Friday, 15 June 2018

AG opinion in Wind Tre: aggressive practices require active conduct

On the 31st of May the AG Campos Sánchez-Bordona's opinion in the Wind Tre cases (C54/17 and C55/17) was published. This is the first case where the meaning of aggressive commercial practices is discussed, making it highly important. Before Wind Tre the only ECJ case on aggressive practice was Purely Creative (C-428/11), in which one of the blacklisted practices was contested, without invoking art. 8-9 of the Unfair Commercial Practices Directive (UCPD, Directive 2005/29/EC).

In the Wind Tre case the issue of the relationship between sectoral legislation, such as the Universal Service Directive (Directive 2002/22/EC), as lex specialis to the UCPD and the general rules of the UCPD is discussed.

Facts of the case

The dispute concerned the marketing of mobile phones in Italy. The mobile phones came with SIM cards which had answering and internet services pre-installed, of which fact consumers had not been informed. It is important to note that there was no complaint as to the cost of these services or the information provided about their function, the complaint was about telecom companies omitting to inform consumers that these services were pre-installed.
The same practice was used by two companies, Wind Tre and Vodafone Italia, and the Italian Market Authority (Autorità Garante della Concorrenza e del Mercato, hereafter AGCM) imposed fines on the two companies for engaging in an aggressive practice. The telecom companies challenged that decision in court, claiming that the AGCM lacked competency to impose fines stating that the telecommunications authority (Autorità per la Garanzie nelle Comunicazioni, hereafter: AGCom) was responsible instead. This argument was based on art. 3(4) UCPD stating that in case of a conflict between the UCPD and other sectoral rules on unfair commercial practices, the latter will prevail and apply.
The case reached all the way to the Council of State (Consiglio di Stato) which ruled in favour of the competence of the AGCM stating that the practice was aggressive within the meaning of the Italian Consumer Code (transposing the UCPD). It argued that even though sectoral legislation of the telecommunications sector was also breached, the case in question presented a ‘progressive harmful conduct’, which gave rise to a more serious infringement, thus making the application of the Consumer code, instead of the sectoral legislation, appropriate. (para 25)

Questions

     The Italian court referred 7 questions, which the AG Campos Sánchez-Bordona, with the agreement of all parties, summed up into the following two groups (para 32).
  1.  Can the conduct of the telephone operators be classified as an ‘unsolicited supply' (as per point 29 of Annex I of the UCPD) or an aggressive commercial practice?
  2. According to art. 3(4) UCPD should the UCPD cede to other EU rules, and, if so, to national provisions enacted in implementation of those rules?
The first group of questions refers is of a substantive nature as to whether the practice in question can be characterised as aggressive according to the UCPD; either using the blacklist of the UCPD, or by using art. 8-9 UCPD.
The second group of questions refers to the relationship between the UCPD and other EU sectoral legislation as lex specialis.

AG's Opinion

In answering the first question, AG Campos Sánchez-Bordona provides us with what has been the most detailed analysis of the elements of aggressive commercial practices by the Court to this day. 

Inertia Selling

He begins to first examine whether the practice in question can be caught by the blacklist, and specifically point 29 forbidding inertia selling. According to the AG, there are two conditions to satisfy simultaneously: 1) unsolicited supply and 2) unlawful demand of payment (para 44).
From the facts it can be established that the phone operator had not properly informed consumers on the pre-installed services on the sim card, meaning that consumers could use them without configuring them. AG Campos Sánchez-Bordona examines whether this supply, of which consumers were not informed of, qualifies as ‘unsolicited supply’. In his opinion ‘unsolicited’ means more than not being provided with essential information on a service, it means that the consumer was not aware of its existence (para 48).
The AG finds that a consumer (and not the average consumer) has no reason to expect that services have been preinstalled, if he has not been informed thereof and which he has to opt out of by using a process which he is likely to be unaware of (para 53).
Hence, whilst in this case unsolicited supply is possible, the AG does not find the same for the demand for payment. In his opinion not any demand for payment could fulfil the conditions of point 29, but it needs to be an undue request for payment. The referring court specifies that there was no complaint as to the cost of the services or the information about them, only about the lack of information about the pre-installation.
AG Campos Sánchez-Bordona argues further that the average consumer could expect that the SIM card purchased would be able to provide him with services about the costs of which he has been informed. 
It is worth noting that the AG makes reference to the average consumer in the context of the blacklist, where the average consumer test is not meant to apply. This goes to show that the blacklist does not offer the legal certainty promised.
Based on the above reasoning, point 29 of Annex I of the UCPD on inertia selling is not applicable. The next step is to examine whether the practice can be caught by art. 8-9 UCPD.

