Friday, 10 August 2018

Is a stand in a fair business premises? Only the average consumer can tell!


On 7th August 2018, the ECJ published its ruling for case Verbraucherzentrale Berlin eV v Unimatic Vertriebs GmbH (C‑485/17/) on the meaning of the term ‘business premises’ in the Consumer Rights Directive (Directive 2011/83/EU, hereafter CRD).

Facts of the case

Unimatic, a distribution company that sells products exclusively in trade fairs was participating in one such fair in Berlin, called ‘Grüne Woche’ (Green Week). There a customer bought a steam vacuum cleaner from the stand of Unimatic. The customer was not informed about the right of withdrawal. 

The consumer organisation Verbraucherzentrale Berlin eV considered the transaction to have been an off-premises contract, according to art.2(8) CRD and therefore the trader was obliged to inform consumers about the right to withdrawal according to art.6(h) CRD. Verbraucherzentrale Berlin Ev proceeded to bring an action against Unimatic to stop them from selling their products without providing information to such consumers on their right of withdrawal.

Questions

The referring court is asking whether ‘a trade fair stand in a hall which is used by a trader for the purpose of selling his products during a trade fair taking place for a few days each year constitute “immovable retail premises” within the meaning of Article 2(9)(a) of Directive 2011/83 or “movable retail premises” within the meaning of Article 2(9)(b) CRD’. Furthermore, the referring court asked how the meaning of a trader conducting his business ‘on a usual basis’ is to be interpreted and especially if the perception of the consumer is relevant.

The court summed up the referred questions into whether a trade stand in a fair, such as the one in the case in question, constitutes business premises in the context of Article 2(9) CRD.

Answers

The court states that whether the business premises are movable or immovable is secondary; what is important is whether the activity is carried out on a usual basis or a permanent basis. The Consumer Rights Directive does not specify what is meant by usual or permanent basis and the concepts should be given their autonomous European meaning taking into account the objectives pursued by the CRD (para 27). 

The reason for distinguishing off-premises contracts is the element of surprise and the psychological pressure the consumer may be faced with as they do not expect to be approached by a trader and nay not have time to properly consider the offer or compare prices. (paras 33,36). Therefore, if a consumer goes to a trader’s premises they can expect to be solicited and cannot claim they were surprised (para 34).

It should be highlighted that according to rec.22 CRD, market stalls can also be considered business premises provided that they serve as a usual place of business for the trader. (para 41).

The court stresses the importance of the perception of the average consumer in determining whether a stand in a trade fair can be considered business premises. Even though it refrains from making a judgement as to whether the trade stand in question qualifies as business premises it sets out the criteria to be used by the national court.

A court stand in a trade fair can be business premises if, if,’ in the light of all the factual circumstances surrounding that activity, in particular the appearance of the stand and the information relayed on the premises of the fair itself, a reasonably well-informed and reasonably observant and circumspect consumer could reasonably assume that the trader is carrying out his activity there and will solicit him in order to conclude a contract’.

Once more, it is seen that the concept of the average consumer is central to EU consumer law, yet the court does not provide any guidance to the national court as to how is the view of the average consumer to be ascertained. This may lead to divergent approaches in the Member States, which go against the objective, stated also in para 27 of this judgement of uniform application of EU law.

Double default: on default interest and default rules

Tuesday 7 August 2018, the last date on the judicial calendar of the CJEU before summer recess, was a busy day. Two of the cases on the dock in which the CJEU gave judgment concerned preliminary references from Spain: Joined Cases C-96/16 and C-94/97 (Escobedo Cortés), discussed earlier on this blog. The judgment relates to, in short, the case law of the Spanish Supreme Court (Tribunal Supremo) on default interest clauses and the Unfair Contract Terms Directive.

Both cases pertained to (mortgage) loan agreements concluded between consumers and banking institutions, containing a default interest clause ("interés moratorio"). This clause entailed that the consumers would have to pay interest rates of 18.50%, 23.50% and 25% respectively in case they were late on meeting their payment obligations. The purpose of this clause was to penalise the debtor's non-compliance, to deter delays in payment and to compensate the creditor in case of such delays.

