Friday, 16 February 2018

Facebook and Twitter continue to defy EU consumer protection rules

With the increasing popularity of often American-based social media companies in Europe, consumer organisations and consumer authorities started paying more attention to their compliance with European consumer protection rules. BEUC, motivated by complaints and reports from national consumer organisations, conducted a study in 2014 on the compliance of Google, Facebook, Twitter, Dropbox (see the article by M. Loos and J. Luzak, Wanted a bigger stick...), which showed that many of the then-used standard terms and conditions could be questioned as to their fairness. In March 2017 a dialogue took place between social media companies and European legislator, in which the Commission asked for certain changes to be introduced to terms and conditions of these companies, to make them more compliant with EU law (see our previous post on Commission provides a bigger stick...).

Whilst certain T&Cs have been adjusted, eg. consumers are no longer asked to waive their mandatory EU consumer rights (which waiver would not have been valid anyways, but could mislead consumers into thinking that they had lost these rights, like the right of withdrawal) or they can file a claim with a court of their domicile rather than in California (again, term that would not be upheld), the changes are still deemed insufficient (Social media companies need to do more to fully comply with EU consumer rules). The European Commission specifically identifies only partial compliance by Facebook and Twitter with the need to properly inform consumers about content removal or contract termination, and how they regulate their liability. For the full table with compliance assessment see here.

This enforcement action has already lasted a long time, considering that online T&Cs can be changed with a click of a few keys, don't need to be reprinted, etc. There is, therefore, no excuse for social media companies as to the need to prepare these changes administratively. The Commission has been patient, but, perhaps, it is time to stop being lenient and providing these companies with additional opportunities for remedial action and instead to start issuing some incentivizing penalties, instead.

Thursday, 15 February 2018

International conference: The Responsible Consumer in the Digital Age - International and Nordic Perspectives on Consumer Financial Protection

The conference is an exciting opportunity for everyone interested in consumer financial protection. It aims to provide a forum where leading academics and practitioners, researchers, and enforcement officials from multiple jurisdictions join to present and discuss the most recent trends and challenges related to consumer financial protection in the digital age, as they stem from the latest normative developments and court cases. Discussions take place within the following panels:

  • consumer financial protection in digital space

  • consumer debtor protection- debt relief mechanisms and abusive debt collection practices

  • consumer financial protection in the mortgage sector

  • consumer financial protection enforcement

  • consumer protection on financial markets

  • consumer financial protection and liability issues: trends, challenges, solutions.

For more information click here. The conference will take place at the Faculty of Law, University of Copenhagen on Thursday 31 May - Friday 1 June 2018.
Paper proposals should be submitted with a suggested title, author’s name and affiliation, an abstract not exceeding 500 words and the intended panel by email to Dr. Catalin Gabriel Stanescu ( by 25 February 2018.

Tuesday, 6 February 2018

EP votes on the geo-blocking regulation

After a political agreement on the proposed regulation prohibiting unjustified geo-blocking had been reached in November last year, there was a general expectation that new rules will formally be adopted in early 2018. The first step was made today by the European Parliament, which approved the proposal in a plenary vote.

The new rules define three specific situations in which a different treatment of customers (consumers and businesses as end-users) from different Member States is considered unjustified and is therefore prohibited. These include:
  • The sale of goods without a request to deliver them to a territory in which the trader does not operate (the customer orders a product and collects it at the trader's premises or organises delivery himself);
  • The provision of (some) electronically supplied services, such as cloud, data warehousing, website hosting;
  • The provision of services which are received by the customer in the country where the trader operates (e.g. hotel accommodation, car rental).
In the abovementioned circumstances customers across the EU should be able not only to access online interfaces directed to customers from other Member States and compare a wider range of offers, but also finalise transactions on conditions offered in those territories.

Contentious issues

An element which caused controversy from the very beginning related to the interface of the geo-blocking proposal with the provisions of private international law. In particular, concerns were raised that traders who decided to serve a consumer from another Member State, in compliance with new rules, would be considered to "direct their activities" to the country of that consumer, within the meaning of Article 6 of  Rome I and Article 17 of Brussels I regulation (recast). The text adopted today includes additional wording which aims to mitigate this risk (recital 13).