Aggressive Practices

The focus is on the practice in question being one of omission of information.
AG Campos Sánchez-Bordona looks to the factors of art. 9 UCPD to determine what would qualify as a practice using the notions of: harassment, coercion or undue influence. Out of art. 9 UCPD the AG deduces that harassment and coercion cannot be applied in this case as they require ‘active conduct, which is not present in the case of an omission of information’ (para 64).
It is not clear how the AG reaches that conclusion, as the factors of art. 9 UCPD apply for all three categories of harassment, coercion and undue influence without distinction. Also, even the omission of information requires an active choice of the trader to omit that information, so one could argue that active conduct is not entirely absent.
The AG continues to examine solely whether the practice can be caught under the concept of undue influence. Undue influence is the only one defined in UCPD in its art. 2(j), unlike harassment and coercion.
Undue influence refers to exploitation of a position of power which significantly limits the ability of the consumer to make an informed decision. The AG differentiates between two different kinds of positions of power (para 67):
  1. Exploitation of a position of power which allows the trader to infringe the consumer’s freedom when it comes to buying a product.
  2. Position of power held by a trader who, following the conclusion of the contract, may claim from the consumer the consideration which the latter undertook to provide on signing the contract.
Consequently, the AG defines a position of power in undue influence as both applying in pre-sale and post-sale conditions. What is to be noted is the focus on the fact of the conclusion of a contract, of consideration of the terms, that is the use of contract law terms through which aggressive practices seem to be defined. However, aggressive practices are broader than that, to the extent that they cover all transactional decisions of the consumer and are not limited to the decisions to enter into a contract.
The opinion explains that the aim of prohibiting aggressive practises is, in essence, protecting the freedom of contract, as consumers should be bound only by obligations that they freely entered into. So the criterion is whether the omission of information about the pre-installation impaired the freedom of choice of the consumer to the extent, where he accepted contractual obligations he would not have otherwise (para70).
AG Campos Sánchez-Bordona found the practice not to be aggressive, as according to him, the practice was not sufficient to impair the freedom of the consumer to such an extent that he would not have entered the contract. The AG does not elaborate on how he reached that conclusion or what is the standard against which it is weighed. This view of aggressive practices appears to raise the standard, making it more difficult to show that impairment of the freedom of choice of the consumer is indeed significant enough.

Lex specialis

Given the answer to the first two questions, there was no reason to examine the rest, on the conflict of law, yet the AG did submit his observations.
In these he makes the accurate observation that the UCPD is not designed to fill the gaps that sectoral legislation leaves; instead it offers its own stand-alone system of protection which exists in parallel with the sectoral legislation (para 94). This sets the tone also for art. 3(4) UCPD that should be interpreted strictly as focus should be on maintaining a high level of protection. Therefore, art. 3(4) UCPD is better conceptualised as regulating conflict between provisions and not systems of sectoral legislation (para 111). In this case, it means that the existence of sectoral legislation that covers aspects of unfair commercial practices does not preclude the application of the UCPD.
AG Campos Sánchez-Bordona didn’t find a conflict in this case between the UCPD and the Universal Service Directive, but rather the need for them to be applied jointly (para 129). The Universal Service Directive regulates the information requirements, which are crucial for determining whether there was unsolicited supply as per point 29 of the Annex I of the UCPD.

