German BGH "limits and expands" consumer withdrawal rights with a view to mortgages

Late in 2013 the CJEU issued a judgment (Case C‑209/12) following upon a request for a preliminary ruling under Article 267 TFEU from the Bundesgerichtshof (Germany) in which it held that a national provision, under which a right of withdrawal lapses one year at the latest after payment of the first premium, where the policy-holder has not been informed about the right of cancellation, was contrary to EU law. Before 2008 it was standard procedure in Germany that an insuree would  receive the general conditions of assurance and consumer information only upon receipt of the policy document - hence after conclusion of the contract. Upon receipt of the policy documents consumers were granted a 2 weeks (later 1 month) withdrawal period. If the consumer never received the documents, the right of withdrawal was assumed to having lapsed after a year with the contract hence being valid. This judgment was to have effect for insurance contracts for the time period from 1994 to 2007 giving consumers that had not been correctly informed about their rights basically an "eternal right of withdrawal" that is financially far more favourable than a classical cancellation of such a contract. It puts the consumer in the position as if the contract had never been concluded.

Taking into consideration the CJEU judgment the BGH held that such damage payments may be limited given that the insuree has been profiting from the insurance coverage - thereby limiting the effect of the CJEU judgment to some extent. 

The Allianz, one large German insurance company, at the time did not expect a big impact of the judgment as it claimed to be able to prove that it had sent out the policy documents in time to all its customers. Few cases of consumers trying to withdraw their contracts upon the basis of not having received the policy document were, consequently, expected.

It has, however, generally become popular to withdraw insurance contracts due to formal errors of different kinds (German legislation on the formal requirements kept changing). In a recent judgment the BGH has, in line with the previous judgment, once more confirmed the possibility to limit damage payments because the consumer has benefitted from the insurance protection. At the same time the BGH, however, states explicitely that the consumer upon a successful withdrawal can claim back all the acquisition costs - typically a multiple of Euro 1000 - from the insurer. These may not be subtracted.

Towards more durability for consumer products

When you purchase a more expensive hand mixer for your cooking experiments, you expect it not only to whip and mix everything faster, easier and better, but also to last longer. Imagine then that the whisk breaks within a year of your purchase. Even though you have used your hand mixer often, you still feel like it should have survived longer. Do you then buy a new hand mixer or just try to replace the whisk? What if you cannot buy a separate accessory or if the hand mixer has already been replaced by newer models and old accessories are not on the market? This is when we would talk about a planned obsolescence of a product - when the producer intended the product to last only for a specific amount of time and designed it to e.g. break after this time. 

The European legislator generally encourages not only the increase in the products' durability but also transparency about the life span of the products and the availability of spare parts. The Waste Electrical & Electronic Equipment Directive (2012/19) sets, therefore, only minimum requirements and allows the Member States to adopt stricter ones. While the European Economic and Social Committee set up the Consultative Commission on Industrial Change (CCMI) that argues for the introduction of a ban on planned and built in obsolescence (see their publication: Towards more sustainable consumption...), no enforcement action at the European level has been taken yet and the rules on transparency have not been further specified either. Some Member States are, thus, adopting their own national rules to provide more consumer protection. For example, in France a new decree 2014-1482 obliges French producers to inform sellers, who then are to convey this information to consumers, about the durability of their products and the availability of the spare parts under a threat of fine of 15.000 euro (see French government tackles planned obsolescence). As of 2016 they would also have to provide a 2 year warranty for white goods, which would force them to repair or replace free of charge any defective products within two years from the original purchase date, since the consumers would enjoy a presumption that any non-conformity manifesting within the first 2 years from the purchase date was inherent in the product (Loi Consommation: consommation responsable). This effectively extends the minimum period for this presumption of 6 months (guaranteed by the implementation of the Consumer Sales Directive 1999/44) to two years.

Time limits determined by law not T&Cs in claims against airlines

The Air Passenger Rights Regulation (No 261/2004) in its Article 16 leaves it to the Member States to regulate the enforcement of passengers' claims against the airlines when they are denied boarding, their flights get cancelled or delayed and the airlines don't provide compensation and assistance of their own will. In a previous case the Court of Justice of the EU established that the Member States may set the time limits for bringing actions to court against the airlines, as long as these time limits facilitate effective protection (case C-139/11 Joan Cuadrench Moré). In the UK this time limit has been set at 6 years (by the Supreme Court ruling in Dawson v Thomson Airways from last year), but some airlines, such as Ryanair, introduced into their standard terms and conditions a provision limiting their liability to 2 years. In a recent ruling against Ryanair the Manchester County Court declared such a standard term and condition not applicable. While the airlines may be outraged by this ruling (Ryanair loses flight delay court case), it does not surprise that a standard term and condition may not change to the detriment of consumers a mandatory time limit.