The Spanish Mortgage Act (Article 114.3) stipulated since 2013 that the maximum default interest rate was three times the statutory interest rate. However, there was still a great degree of divergence in the unfairness assessment of default interest clauses in consumer contracts by Spanish courts, as well as in the determination of the consequences of a finding of unfairness. This resulted in legal uncertainty and arbitrary differences in treatment.
Therefore, the Tribunal Supremo had defined criteria. First, it had examined the national default rules that would be applicable in the absence of agreement between the parties, in order to determine a default rate of interest which could reasonably be agreed to and was not disproportionate. It found that a default interest rate exceeding more than two percentage points of the ordinary interest rate agreed between the parties was unfair. [Note that the criterion is linked to the ordinary interest rate agreed between the parties, not the statutory interest rate.] Secondly, it held that after a finding of unfairness, the increase that the default interest represents (as compared with the ordinary interest) must be eliminated entirely.

The referring courts doubted whether the judicial interpretation given by the Tribunal Supremo was compatible with the Unfair Contract Terms Directive. This had to do with the question whether the judge-made criteria were binding or mandatory on lower courts.
As regards the first criterion, the CJEU concludes that national courts were not deprived of the possibility of considering that terms not exceeding more than two percentage points are still unfair, and have to be set aside; the Tribunal Supremo had merely established an "irrebuttable presumption" (paras 58-59 of the judgment). Yet, as we observed earlier on this blog, there does not seem to be much space for lower courts to deviate from this presumption in an individual case. The CJEU seems to be aware of this, but considers that the Directive is based on the idea that the consumer is in a weak position vis-à-vis her professional counterparty (para 64). The criteria developed by the Tribunal Supremo are consistent with the objective of consumer protection pursued by the Directive. To ensure consistency in the interpretation of law and in the interests of legal certainty, the supreme courts of Member States may elaborate certain criteria for the assessment of the unfairness of contractual terms. The CJEU adds (para 69):

"It follows from Article 3(1) of Directive 93/13 and from the general scheme of the directive that the latter does not so much aim to guarantee an overall contractual balance between the rights and obligations of the parties to the agreement as to prevent an imbalance between those rights and obligations from arising to the detriment of consumers."

As regards the second criterion, the CJEU holds that the Directive intends to restore the balance between the parties by not applying contractual terms declared to be unfair, whilst maintaining, in principle, the validity of the other terms of the agreement at issue. It does not follow that the unfairness of a default interest clause also brings about the unfairness of a clause fixing the ordinary interest (paras 75-76). The case law of the Tribunal Supremo implies that the national court must simply refrain from applying (a) the unfair default interest clause or (b) the increase it represents by comparison with the ordinary interest [NB: there is a significant difference between (a) and (b): a percentage of 0% vs. 8.50%, 11.20% and 4.75% respectively]. The national court cannot substitute supplementary national provisions for an unfair contractual term or revise the term in question (para 78). Thus, the term cannot be replaced by the statutory interest rate that would have applied by default if there had been no agreement.

It could nevertheless be asked whether the criteria formulated by the Tribunal Supremo are sufficiently deterrent. Creditors could be incentivised to increase the ordinary interest rates, with a view to both the 'unfairness' criterion and the 'comparison' criterion, allowing them to claim a higher interest, also in case of default.

Lastly, the CJEU finds the Directive does not apply to business practices consisting in the assignment or purchase of consumer debt, if there is no term in the contract at issue providing for this (para 40). The assignment was made on the basis of a regulatory provision in the Civil Code, which is excluded from the scope of the Directive. Article 1.2 of the Directive extends to national default rules that apply in the absence of other arrangements made by the parties (para 43). The procedural rules in question do not appear to affect the scope of the national court's powers to exercise unfair terms control (para 45). The CJEU does not address the referring court's reference to Article 38 of the EU Charter of Fundamental Rights.
This outcome may be understandable from a purely legal standpoint, but is disappointing from the perspective of consumer protection in respect of the sale of loans; see further our blog on this topic.

* * *
We commented earlier on party names in CJEU case law. It was recently announced that requests for preliminary rulings involving natural persons will be anonymised from 1 July 2018 onwards. This means we will have to refer to this kind of cases in the future as Banco Santander II (C-96/16) or even V (see here, herehere and here for previous cases involving the same bank); or we may need to think of a different system.

Thursday, 2 August 2018

Commission fines electronics companies for fixing resale prices

On the 24th July, the EU Commission issued fines against four electronics companies for breaching antitrust rules by fixing resale prices on their online retailers.

