Happy Data Protection Day!

(Un)acknowledged legislators

In celebration of today's Dutch poetry day, tomorrow's European data protection day and tomorrow's tomorrow's European contract law, here are some pages for

iConsumers: an eYou guide on digital rights

citizens, organisations and public authorities with an interest in European contract law: a possibility to take part in the public consultation on the Commission's green paper regarding this field (deadline Monday 31 January 2011!)

and other poets.

Viviane Reding on cloud computing and data protection

“Cloud computing conjures up images of floating zeroes and ones – data liberated from the desktop and drifting effortlessly from one server to the next.”

While this poetic line from Viviane Reding’s speech for tomorrow’s data protection day already makes a post on this blog worthwile, you may well be asking yourself what this ‘cloud computing’ is all about and what on earth it has to do with consumer law.

First of all: what is ‘cloud computing’? Cloud computing concerns online software which can be used by consumers and businesses without them having to install the software on their computers. Think of online data storage, but also of online network software such as LinkedIn or Facebook.

These programs are of great value to consumers and businesses, but also bring along risks concerning data protection (privacy as well as the risk of loss of data). The EU Data Protection Directive is running old (15 years) and so the Commission is announcing improvements in order to safeguard the consumer’s confidence in cloud computing services. Or, in the words of Reding: ‘A cloud without robust data protection is not the sort of cloud we need.’

For more beautiful poetry (as well as information on Reding’s proposals on cloud computing), click here and here.

Happy data protection day tomorrow!

[Picture: David Kleinert Photography]

Second chance for UK

While Sweden has been referred to the ECJ, the UK has received a second chance as far as the proper implementation of the Consumer Credit Directive 2008/48/EC is concerned.

The purpose of this Directive was to ensure that consumers can easily compare various credit offers available in all Member States, e.g. by setting out requirements on standard information to be provided when advertising unsecured lending services (Chapter II of the Diretive) or by harmonizing calculation of the Annual Percentage Rate of Change (APR - no idea what it means? check here) (Chapter V of the Directive).

The deadline for implementation of the Directive was set on 11 June 2010. The infringement procedure had been initiated last year already since UK has not communicated to the European Commission all measures implementing the Directive. Today UK has received two more months to comply with the European requirements. In two months European Commission may refer UK to the European Court of Justice.

Swedish dilemma

The European Commission referred Sweden to the European Court of Justice for inadequate transpotition of the Directive 2002/65/EC on the distance marketing of consumer financial services. This Directive offers consumers similar level of protection as the Distance Selling Directive, however, it applies to the marketing and sale of financial services (and not goods) via means of distance communication, e.g. when a consumer takes a loan from a bank via telephone, or signs up for a credit card online.

Sweden infringed consumer rights by e.g. leaving an option open to the service providers to require from consumers who are trying to use their right of withdrawal a compensation for costs associated with screening before consumers are granted a loan. According to Article 7 of this Directive consumers using a right of withdrawal may only be required to pay for services provided to them directly.

Since Sweden did not timely amend its legislation after first being notified by the European Commission of its infringement, the matter will now be directed to the ECJ. The reference procedure is one of the most important elements in protecting indvidual rights and insisting on adequate remedies for consumers that European Commission may use. The EC does not make use of it too hastly, but sometimes the national legislative authorities are just too slow in giving their citizens the necessary (European) standard of protection.

Consumers - patients

The European Parliament voted on 19 January in favor of the EU Directive on patients' rights in cross-border healthcare.

John Dalli, European Commissioner for Health and Consumer Policy, said it was an important step forward for all patients in Europe.

The Directive will benefit patients across Europe by clarifying their rights to access safe and good quality treatment across EU borders, and be reimbursed for it. Generally speaking, people prefer to receive their healthcare closer to home. No one wants to travel further than necessary when they are sick. However, sometimes the need for certain treatment leads patients to go abroad. Another reason could simply be that the nearest hospital lies across a border.

In addition to providing a clear and coherent set of rules on cross-border healthcare, this Directive will benefit patients in several other ways. It will help patients who need specialized treatment, for example those who are seeking a diagnosis or treatment for a rare disease. It will bring about closer and improved health cooperation, including the recognition of prescriptions, between Member States. Health experts across Europe will be able to exchange best practices and mutually benefit from innovations in health technology assessment and eHealth.