Better enforcement of consumer rights in the car rental sector

Following a large number of complaints received by European Consumer Centers in regard to cross-border car rental services, national enforcement authorities from the Consumer Protection Cooperation Network (CPC Network) joined efforts with the EU Commission to improve the protection of consumers in this sector. With the help of the EU trade association Leaseurope, they have reached an agreement with the five major car rental companies (Avis-Budget, Enterprise, Europcar, Hertz and Sixt) representing more than 65% of the EU car rental market, on the 13th of July 2015.

The five major companies promised to respect EU rules on consumer rights, unfair commercial practices and unfair terms. The pledge is to be implemented gradually by the end of 2015.

Key benefits include:

• more transparency on applicable optional and mandatory charges when booking online, 
• better information on available insurance products at the stage of booking,
• improved and more transparent fuel and vehicle inspection policies,
• improved practices for additional charges such as payment for damages.

The agreement definitely sounds good, but some issues remain to be addressed in the future:

• renter's liability for damages to the car caused by others,
• practices of brokers and intermediaries,
• insurance offered as part of car rental packages,
• the language of the contract when bookings are made in another Member State.

See for more information the UK Competition and Markets Authority's (CPC Network coordinator) report: 'Short-term car rental in the European Union'.

Press digest

Air passengers

While the Regulation 261/2004 on air passenger rights is still under review, BBC reported recently on the investigation conducted in the UK by the consumer group Which?. Pursuant to their data between June 2014 and May 2015, ca 900.000 people could be eligible for a compensation for a delayed flight but only ca 38% of them claimed this compensation. Many passengers still don't know about their rights and are not informed about them by the airline. Even worse, airlines often discourage passengers from making this claim by arguing that the delay was beyond their control and therefore an extraordinary circumstance. The process of how to claim this compensation is also often complex. Our advice: see whether any of the online flight claim services operates in your country (such as euclaim, flightclaimservice, flightright). (Delayed airline passengers 'missing out on millions in compensation')

***

Taping client financial consultations

UK financial advisers were worried that they would have to tape meetings with their clients in order to be able to prove that they were acting in clients' best interests. While MIFID II only demands recordings of phone and electronic communications to be made and store, it also recommends such measures for face-to-face meetings. The Financial Conduct Authority, however, does not expect such far-reaching measures to be taken by financial advisers. (FCA will not demand advisers tape client meetings)

***

Mobile phone operators in Ireland breach CRD information duties on the right of withdrawal

The Competition and Consumer Protection Commission in Ireland is taking enforcement action against various mobile phone providers (Vodafone, Eircom, Meteor, Three and UPC) for not providing with sufficient and accurate information on how to withdraw from their contract, in accordance with the Consumer Rights Directive. The service providers are asked to update this information and to inform their most recent consumers of their right to withdraw from the contract. (Mobile operator avoids penalty; Consumer watchdog takes action against Vodafone; Action taken against Eircom, Meteor, Three and UPC)

***

Price discrimination based on nationality in Disneyland Paris

The European Commission has received complaints about Disneyland Paris charging different prices for consumers depending on their nationality. According to the complaints British and German consumers would pay more than French consumers. Generally, it could be considered price discrimination if for the same service people pay more because of their nationality or country of residence, unless Disneyland Paris could justify the need for this price variation. (Disneyland Paris is being investigated for allegedly charging British and German visitors more than the French)

***

European Commission vs Hollywood

The European Commission has started an antitrust procedure against Sky UK and six major US film studios: Disney, NBCUniversal, Paramount Pictures, Sony, Twentieth Century Fox and Warner Bros. These six studios have placed contractual restrictions on Sky UK pursuant to which Sky UK may only make their pay-TV services available in the UK and Ireland and not to EU consumers located elsewhere. Since due to these contractual provisions Sky UK cannot choose its clientele based on commercial reasons, incl. national copyright laws, these rules may amount to anti-competitive agreements, prohibited in the EU. US movie studios tend to, however, choose a broadcaster to license for their products in a single Member State and limit their options to share these services cross-border. Considering the increase in the demand for cross-border services in the EU, incl. (online) pay-TV services, these restrictions may be stifling competition. (Commission sends Statement of Objections on cross-border provision of pay-TV services available in UK and Ireland)

***

Uber at the ECJ

On July 20 it was announced that a Spanish court referred to the ECJ for an estimation of the legal character of Uber, and more specifically UberPop services. Uber is one of the examples of the sharing economy companies that enables peer-to-peer transactions through an online P2P platform. There are a lot of uncertainties as to the legal position of the online P2P platform, its rights and obligations and its liability. Can it be seen as merely an (electronic) intermediary in a transaction between two peers or could it be seen as a service provider, etc.? In more and more European countries Uber's operations are questioned (and even banned) under national laws, since the courts do not see the activity of Uber as limited to only providing intermediation services. (EU court to classify Uber: taxi or information company?)