All four companies, namely Asus, Denon & Marantz, Philips and Pioneer, did not allow their resellers to set their own prices and instead pressured them to maintain a minimum resale price. The fines issued ranged from more than 63 million for Asus to 7.7 million for Denon & Marantz. The fines were reduced as a result of the cooperation of the companies to the investigation. The prime target of this practice were online resellers, who tend to sell their products at lower prices.

As online resellers adjust their prices automatically to that of competitors, the practice had a wide effect on the market. Furthermore, the goods in question were widely used consumer goods from computers to kitchen appliances and personal care products, meaning a significant impact on consumers.

The practice of fixing resale prices is prevalent in online markets and Commissioner Margrethe Vestager highlighted the fact that the online market is ever growing and it is imperative to protect consumers.

What happens to the consumer affected by these high prices in electronics? They can seek damages in court, following Directive 2014/104/EU (The Antitrust Damages Directive) using the Commission decisions as proof of illegal behaviour of the companies.

Wednesday, 1 August 2018

When your clothes know more about you than... you

Vogue UK published an interesting article this week on clothing containing electronic tags, which would allow for far-reaching collecting and processing of consumer data (Is Trackable Clothing Fashion's Latest Trend?). RFID (radio frequency identification) tags have already previously been used on clothing items, but they usually come with a disclaimer that they are only active within the store, until the purchase is completed. Now, in order for traders to be able to track what happens with clothes after the purchase, they are nudging consumers towards accepting that these tags remain active after the clothes (and consumers with them) leave the store. Apparently, the idea comes from the Tommy Hilfiger's brand. If consumers choose buying and wearing their new line Xplore, they will be able to use an iOS app, which will register the use of the clothing (also possibly registering geo-location of where it is worn) and reward it (there is mention of concert tickets, gift cards etc as rewards). It is supposed to be the customers' choice whether to turn on the app, allow geo-tracking and collection of data, but obviously any disconnection will lead to a miss on the rewards. Consumers trying to protect their data will thus miss out. This is another sign of the ongoing commercialization of consumer data and technology changing consumer lifestyles. Any thoughts on this development readers?

Wednesday, 25 July 2018

Can excessive information mislead consumers? CJEU rules in Dyson

Earlier today the Court of Justice delivered a judgment in case C-632/16 Dyson. The judgment was a response to a request for a preliminary ruling submitted by the President of the Commercial Court in Antwerp regarding a dispute between two vacuum cleaner producers. The proceedings that gave rise to the legal dilemma appear to have been brought with predominantly competitive motives in mind. The submitted claims were nevertheless based on the national provisions implementing the European consumer acquis, namely Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market (UCPD) and Commission Delegated Regulation (EU) No 665/2013 supplementing Directive 2010/30/EU with regard to energy labelling of vacuum cleaners. The judgment of  the Court of Justice provides welcome clarification on the information to be - or not to be - provided on top of mandatory EU labelling.

Too little information?

Dyson, a producer of vacuum cleaners operating without dust bags, found it questionable that the tests required under EU law to assess the energy class of vacuum cleaners were performed with empty dust bags. As a result, in its view, the differences between energy efficiency of vacuum cleaners operating with and without dust bags were not adequately reflected by the EU energy labels. This is because energy efficiency of vacuum cleaners that operate with dust bags gradually decreases as their bags become fuller. According to Dyson, for consumers to receive all relevant information, producers of vacuum cleaners that operate with dust bags should additionally inform consumers about testing conditions, which resulted in the energy classification (i.e. that the tests were performed with empty bags). The question thus appeared, in the first place, whether an omission of such information by a competing vacuum cleaner producer - BSH - constituted a misleading omission within the meaning of Article 7 of the UCPD.

The Court did not share the view of the claimant. 

It first decisively rejected the possibility of adding any additional information on the label itself relying on Article 3(4) of Directive 2005/29/EC on conflicts between the provisions of the UCPD and other EU rules regulating specific aspects of unfair commercial practices. According to the Court, such a conflict clearly ocurred in the case at hand (providing information to consumers - even if mandatory - constitutes a commercial practice). Hence, the provisions of Directive 2010/30/EU and the Delegated Regulation No 665/2013, which explicitly prohibit the addition of other information to the EU energy label, should prevail.

