Friday, 23 December 2016

Lucky4All pyramid scheme in lotteries - CJEU in Nationale Loterij (C-667/15)

Last week, on December 15th, the CJEU also gave its judgment in a Belgian case Nationale Loterij (C-667/15) that concerned pyramid promotional schemes as unfair commercial practices. The black list in Annex I to the Unfair Commercial Practices Directive 2005/29/EC clearly marks in its point 14 as an unfair commercial practice, under any circumstances, 'establishing, operating or promoting a pyramid promotional scheme where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products'.

Nationale Loterij organises public lotteries in Belgium and it filed a complaint against Lucky4All scheme as a prohibited pyramid promotional scheme. Lucky4All allowed lottery players of Nationale Loterij to form groups and play together, thus increasing their winning chances. Ultimately, through eight pyramid levels, 9841 combinations could be played at the same time. Existing members pay an initial contribution of 10 euro and a monthly contribution of 43 euro, allowing to purchase 10 lottery combinations a week. The purchase would be conducted by a representative of the scheme and he would also share the winnings, if any. 50% of the winnings would go to the member who came up with the winning combination, 40% would go to members in higher levels of the scheme (incl. Lucky4All scheme itself) and 10% would be reinvested. The winnings would be capped at 1 million euros. Belgian courts were not sure whether the last condition of the Annex I (also reiterated in previous 4finance judgment of CJEU, C-515/12) was met in this case, namely, whether compensation paid out to existing members of the Lucky4All scheme was primarily or mostly based on financial contributions of new members. This would depend on whether the link between contributions of new members and payment to existing members needed to be direct.

The CJEU is clear that also an indirect link suffices to recognise a pyramid promotional scheme. What is required is that members pay a financial contribution (para 27) and a link between contributions paid by new members and compensation of existing members (para 28). This link, however, does not need to be direct, as the UCPD does not specify such a condition (para 30) and introducing it would lead to easy evasion of this prohibition (para 31). While the assessment of the facts of this case is left to the national court, in para 32 the CJEU suggests that a financial link in this case appears to be 'indirect but certain', as the chances of winning are linked to the introduction of new players to Lucky4All scheme, and when chances of winning increase with the increase of number of players, the scheme introduces a capping of winnings.

Thursday, 22 December 2016

Effective judicial protection in unfair terms cases – mixed signals from Luxembourg

Also yesterday the Court of Justice delivered its ruling in case C-119/15 Biuro podróży Partner. The judgment may come as a surprise to some commentators as it markedly deviates from the opinion of Advocate General Saugmandsgaard Øe presented earlier this year (see our previous post here). The Court adopted a more consumer-friendly approach and accepted a national solution, according to which the use of terms equivalent to those included in the register of unfair clauses may lead to an imposition of administrative sanctions, even the term included in the register was declared unlawful in a different factual context. The Court made it clear, however, that effective judicial remedies must be available to traders, on whom the sanctions are imposed.

Underlying dispute and questions referred for a preliminary ruling

Reference for preliminary ruling came from the Court of Appeal in Warsaw, which examined an appeal from the decision of the Polish consumer protection authority (President of UOKiK) imposing a fine of PLN 27 127 (approx. EUR 4 940) on the travel agency Partner. Imposition of sanctions was based on the finding that supplier, in its contracts with consumers, made use of standard provisions equivalent to terms previously declared unlawful by a court and introduced into the public register of unfair terms. The referring court expressed doubts as to the interpretation of Directives 93/13/EEC (Unfair Contract Terms Directive) and 2009/22/EC (Injunctions Directive). It explicitly referred to the Invitel case (C‑472/10), in which the Court held, that its case-law that the effects of a judicial decision declaring unfair terms unlawful may be extended to all consumers having concluded a contract containing the same terms with the same seller or supplier, even if they did not participate in the proceedings brought against that trader. The referring court asked for clarification whether an analogous interpretation can apply to consumers who concluded a contract containing the same terms with a different seller or supplier.

The judgment

According to the Court, in light of Article 6(1) and Article 7 of Directive 93/13/EEC, read in conjunction with Articles 1 and 2 of Directive 2009/22/EC and in the light of Article 47 of the Charter of Fundamental Rights of the EU, the use of standard contract terms with content identical to that of terms which have been declared unlawful by a judicial decision having the force of law and which have been entered in a national register of unlawful standard contract terms can be regarded as an unlawful act also in relation to a seller or supplier which was not a party to the proceedings culminating in the entry in that register.

However, it is essential that the seller or supplier is provided with an effective judicial remedy against the decision which finds that contested terms are equivalent. In particular, the following two elements should be subject to a review:

a) the question whether, in the light of all relevant circumstances particular to each case, those terms are materially identical, having regard in particular to their harmful effects for consumers,
b) the amount of the fine imposed.


The judgement is noteworthy for several reasons. First of all, it elaborates on the role of the Charter of Fundamental Rights in the context of unfair contract terms. This time the Court explicitly referred to the Charter (paras. 23-27), although it had refrained from doing so in other important cases like Aziz (C-415/11). The Court also made it clear that not only consumers, but also the sellers and suppliers enjoy the fundamental right to effective judicial remedy which must be respected.