Is it fair?

The web page www.isitfair.eu contains practical information for consumers on how to check if they have fallen victim to an unfair commercial practice, and how to get help.

The burning question for consumers undoubtedly is: “How can I tell when a particular commercial practice is unfair?” The Unfair Commercial Practices Directive simplifies the answer to this question. Certain commercial practices are always prohibited under the Directive throughout the European Union while the legality of others can be determined by applying clear and common criteria.

First of all, certain commercial practices are always prohibited under the Directive. To ensure that traders, marketing professionals and customers are clear about what is banned, a black list of 31 unfair practices has been drawn up. The same list applies in all 27 Member States of the EU. The legality of a commercial practice that is not banned outright can be assessed by evaluating it against specific legal criteria. Two main categories of unfair commercial practices – "misleading" and "aggressive" – are described in detail in the Directive. The vast majority of practices which would be considered unfair fall under these provisions.

Hedgehogs online

A brief follow-up to last week's post on consumers' fundamental rights and Dworkin's 'Justice for Hedgehogs'. On the website related to the book, Dworkin responds to comments and questions. On the topic of 'horizontal human rights' he writes:

'Human rights conventions are constructed with the high responsibilities of coercive governments in mind: they assume that government must show all those over whom it exercises power an equal concern. We must therefore approach the question whether people have comparable rights against giant transnational corporations by first fixing the level of concern these organizations owe to those whose lives they affect. Which analogy should we use? Ordinary commercial enterprises do not owe the same concern to customers as to shareholders: they are obliged to seek a profit for the latter by enticing the former. They are subject to the constraints of decency of Part 4 [of 'Justice for Hedgehogs', CM] but not the much stronger constraints of coercive government. But giant corporations have many powers that strike critics as coercive and it might therefore be right to hold them to the greater level of concern we associate with governments. I have not attempted argument for or against that different analogy, but nothing in my discussion of human rights in Chapter 15 rules it out.'

Question: where would (or should) the line be drawn between 'ordinary' and 'giant' corporations?

And: can a theory of (international) fundamental rights do without a further explanation of the addressees of these rights, i.e. without explaining against whom fundamental rights may be asserted, and why? (compare Sloane, p. 985-986)

(Which reminds me of another previous post on the scope of fundamental rights protection)

And then there were two...

EU Member States formally adopted today the latest draft of the proposal for Consumer Rights Directive (read: European Commission's press release). The legislation still has to be approved by the European Parliament and the vote is now scheduled for March 2011.

The latest draft of the proposal for the CRD aims at harmonization of TWO currently binding directives: Directive 97/7/EC on Distance Selling and Directive 85/577/EC on Doorstep Selling. Unfortunately, in the works on the CRD no consensus was reached on what the desirables provision of the regular consumer sales transactions should be. Also the unfair contract terms regulation was left out of the final draft. Still, the EU authorities are optimstic that the CRD will "give consumers more confidence when they shop online", "will strengthen both the Single Market's functioning and consumer rights", "will make it easier for consumers to shop cross-border, in particular on the Internet", "will make it less costly for traders to offer their products to consumers in other countries", "businesses will benefit from lower costs, a level playing field and more legal certainty".

There are indeed certain much need changes to the doorstep and distance selling that the CRD introduces, taking into account the current consumers' problems with these transactions (e.g. hidden charges, lack of right of withdrawal from online auctions, default pre-ticked boxes). However, despite the high words used by Viviane Reding, the EU's Justice Commissioner, still falls short of its original goal to fully harmonize consumer protection in the most important areas of consumer rights.

Ill customs and bad advice are seldom forgotten (B. Franklin)

Guardian has an interesting article today by Heather Connon: "Bank customers need more protection against bad investment advice". It so happens I have researched how the warnings are given to consumers in banking sector when they take out bank loans for investments and I fully agree with the message of this article.

The author gives as an example the famous case of Barclay's Bank who was sued against and ordered not only to pay fines but also to compensate its customers who lost their money on risky investments, that they originally did not intend to make it. Many of the victims in these cases where older people, close to retirement age, who came to Barclay's to invest some of their savings in order to increase their chances for better life after their retirement. However, Barclay's employees did not take into account that the investments they were recommending to these clients had a highly risky profile and did not fulfill the clients expectations (of secure and cautious investment). It is often debated what the banks could/should do in such situations. Some say that the banks have to protect their own business and it is in their interest to sell such investments to the consumers that would bring the bank the most return. They suggest that the consumers should hire independent financial advisers to protect themselves from bank's abuse. Others, however, mention the specific, confidential character of the bank-client relationship which can lead to the increase of the bank's duties of care towards the client, including the bank's duty to advise/inform and warn the client that a certain investment does not fit that client's investment profile.