The Court also swiftly dismissed the arguments of Dyson regarding the alleged omission of the contested piece of information from places other than the energy label. The decisive finding was that the UCPD proscribes only the omission of material information and the information at hand - related to the vacuum cleaners' testing conditions - could not be considered as such. This is particularly so considering the extensive list of information duties, addressed at these specific products, already in place with none of them relating to the contested matter.

Or perhaps too much?

The dispute between both producers and similarly the request for a preliminary ruling did not end here, however. According to the claimant, BSH's practices were also misleading because excessive information was provided by the company. More specifically, the defendant attached, next to the EU energy label, several labels and symbols that were not provided for in Delegated Regulation No 665/2013, for example, "a green label stating ‘Energy A’, an orange label stating ‘AAAA Best rated: A in all classes’ and a black label with the image of a carpet and stating ‘class A Performance’" (para. 49). The question was therefore whether such a practice was contrary to Delegated Regulation No 665/2013, read in the light of Directive 2010/30/EU.

The judgment does not provide a clear answer why there is no mention of the UCPD in its second part (despite the fact that the Court decided to reformulate the question referred a little bit). Presumably the reason is similar to the one raised in the context of first question - the conflict between the legal acts. Article 3(1)(b) of Directive 2010/30/EU indeed provides that "with respect to products covered by this Directive, the display of other labels, marks, symbols or inscriptions which do not comply with the requirements of this Directive and of the relevant delegated acts is prohibited, if such display is likely to mislead or confuse end-users with respect to the consumption of energy or, where relevant, other essential resources during use" - therefore covering essentially the same matter in a more specific manner than the UCPD.

The Court began its analysis by pointing to the two cumulative criteria that could be read out of the abovementioned provision. As regards the former, it swiftly concluded that the labels and symbols used by BSH did not comply with the requirements of the Directive, considering that the relevant labels and symbols were not provided for in Delegated Regulation No 665/2013. The overall assessment of the practice should therefore depend on the second yardstick: whether the display of information was likely to mislead or confuse end-users with respect to the consumption of energy or, where relevant, other essential resources during use. Here the CJEU, in line with its established practice, left the final assessment to the referring court. It did, however, provide the national court with some important guidance.

Firstly, the Court clearly stressed that the criterion referred to in Article 3(1)(b) of Directive 2010/30/EU was to be interpreted strictly "so as to protect the final consumer against any risk of error or confusion related to the energy consumption during the use of the electric device in question". Interestingly, the Court further observed that "the strict application of that criterion is borne out by that directive’s objective of environmental protection" (para. 55). 

Secondly, the Court decided to extend the benchmark of an average consumer - one who is reasonably well-informed and reasonably observant and circumspect, taking into account social, cultural and linguistic factors - from the UCPD to Directive 2010/30/EU on energy labelling. This is particularly interesting considering that the latter Directive (later repealed and replaced by Regulation (EU) 2017/1369) did not use a traditional status-related concept of a consumer in its normative part, but rather referred to a broader notion of an "end-user". Nevertheless, according to the Court, "the inextricable link between the issues [addressed in the UCPD and Directive 2010/30/EU] justifies the use of that same criterion" (para. 56).

Finally, the judgment also hinted at the Court's view on the likelihood of an average end-user (sic!) being misled in the case at hand. According to the Court, "the mere fact that the labels or the symbols displayed by BSH refer to information already present on the energy label cannot suffice to rule out the existence of such a risk". Quite the contrary, excessive information can be misleading. This is particularly because the symbols used by BSH, while essentially conveying the same message, were not graphically identical to those used on the energy label and could, therefore, "give the impression that they convey different information each time" (para. 58). To what extent this conclusion can be transferred outside the specific context of mandatory labelling is still an open question.

Tuesday, 24 July 2018

The role of consumers in supporting sustainable finance

The EU Commission recently took up the task of joining international efforts (the UN 2030 Agenda and Sustainable Development Goals, and the Paris Climate Agreement) in taking due account of environmental (ie. climate change mitigation and natural disasters) and social considerations (inequality, inclusiveness, and investment in local communities) in investment decision-making, with an aim of leading to increased investments in longer-term and sustainable activities- this process is generally referred to as ‘sustainable finance’.

In order to integrate sustainable finance into its law and policy making, the EU Commission established a High Level Expert Group on Sustainable Finance in 2016 and based on their recommendations adopted the Action Plan: Financing Sustainable Growth in March 2018.