An even more controversial topic referred to the material scope of the proposal, especially the treatment of electronically supplied services providing access to copyright-protected content. Should, for example, Belgian customers be allowed to buy their Netflix or Spotify subscription for the price offered in the Polish market? This raised concerns not only about price arbitrage, but, more importantly, about the impact of such a solution on the territorial licensing schemes. And these points of criticism were even stronger than in the previous discussions on cross-border portability.

At this point it is worth recalling that audio-visual services were kept out of the scope of the Commission's proposal from the very beginning, even if, at the internal level, this choice was not entirely unanimous. The decision was explained by the need to establish consistency between the scope of the new measure and Article 20 of the Services Directive. Besides, the issue of digitally distributed AV content was to be addressed by the copyright package. 

Limitations of the scope of the act adopted today do not stop here, however. No dramatic change of the status quo is also expected with respect to services providing access to other copyright-protected content such as music (e.g. streaming services), literary works (e.g. e-books) or video games. Services of this kind have technically been kept within the remit of the act (thus falling under the provisions on automatic re-routing or payment methods), but have been excluded from its core access provision (Article 4). 

Concluding thought

The compromise reached in November and, consequently, the final draft must come as a relief to the creative industry. What is left for those hoping for a border-free access to copyrighted works - at least to the extent allowed by existing licensing arrangements - is a "review clause" requiring the Commission to assess, after two years, if the scope of the act should be extended. Until this happens, one can be advised to rather focus on the impact of the geo-blocking regulation - as it currently stands - on the e-commerce market (e.g. Rome&Brussels I litigation, developments in package delivery) as well as the on-going copyright reform, particularly the proposal on online transmissions.

The proposed geo-blocking regulation is now awaiting a vote in the Council and is expected to come into force later this year.

Thursday, 1 February 2018

Time to let go of the services/goods distinction? - CJEU in X (C-360/15 & C-31/16)

In an interesting judgment (X, joined cases C-360/15 and C-31/16) the CJEU has decided to broaden the scope of application of the Services Directive (Directive 2006/123), by encompassing within its scope activities of retail trade in goods, such as shoes and clothing. Traditionally, the sale of goods and the provision of services have been kept separate (hence also different legislative measures are applicable to these two types of commercial activities), even though modern transactions often combine elements of both provision of services and sale of goods. In the internal market of the EU there are also two separate freedoms guaranteeing traders their fundamental rights separately in the area of provision of services and movement of goods. 

Whilst this case is not a consumer law case, it could potentially have implications for the understanding of the provision of services to consumers, as well. The Court interprets in this judgment the definition of a 'service' contained in article 4(1) of the Directive, which states that a service is 'any self-employed economic activity, normally provided for remuneration'. This definition of the service applies under the TFEU providing for the freedom of provision of services as well as under this Directive. Its general notion of economic activity provided for remuneration is easily applicable to retail trade in goods, esp. as the Court points out due to the recital 33, which mentions services provided both to businesses and to consumers, such as distributive trades (paras 89 and 91). Whilst most of the Court's comments clearly refer to a possibility of an autonomous interpretation of 'services', just for the purposes of this Directive, paragraph 95 of the judgment makes a more general statement:

"Any such analysis would, moreover, cause particular difficulties with regard to the retail trade in goods, given that that trade nowadays encompasses not only the legal act of sale/purchase but also an increasing range of activities or services that are closely inter-related and that are intended to induce a consumer to conclude that sale/purchase with one economic operator rather than another, to provide advice and assistance to the consumer at the time of that sale/purchase or to provide after-sales services, which may vary considerably according to the trader concerned."

This comment reflects very well the difficulties that nowadays exist in separating the sale of goods activities from the provision of services, which could justify finally abolishing this distinction and e.g. setting one timeframe for calculating the right of withdrawal or one set of remedies for non-performance, regardless the type of transaction. We can see such overarching provisions in the proposal for a directive for the supply of digital content, but not in the provisions of the new proposal for a directive for the sale of goods (originally, online and other distance sale of goods). Which still states that in case of a mixed contract for the sale of goods and provision of services, the directive should apply only to the part of the contract related to the sale of goods. Is it not the time to let go of the services/goods distinction?