Secondly, the judgment sheds some light on the role of unfair contract terms registers, which can be adopted by Member States. The Court did not delve into the debate about the erga omnes effect of judgments, but appeared to have taken it for granted that lists of unfair terms may also be based on court rulings (para. 36), thus differing quite fundamentally from the Advocate-General's opinion (paras. 54-56 of the opinion). Instead of questioning the legitmacy of such registers, the Court focused on the way in which they work in practice and emphasised that not only the formation, but also management of such registers must comply with EU law. In particular, registers should remain transparent and up-to-date. Possible consequences of noncompliance with these requirements have not been specified, though. In case of a serious mishandling of unfair terms registers, initiation of infringement proceedings could perhaps be envisaged. It is worth mentioning that with respect to the abovementioned parameters, the Polish register – with more than 6500 often overlapping entries – left much to be desired. However, as we have already reported, legal framework in Poland has meanwhile undergone a substantial reform and no longer provides for an erga omnes effect of judgements entered into the register. Interestingly, the lack of transparency was mentioned as one of the reasons for the reform.

In the analysed case particular importance was attached to the trader’s possibility to challenge the decision. Emphasis was placed on two elements: assessment of the conduct itself (material equivalence) and the amount of the fine. In this respect the Court aligns, to a certain extent, with the Advocate General, who also stressed the need to analyse contractual terms in a broader context and to allow traders to present factual arguments. Nevertheless, the Court's understanding of the Polish system of judicial review differs rather significantly from the Advocate-General's view (see paras. 42-43 of the judgment and para. 65 of the opinion).

Notwithstanding these discrepancies, it seems justified to say that a system in which administrative sanctions are imposed based on the register of unfair clauses is only acceptable if the reviewing court is competent (obliged?) to analyse the case on the merits. In the Polish judicial practice several reviewing courts have expressed the view that conducting such an assessment should not be their task, as there is a separate procedure adopted specifically for this purpose. In the light of CJEU judgment, such an argument may be contested. According to the Court, assessment of material equivalence undertaken by the reviewing court is sufficient from the point of view of effective judicial protection. At the same time, the Court does not preclude the existence of stronger procedural guarantees for traders. In particular, it does not address the issue whether an alternative solution, in which every contractual term needs to be first assessed by the court in a dedicated procedure and only afterwards the trader can be subject to administrative sanctions, would undermine the effectiveness of EU consumer law.

The assessment of the second element – the amount of fines – has similarly been left to national courts. In this respect, however, the judgment is less controversial as it clearly refers to the well-established principle of proportionality (paras. 44-46).

Concluding remarks

The judgment in Biuro podróży Partner may be regarded as a development of Invitel jurisprudence. The Court seems to have accepted that a judicial ruling recognising particular contract terms as unfair may also produce, at least indirectly, legal effects vis-à-vis other sellers and suppliers. Nevertheless, this was not the main angle of the Court's analysis. While the CJEU acknowledged that administrative proceedings against different traders may be based on registers on unfair clauses, it did not attach much importance to the fact that the register in the case at hand was composed of clauses which had previously been declared unfair by courts in different individual cases. Emphasis was rather placed on the need to provide both consumers and traders with effective judicial remedies in light of Article 47 of the Charter. The Court provided some guidance as to the interpretation of this principle, although this can hardly be regarded as clear and comprehensive. The judgment also sheds some light on requirements concerning the management of unfair term registers, which should remain transparent and up-to-date. Furthermore, it clarifies that even if the administrative sanction is based on equivalence of contract terms, judicial review should seek to establish whether the terms are indeed materially – and not only formally – identical and sanctions are proportional. The question of what should be done if the earlier court had simply erred in its finding was not explored.

Due to a recent reform of the Polish law on unfair terms, the judgment of the Court will be particularly relevant to a number of pending proceedings, initiated before the reform came into force, which were often stayed in anticipation of the CJEU ruling. In this context, it is crucial that the Court did not reject the consumer-friendly interpretation of the previous Polish scheme in its entirety. As regards the availability of effective judicial protection, the assessment has largely been left to national courts. Limited evaluation performed by the CJEU did not disclose any significant shortcomings of the analysed legal framework, contrary not only to the opinion of the AG, but also the part of Polish jurisprudence and academia. It will thus be very interesting to see the impact of the judgment on the ongoing proceedings.

Spanish 'floor clauses' (cláusulas suelo) - EU Court of Justice steps in: nullity is nullity

Judgment of the EU Court of Justice in Joined Cases C-154/15, C-307/15 and C-308/15 (Gutiérrez Naranjo v. Cajasur Banco, Palacios Martínez v. BBVA and Banco Popular Español v. Irles López)

Yesterday the EU Court of Justice gave its long-awaited judgment in the joined cases from Spain on the infamous 'floor clauses' (cláusulas suelo). It is a real Christmas present to Spanish consumers and house-owners: the CJEU has "overruled" national case law that limits the temporal effects of the declaration of nullity of an unfair term. Nullity is nullity. The impact of this judgment on the Spanish banking sector is huge: banks will have to pay back an estimated amount of 3.000 to 5.000 million euros (source: El País). The judgment has already been called a "formidable varapalo judicial a la banca", a tremendous judicial blow to the banks.