The Action Plan sets out an ambitious plan to transform the EU economy into a greener, more resilient and circular system that will reduce its environmental footprint and address existing inequalities. This entails a holistic transformation of the relationship of the economic agents i.e. public and private institutions, small and large businesses and consumers with the environment.

The primary aim is to orientate capital flows to a more sustainable economy.  To this end, the EU Commission first proposes to clarify what is meant by ‘sustainable’ finance via the creation of EU taxonomy of sustainable activities; than building on the taxonomy, to develop standards and labels for sustainable financial product. Businesses are encouraged to design their business models and to develop strategies and technologies that support the long term effects of their investment. Investment fund managers will be obliged to take sustainability considerations into account when acting in the best interest of their clients, and to inform the end investors about the impact of sustainability considerations on their decision and the investors exposure to sustainability risk, for example, climate related risks. The EU Commission also considers factoring in sustainability risks into calculating capital adequacy of banks and insurance companies. The final really interesting addition is a ‘sustainability benchmark’ that will properly measure the performance of sustainable investments. While benchmarks play a central role in the formation of prices of financial instruments (see our report here), the current benchmarks are not designed to reflect on sustainability considerations.

Following the Action Plan in May 2018 the EU Commission adopted a package of measures implementing several key actions laid down in the Action Plan: 1) To create a unified system of classification of sustainable activities it adopted the Proposal for a regulation; 2) To introduce disclosure obligations of investment fund managers it proposed a Regulation amending Directive 2016/2341; 3) Finally, to create a new category of low carbon and positive carbon impact benchmarks it proposed a Regulation amending the Benchmark Regulation.

Naturally, most of the measures set out in the Action Plan are designed to be addressed by private and public businesses. However, the EU Commission has also seen consumers as part of the picture. So what are the role consumers in channelling financial assets towards a sustainable growth?

Well, just as businesses, consumers can also consider the sustainability of their investment decisions. To this end, the above mentioned taxonomy of sustainable activities and labeling of financial products as sustainable could help consumers in their decision making. These are however not specially designed consumer information tools. It seems that the EU Commission did not envisaged independent decision making by consumers. The Action Plan only foresees the regulation of financial advice for investment and insurance products. The Commission (perhaps rightly) assumes that we will not be able to make smart investment decisions on sustainability considerations without financial advice. Do you agree with this approach? Are we incapable to make independent decisions on complex matters such as the sustainability of investment?

Given that financial advice is seen as having a central role in the EU Commissions regulatory approach, we may wonder whether sufficient safeguards are taken into account against mis-selling of sustainable financial products (see our report here). Prior to providing financial advice, the advisers are obliged to assess the consumers risk appetite and investment objectives, including their alignment with sustainability (i.e. environmental, social and business governance factors). However, without proper safeguards consumers may be offered more risky or more expensive sustainable products to invest than they would expect. The EU Commission must make sure that appropriate safeguards are in place, that only those consumers willing to pay more for a moral satisfaction of investing into sustainable projects  are being offered such products, and that these products conform to the individual consumers risk appetite. This is a factor that should be taken into account in formulating the amended rules for MiFiD 2 and Insurance Distribution Directive (IDD) (on which the EU Commission is currently working on).

The other aspect that could be taken into in formulating the rules and policy approach is account is whether consumers need sustainable products, whether there is demand for them. European states are likely to be divided on this aspect. In some Member States consumers may be willing to investment in more risky or more expensive products to support the causes they believe in, whereas in other Member States consumers will only care about the price of the product and the security of their investment. Probably the higher the living standard is the more consumers are inclined to pay attention at sustainability goals. Should the EU Commission direct its activities towards Member States where consumers are more receptive to sustainable finance, or is the phrase ‘think global, act local’ equally applicable here?

Finally, it strikes me that the current approach is somewhat limited to certain investment products, to those provided by investment firms (regulated under MiFID2) and insurance distributors (regulated under the IDD). Any wider effort of engaging (or at least attempting to) on sustainability goals is not attempted.  We are not for example expected to choose our bank based on their ethical policy or the pension fund that we pay into. Should the EU Commission have a more systematic approach, make a wider appeal to sustainable finance that goes be beyond amending the MiFID 2 and the IDD?

Ryanair seeks to kick out claims intermediaries via T&Cs

Dear readers, 
you may have not noticed - who reads standard terms anyway? - or may not be directly affected if you do not fly Ryanair, but there are interesting developments to be observed. 