Monday, 29 January 2018

Report on the procedural protection of consumers

The European Commission has published a long-awaited report (see our previous blog posts herehere and here) on the impact of national civil procedure on the protection of consumers under EU law; click here for the press release and the full report. The report has been prepared by a consortium of European universities led by the MPI Luxembourg for Procedural Law. The study, which is based on national reports from the EU Member States as well as an online questionnaire and interviews, evaluates whether and to what extent national procedural laws and practices ensure the effective procedural protection of European consumers. The report clearly illustrates that "procedural law matters" [scroll down for more].

As the report points out (p. 28), the application and enforcement of (substantive) EU consumer law largely takes places at the national level. However, there is no equal or level playing field across the EU, and national courts are facing difficulties in understanding and implementing the case law of the CJEU concerning procedural consumer protection. The main uncertainties and divergences pertain to the concept of a 'consumer' (e.g. how to recognise a 'consumer dispute', especially in case of default), the approach to judicial activism and ex officio control (in 'ordinary' proceedings, appeal, payment order and enforcement proceedings), jurisdiction and arbitration issues (cf. the Brussel Ibis Regulation) and the interfaces between individual and collective actions. 

The report consists of an executive summary, followed by five Chapters: (1) the general structure of procedural consumer protection (different systems and mechanisms for enforcement), (2) access to justice (costs, legal aid and knowledge), (3) consumer actions before national courts ('party disposition' vs. an active court, ex officio application of EU consumer law, different types of procedures), (4) actions for collective redress (injunctive vs. compensatory relief, staying of claims, binding effect), and (5) alternative dispute resolution (scope, voluntary or mandatory nature, judicial review). Each chapter provides a summary of the status quo, identified problems and, finally, proposals, improvements and recommendations. In addition, the Annex contains selected data from the national reports. 

The report finds that (p. 29) it "might be advisable to consider providing for minimum standards of consumer protection in civil proceedings in order to improve consumers’ access to justice and increase legal certainty and transparency in these proceedings" [emphasis added]. It also "appears advisable to clarify and strengthen the role of consumer protection associations when filing individual or collective claims". See in this respect the report on collective redress mechanisms, published simultaneously. 

The Commission has already announced a 'New Deal for Consumers', to further strengthen ways of enforcement and redress for consumers. 

Friday, 26 January 2018

Max Schrems is a consumer - with respect to his own claims, Court says

Yesterday, on 25 January, the judgment in the second high profile case concerning the battle of Max Schrems against Facebook was delivered by the Court of Justice. The ruling does not come as a big surprise to those familiar with the earlier opinion of Advocate-General Bobek (for a broader overview of the dispute itself and the AG's opinion see our earlier post here). Indeed, the Court decided to follow the midway approach proposed to it by the AG. According to the Court, a claimant does not lose the status of a 'consumer' for purposes of establishing jurisdiction of the court seised, as a result of his engagement in activities such as book publishing, lecturing, operating websites, fundraising and collecting claims of numerous consumers. However, the jurisdictional privilege arising out of Article 16(1) Regulation No 44/2001 (Brussels I; currently Article 18(1) Regulation No 1215/2012) does not extend to collective redress.

Question 1: Is Schrems himself a consumer?

The Court began its analysis by recalling the general rule of actor sequitur forum rei, upon which the Brussels I regime is based, and the consequent requirement to interpret the rules which derogate from it strictly. This applies to Article 16(1) which allows consumers to bring proceedings against their contractual counter-party in the courts for the place where they are domiciled. 

It then reaffirmed its established line of reasoning, according to which:
  • in the interpretation of the term 'consumer' for purposes of Brussels I regulation reference must be made to the position of the person concerned in a particular contract, having regard to the nature and objective of that contract and not to the subjective situation of the person concerned (para. 29);
  • only contracts concluded outside and independently of any trade or professional activity or purpose, solely for the purpose of satisfying an individual's own needs in terms of private consumption, are, in principle, covered by the special rules aimed to protect the consumer as a weaker party (paras. 30-31).