'Floor clauses' in mortgage loan agreements establish a minimum rate below which the variable rate of interest cannot fall. Until the Spanish Supreme Court (Tribunal Supremo) found them to be unfair in 2013 due to a lack of transparency, they were widespread. The biggest question for Spanish consumers after yesterday's judgment, which has been widely covered in Spanish media, is: how much money do we get back?

The reason why they ask this question, is the Supreme Court's decision to limit the temporal effects of its judgment to after the date of its publication, 9 May 2013, both in respect of collective actions for an injunction and individual actions by consumers claiming repayment. Only the amounts overpaid on the basis of 'floor clauses' after that date had to be paid back. One of the considerations of the Supreme Court was that retroactive (i.e. restitutory) effect of the invalidity of the clauses at issue would give rise to serious economic repercussions. Lower courts in Spain, however, doubted whether the Supreme Court's approach was compatible with Directive 93/13/EEC on unfair terms in consumer contracts. Last July, we reported on this blog that it was permissible in the opinion of the Advocate General. The CJEU has now decided otherwise, which means that Spanish consumers can also claim repayment of the amounts overpaid to the banks on the basis of 'floor clauses' during the period before 9 May 2013, from the beginning of their contract.

For the readers of this blog, the judgment may not be entirely unexpected. The CJEU refers extensively to its previous case law about the interpretation of "not binding on the consumer" under Article 6(1) of Directive 93/13. It reiterates that it is for the national court "purely and simply" to exclude the application of an unfair term (para. 57). The national court may not revise the content of unfair terms, "lest it contribute to eliminating the dissuasive effect of the straightforward non-application with regard to the consumer of those unfair terms" (para. 60). The determination of unfairness "must, in principle, have the consequence of restoring the consumer to the legal and factual situation that he would have been in if that term had not existed" (para. 61). Thus, the national court must impose the repayment of amounts that prove not to be due, which entails "a corresponding restitutory effect" (para. 62). The absence of such restitutory effect would call into question the dissuasive effect that Articles 6(1) and 7(1) of Directive 93/13 are designed to attach to a finding of unfairness.

The CJEU then proceeds to consider that national (case) law may not alter the scope and, therefore, the substance of the protection guaranteed to consumers by the Directive. The Supreme Court was entitled to hold that its judgment did not affect situations in which a judgment with the force of res judicata had been given. While it is compatible with EU law to lay down reasonable time-limits for bringing proceedings, only the CJEU can decide upon a temporal limitation of the effects of a rule of EU law. National (case) law may not aversely affect the substance of the right that consumers acquire under that rule. The temporal limitation made by the Supreme Court is tantamount to depriving any consumer having concluded a mortgage loan contract before 9 May 2013 containing a 'floor clause' of the right to obtain repayment in full of the overpaid amounts. The CJEU concludes that national case law, such as that following from the Supreme Court's judgment of 9 May 2013, ensures only limited protection for consumers. Such protection is incomplete and insufficient and does not constitute either an adequate or an effective means of preventing the continued use of 'floor clauses'.

The CJEU rejects the argument brought forward by, among others, the Spanish government that the question of the effects of the finding of unfairness as regards 'floor clauses' does not fall within the scope of Directive 93/13, because that finding would afford a higher level of consumer protection than guaranteed by the Directive. The review of the substantive unfairness of a clause relating to the main subject-matter of the contract, where the consumer did not have the necessary information on the conditions and consequences of that contract before entering into it, falls within the scope of the Directive.

The CJEU brushes aside the Supreme Court's considerations in one fell swoop. It does not matter whether the 'floor clauses' were in themselves lawful, that their use had long been tolerated on the market, that the banks had complied with the regulatory requirements for information, or that there could be serious economic repercussions. The judgment was a bombshell: "Ahora mismo sale gratis disparar contra la banca" ("Right now, the banks have been made fair game"; source ABC). It is perceived as yet another setback for the Spanish banking sector. A string of preliminary references to the CJEU, starting with the well-known Aziz case, has strengthened the judicial protection of consumers against unfair contract terms. Still, yesterday's judgment comes as a surprising end to a long-running battle between Spanish consumers and the banks, supported by the government. It remains to be seen how the European judgment will be implemented at the national level; most banks do not seem eager to accept an obligation to automatically repay all their clients.

Friday, 9 December 2016

Camera, Camera, on the Wall...

The latest issues of INsights #18 contains a short article by Joasia Luzak 'Camera, Camera, on the Wall...' which introduces to the general public a previous joint publication by P. Lewinski, J. Trzaskowski and J. Luzak 'Face and Emotion Recognition on Commercial Property under EU Data Protection Law' published in Psychology & Marketing, vol. 33, issue 9, pp. 729-746. If you are interested in issues of privacy and how new technologies may challenge it, it's worth it to give it a read.

Thursday, 8 December 2016

Rescheduling credit NOT free of charge if payment for credit recovery agency added - CJEU in VfK (C-127/15)

In July we've mentioned an opinion of AG Sharpston in Verein für Konsumenteninformation case (C-127/15), which concerned debt collection agencies and a possibility of them being recognised as credit intermediaries (Debt collection agencies as ... - in this post we present the facts of the case in details). Today the CJEU issued a judgment in this case.

