under control of airport operators and not air carriers, but that could just mean that air carriers would have a redress right towards airport operators. It should not be seen, in my opinion, as taking away passenger rights, contrary to what AG Tanchev claims (para 63-64). Screws on a tarmac may not be controlled by the air carriers (para 71) but I am not sure whether they should be excluded from their operational risk, as AG Tanchev suggests. If we want to continue to interpret extraordinary circumstances narrowly and provide protection to passengers who will face delays, this case should be decided differently to what AG Tanchev suggests. Air carriers could protect themselves by holding airport operators accountable for the need to pay out any compensation to passengers in such cases. 

Recent study reveals surprising facts about automated financial advice

In September 2018 the EU supervisory authorities (ESAs)published a Joint Committee Report on the results of the monitoring exercise on ‘automation in financial advice that revealed surprising facts about automated financial advice in the EU.

Following the publication of a Discussion Paper on Automation in Financial Advice in 2015 and a Report in 2016 (on which we reported here) the ESAs  published the present follow up report on the evolution of automation in financial advice in the securities, banking and insurance sectors over the past two years. The report is based a survey with competent national authorities.

Surprisingly, the report shows that while the phenomenon of automation in financial advice (or 'robo-advice') seems to be slowly growing, the overall number of firms and customers using automated financial advise is still quite limited. In addition, while some new trends seem to emerge (such as the use of Big Data, chatbots for customer service and extension to a broader range of products) there seems to have been no substantial change to the overall market since the publication of the ESA Report in 2016. The Report identifies:
  • cultural/psychological barriers as one of the main causes of lack of engagement, that can be traced back to low level financial literacy, and a lack of consumer trust and confidence in using digital tools;
  • regulatory barriers such as the complexity of the applicable legislation (MiFID II/MIFIR, IDD, GDPR, PRIIPs) that pose special challenges for small, startup FinTech firms.
It therefore seems that the market for automated financial advice has not taken up, and that its full potential is yet to be explored. Given the above identifies barriers, one may wonder whether the time is not ripe for a shift to greater digitization in the financial sector or whether the regulatory environment needs to change both in terms of giving greater room for small Fintech firms to expand on the market, and in terms of the existing consumer protection tools. 

Tuesday, 20 November 2018

Consumer protection and rule of law - AG Wahl's opinion in Dunai (C-118/17)

Much like the Spanish Aziz saga, the CJEU's 2014 decision in Kásler keeps generating new litigation - in Hungary and in Luxembourg alike. 

In Kásler, the Court decided on the applicability of unfair terms control to certain terms in foreign currency denominated loans. These terms had the effect of maximising the lender's profit by exploiting the difference between currency selling and buying rates. The ECJ held that such terms are not exempted from control, as they do not establish the main content of the contract - represented by the notion of foreign currency-denominated loan -  but rather are ancillary to that determination. While it is a core component of these loans that, in return for lower interest rates, consumers accept to take up the risk of currency fluctuation, the bifurcation between selling and buying rates is a further sophistication which alters the original model (in favour of the lender). 

As a consequence of Kásler, the Hungarian Supreme Court (Kuria) decided that those terms were unfair. This triggered a further reaction: the Hungarian legislator issued new rules with the aim of providing "replacement" terms. Under these rules, in foreign currency denomination loans the exchange rate is set at the level determined by the Hungarian Central Bank. 

This mechanism preserves the validity of the foreign currency denomination loans by making sure that there is always a way of determining the value of the debt. The laws in question also established some limitations on the possibility for consumers to claim the relevant remedies, which were the object of a different preliminary reference (OTP Bank and OTP Factoring).

In Dunai, the Court will have to decide whether the rules are compatible with the Directive. In particular, the referring court wonders how the replacement with the Central Bank exchange rate, which leaves the risk of currency fluctuation with the consumers, fares with the test set out in Kásler. A part of that judgment, indeed, concerned the replacement of terms with default rules when the contract could otherwise not continue into existence after unfair terms control. This is how the reasoning (para 83-84) went:
 [...] if, in a situation such as that at issue in the main proceedings, it was not permissible to replace an unfair term with a supplementary provision, requiring the court to annul the contract in its entirety, the consumer might be exposed to particularly unfavourable consequences, so that the dissuasive effect resulting from the annulment of the contract could well be jeopardised.
   In general, the consequence of an annulment is that the outstanding balance of the loan becomes due forthwith, which is likely to be in excess of the consumer’s financial capacities and, as a result, tends to penalise the consumer rather than the lender who, as a consequence, might not be dissuaded from inserting such terms in its contracts.
This reasoning, and in particularly the second part thereof, raised the possibility that the consumer's interest may play a role in assessing whether replacement & preservation would have to be preferred to sheer invalidation. 