Mixed purpose and dynamic assessment

The judgment further recalled that in mixed purpose scenarios, i.e. where a person concludes a contract for a purpose which is partly within and partly outside his or her trade or profession, the Gruber test applies. Consequently, a person can only rely on the jurisdictional privilege available to consumers if the link between the contract and that person's trade or profession is so slight as to be marginal and, therefore, has only a negligible role in the context of the supply in respect of which the contract is concluded, considered in its entirety (para. 32).

Having in mind the conclusion reached in Gruber as well as the Court's repeated references to the strict interpretation requirement in the commented judgment, the reasoning presented so far did not appear to bode well for Schrems. Neither did the following passage of the judgment, which introduced an element of novelty to the Court's existing jurisprudence and could be of considerable relevance for the future cases. 

"[I]t is necessary, in particular, to take into account, as far as concerns services of a digital social network which are intended to be used over a long period of time, subsequent changes in the use which is made of those services" (para. 37). Consequently, "a user of such services may, in bringing an action, rely on his status as a consumer only if the predominately non-professional use of those services, for which the applicant initially concluded a contract, has not subsequently become predominately professional" (para. 38).

The Court has thus made clear that the subsequent change of the purpose, for which the services provided under the contract are used, should not be disregarded. This is already a very important take-away. The importance of these follow-on factors is, nevertheless, far from clear. While the Court does not refer to it explicitly, it seems that the time of contract conclusion could still be perceived as the main point of reference, as reasoned by the AG. Based on this premise, one could argue that it is at this stage that the strict Gruber test should be applied. Indeed, the negative formulation "has not subsequently become predominately professional" leaves room for a more consumer-claimant-friendly interpretation at a subsequent stage.

The contract, not the person

As seen from above, with respect to mixed-purpose long-term contracts the judgment leaves several important questions open and its consumer-claimant-friendly reading may be regarded as a stretch. The answer provided by the Court was, nevertheless, favourable to Schrems. The reason seems to lie in the character of his "professional" use of Facebook services. According to the Court, acquiring expertise in the field covered by the services at issue and giving assurances for the purposes of representing the rights and interests of other service recipients cannot lead to the loss of one's consumer status. This is because: 
  • as mentioned before, an assessment of the 'consumer' status is undertaken irrespective of the subjective situation of the person concerned, in particular his or her knowledge and information possessed (para. 39);
  • a contrary interpretation would prevent an effective defence of the rights that consumers enjoy in relation to their contractual partners who are traders or professionals (here especially: the protection of personal data) and would disregard the objective set out in Article 169(1) TFEU of promoting the right of consumers to organise themselves in order to safeguard their interests (para. 40).

Question 2: Can Schrems bring claims of other consumers in his domestic court?

Article 169(1) TFEU, however, did not prove helpful in respect of the second question. Emphasising once again the requirement of strict interpretation, the Court found that the special protection granted to a consumer as a party to the legal proceedings applies only in so far as the claimant or defendant is, in fact, a party to the consumer contract in question (paras. 44-45). A situation of a consumer to whom claims of other consumers were assigned was thus treated analogously to that of a consumer organisation. A different interpretation would, according to the Court, lead to the establishment of a specific forum for consumers to whom claims of other consumers have been assigned, which is nowhere to be found in the Brussels I regulation and which would undermine the predictability of attributing jurisdiction (paras. 46-48).  

Consequently, the jurisdictional privilege set out in Article 16(1) of Regulation No 44/2001 does not apply to the proceedings brought by a consumer for the purpose of asserting the claims assigned to him by other consumers, irrespective of whether the assignors are domiciled in the same Member State, in other Member States or in non-member countries.

Concluding thought

The judgment appears to be a win for consumers who decide bring their civil claims against traders to a court and take their disputes seriously - a result which is hard not to agree with. The ruling is, nevertheless, far from a sweeping consumer victory. Despite a reference to the consistency of EU law in para. 28, the Court maintained the established reading of Gruber for jurisdictional purposes and accepted that consumer status can be lost over time. Last but not least, even if the Court's choice to leave the collective redress dimension up to the European legislator cannot be denied legal grounds, it goes without saying that transnational private enforcement of consumer law remains an issue. One can hope, however, that the experience made in discussions on the GDPR regarding that latter point, along with the recent steps taken by the Commission as a follow-up to its 2013 recommendation on collective redress, will eventually bring something more concrete to reason about.