The CJEU shared AG Sharpston's opinion that the credit rescheduling agreement concluded between consumers and Inko, acting as a credit collection agency on behalf of the lender, could not be recognised as a 'free of charge' agreement, if it obliged consumers to repay the total amount of the credit and to pay interests and costs that were not agreed on in the initial contract. The concept of a 'credit agreement' is broad and covers also agreements on rescheduling of repayments of existing debts (para 30), incl. when these are concluded by credit intermediaries acting on behalf of the lender (para 32). Since in the given case, consumers would be obliged to pay first Inko's costs, and then remaining capital due and interest, they had a new obligation placed on them, which was not agreed in the initial contract - to pay the costs of a credit recovery agency (para 38-39). Therefore, the credit rescheduling agreement could not be seen as concluded free of charge.

While the CJEU further agrees that debt collection agency, such as Inko, should be perceived as a 'credit intermediary' (under Art. 3(f) of the Consumer Credit Directive), it doesn't, however, share the view of AG Sharpston that this would place any pre-contractual information obligations on the agency. While credit intermediaries have a duty to inform, this obligation does not stretch to 'credit intermediaries in an ancillary capacity' pursuant to Art. 7 of the Consumer Credit Directive, and this category encompasses such persons who are not credit intermediaries as their main purpose of trade, business or profession (para 47). If the referring court then determines that Inko only acted as a credit intermediary in an ancillary capacity, they would not be found negligent in not providing pre-contractual information to consumers. However, in this case the lender would need to ensure that such information reaches consumers (para 52).

The last part of the judgment is somewhat disappointing, considering that when debt collection agencies contact consumers they won't have an obligation to provide pre-contractual credit information, as long as they would maintain debt collection as only part of their trade. Banks (lenders) might not always be immediately aware that such a contact has occurred, which might hinder their performance of duty to inform.

Monday, 21 November 2016

Addressing financial innovation: the launch of a New Task Force on Financial Technology

Last week the Commission has launched a Task Force on Financial Technology focusing on the FinTech sector (see the press release here). FinTeach refers to new applications, processes, products or business models in the financial services industry such as peer-to-peer lending and crowdfunding. The new Task Force brings together the expertise of the Commission staff in several areas including competition and consumer protection, financial and digital services and digital innovation and security. It will assess the state of the sector in the EU and develop strategies for addressing the potential challenges that this sector poses, in line with the Commission's goal to develop a comprehensive strategy on FinTech. The work of this Task Force is potentially very important for protecting consumers of financial services, given that FinTech challenges the 'traditional' consumer protection rules, including for example the definitions of a consumer and a creditor. The task force will engage with stakeholders and present policy recommendations in the first half of 2017. We will be anxiously waiting for this report.

Thursday, 17 November 2016

AG Szpunar: after-sales helplines should be available at the cost of standard calls

Case C-568/15 Zentrale zur Bekämpfung unlauteren Wettbewerbs Frankfurt am Main is a sign that one of the most recent EU legal acts in the field of consumer protection - the Consumer Rights Directive 2011/83/EU (CRD) - is gradually making its way before the Court of Justice. The opinion of Advocate-General Szpunar, delivered on 10 November, has just been published in multiple language versions. Full text of the opinion can be found here

The case concerns the concept of ‘basic rate’ contained in the Consumer Rights Directive. Article 21 CRD obliges Member States to ensure that “where the trader operates a telephone line for the purpose of contacting him by telephone in relation to the contract concluded, the consumer, when contacting the trader is not bound to pay more than the basic rate”. The directive leaves it open, however, which of the following factors is decisive for the application of Article 21: 
  • the charges, which consumers incur when contacting the trader by telephone, i.e. charges should not exceed a certain threshold, in particular the costs of a standard call at normal market prices, or 
  • the profit, which the provision of non-geographic telephone lines generates, i.e. traders should not make profit through the telephone helpline and the overall cost of such calls is irrelevant.
Note that Article 21 only refers to the provision of after-sales telephone lines. A distinction should therefore be made between communication means used for the conclusion of the contract, where the trader is only required to inform the consumer about the costs higher than the basic rate – Article 6(1)(f), and telephone lines used after the contract is concluded, which are of direct relevance to the case at hand. 

Facts of the case 

The defendant, a German company, provided consumers with an after-sales-service telephone line available at a special (non-geographic) number containing the prefix 0180, which is used in Germany for support-oriented services at a single national rate. This rate, however, exceeded the normal market charges for standard calls, i.e. the costs which consumers typically incur, according to their contracts with telecommunications service providers, when they call a standard (geographic) fixed or mobile number. Zentrale zur Bekämpfung unlauteren Wettbewerbs, a consumer association, questioned the legality of this practice and brought an action for an injunction before the German court. The defendant maintained that the German legislation does not prohibit traders from providing helplines at a cost exceeding the cost of standard calls, provided that it is the telecommunications service provider and not the trader who profits from this practice. Literally speaking, such an interpretation was supported by the wording of Paragraph 312a of the Bürgerliches Gesetzbuch (German Civil Code, BGB), according to which consumers should not pay for anything else than for the mere use of the telecommunications service. BGB does not specify the type of the telecommunications service, though. Following this interpretation, the fact that consumers calling an after-sales telephone line have to pay more to telecom operators, has no bearing on the assessment of the trader's practice. 