Conclusion

This is an intriguing case, as it is the first of its kind for aggressive practices in the UCPD. It reveals contrasting interpretation of the UCPD notions and objectives between the Member States and AG Campos Sánchez-Bordona. Italian authorities viewed aggressive practices as a tool for penalising the abuse of power by the trader. The AG on the other hand interpreted the same provisions focusing on protecting consumers' contractual freedom, especially as applied to the decision to enter into a contract. It remains to be seen what the Court will decide and this blog will follow the developments with great anticipation.

Thursday, 14 June 2018

"Food labels: tricks of the trade" - BEUC's report

On the same day that the Commission announces common methodology on comparing quality of similarly packaged food products, BEUC publishes its report "Food labels: tricks of the trade" on misleading labeling practices in the food sector in the EU (see more Food labels can fool you...). Three practices that have been further elaborated on are:
  • labeling products as 'traditional' or 'artisanal';
  • displaying fruit pictures on packaging for products that have little or no actual fruit content;
  • labeling as 'whole grain' products with barely any fibre.
 The result of consumer confusion and misleading advertising practices may be the result of the lack of EU guidelines in this area of food products' advertising and labeling.

BEUC calls for:
  • more definitions on the EU level of commonly used terms on food products' labels, such as 'natural', 'traditional' or 'artisanal';
  • setting a minimum level of whole grain content for 'whole grain' claims;
  • setting a minimum level of content for ingredients pictured on the front of the pack, e.g. fruits;
  • obliging traders to display on the front of the pack the percentage of the advertised ingredient.
These recommendations would not only increase transparency of the composition of food products or facilitate better consumer decision-making, but also provide for a more fair food products' market in the EU.

E.g. the report mentions that while this product has many fruits on the packaging, they are only 2.5% of all ingredients

Quality matters

Today the Commission has published a new common methodology that will allow national authorities to compare the quality of food products across the EU, when they compare the composition and characteristics of these food products (Dual quality of food...). The idea behind this project being that currently similarly branded or packaged food products may differ in composition to an extent that is misleading to consumers, but the comparison between these products as well as the finding of misleading action would differ per Member State, leading to different levels of consumer protection. This common methodology emerged from the activities of the Joint Research Centre (JRC), the European Commission's Science and Knowledge service, which facilitate evaluation of differences in the quality of food products in an objective way.

Sweep of telecommunication and other digital services websites

On May 18 the European Commission and national consumer protection authorities published their new sweep report revealing misleading commercial practices adopted by websites offering telecommunication (e.g. fixed/mobile phone, internet) and other digital services (e.g. streaming) (see more Buying telecom services online...). Out of 207 screened websites - 163 could be currently infringing EU consumer law. The most common suspicious practices concerned: 
  • incorrectly advertising certain packages as free or discounted, as in fact these belonged to a bundled offer; 
  • not offering a dispute resolution system (or link to ODR); 
  • maintaining a possibility of unilateral change of T&Cs without adhering to rules on notification or providing a justification;
  • providing incorrect or misleading information on refunds in case of either withdrawal from the contract or non-conformity;
  • automatic contract renewals without properly informing consumers about this.

pie
From the EU Commission website

Thursday, 7 June 2018

Connecting fights saga tbc - AG Tanchev in flightright (C-186/17)

Last week we have discussed the judgement of the CJEU in the case Wegener (C-537/17), in which the CJEU confirmed that it doesn't matter whether a delay upon the arrival at the final destination was caused by a delay of one of the connecting flights, as long as they were part of one booking, the passenger could claim compensation from art. 7 Regulation 261/2004. Yesterday, AG Tanchev had to address this issue again in an opinion to the case flightright (C-186/17).

The difference between the factual situation of these two cases was that the contractual air carrier differed from the operating air carriers. In this case, passenger booked his flights through a tour organiser, who had a contract with Air Berlin. The latter air carrier has, however, on the basis of code sharing agreements, allowed the contract to be performed by Iberia Express, Iberia and Avianca - three air carriers for three flights of the whole, connected journey from Berlin via Madrid (first flight) and via San Jose (Costa Rica) (second flight) to San Salvador (El Salvador) (third flight). The first flight, operated by Iberia Express, was delayed - only by about an hour, but this led to a missed connection and arrival in El Salvador with 49-hour delay. 