Thursday, 25 January 2018

E-cigarettes not the same as cigarettes - Commission decides against harmonisation of duties for e-cigarettes

Consumption of e-cigarettes is on the rise with consumers using them as they consider them a ‘healthier’ alternative to traditional cigarettes or a way to cut down on smoking.(see a surveyconducted by Ernst and Young) Therefore, regulating e-cigarettes and their relationship with traditional tobacco products can be highly controversial. 

Traditional tobacco companies who have seen their sales fall argue that e-cigarettes are not adequately regulated. In a recent interview, Commissioner for Health and Safety Andriukaitis said that tobacco industry is feeling the pressure from EU regulation and expressed concern that EU citizens seem to consider e-cigarettes harmless. 

The latest development in the field is the publication by the European Commission of a Report on Directive 2011/64/EU (hereafter ‘the Directive’). Directive 2011/64/EU is the main regulatory instrument for excise duties for tobacco products. Tobacco products are broadly places in two categories: 1) cigarettes and 2) other tobacco products.

The current report is part of the evaluation every 4 years mandated by art.19 of Directive 2011/64/EU. The Commission considered a revision of the Directive and decided against it and the newly published report sets out the reasons for that. One of the topics considered for review was the harmonisation of excise duties for e-cigarettes. It should be noted that e-cigarettes are currently not covered by the Directive. 

The Commission is taking a cautious approach and underlined the need for further evidence to be made available before a decision to include e-cigarettes in the scope of Directive 2011/64/EU can be made. E-cigarettes may not fall under the Directive, but this does not mean they are not regulated on an EU level, as they are regulated by Directive 2014/40/EU (the Tobacco Products Directive), and according to the report the relationship between the Tobacco Products Directive and Directive 2011/64/EU has not been made clear. 

A similar approach is taken in relation to heat-not-burn tobacco products, which are a novel type of tobacco product, not yet available in all Member States. The Commission argues there is not enough data to decide on potential harmonisation of the tax regime. 

Is this decision to be interpreted as the Commission going easy on novel tobacco products, choosing not to regulate them so strictly? It is still too soon to tell, as this story is far from over. The Directive will undergo a REFIT evaluation in 2019, where the topic of regulating e-cigarettes will be once again on the table. So it seems like the Commission does not want to make big changes in light of the REFIT evaluation and would rather wait for its outcome.

Wednesday, 24 January 2018

Procedural autonomy and effectiveness - a delicate balance; Opinion of AG Wahl in C-483/16 Sziber

For those who are interested in consumer credit agreements in a foreign currency, the legal consequences of unfair terms and the 'proceduralization' of Directive 93/13, we will discuss the Opinion of Advocate General Wahl in Sziber (Case C-483/16) that came out last week. This case is a successor to the much-discussed Kásler judgment (C-26/13). In short, the questions asked to the EU Court of Justice by the referring court from Hungary pertain to national legislation adopted after Kásler and follow-up case law of the Kúria, the Hungarian Supreme Court.[*]

Source: ERSTE Bank Hungary
Mr. Zsolt Sziber - a consumer - had brought an action against ERSTE Bank Hungary, claiming that the agreement he concluded with the bank was invalid in its entirety, inter alia because the bank had not carried out a credit assessment, because the contract contained a foreign currency conversion without clearly stipulating the exchange rate , and because he could not evaluate the extent of the risk on the basis of unintelligible information. Alternatively, he sought a declaration that some of the contractual terms were unfair and thus invalid. During the proceedings, the applicable national laws were amended and additional requirements were introduced. The new legislation applies to consumer credit agreements concluded between 2004 and 2014. It declares standard terms void that set, for the purpose of repayment of the debt, a different exchange rate from the one set when the loan was paid out. Those terms are replaced by the official exchange rate for the foreign currency concerned. Standard terms that permit the unilateral increase of the interest rate, costs and commissions are also deemed to be unfair (and void). The sums paid in excess have to be refunded, and the credit institution must carry out a 'settlement of accounts' with the customer. 
In addition, to harmonise the case law, transitional procedural rules provide that the contracting parties may make an application to the court for a declaration of (partial) invalidity, but only if they also request determination of the legal consequences of invalidity, including the settlement of accounts between them. Otherwise, the application is inadmissible and the court may not examine the case on the merits. 