Since some time, Ryanair has included the following clauses in its terms and conditions (visited on 24 July 2018):
15.2.2 Passengers must submit claims directly to Ryanair and allow Ryanair 28 days or such time as prescribed by applicable law (whichever is the lesser) to respond directly to them before engaging third parties to claim on their behalf. Claims may be submitted here

15.2.3 Ryanair will not process claims submitted by a third party if the passenger concerned has not submitted the claim directly to Ryanair and allowed Ryanair time to respond, in accordance with Article 15.2.2 above.
This is meant to preempt the intervention of intermediaries, such as EUclaim.nl, offering disappointed passengers assistance in pursuing their claims for compensation, in particular under the provisions of the passenger rights regulation.

In order to give effect to the terms (which passengers unsurprisingly may ignore), it has emerged this week, the company has sent a number of claim agents a cease-and-desist request. They essentially claim that the intermediaries are inducing contractual breach on the side of the consumers, who are invited to skip direct contact with the airline. Also, the airline maintains that consumers are in this way deprived of a substantive part of the compensation they would be entitled to (EUclaim, for instance, withholds 29% of the compensation paid, plus administrative fees). 

The Dutch consumer association Consumentenbond is not persuaded by Ryanair's good faith in the dispute, recalling the company's bad reputation qua claims management. 

For us, the interesting legal question would be whether courts would uphold the clause allowing Ryanair to ignore claims submitted by third parties without prior consumer request. This may or may not depend on the concerned country's implementation of Directive 93/13. A look at the directive's annex suggests that, while the term may not be a proper impairment in the sense of point q) in the list, it may be an inappropriate limitation of the consumer's rights to the effects of point b). It will be interesting to see whether any consumer associations will be willing and able to challenge the terms in court, or anyway whether pressure will be made on the company to get rid of them. We shall keep an eye open for future developments!

Friday, 20 July 2018

Record fine for Google for breaching EU antitrust rules: is there anything for consumers?


Earlier this week, on the 18th of July, the European Commission fined Google €4.34 billion for breaching EU antitrust rules. This is so far the largest fine ever imposed for such violations.

It is now evident that since 2011 Google imposed illegal restrictions on other Android device manufacturers and mobile network operators abusing their dominant position on the markets of: general internet search serviceslicensable smart mobile operating systems and app stores for the Android mobile operating system.

In particular Google 1) required manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google's app store (the Play Store), engaging in the so called illegal practice of ‘tying’: 2) made illegal payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and 3) illegally prevented manufacturers wishing to pre-install Google apps from selling even a single smart mobile device running on alternative versions of Android that were not approved by Google. Google's conduct prevented a number of large manufacturers from developing and selling devices based on Amazon's Android fork called "Fire OS".

The antitrust decision requires Google to bring its illegal conduct to an end in within 90 days of the decision. At a minimum, Google has to stop any of the above three types of illegal practices. The decision also requires Google to refrain from any measure that has the same or an equivalent object or effect as these practices. The Commission will monitor compliance with the decision, and in the event of failure to comply, Google can face payment of a fine of up to 5% of its average daily worldwide turnover.

This decision is beneficial for consumers in two ways. First, by stopping the abuse of dominant position, the decision is likely to result in increased competition in the given markets that brings better products and lower prices for consumers. Second, harmed consumers are able to claim compensation in civil actions for damages in their national courts based on the new EU Antitrust Damages Directive.

Thursday, 19 July 2018

EU Commission cracks down on Airbnb to comply with EU consumer protection

On 16th July, the EU Commission published a press release calling on Airbnb to comply with EU consumer law, especially with regard to price transparency.

Airbnb's innovative sharing economy model has been very successful and has won a large part of the short term rental market; yet, that has not been without its share of controversy.

The press release focuses on the following issues:

1) Price transparency

The EU Commission points out that current Airbnb practices contravene the Unfair Commercial Practices Directive. More specifically, Airbnb should clarify on its platform whether the renter is a private person or a professional. As more and more traditional businesses, such as hotels, apartments and bed and breakfasts, are listed on Airbnb, consumers must be aware in a clear manner as to whether they are renting from a professional. If they do rent from a professional, the increased protection of EU consumer law applies.

Furthermore, Airbnb should present the total price for a rental on the initial search of the consumer, as at the moment, obligatory charges such as cleaning and service are added on in later steps, thus making it more difficult for consumers to compare offers.