AG’s opinion 

AG Szpunar did not share the argument of the defentant and proposed a pro-consumer interpretation of Article 21 CRD. According to the Advocate-General, consumers calling the after-sales telephone line of the trader must not incur charges higher than the normal costs which they would incur for calling a standard (geographic) fixed or mobile number. Who ultimately receives the remuneration payable by the consumer is legally irrelevant. But how did the AG arrive at this conclusion?

Having established that the literal and comparative interpretation of the term ‘basic rate’ does not provide necessary clarification, the Advocate-General turned to the schematic, teleological and historical reasoning. 

Schematic interpretation: Article 6(1)(f) and Article 21 

An essential part of the Advocate-General's analysis referred to the general scheme, purpose and regulatory context of the directive, and in particular the relationship between Article 6(1)(f) and Article 21 CRD. AG Szpunar noted that pursuant to Article 6(1)(f), interpreted a contrario, the trader is not required to inform consumer about the costs of the means of direct communication unless they exceed the basic rate. He further agreed with the observation of the European Commission that if the charges incurred by consumers were irrelevant to the interpretation of the concept ‘basic rate’, consumers would also be unable to estimate the costs arising from the use of the telecommunications service at a pre-contractual stage. Such an interpretation of Article 6(1)(f) would clearly undermine the rationale of this provision. In the context of Article 6(1)(f) the term 'basic rate' should therefore be understood as the costs of a normal standard (geographic) fixed or mobile telephone call. According to the AG, for reasons of systemic coherence as well as further arguments stated below, the same should apply to the interpretation of Article 21. 

Teleological interpretation: full harmonisation and a high level of consumer protection 

Having pointed to the full harmonisation approach adopted the CRD, along with its aim to achieve a high level of consumer protection, AG Szpunar turned his attention to the teleological analysis of Article 21. He noted that the existance of special telephone lines, with call rates higher than normal market rates, may prompt consumers to avoid telephone contact with the trader for fear of incurring excessive costs. This, in turn, could discourage consumers not only from discussing the details of their purchase, but also from asserting their contractual rights or seeking legal remedies. Article 21 CRD would thus lose its effectiveness if the protection of the consumer from premium call rates depended on whether or not the trader receives part of the charges paid. 

Legislative history 

Advocate-General also paid some attention to the historical evolution of the interpreted provision. He referred to the amendments proposed by the European Parliament and, assertedly, accepted by co-legislators as well as to the DG Justice Guidance Document. Based on this analysis, the AG concluded that the aim of EU legislature was to protect consumers from additional or excessive communication costs. An interpretation to the effect that the concept of ‘basic rate’ covers all costs of the telecommunications service, irrespective of the amount of these costs, would contradict these objectives. 

Final remark 

Attention of the reader should finally be drawn to the following statement in the AG's opinion: "it is clear from the general scheme of the directive that there is an irrebuttable presumption that the telephone assistance service is included in the parties’ expectations and therefore in the price already paid by the consumer. The use of a premium rate number would amount to making the consumer pay additional costs for the same service" (para 37). This argument appears rather tenuous. Reference to the price already paid by the consumer implies the internalisation of costs by the trader and could, in fact, support the contested German interpretation, according to which the (lack of) profit made by trader remains of relevance to the assessment. Overall, however, the pro-consumer interpretation of Article 21 CRD presented by Advocate-General Szpunar is well justified on other grounds and as such should be welcomed. 

Tuesday, 15 November 2016

Complex pricing in TV and other adverts - CJEU in Canal Digital Danmark (C-611/14)

Clearing up our backlog, on 26 October 2016 the CJEU issued a judgement on the interpretation of Art. 6 and 7 of the Unfair Commercial Practices Directive in the case Canal Digital Danmark (C-611/14).

Canal Digital provides television services to consumers in Denmark, offering them various TV packages. In many of its advertisements in 2009 promoting various TV subscriptions it could have confused consumers as to the real price for its services, considering that it separately showed the monthly price (made more visible by e.g. the use of a bigger font) and the additional six-month 'card service' charge and the full commitment period price (for one year). The last two prices were showed in smaller font, often in white against a light background, at the bottom of the advert, with consumer attention likely being drawn to the monthly price.

Misleading omission and disclosure medium 
The CJEU refers to the requirements of Art. 7(1) and (3) of the UCPD to determine whether a particular information should have been provided to consumers in order not to mislead them. It is, therefore, necessary to consider what method of communication has been used to convey information to consumers, as it could have placed limitations of time and space.  If this is the case, it is necessary to consider whether and what other means trader has used to convey material information to consumers. (par. 35) Art. 7(4) UCPD contains an exhaustive list of material information that has to be provided to consumers when inviting them to purchase, but even if all this information is provided, this does not exclude that this invitation to purchase would be considered as a misleading commercial practices either under art. 6(1) or art. 7(2) UCPD. (par. 71) It seems that the Court suggests that e.g. despite the price being a material information that needs to be provided, it could still be given to consumers in a misleading way if e.g. an important element of this price would not be mentioned or would be confusingly or in an unclear way mentioned, as in this particular case.
In case of TV adverts, consumers  cannot demand the same level of detail as with some other advertisements, and are also given a limited time to assess this information. (par. 60) If not all material information could be provided, commercial information could mention only some of it and the rest could be placed on the website. It is for the national court to ascertain what measures has the trader taken to provide material information to consumers, but it could be considered a misleading omission if the trader splits the price into two elements and only makes one of them visible in marketing materials, if this causes consumers to take transactional decisions, they would not have otherwise taken (par. 64).