The referring court found that Mr. Sziber was entitled to a refund and invited him to amend his application in line with the new legislation, but he failed to do so. Therefore, the referring court considered itself unable to rule on the merits of the case, which meant that Mr. Sziber would be left empty-handed. Subsequently, the referring court raised doubts as to whether the national laws involved were compatible with EU law, in particular Articles 38 and 47 of the EU Charter of Fundamental Rights, Directive 93/13 and Directive 2008/48 (which, according to AG Wahl, does not apply to the present case; see para 29). In the referring court's view, the additional requirements were prejudicial to consumers, whether applicant or defendant. Moreover, these additional requirements did not apply to consumers who had not entered into a credit agreement between 2004 and 2014 or who entered into a different kind of agreement. Then, it suffices to merely seek a declaration of invalidity, without having to specify the legal consequences. 

AG Wahl's Opinion is divided in two parts: (i) admissibility, and (ii) substance, i.e. the 'equivalence and effectiveness' test. 

First, AG Wahl remarks that the national legislation at issue already seems to have the effect of rendering the contractual terms that Mr. Sziber regarded as unfair null and void (para 32). In Kásler, the CJEU held that Directive 93/13 does not preclude provisions of national law "enabling the national court to cure the invalidity of that term by substituting for it a supplementary provision of national law". So far, so good: new legislation has indeed been adopted in Hungary. The problem in this case, however, is that the referring court was prevented from 'curing the invalidity', due to the applicable procedural rules. In this respect, the case appears to be a classic example of national procedural law that could make the exercise of consumer rights under e.g. Directive 93/13 "impossible or excessively difficult". Although the Member States have procedural autonomy, they must still observe the principles of equivalence and effectiveness. Furthermore, according to established case law of the CJEU, the full effectiveness (effet utile) of Directive 93/13 requires that national courts offer consumers ex officio protection against unfair contract terms. 

Yet AG Wahl's Opinion shows how delicate the balance is between procedural autonomy and effectiveness. He even concludes that the case is inadmissible, because Mr. Sziber's claims regarding unfair terms have already been addressed by the national legislation at issue. The remaining claims are unrelated to EU law, says Wahl (para 32). At the same time, Wahl acknowledges that, as a consequence of Mr. Sziber's inaction, the referring court had to dismiss the claims before it could substitute the terms and/or order a refund (cf. para 64 of the Opinion). Why, then, the case would be inadmissible is a bit of a mystery.

AG Sharpston states in a recent Opinion - referring to Asturcom (C-40/08) - that, while the national court does not have to make up fully for 'total inertia' on the part of a consumer, the Directive must be applied irrespective of the parties' procedural actions or submissions, except (of course) if none of them has brought proceedings. Indeed, the CJEU has held in Asturcom that the national court must assess the potential unfairness of contractual terms of its own motion, "in so far as, under national rules of procedure, it can carry out such an assessment in similar actions of a domestic nature. If that is the case, it is for that court or tribunal to establish all the consequences thereby arising under national law, in order to ensure that the consumer is not bound by that clause". This appears to seamlessly apply to the present case.
In light of the CJEU's case law, AG Wahl's Opinion is all the more curious. Not only does he seem to defend a rather 'passive' role for national courts (cf. para 54), he also argues that placing a heavier burden on the consumer is justified. In his view, the new procedural rules are "more favourable" than the ordinary rules: they would make the enforcement of consumer rights more simple, quicker and cheaper (paras 51-52). It may be true that specific, possibly more effective procedures have been introduced for consumers, but in Mr. Sziber's case they are not of any help. For Mr. Sziber, the new requirements do have "unfavourable consequences" (para 64). Thus, the question should not be whether the new system "taken as a whole" (para 50) is compatible with EU law, but whether Mr. Sziber and other consumers in a similar position are afforded sufficient protection of the rights they derive from Directive 93/13. Wahl does not substantiate why it would be legitimate and necessary to request that claimants like Mr. Sziber make an extra effort by submitting an 'express' and 'quantitatively defined' claim (cf. paras 54-55 and 59-62). He does not explain either why the adoption of such additional steps would not prejudice the effective judicial protection of Mr. Sziber's rights, in particular his right of access to court, guaranteed by Article 47 of the Charter (cf. para 65). Unfortunately, the referring court does not seem to have provided much more information. For instance, why could the desired outcome - a settlement of accounts - not be achieved by requiring the bank to provide the necessary documents? We hope that the CJEU's judgment will clarify which test is to be applied here, as well as how procedural autonomy, effectiveness and, finally, effective judicial protection are (inter)related.