Surprisingly, the German court dismissed the claim against Iberia Express, claiming that they weren't the operating air carrier on all flights and that they were not involved in the planning and booking of the journey, and, therefore, could not have taken the operational risk of short connection times. This would have been an acceptable reasoning except that provisions of the Regulation 261/2004 are crystal clear in assigning the obligations towards passengers (incl. compensatory ones) to operating carriers - regardless whether they have had contractual relationships with the passenger and, therefore, whether they have planned the flights. On the basis of code sharing agreements, the operating carrier could possibly try to claim redress from other involved parties (on the basis of Art. 13 Reg 261/2004). Such division of liability facilitates high level of consumer protection - as it is easiest for passengers to turn towards the operating carrier with their claims - as well as prevents possible manipulation of flights by air carriers, trying to evade liability by splitting up flights (see para 41 of the opinion, as well).

AG Tanchev rightly then advises the CJEU to recognise the need to hold the operating air carrier liable.

Sunday, 3 June 2018

Is Big Data harmful to our financial well-being?

On the 15 of March a Joint Committee of the European Supervisory Authorities - ESAs (consisting of the European Banking Authority-EBA, the European Securities and Markets Authority- ESMA and the European Insurance and Occupational Pensions Authority-EIOPA) published their final report on the impact of Big Data on our financial well-being. The overall conclusion of the report is that the potential benefits outweigh the risks posed by Big Data.

Big Data is a flow of data from our daily online activities that is collected and processed with highly sophisticated IT tools. This may include information from our social media presence, internet browsing history, smart phone signals or data generated by using a payment card. Connecting information from various sources enables financial firms to offer tailored financial products and services to  us, their customers. 

Financial firms are increasingly reliant on Big Data. This this is like to increase in the future with the fast developing Fintech sector that developed exactly with the aim to compete with traditional firms  by providing better suited products to consumers. Fintech is likely to develop faster in the future due to regulatory initiatives such as Open Banking in the UK (see our report here) that mandates banks to share their customer information with Fintech firms upon the consumer's request.

The advantages of Big Data are undeniable. First and foremost, Big Data enables firms to personalized financial products to meet the needs of their customers. Big Data opened the door for innovative, tailored financial products that would not be previously available from mainstream financial providers. This is largely because Big Data enables financial firms to connect non-financial information derived e.g. from our Facebook activity with financial information about our savings to create a better picture about our savings and investment habits, and than to tailor their offer in line with our habits. Secondly, Big Data also enables firms to design their provision of information in a way that can be useful to consumers. For example, the insurance company is able to provide the consumers with a warning that the insurance policy does not cover a parachute jump, which the person recently announced on social media. Finally, the use of Big Data can result in cheaper products for consumers. For example, inexperienced drivers could benefit from lower insurance premiums if they are able to prove that they are driving responsibly. This can be done by installing a telematics device in their cars that will enable insurance companies to check and analyse their driving habits.

The use of Big Data also carries risks. The primary risk is that Big Data is misinterpreted. For example, movements of a doctor that works night shifts could be interpreted as a indication of an unhealthy lifestyle, and as a result a consumer may be denied access to financial services for example a loan. Secondly, consumers may be overloaded with information about various, highly specific products that are difficult to compare and they may end up with a product that is not the best match to their needs. Thirdly, consumers may be also overwhelmed with targeted offers and may end up buying a product that they do not really need. Finally, as every data, Big Data is also vulnerable to cyber attacks.