Misleading pricing
Could it be consider misleading if the trader chooses a pricing strategy for a subscription that splits the charge into a monthly and six-monthly components, with only the monthly charge being highlighted in marketing, and the six-monthly charge either omitted or inconspicuously presented? Yes, as this would be likely to give average consumers false impression of a favourable price, contributing to consumers taking transactional decisions they otherwise would not have taken, which is for the national court to ascertain (but the CJEU suggests a positive answer to this test referring to the price as a determining factor in the mind of an average consumer - par. 46; esp. if the omitted price component was a significant part of the price - par. 47). The CJEU mentions that offers of TV service providers are often highly structured, both in terms of cost and content - "resulting in a significant asymmetry of information that is likely to confuse consumers." (par.41) Interestingly, for the test of misleading action, contrary to misleading omission, there is no exception made in the UCPD based on the advertisement being made through a limited as to time or space communication medium (par. 42).

If it talks like a seller... - CJEU in Wathelet (C-149/15)

Last week the CJEU also issued a judgement in the Wathelet case (C-149/15) concerning interpretation of the Consumer Sales Directive (CSD) with regard to a sale of a second-hand vehicle in Belgium.

Ms Wathelet has purchased a second-hand vehicle for 4.000 Euro as a consumer from a professional garage and did not obtain any receipt, proof of payment or a sales invoice for this purchase. The garage paid for the roadworthiness test, while Ms Wathelet paid for the registration of the vehicle. The car has promptly broke down, before the consumer received the invoice for the purchase. The garage found that the fault was with the engine and charged Ms Wathelet for 2.000 Euro for its repair. She has refused to pay this repair price, claiming that the garage as the seller of the vehicle was responsible for this fault. At this point, Ms Wathelet was informed that the garage has never owned the car and has sold it on behalf of Ms Donckels, another consumer. Ms Donckels has, however, never received the full purchase price, as the garage withheld 800 Euro to credit repairs that have been conducted on the vehicle. The garage sent then a letter to Ms Wathelet, confirming its capacity as an intermediary, stating that the engine failure is an 'ordinary risk' when buying a second-hand car from another consumer, and attached an invoice for the purchase price of 4.000 Euro on which it was handwritten that Ms Donckels was the seller. The invoice only had the signature of Ms Donckels. The garage refused to return the car until the repair price of 2.000 Euro is paid in full and brought proceedings against Ms Wathelet for payment of this invoice. Ms Wathelet counter-claimed demanding termination of the contract of sale and damages.

The Court of Appeal in Liege, Belgium, finds that there is strong evidence that Ms Wathelet was never informed that it was a private sale and, therefore, asks the CJEU whether the notion of a 'seller' encompasses not only professional traders who transfer ownership of consumer goods to consumers, but also traders acting as intermediaries for private parties, and whether the answer would differ depending on whether they are remunerated for their services and whether the consumer was informed of the fact that the sale was a C2C sale.

The CJEU first determines that the notion of the seller should be interpreted autonomously for the purposes of the Consumer Sales Directive, considering its objectives. The notion does not cover intermediaries (par. 33), however, that does not mean that it could not cover traders who act as intermediaries (regardless of whether they are remunerated for their services - see par. 43) but present themselves as professional sellers to consumers, giving consumers false impression that they are concluding a B2C contract (par. 34). The CJEU states that literal interpretation of art. 1(2)(c) of CSD does not prevent such an interpretation, teleological arguments - supporting high level of consumer protection - strengthen it (par. 35-36). It is essential for consumers to know the identity of the seller, and whether it is a professional party, as they will only have remedies for non-conformity of the purchased goods from a professional seller under CSD (par. 37). The consumer should have, therefore, been informed that the owner was a private individual, eliminating information imbalance between the parties. (par. 39-40)

"Therefore, in circumstances such as those at issue in the main proceedings, in which the consumer can easily be misled in the light of the conditions in which the sale is carried out, it is necessary to afford the latter enhanced protection. Therefore, the seller’s liability, in accordance with Directive 1999/44, must be capable of being imposed on an intermediary who, by addressing the consumer, creates a likelihood of confusion in the mind of the latter, leading him to believe in its capacity as owner of the goods sold." (par. 41)

"...The degree of participation and the amount of effort employed by the intermediary in the sale, the circumstances in which the goods were presented to the consumer and the latter’s behaviour may, in particular, be relevant in that regard in order to determine whether the consumer could have understood that the intermediary was acting on behalf of a private individual." (par. 44)

Monday, 14 November 2016

ECJ in Home Credit Slovakia (C-42/15): MS can impose written form for the conclusion of credit contracts

Last week, the Court of Justice issued its decision in Home Credit Slovakia, C-42/15. We have already covered the AG's opinion on this case, which was largely followed by the Court. For this reason, the comment here is limited to the two most complex questions discussed and decided by the Court.