In the article you may find a description of a solution that UK is about to introduce in 2013: on retail distribution review (which would e.g. ban commission to financial advisers directly from investment products). However, the article criticizes this solution and mentions how unlikely it is that things will change. What we need for a real change to happen is not another regulatory instrument that leaves lots of gaps and ways for the banks to go around the duties of care, but a change of approach of the banks themselves. What we need is a basic understanding that a happy customer is a long-time customer and that a short-time gain may lead to long-time reputation/customer loss. After all, as Benjamin Franklin once said: "Ill customs and bad advice are seldom forgotten".

To choose or not to choose?

Consumers may like to think that they have choices: what to buy, where to buy, with whom to buy. One area in which consumers do not have a choice, however, is that which concerns their rights. Even if consumer law only lays down minimum rules for consumer protection and otherwise leaves it to the parties to decide upon the terms of their contract, it is mostly not the consumer who makes that decision: his counterparty, the seller or trader does. Standard terms of contract have become... well, the standard.

It does not have to be like that. In an article published in the online Erasmus Law Review, which can be found here, Gerhard Wagner suggests a new way in which consumer law could ensure legal certainty whilst at the same time allowing more room for flexibility. He suggests that the usefulness of mandatory rules is negligible as long as sufficient court control of standard terms exists. Where court control is not sufficient, flexibility could be created by introducing several 'options' that can be used instead of mandatory law.

This discussion is relevant and very timely: whilst Wagner discusses the proposal for a Consumer Rights Directive, the same issues are now at stake in the consultation on the Commission's Green Paper for European Contract Law. The 'optional instrument' proposed in the Green Paper can create an alternative to national laws. Whilst this can create more 'options' for businesses and consumers to trade in the EU internal market, I believe we have to be careful to be too optimistic. For who makes the choice between these options: is that not still the business deciding under which terms and conditions to offer its products?

A right is a right is a right is a right..., right?

Can consumers invoke fundamental rights against other private parties as they can (in their capacity of citizens) against the State? And, if so, do and should judges interpret and apply these rights in the same way as in the latter situation? These questions have a bearing on, for instance, the protection of social rights of consumers (regarding health, housing, energy supply) in relation to (monopolist) service providers. Furthermore, their answers are of importance for the protection of privacy and freedom of expression of the 'iConsumer' in relation to providers of digital services (on the special position of minors in this context, an earlier post appeared on this blog).

As regards the 'do'-question: A new EU Compendium on 'Fundamental Rights and Private Law', edited by Christoph Busch and Hans Schulte-Nölke (European Legal Studies Institute, Osnabrück) provides interesting insights into the practice of fundamental rights application to civil cases, based on a wide-ranging legal-comparative analysis. Aimed in particular at judges and legislators, it gives an excellent introduction to the topic and may thus inspire the further integration of fundamental rights argument in (consumer) contract law.

Talking about new books: Those of you interested in the 'should'-question are probably already (getting) familiar with Ronald Dworkin's 'Justice for Hedgehogs'. An interesting reply to his account of human rights, by Robert Sloane (Boston University), can be found here.

Who needs courts? EC: let's settle consumer disputes out of them.

European Commission made an announcement today on the launch of public consultation on alternative dispute resolution schemes (ADR) for consumers.

ADR are nothing new (more information on ADR in European Union may be found here). There are over 750 of them in various Member States. However, there is no harmonisation as to this alternative to courts that consumers may use to solve their disputes with professional parties. ADR is supposed to be advantageous to consumers due to its speed and low costs of participation. Certain directives already mention these schemes (e.g. E-Commerce Directive) and European Commission was already recommending the use of ADR for cross-border disputes. You might think that there is no need for European Commission beginning a public consultation on ADR then. However, the fact that the need for and advantages of the ADR had been recognized in past years does not mean that the state of the art as far as they are concerned is satisfactory. The public consultation that is being launched now is suppose to address certain problems with ADR: the territorial scope of their activity (certain Member States have more possibilities open to consumers to use ADR than others), the sector-specific activity of ADR (certain sectors do not recognize the possibility to solve the disputes via ADR at this moment), the recognition of ADR (the idea is to encourage both consumers and professional parties to use the ADR system). The European Commission's public consultation will remain open until 15th of March 2011 (more information on taking part in it may be found here) . The legislative proposal is expected for November 2011.