The referring court thus asked, in essence, whether a law that forces them to recognise that the unfair term had been replaced by mandatory legislation determining the applicable interest rate, making it impossible for them to instead invalidate the contract for being incapable of continuing into existence, was compatible with the Directive. It also asked two related questions which we will discuss in turn.

Last Thursday, AG Wahl published his opinion in this case (here the French version, the English text is not yet available).

On the first question, the AG gives a very puzzling reply. After explaining that the goal of the Directive's article 6 is to establish an effective balance between the parties and not to invalidate all contracts containing unfair terms (para 75), the AG considers that the possibility of maintaining the contract must be assessed objectively, without letting the consideration of the party's interest play a determinant role (76-77). 
In this context, the judge's ability to replace the unfair terms must be interpreted as only applying in exceptional circumstances.   

From the above, the AG infers that a provision of national law which, in cases of partial invalidity arising from a declaration of unfairness, aims to preserve the contract's validity without the unfair term is consistent with the directive. This because the competent judge cannot remedy the term's unfairness just because invalidating the contract would be more advantageous to the consumer. 

If the AG assumes that in some way his reasoning has demonstrated that invalidating the contract would be the same as "remedying" an unfair term, this blogger has to admit to not being able to see how.

The rest of the opinion is (yes, it's possible!) even more technical to the extent that the AG delves into the distinction between the core and ancillary elements in the contract. The argument goes as follows: the original unfair terms were non-core terms, but the term that replaces them - fixing the exchange rate - is a core term. Therefore, whereas the referring court sees the Hungarian legislation as limiting their possibility to adjudicate on unfair terms, it is the Directive itself that imposes that limitation by excluding core terms from control. 

This reasoning allows the AG to answer that, contrary to the suspicions raised by the referring court in its second question, the Hungarian legislation does not hamper the effectiveness of Directive 93/13, which itself does not aim to reach into the domain of core terms. 

The third and last question by the referring court concerned the role of certain guidelines issued by the Hungarian Supreme Court - which the referring judge, again, perceived to be unduly limiting their ability to secure consumer protection. Here the AG again takes a somewhat surprising route: over four short paragraphs (109-112), the AG suggests that since national courts are always in a position to disapply national legislation incompatible with union law and/or raise a preliminary ruling request, there is no risk that the Kuria guidelines will prevent the application, by the national courts, of relevant EU law provisions. 

The institutional background of this case deserves separate mention. While asking about Directive 93/13, the referring court relates to a much broader panorama: take in particular the second part of the third question, whereby the court asks: is it in conformity with the EU's competence to secure a high level of consumer protection as well as fundamental EU law principles of effective judicial protection and fair trial for all questions of civil law that the the "harmonisation council" of a MS highest jurisdiction can guide adjudication through [guidelines], where the appointment of judges to this council does not happen in a transparent manner, according to pre-established rules, when the procedure before said council is not public, and it is not possible to know afterwards the procedure followed, the expertise and publications used and the vote of the different council manners?

The AG is very conscious that the struggle highlighted by this question goes far beyond the - already quite relevant - question of the fate of foreign currency denominated loans affected by unfair terms. His response is to carefully try to unload all questions of this background - an exercise that works better at certain turns than at others. 

Finding out whether the Court will take the very same path or take some deviations into rule of law discussions is one more reason to await the decision with great interest.   

Monday, 19 November 2018

AG Bobek in Pouvin C-590/17: The scope of the UCTD should be interpreted broadly

A recent request for a preliminary ruling C-590/17 Pouvin v Electricité de France from the French Cour de Cassation raised interesting and so far unexplored questions about the applicability of the 1993/13/EC Unfair Contract Terms Directive (UCTD) on contracts concluded between employers and employees that are connected to but do not fall within the employers' main business. Last week AG Bobek delivered his Opinion on the case.

The Facts
Claimants Mr Pouvin and his wife Ms Dijoux entered into a mortgage loan contract with Mr Pouvin's employer, Electricité de France (EDF). The contract contained an automatic termination clause according to which the loan becomes immediately and in full payable if Mr Pouvin leaves his employment. When Mr Pouvin resigned, the employer called on the loan. In the case that followed the claimants argued that the termination clause was unfair under the UCTD.