***

Ban of a chemical in imported textiles

Over 10 years ago the use of nonylphenol ethoxylates (NPE) in textile manufacture in Europe was banned. This toxic substance is used as a cleaning, dyeing and rinsing agent in textile production, however, when it degrades in the environment it ends up in the bodies of fish, disrupting their hormones. Despite the ban, the negative effect of NPE's degradation did not disappear, since imported textiles contained it and when washed released it into the environment. The Council has now voted unanimously on extending this ban to imports of clothing and other products (to become effective 5 years after the adoption of the new rule). (EU countries agree textile chemical ban)

Agreement reached on Insurance Distribution Directive: good news for European consumers?

The new Directive on insurance sale is a step closer to being adopted after representatives of the European Parliament reached agreement with the Council on the last day of the Latvian Presidency.

Background

The new Insurance Distribution Directive (IDD) will replace the 2002 Insurance Mediation Directive (IMD) that sets out the present regulatory framework for insurance brokers and other intermediaries and covers a broad range of insurance products, including life insurance with investment elements (so called unit-linked insurance). The IMD left European insurance markets fragmented, with significant inconsistencies in particular to information requirements. Aiming to raise consumer confidence in the aftermath of the financial crisis and to ensure a high level of consumer protection the Commission embarked on the revision of IMD. The Commission's proposal dates back to 2012 (IMD2)- see our summary here. The revised proposal was published on the 30th of June 2015, reflecting a compromise between the Parliament, the Council and the Commission.

Key features of the revised proposal

The Directive is renamed to reflect the wider scope of application (including insurance sold without the involvement of intermediaries).

The IDD complements the rules on the sale of investment products (MiFID II) and Regulation 1286/2014 on key information documents for package retail and insurance-based investment products (PRIIPS).

The IDD is a minimum harmonization directive.

The IDD will bring a number of benefits to European consumers:

• wider scope of application, covering the entire distribution chain, all sellers of insurance products, including insurance companies that sell directly to customers (without engaging an intermediary),
• greater transparency of the price and other costs, including an obligation to disclose whether the seller has an own incentive to sell the particular product,
• eased decision making and product comparison -insurance companies are obliged to hand over a standardized information sheet summarizing the basic coverage of the (non-life) insurance policy and the main exclusions before the contract is concluded, 
• additional rules for the sale of bundled products-consumers will now be able to buy the main good or service without the insurance product,
• stricter requirements for the sale of life insurance products with investment elements (packaged retail insurance-based investment products - PRIIPS).

The Commission welcomed the new proposal. "This agreement is good news for European consumers", said Jonathan Hill, EU Commissioner for Financial Stability, Financial Services and Capital Markets Union. "Consumers will benefit from greater choice and information when they buy insurance products, with more accountability and competition."

While the proposal has many positive features, highlighting two significant drawbacks, BEUC seems somewhat less content:

• sellers are not obliged to disclose the amount of fees and commissions they receive for selling insurance policies,
• the proposal fails to extend recently adopted investor rights like those on investment advice for life insurance products.

Monique Goyens, BEUC's Director General commented: "As with any investment products, small investors spend a substantial amount of money on life insurance policies in the hope that it will result in some saving. It is inexplicable that consumers taking out life insurance policies will be less protected than those opting for an investment fund."

In addition, we may also wonder whether non-disclosure of  the amount of fess and commissions will make price comparisons more difficult, negatively influencing competition and consumer choice, and making harder for European consumers to make informed decisions. Should we care how much we pay in fees and commissions as long as we get the promised cover? What do you think?

Conference: Legal Resolution of Mass Disputes

The University of Haifa, Faculty of Law (Israel) will organize an international conference on Legal Resolution of Mass Disputes, taking place 26-27 November 2015. Panels will discuss class actions, collective redress, transnational class actions, ADR and ODR, legal representation and the social impact of collective disputes. Speakers come from Asia, Europe, the UK and the US. See the programme and register for the conference here.