Background: the Consumer Credit Directive (art 10.1) provides that “credit agreements shall be drawn up on paper or other durable medium”.  It then makes a list of 22 elements of information which should be included in said agreements.
Slovakian law requires credit contracts to be concluded “in writing”, which means that offer and acceptance have to be signed. This contract to be concluded in writing has to include all the elements mentioned by the consumer credit directive.
The facts of the case are largely unremarkable, except for the fact that  we know a few of the elements which the Directive and Slovakian law require to be included in the contract were not specified in the document signed by the parties, but only in the lender’s terms and conditions .
The main questions before the court of justice were:
  •     whether the directive requires all the information to be contained in a single document, ot whether it allows part of that information to be provided in a different document, aka the provider’s standard terms of business;
  •            whether a requirement under national law that all the information be included in one document- or that if part of the information is contained in a separate, unsigned agreement, the contract cannot have full legal effect - is precluded by the directive.

The AG had discussed at length the Slovak translation of the Directive’s text, and had ended up  discussing separately the compatibility of national legislation possibly imposing as well as not imposing the requirement that the information be all included in a single document.
When discussing expressly the possibility that national legislation allows for the information to be split among different documents, the AG went on to explain (para 52 of her Opinion) what conditions would make this acceptable in line of the Directive’s requirements.
The Court does not discuss much whether allowing the information to be split among different documents is in line with the Directive, since “there is nothing in the Directive to indicate that the credit agreements referred to in that provision must be drawn up in a single document” (para 30).

The Advocate General found this potentially more problematic, and included the requirements in her conclusions- there is no trace of the same nuance in the Court’s decision. On the other hand, the Court is more explicit on the fact that the formal requirements for the conclusion of a credit contract are left for the Member States to determine (para 39 ff), and avoids entirely the “single document” issue- which allows them not to make any reference again to the relationship between the standard terms and the text of the agreement. While the Advocate General assumed that the “in writing” obligation and the single document would go hand in hand, the Court is suggesting a different interpretation- namely that national laws could be seen to require that both the main text and the standard terms should be signed by the consumer. 

Thursday, 20 October 2016

ECJ: dynamic IP addresses can be personal data- and yet websites may be able to store them without consent

Yesterday, the Court of Justice delivered its decision in Breyer v Bundesrepublik Deutschland (C-582/14, not yet available in English), a case concerning the lawfulness of the retention of dynamic IP addresses and other information by internet service providers. 

Mr Breyer contested the practice of the German federal government's websites, which keep a register of all IP addresses accessing information on their pages, together with a record of the pages visited and the time of each visit. The purpose of this information storage, according to the German government, is to prevent and/or readily prosecute cyberattacks. 

Two questions were raised before the Court of Justice: 1) whether, contrary to the assumptions of the Government when devising this practice, the information concerned constituted personal data under Directive 95/46; 2) if so, whether the German rules applicable to the retention of personal data by websites, which would make the Government's practice illegal, were compatible with the directive.

As to the first question, the Court of Justice answered that the collection of dynamic IP can be qualified as collection of personal data. The main issue to be discussed in this context was whether dynamic IP information, which is by definition not constantly associated to an individual user, can nevertheless be considered as capable of identifying that user. This is materially possible only through obtaining additional information from the internet service provider which has issued the IP number. 

Making reference to the directive's 26th recital, the Court reasoned that the answer to the question depends on the ability, for the website's owners, to obtain the "missing" information legally and without disproportionate expenditure. The ECJ considers that this possibility is clearly present in a case such as the one under scrutiny, especially in the event of a cyberattack. 

Therefore, the answer to the first question is that dynamic IP addresses are to be considered and treated as personal data by a provider which has the possibility to use them, in case of need, in order to identify the users associated to them. 

As to question 2), the Court had to consider the compatibility with Directive 95/46 of the German provision according to which- thus the interpretation prevailing in Germany- online service providers are only allowed to collect personal data for purposes related to their service provision- and charging of potentially ensuing fees. 

In particular, the Court considered whether a similarly interpreted restriction was compatible with article 7 letter f of the Directive, according to which providers can collect and preserve data in pursuit of their legitimate interests, provided they do not disproportionately impinge on the user's fundamental rights and liberties. The national legislation implementing the directive must leave some room for the balancing required by this provision. 

According to the Court, therefore, article 7 letter f of Directive 95/46 stands in the way of a national rule that generally disallows providers to store personal data with the purpose of securing the website's continued workability- which, inter alia, encompasses the prevention and prosecution of cyberattacks.

Thus, the answer of the second question is that the Directive does not allow national legislation to be interpreted in such a manner that would render the collection of personal data (ie dynamic IP addresses and access information) for the prevention of cyberattacks illegal.    

This decision is rather double-faced: on the one hand, it has a privacy-friendly attitude insomuch as it makes clear that all information can be personal data when the provider collecting it has the possibility to, at some point in time, use it to identify people who have accessed its webpages. On the other hand, though, it threatens to preempt national legislations giving a strict interpretation of the legitimate interests allowing data collection. It will be interesting to see which of the two faces will become more visible in the decision's aftermath. 

Wednesday, 19 October 2016

Comparing prices in hyper- and supermarkets - AG Saugmandsgaard Øe in Carrefour Hypermarchés (C-562/12)

AG Saugmandsgaard Øe has issued an opinion today in the case C-562/12 (Carrefour Hypermarchés) concerning an issue of a potential misleading and comparative advertising. Carrefour holding consists of many hyper- and supermarkets across France, with supermarkets generally being smaller in size than hypermarkets. One of its main competitors is Intermarché holding that also operates many hyper- and supermarkets. While Carrefour has 223 hypermarkets, Intermarché has 79. 