2) Clarification or removal of unfair contract terms 

The terms and conditions of Airbnb should be amended in order not to create a significant imbalance between the parties. Also, the terms should be more transparent, presented in a clear and intelligible language in order to allow consumers to be better informed. However, even if the terms are presented in a more transparent manner, as they should, it does not ensure that consumers will be more likely to actually read them.

Some of the problematic terms highlighted in the press release include:
  • that the company should not mislead consumers by going to a court in a country different from the one in their Member State of residence;
  • Airbnb cannot decide unilaterally and without justification which terms may remain in effect in case of termination of a contract;
  • Airbnb cannot deprive consumers from their basic legal rights to sue a host in case of personal harm or other damages;
  • Airbnb cannot unilaterally change the terms and conditions without clearly informing consumers in advance and without giving them the possibility to cancel the contract.
Finally, in terms of redress, Airbnb should comply with art. 14(1) of  Regulation 524/2013 (the ODR Regulation) to display the link to the ODR platform. However, traders are not obliged to participate in the ODR platform scheme.

Now the ball is in the court of Airbnb, who has a deadline until the end of August to submit solutions to the Commission on how they intend to comply with EU consumer law. These suggestions will be discussed in a meeting between the Commission and the national authorities in September, and should they be found to be unsatisfactory, national authorities will use their enforcement powers.

It will be interesting to see how this story develops and whether this is the start of a new more consumer-friendly sharing economy.

Tuesday, 17 July 2018

Mis-selling of financial products: is there a need for a systematic approach?

As we are more and more expected to take control of our financial affairs e.g. to save for our retirement or to take up a mortgage loan to finance our house, financial decision-making is increasingly becoming part of our lives. Yet, at the same time, financial products are becoming overly complex, markets too diverse, and our financial decisions ever more important. Given the importance of these decisions, many of us would decide to get help from a financial adviser rather than to making an independent decision. We tend to trust financial advisers, trust that they are going to select the right product for us, the one that is the best fit for our needs and preferences. But are we really getting the right product? The financial mis-selling scandals suggest that we are not.
 
Unfortunately, mis-selling scandals because of bad advice are too common in Europe. Many of these scandals will be (too) familiar to our readers, such as the PPI scandal in the UK, the foreign currency loans in several Member States e.g. Spain, Greece, Hungary, Poland, or risky investment products in e.g. Belgium (see the map of major mis-selling scandals, including videos of testimonies here). More recently financial advice also got the attention of EU law-makers. In June 2018 the EU Parliament published a series of five studies on Mis-selling of Financial Products: 1) Marketing, Sale and Distribution, 2) Subordinated Debt and Self-Placement, 3) Consumer Credit, 4) Mortgage Credit, and 5) Compensation of Investors in Belgium. These studies pointed out the weaknesses in the current EU regulatory framework and its enforcement. In addition, in April 2018 the EU Commission published a study on the Distribution of retail investment products across the EU, concluding that consumers face significant challenges in making informed decisions (see our report here).
 
In the light of the above, BEUC launched a campaign for a real change in the financial advice sector. A change that needs to affect: sales incentives, regulatory framework and supervision and enforcement.
  • Mis-alignment of sales incentives is a real problem in the financial advice sector. Commissions create a conflict of interest, steering advisors in a direction of offering risky products instead of acting in the best interest of consumers.
  • According to BEUC, the current, patchy legal framework is not fit for purpose. As we know, the majority of legislative instruments, especially those adopted in the aftermath of the financial crisis, will regulate at least some aspect of financial advice. However, this approach creates inconsistency, for example, the regulation of issues like independence and qualifications are approached differently in various instruments, without even having common definitions of what they are referring to.
  • Finally, many of the current rules is difficult to enforce, for example, the requirement in MiFID2 that the investment meets the needs of the consumer.
To improve the financial advise sector, BEUC suggests to: 
  • ban commissions;
  • create common definitions and rules for advisors, rules that set standards of professionalism and that are easy to comply with;
  • better enforcement, enforcement coordinated by the EU supervisors (EBA, ESMA and EIOPA) and adequate powers of national supervisors.
Whilst it is not specially raised, it could be implied that that the above aims would be the best achieved by a separate, independent act such as a Directive on Financial Advice. What do you think?  Is there a need for a systematic approach? Is it viable to regulate financial advice independently from the underlying product that it relates to?