Guidance for creditors on mental capacity

On December 2010, the UK Office of Fair Trading(OFT) launched a consultation on its draft guidance for creditors on mental capacity. On one hand, the draft guidance is designed to explain the steps the OFT expects creditors to take to identify borrowers who might lack the mental capacity to make informed borrowing decisions. On the other hand, it also outlines the appropriate way for creditors to deal with borrowers who do or might lack capacity, and explains the practices and procedures it considers they should put in place.

The OFT described mental capacity as ‘a person's ability to make decisions and depends in part on their cognitive abilities to: learn, remember and understand’. For many people, for reasons of illness or disability, their mental capacity can be affected in ways which may prevent them from making certain decisions that may impact on their lives.

The OFT’s guidance for creditors on mental capacity is a way to advance the principle of responsible credit. In the context of consumer credit, the principle of responsible lending concerns professional diligence in assessing creditworthiness and supporting education of consumers,warnings about the risk related to default on payment and over-indebtedness. In this particular case, the OFT expects creditors to form a view on whether the borrower is able, perhaps with support, to make an informed borrowing decision and whether they can afford to make repayments under the credit agreement in a sustainable manner.

Further, the principle of responsible lending have gained a considerable momentum in the European Consumer Credit Directive(Directive 2008/48/EC). Aimed at tailoring credit products to consumers’ needs and ability to repay. This has implications for evaluating the suitability of the product design as such and the suitability of the product for a particular borrower. The latter includes consumer’s understanding of the product and its risks and lender’s understanding of the creditworthiness.

The intersection of financial exclusion and vulnerability in the context of access to and use of credit

On 16th December 2010, the EU Commission has adopted the European Platform against Poverty and Social Exclusion to reach the social objective of EU 2020 Strategy. Consequently, fight against poverty is at the heart of goals for jobs and growth.

This approach endeavors to integrate financial exclusion, as a particular factor of vulnerability and disadvantage (see ‘challenges section’ p.6). To a large degree, access to (specially low cost) credit is at the crossroads of contracts and consumer laws. Thus, it has many directions which may interact with the concept of vulnerability.

In 2009, a European study on Financial Inclusion Indicators allowed the collection of information concerning financial inclusion in eleven Member States of the European Union(Belgium, Bulgaria, Germany, Greece, Spain, France, Ireland, Italy, Netherlands, Poland, Slovakia) and Norway measured the level of exclusion on the basis of the following definition: ‘Financial exclusion refers to a process whereby people encounter difficulties accessing and/or using financial services and products in the mainstream market that are appropriate to their needs and enable them to lead a normal social life in the society in which they belong’. As such, it will be understood that financial exclusion is not reduced solely to non-access to a bank account, but also that it is possible that the access is not accompanied by a satisfactory usage. This last point can be called into question by a series of various elements: cost, lack of satisfactory information, complexity of use. As far as the regulation elements that impact adequate credit supply concerns, the study assessed regulatory practices such as: the registration of lenders and intermediaries, the existence of a ceiling rate, the reliability and solvency measurement framework and the effectiveness of these measures, the publicity framework. In relation to the later the study showed that still exists important disparities regarding the minimum informative contents which publicity must have regarding credit in the EU. The four fields of information most often used are: cost, refunding plan, APR(annual percentage rate of charge) and terms and conditions.

Furthermore, the issue of financial exclusion raise a question on what might vulnerability mean in the context of access to and use of credit. From a theoretical and comparative perspective, there has been some interesting initiatives that attempts to define the -dynamic concept- of consumer vulnerability, among those are worthy to mention:

- The report of the Expert Workshop on Ways and Means to Enhance Social Protection and Reduce Vulnerability (published by United Nations Department of Economic and Social Affairs in 1998), in which the formulation of the meaning of vulnerability implies an the state of exposure to the chance of injury or loss (associated with the concept of risk). Therefor, a person's degree of vulnerability will be influenced by two categories of factors: a) ability to protect or to defend oneself against the chance of injury or loss, and b) ability cope with the negative consequences of injury or loss.