Given the risks and benefits, the impact of Big Data on our financial well-being is largely dependent on us, on our digital footprint. Firstly on what sort of digital medium we are present, and secondly, what conscious steps we take in making decisions on the information we share. The ESAs warn us that  firms are obliged to inform us on what sort of data they collect about us and how they store it, and that we need to make sure that we understand how our data may be used. However, the recent application of the new GDPR (see our report here) and the many privacy notices we received in recent days reminded us on just how many spaces we are present, and just how many companies store our personal information, many of which we do not even remember signing up for. We were also asked to review our privacy settings, seemingly placing us in driving seat in deciding on the information we are willing to share. But how can we decide on ticking one box rather than the other without knowing the full implications of our decision? For example, a doctor doing frequent night shift may never find out that his/her loan was refused because of misinterpreted information, even is he/she does, he/she might be unaware on just how many occasions he/she agreed to share his/her location, and where he/she needs to go now to turn these settings off. Is control over our Big Data illusionary? Will Big Date be harmful to our financial well-being without this control? What do you think?

Saturday, 2 June 2018

When does an online seller become "a trader"? AG Szpunar in Kamenova

Last Thursday the Advocate-General Szpunar delivered an opinion in case C-105/17 Kamenova, in which the Court of Justice was asked to provide interpretation of Article 2(b) and (d) of Directive 2005/29/WE on unfair business-to-consumer commercial practices (UCPD) in the context of a sale of goods via an online platform. The provisions included in the preliminary reference contain definitions of the very basic concepts used throughout the UCPD and in the European consumer law more generally. The broader relevance of the guidance to be provided has been recognised by the Advocate-General who decided to extend the the scope of the questions referred to also cover a provision of Directive 2011/83/EU on consumer rights (CRD).

Facts of the case
The defendant was offering her goods via olx.bg

The request for a preliminary ruling was submitted by a Bulgarian court adjudicating a dispute between Ms. Kamenova and the national consumer protection authority concerning a potential breach of consumer law by the former. More specifically, Ms. Kamenova, who had been engaged in the sale of goods via an online platform, and had published eight different listings at the same time, did not provide information required by the Bulgarian act on consumer rights, which implemented Directive 2011/83/EU into national law. The defendant argued that, when offering used goods via olx.bg, she was not acting in a professional capacity and, consequently, her activities remained outside the scope of that act. The consumer protection authority held an opposite view and insisted that, by acting in breach of the act on consumer rights, Kamenova engaged in an unfair business-to-consumer commercial practice.

"Trader" in the UCPD and in CRD: a uniform interpretation?

Before addressing the crux of the case, AG Szpunar considered it necessary to establish whether the notion of a trader used for purposes of Directives 2005/29/WE and 2011/83/EU is to be construed in the same way. Indeed, as observed in the opinion, the wording of respective provisions is almost identical. The AG did not stop here, however, but observed that further factors had to be considered. These included, in particular, the level of harmonisation provided by respective Directives, which, in turn, should be assessed by reference to the wording, meaning and purpose of the interpreted acts. The AG eventually responded in the affirmative, finding that both Directives aimed to fulfil the same objectives, namely to contribute to the functioning of the internal market and to ensure a high level of consumer prtoection, and that both of them established a full level of harmonisation. To ensure coherent application of the two sets of rules, according to the AG, the notion of the trader used in the UCPD and the CRD had to be interpreted uniformly.

The threshold for becoming a "trader"

The subsequent part of the opinion concerns the substantive interpretation of the trader's notion as provided in the two legal acts. In this respect, Article 2(b) of the UCPD (and similarly Article 2(2) of the CRD) defines the notion of a trader as "any natural or legal person who, in commercial practices covered by this Directive, is acting for purposes relating to his trade, business, craft or profession and anyone acting in the name of or on behalf of a trader". The opinion of the AG provides for some useful points of reference in that regard. Most notably, it does not only list the criteria to be considered in the analysis of one's activity, but also points to the deeper normative rationale of the analysed provisions - namely the weaker position of the consumer resulting in the trader's comparative advantage. 