Tuesday, 16 January 2018

Consumer Law in the Data Economy - conference invitation

Below you may find the programme for the conference on "Consumer Law in the Data Economy" which will take place on Friday, April 13 at the University of Amsterdam. Attendance is free, but registration is mandatory (registration at email address: We are looking forward to interesting discussions!

Saturday, 13 January 2018

The brave new world of open banking: a bit more on PSD2

The 13th of January 2018 is an important date in advancing the framework of financial consumer protection. From today the Second Payment Services Directive (PSD2) became applicable in Member States.

As we already mentioned in previous posts, PSD2 is bringing many benefits for consumers by using the product regulation technique, a technique that is rarely applied on EU level as a consumer protection tool. The PSD2 abolishes charges for credit cards, regulates the price of cross-border payments, and bans firms to charge for fulfilling their information duties under the Directive. In addition, it also aims to protect consumers by transferring the risk and associated costs of a fraudulent payment or payment by mistake on the payment institution (see the summary here). These are without a doubt important milestones in advancing consumer protection, we must therefore hope that the rules will be enforced properly conferring the intended benefits on consumers.

There is another important aspect of the system of protection established by the PSD2 that we have not mentioned so far. PSD2 goes into the heart of a relationship of a customer and payment service provider enabling customers to decide on the fate of their data and enabling third parties to access data upon the customers' consent. PSD2 gives the possibility of opening up banking data for third party access, leaving the final choice in taking up the possibility to national regulatory authorities. Seeing the great potential for opening up the banking sector for competition, UK's Competition and Markets Authority instructed the 9 largest banks to open up their data, calling the initiative 'open banking.' This is said to be 'Britain's gigantic financial experiment' (see more here and here) that will be come to life gradually in the coming months. Banks must start allowing third parties, such as retailers, technology groups and rival lenders to access the accounts of customers who authorize it, accessing information such as bank statements and account balances. This is said to bring the biggest shake-up in the retail banking since the ATM has been invented 50 years ago (see here)! Sharing customer data via Open Application Programming Interface intends to increase innovation in the banking sector, opening up the market for fintech enterprises who are able to offer competitive prices and more innovative products to those provided by traditional banking.

Those UK customers that participate in the open banking project could benefit from bespoke budgeting advise and more convenient payment services. Several apps has already been launched that aggregate all of a persons financial information held by multiple banks, offering tailored products and services to customers. For example, Plum a savings account provider whose app analyses the customers income and spending habits calculating an affordable amount to save and then depositing this amount on a separate account. Or the online mortgage broker app Trussle that alerts consumers when they should remortgage to find a better deal taking into account information such as the value of the home, early exit fees and the cost of the new deal (see more here). In the future, there could also be apps that enable consumers to compare how much they spend for electricity bills with other people like them, or to receive real time offers from shops while they are shopping.

Sharing data however is not without risks. As mentioned above, PSD2 already incorporated a safety mechanism of transferring the risk of fraud and mistaken payments to payment service providers. The other risk that remains are those related to data protection, that are addressed by GDPR. Even though the supporting framework is in place, opening up access to personal, financial data is not an easy choice. There seem to be a lot more work to be done on informing consumers (this seem to be an area where information could be a useful consumer protection tool given the established framework of protection). Consumers should be at least made aware of what data will be shared, with potentially which providers and what are the limits of data sharing, or how will they be protected should something go wrong. Consumers should the be further educated in understanding the new offers, and in being able to compare the exciting opportunities offered by fintech firms.

Open banking and fintech therefore opens up a brave new world, it will be seen whether consumers are brave enough to participate in it.