- The UK Better Regulation Task Force defined vulnerability by reference to individual capacity(person's overall mental and physical capacities) and circumstances(income status, age, race or ethnicity, gender, health status, level of education, labour force -employed or unemployed-etc and so on). See Protecting Vulnerable People (published by Better Regulation Task Force UK in 2000).

- The discussion paper on What do we mean by ‘vulnerable’ and 'disadvantaged’ consumers? (published by Consumer Affairs Victoria in 2004), in which the concept of consumer vulnerability has been defined as follow: “Is exposure to the risk of detriment in the process of consumption due to the interaction of market, product and supply characteristics and personal attributes and circumstances. The main cause of vulnerability is this interaction resulting in inadequate information, poor access to information and/or ineffective use of information by a consumer or in deterrence of complaint or the pursuit of redress by a consumer ”.

Overall, these definitions emphasises information issues as key factor that cause vulnerability in consumer credit transactions. Consequently, consumer vulnerability is view as a result of the interaction of particular market or transaction characteristic(that in the case of consumer credits , and specially the use of high cost credit, implies complex pricing schemes and high transaction costs)which may create information problems, with personal capacities and circumstances that affect consumers' access to and processing or use of information. In the context of use of consumer credit, its has been largely reported how psychological factors (cognitive limitations), imperfect information constraints decision-making and have an impact on the effectiveness of policies adopted to prevent financial difficulties. For instance, at the point of decision individual borrowers may suffer from biases in relation to product attribute estimation and evaluation, positive confirmation bias, temporal and uncertainty discounting, social norms and signals. As well as, biases that includes weakness of the will (which leads them to underestimate their level of self control) and optimism bias(which leads them to underestimate the risk of adverse event, e.g. such as loss of job), which in turn leads them to borrow more than they ought.

With regard to consumer credits, there are a number of ways in which consumers may lack the information they need to make optimal choices. For example, they may lack information on the function of various credit products and how they relate to their credit needs, on product attributes and pattern mistakes, or on the legal framework of the contract. Furthermore, they may have a poor understanding of their needs and preferences for credit. It has been argued that, in theory, there are three main types of information that consumers are likely to know when considering making a purchase: the price, the quality of the product, and the terms of trade. The bottom line is, that there is a need carry out empirical research into and understanding of information problems in the context of consumer credits. In addition, to need of a conceptual framework necessary to guide research and policy development efforts if concern that vulnerability is to be translated into effective assistance.

Finally, the communication on European Platform against Poverty and Social Exclusion to reach the social objective of EU 2020 Strategy also mentioned: ‘Access to financial services for the most vulnerable can be enhanced through internal market and consumer policies’(see ‘sectoral policies’ section, p.12).

Why not make a New Year's Resolution to avoid a Christmas debt hangover next year?

What is the real power of New Year’s resolutions? This morning I started to carry out mine which have to do with more jogging. However, there is nothing fantastic about it, as New Year’s resolutions mostly have to do with goals aimed at improving one’s physical health. Nevertheless, the UK Office of Fair Trading(OFT) has recently set a more remarkable challenge for consumers by urging people to begin thinking now about saving for next Christmas, somehow aimed at improving consumer financial health.

Accordingly, the OFT is providing practical advice to people wishing to avoid the financial strain they may have faced this Christmas as part of its Save Xmas campaign. Top tips include: (1) plan early - be realistic about what you are going to need for next year and budget accordingly, (2) look at your options - find out about the pros and cons of post office, bank, building society and credit union savings schemes, as well as Christmas clubs, supermarket stamps and hamper schemes and(3)take action - choose the best option for you, and start putting some money aside. See more details at OFT website.

Despite prevention of over-indebtedness and consumer insolvency is a necessary approach in UK and any other Member State, not agreement has been reached on whether it should be encourage to treat consumption on the basis of earned income instead of expected income. See final report of the Group of Specialist for Legal Solutions to Debt Problems(CJ-S-DEBT) launched in 2006.

Towards 4

New years, new books... Joasia allowed me to advertise one that may be of interest to those of you who study the more general aspects of consumer law: the 4th edition of Towards a European Civil Code.

Happy new year!