As discussed in paragraph 51 of the opinion, assessment of the purpose of the seller's activity should depend, among others, on questions whether:
  • the sale was made as part of an organised activity and with a profit-seeking motive;
  • the sale was subject to a specific timeline and frequency;
  • the seller had a legal status which allowed him to conduct trading activity and to what extent online sale was linked to such activity;
  • the seller was a VAT taxpayer;
  • the seller was acting in the name or on behalf of another trader or through any other person acting in his name or on his behalf and obtained remuneration or a share in profit in this connection;
  • the seller had purchased new or used goods for pursposes of their resale, as a result of which his activity became organised, frequent or concurrent to his professional activity;
  • the level of profit generated from the sale confirms that the transaction belonged to the seller's trading activity;
  • all products offered for sale by the trader were of the same type and value, in particular, whether the offer concerned a limited number of products.
In formulating the aforementioned list the AG relied, among others, on the submissions of the German government and of the European Commission. The involvement of these two actors in the proceedings is not surprising - German courts have been called upon multiple times to decide on similar cases and the Commission tried to come up with a similar list in its 2016 communication on collaborative economy. According to the AG, the criteria mentioned above are neither exhaustive, nor exclusive, meaning that fulfilling one or more of them does not, in itself, determine whether a seller should be qualified as a trader. The relevant assessment should be made on a case-by-case basis, taking into account the normative rationale mentioned above. With respect to the analysed case, the AG expressed scepticism whether publication of eight listings on an online platform could be qualified as an activity of the "trader" and, consequently, a "business-to-consumer commercial practice". Which factors the AG found decisive for reaching this conclusion is not clear, which may be a point of criticism addressed at her otherwise helpful guidance. Another possible takeaway from the analysed case is that national legislators may want to think twice before establishing strict thresholds between professional and non-professional activity. As for now, it remains to be seen whether the Court of Justice will follow the opinion of its advisor and how specific the Court's judgment will be. Most likely, a case-by-case assessment - first undertaken by the sellers themselves and then verified by the courts, enjoying a wide marging of appreciation - will remain the norm for the future. This would be a rather conventional way of striking the balance between certainty and flexibility with no special treatment being granted to the digital economy. Such an assessment is also substantiated by the amendments to the CRD proposed recently by the Commission, which generally leave the allocation of responsibility for establishing the status of the contracting parties unaffected. As mentioned in our previous post (see: New Deal for Consumers...), new provisions would impose an obligation on online marketplaces to provide information whether the third party offering the goods, services or digital content is a trader or not, on the basis of the declaration of that third party. Bolder measures proposed in the literature, aimed at levaraging the potential of data collected by the operators of online platforms, as for now remain off the table.

Thursday, 31 May 2018

Are 'effectiveness' and 'effective judicial protection' synonyms? Judgment of the CJEU in Case C-483/16

Today the EU Court of Justice issued its judgment in Case C-483/16 Sziber v ERSTE Bank Hungary. We have reported earlier on the Opinion of Advocate General Wahl in this case, which touches on the relation between the principles of equivalence and effectiveness on the one hand and the right to effective judicial protection, as guaranteed by Article 47 of the EU Charter of Fundamental Rights, on the other.

According to the referring court, the problem in this case was that the consumer - Mr. Sziber - had not amended his application as requested; under the new Hungarian legislation (also discussed on this blog here) he should have specified which legal consequences he wished to obtain if the contract were to be found invalid and, in particular, to which repayments he would be entitled to exactly. Because he did not do so, the referring court could not examine the case on the merits. Therefore, it asked the CJEU whether it was compatible with the Charter as well as with Article 7 of Directive 93/13/EEC to require the consumer to provide additional information in civil proceedings.

The CJEU refers to its judgments in Unicaja, Pereničová and Gutiérrez Naranjo to reiterate that consumers have, in principle, the right to restitution of amounts that have been unduly paid on the basis of unfair terms. As regards the procedural rules governing claims falling within the scope of Directive 93/13/EEC, the EU Member States have procedural autonomy, subject to the principle of equivalence and - here it gets interesting - Article 47 of the Charter (Sziber, para 35). The CJEU does not (separately) mention the principle of effectiveness, even though it still did so in Sales Sinués, the judgment it refers to in this respect. Has the 'effectiveness' of the Directive been replaced with 'effective judicial protection', or are they synonyms?