Questions to consider
1) Can EDF, the employer, be considered the 'seller or supplier' within Art. 2(c) UCTD given that lending is not its main business?
2) Can Mr Pouvin, the employee and his wife (not an employee of EDF) be considered  'consumers' under Art. 2(b) UCTD?

Can employers be considered the 'seller or supplier'?
Relying on the wording of Art. 2(c) of the UCTD and previous CJEU case-law AG Bobek proposed a wide interpretation to the notion of 'seller and supplier' so as to include the employer in the present case. Under Art. 2(c) a 'seller or supplier' means any natural or legal person who, in contracts covered by the UCTD, is acting for the purposes relating to his trade, business or profession.
First, AG Bobek considered the meaning of acting for the 'purpose' of someone's trade, business or profession. He dismissed EDF's argument that in providing the loan they did not act for the purpose of their trade, business or profession given that lending is not their main business. Drawing a parallel with the CJEU's earlier judgment in C-147/16 Karel de Grote (on which we reported here) that confirmed that complementary or ancillary services carried out in connection with the main activity can be included into the concept of 'business, trade or profession', which defines the status of the 'seller or supplier', AG Bobek concluded that in the present case too, the employer provided an ancillary service that was connected to its main activity. While in Karel de Grote the educational institution directly provided the loan to consumers, in the present case the connection is more indirect, since the employer only provided the loan and not the property- that had to be purchased from a third party seller. Regardless of the indirectness of the connection, the AG argues that the connection is not too remote to push the contract outside the scope of the UCTD. Especially since providing loans to employees is part of the companies' social policy that is used to attract high quality employees and as such is essential for a running a successful business.
Second, AG Bobek argued that giving a broad meaning to the notions of 'seller and supplier' is in line with the UCTD's intention that provides for 'any' natural or legal person acting for the purpose relating to his trade, business or profession. Both the words of 'any' and 'relating' provide additional strong basis for the definition to conclude that the UCTD's intention is to include ancillary services, not just the core activities, those that squarely fall within the 'sphere of professional competence' of the business.

Can employees be considered 'consumers'?
The second question that AG Bobek needed to answer is whether Mr Pouvin who is an employee of EDF can be considered a consumer.  Again, the AG proposed a broad interpretation of Art. 2(b).
Although one of the recitals of the UCTD expressly excludes employment contracts from its scope, AG Bobek dismissed the applicability of the exclusion in the present case. First of all, he contends that the recital has no biding force and that in any way it only provides an illustration of a sort of contracts that should be excluded because the parties to them are not acting as 'consumers' or 'sellers or suppliers' in the sense of the UCTD. In the present case the loan agreement does not form part of the employment contract and does not regulate the employer-employee relationship; the loan is merely provided in connection with the employment contract of Mr Pouvin. Therefore, the fact that the loan was reserved only for employees does not change the characterization of the parties as a 'consumer' or 'seller or supplier'.

AG Bobek proposes the following answers:
1) Art. 2(c) of the UCTD should be interpreted as meaning that where a company grants a mortgage loan to an employee and the employee's spouse that is covered by a scheme only available for the employees of the company, it is acting as a 'seller or supplier'.
2) Art. 2(b) of the UCTD is to be interpreted as meaning that an employee of a company and the spouse of such employee, who entered into a loan agreement with the employer to purchase a home, is acting as a 'consumer'.

AG Bobek's proposed wide interpretation of the two notions is a welcomed approach that is likely to serve the UCTD's intention to deliver a high level of consumer protection. The Opinion is well reasoned and the relevant connection is made between the two notions and the UCTD's broader policy aim to protect consumers that are in a weak(er) position compared to businesses (general inferiority vis-à-vis businesses, weak bargaining power and information asymmetries). It is particularly interesting to read AG Bobek's rejection on the decisive role of these rationales in the present case. The core of AG Bobek's thinking seems to be that the rationales are not decisive per se whether the employer acted as a seller or supplier, and that applicability of the UCTD does not depend on a balancing exercise between the interest of the parties, since this has already been done by the legislator and is included in the broad wording of the relevant provisions. These are certainly compelling arguments that invite the reading of the relevant parts for our readers interested in the role of the UCTD in the society (paras. 24-29).