The answer seems to be: not necessarily. In paras 49-53, the CJEU focuses on the question whether there is an infringement of the (individual) right to effective judicial protection and if so, if this can be justified because it is legitimate and proportionate (paras 51-52). This is very similar to the test of Article 52(1) Charter. In principle, the existence of special procedural requirements for consumers does not mean that they do not enjoy effective judicial protection; they can be requested to provide the court with additional information. The purpose of those requirements is to relief the burden on the judicial system due to the great number of cases, which serves the general interest of a proper administration of justice. This may prevail over individual interests. It appears that the procedural rules at issue are not so complicated or severe that they disproportionally affect the consumer's right to effective judicial protection, but it is up to the referring court to determine this.

Moreover, ERSTE Bank and the Hungarian government have emphasised that consumers have the possibility to claim repayment and compensation under the new legislation. The CJEU holds that, if this indeed turns out to be the case, or if consumers have other effective procedural means at their disposal, the effectiveness of the protection intended by the Directive does not preclude the procedural rules at issue (para 54). Here, the focus is on the availability of "adequate and effective means" (Article 7 of the Directive) rather than on justification(s) for a possible infringement of Article 47 of the Charter.

Today's judgment suggests that that 'effectiveness' and 'effective judicial protection' call for different tests, in the context of Directive 93/13/EEC. This could be seen as a confirmation that they entail different perspectives. In the case of Sziber this may not lead to a different outcome, but there are cases where it would arguably have made a difference [*].

Lastly, it should be noted that the CJEU leaves it up to the referring court to decide whether the principle of equivalence has been met (paras 37-48). It also concludes - unsurprisingly - that Directive 93/13/EEC applies in domestic consumer disputes as well, where there is no cross-border element.


[*] See e.g. Anna van Duin, 'Article 47 EUCFR and Civil Courts: The Case of Arbitration Clauses in Consumer Contracts (the Netherlands vs Spain)', Working Paper 5/2018, Jean Monnet Chair of European Private Law, available at https://ssrn.com/abstract=3186531. 

Bad news for airlines - CJEU in Wegener (C-537/17)

CJEU tackled today a controversial topic of whether the Regulation 261/2004 on air passenger rights should protect passengers during connected flights where the transfer occurs outside the territory of the EU and the disruption impacts that second leg of the journey. Short answer, which will not satisfy the air carriers: yes, it should. 

In the Wegener judgment (C-537/17) the passenger flew with Royal Air Maroc from Berlin to Agadir (Morocco) with a transfer in Casablanca. Passenger made one reservation for a journey between Berlin and Agadir, and followed the air carrier’s offer to fly with a stopover in Casablanca. The flight from Berlin was delayed, which resulted in the passenger being denied boarding in Casablanca, as his seat was already given away, and subsequently having to take a later flight, which led to a delay of four hours.

It is clear that the air carrier may not justify denying boarding to passengers by claiming his belief that they won’t make the connection due to an earlier delay (see previous case C-321/11 German Rodriguez) nor is it contested that a delay of more than three hours in reaching the final destination entitles passengers to compensation from art 7 Reg 261/2004, even if the first of the connected flights didn’t have such a delay (see case C-11/11 Folkerts) (para 16-18).

The difference between the current case and that of Folkerts is that in Folkerts the stopover was in the EU whilst in this case it took place outside it. Pursuant to art 3 Reg 261/2004 it encompasses within its scope flights departing from an airport in the EU to a third country, regardless whether the air carrier is an EU air carrier. So far the airlines kept arguing that in case of connected flights, where the transfer occurs outside the EU, the second flight as a separate flight does not fall within the scope of application of Reg 261/2004 (para 15).

Does the CJEU take that into account? Not at all. There is none consideration given to the fact where the stopove occurs. The only importance was awarded by the CJEU to the fact that the flights were connected and booked as a single unit. 

The CJEU could have at least made mention of the need for a high level of air passenger protection, as it does so in many other judgments in this area, and further could have highlighted that without such an interpretation passengers flying from Berlin to Agadir could be treated differently if their transfer occurred either in Casablanca or in Rome. The latter could introduce unequal treatment for comparable situations and possibly negatively impact the market, as some connections would be more favourable than others (no longer only economically but also legally).

Thursday, 24 May 2018

Non-performing loans: the impact of the proposed rules on consumers

On the 14th of March 2018 the EU Commission published its proposals for tackling the problem of non-performing loans (NPL), i.e. the Proposal on a Directive on credit services, credit purchasers and the recovery of collateral.

NPLs are loans on which borrowers are unable to make the scheduled payments for more than 90 days, or those loans that the financial firms assess as being unlikely to be repaid considering other criteria. The financial crisis made the problem of NPL particularly acute, when masses of borrowers (consumers and businesses) were unable to pay their debts. As a result, a large number of NPL piled up on the books of financial firms, tying up their capital and endangering their solvency; and depending on the size and number of firms affected potentially threatening the stability of the entire financial system. Consequently, the initiative for their regulation came under the umbrella of completing the Banking Union. The Proposal is also part of the broader effort to create a Capital Markets Union. 

The proposed Directive aims to tackle NPLs in two ways. First, it seeks to encourage the development of an EU-wide secondary markets for NPLs by establishing a harmonized legal framework for the sale of these products. Secondly, it seeks to increase the efficiency of debt recovery procedures through the availability of a distinct EU-wide common accelerated extrajudicial collateral enforcement procedure (AECE). Although the proposed Directive is not a special consumer protection instrument (it applies to both consumer and business NPL loans) consumer interest are taken into account under both pillars.

Under the first pillar, the Proposal put in place safeguards to protect consumers whose loans are being classed as NPL and are being sold to third parties. These third party buyers may be banks and non-bank institutions, and they may be based in a different Member State from the originator of the loan. This naturally raises concerns. Non-bank institutions, specialized debt collection firms are known for using unfair and harsh practices in collecting debt from consumers. Depending on the Member State, these firms may fall under a less stringent regulatory regime than banks, including looser conduct standards which they must adhere to. It also raises the danger that consumers would be subjected to a foreign legal regime if they decide to challenge the behaviour of the debt collector or if they are being sued. To prevent any harm stemming from these aspects, the Proposal clarifies that consumer protection rules that were applicable to the initial credit agreement, i.e. the agreement that consumers entered into with their banks, will continue to apply irrespective of who buys the loan and irrespective of the legal regime in force in the Member State where the loan is sold to.

The Proposal clarifies that consumer protection rules specially include the rights granted under the Mortgage Credit Directive, the Consumer Credit Directive and the Unfair Contractual Terms Directive. In the same way, all the consumer protection rules in force in the Member State of the consumer continue to apply, including statutory and other mandatory law. The legal framework seems to be understood more broadly than formal rules, including infromal procedures put in place to protect the most vulnerable, the overindebted consumers. In order to create a coherent legal framework, the new rules will ask for an amendment to the Mortgage Credit Directive. Similar to Article 17 of the Consumer Credit Directive, in the event of assignment of the creditor's rights to a third party, the Mortgage Credit Directive will be amended to state that the consumer shall be entitled to plead against the assignee any defence which was available to him/her against the original creditor.

Regarding the second pillar, consumers are protected by consumer contracts being exempted from this special enforcement regime. Consumer debt will have to be enforced by the existing enforcement procedures in Member States.

We can therefore see that the the new rules as they stand in the Proposal are not likely to have a significant effect on consumer welfare, they will neither provide more protection nor will they harm consumers. The level of consumer protection will remain the same as before the Directive: the effect of the Proposal is status quo on consumers. It is a distinct question to what extent the existing, underlying rules protect consumers, and whether this Proposal should complement or supplement the existing legal framework with more substantive intervention.

****
This post is a response at a special request of one of our readers. Please let us know if you would like to hear our view on an EU consumer protection matter of a special interest to you.