In December 2012 Carrefour run a new advertising campaign, both on TV and online, in which it compared prices of selected 500 leading brand products in its shops and competitors' shops under a slogan 'Lowest price guarantee'. The comparison was clearly favourable to Carrefour, who also promised to pay twice the price difference if consumers proved that the advertised prices were incorrect. Intermarché questioned the objectivity of this price comparison and its correctness, as well as a possibility of this advertisement misleading consumers, as it wasn't made clear to consumers that the comparison was between prices of consumer products in Carrefour's hypermarkets and Intermarché's supermarkets. Especially, since both Carrefour and Intermarché belong to retail outlets which each have shops of identical format and size, whose prices where then not directly compared with.

The CJEU was asked to answer such questions as (1) whether comparative advertisement referring to prices of consumer goods should be allowed only if the shops are of the same size and format; (2) if the compared shops differ in size and format whether consumers should be informed about this under the UCPD's obligation of Art. 7 to reveal material information to consumers; (3) if (2) is answered positively, how should this information be given to consumers.

The AG advises the Court to answer that indeed (1) comparative advertisement may only compare prices of goods sold in shops of similar formats and sizes but only IF:

"it is found, in the light of all the relevant circumstances of the case, and in particular in the light of the information in or omissions from the advertising at issue, that the transactional decision of a significant number of consumers to whom that advertising is addressed is likely to be made in the mistaken belief that all the shops in those retail chains have been taken into account in calculating the general price level and the amount of savings which are claimed by the advertising and that, accordingly, those consumers will make savings of the kind claimed by the advertising by regularly buying their everyday consumer goods from shops in the advertiser’s retail chain rather than from shops in the competitor’s retail chain"


"the selection of the shops for the comparison has the effect of artificially creating or increasing any difference between the prices charged by the advertiser and by the competitor."

Thus, the national court has to consider the effect of a given advertisement on both consumers and fair competition to assess whether in a given case the comparative advertisement showed by Carrefour has infringed requirements of the Directive 2006/114/EC. If it is not misleading and it is done in an objective way, it should be allowed. 

"In my view, there is in principle no reason to consider that an advertiser’s economic freedom does not also extend to the possibility of comparing prices in shops having different formats and sizes. In so far as an advertiser is capable of benefiting from economies of scale, as a result of the size, format or number of shops available to him, and, consequently, of charging prices lower than those of his competitors, he should be able to derive the benefits therefrom for marketing purposes." (Par. 30)

The discretion of the advertiser in designing his marketing strategies is not unlimited, however, and should consider the need to provide objective comparisons and not to mislead consumers.

The AG expresses also an interesting view on the capabilities of average consumers: "I consider that the average consumer is fully capable of deciding whether a price difference justifies, in his view, purchasing a product in one or other of the shops, when those shops have different formats or sizes, which may also entail differences in terms of the geographical proximity of the shops." (Par. 31) However, in the particular case: "I consider that an asymmetric comparison of that kind might deceive an average consumer as to the actual difference in the prices charged in the advertiser’s shops and in the competitor’s shops, by giving that consumer the impression that all the shops in the retail chains were taken into consideration in calculating the price information presented in the advertising, although that information applies only to certain types of shops in those retail chains." (Par. 42)

Only the second requirement - whether the comparison might artificially create or increase difference in charged prices on the market - should, however, be considered by the national court when assessing (2) whether consumers should have been informed about divergence in size and format of shops compared in this advertising. In general, the AG does not see the information on size and format of shops as always being material to consumers, but in certain circumstances it may become material information. (Par. 68-69)

If the information on the difference between compared shops should have been given to consumers, this would need to occur in the advertisement itself (3), pursuant to the AG. Only such dissemination would assure that the information is provided in a clear, intelligible, unambiguous and timely manner, esp. since choosing to compare prices of goods sold in shops with different sizes/ formats was a voluntary choice of the advertiser. (Par. 78)

Wednesday, 12 October 2016

Putting an end to silos enforcement of consumer (data protection) rights?

Last month, BEUC and the European Data Protection Supervisor (EDPS) held a joint conference on the enforcement of fundamental rights- notably, the right to privacy- in the age of big data. 

BEUC urges all competent authorities to coordinate their actions and strategies in this field, putting an end to "silos" enforcement, which is unable to guarantee equal respect of consumer rights across policy areas. 

BEUC particularly welcomed the EDPS's recently published opinion on "coherent enforcement of fundamental rights in the age of big data", which contains a set of recommendations, Here an excerpt from the study summary:

"The EU institutions and bodies, and national authorities when implementing EU law, are required to uphold the rights and freedoms set out in the Charter of Fundamental Rights of the EU. Several of these provisions, including the rights to privacy and to the protection of personal data, freedom of expression and non-discrimination, are threatened by normative behaviour and standards that now prevail in cyberspace. The EU already has sufficient tools available for addressing market distortions that act against the interests of the individual and society in general. A number of practices in digital markets may infringe two or more applicable legal frameworks, each of which is underpinned by the notion of ‘fairness’. Like several studies in recent months, we are calling for more dialogue, lesson-learning and even collaboration between regulators of conduct in the digital environment. We also stress the need for the EU to create conditions online, as well as offline, in which the rights and freedoms of the Charter may thrive.

This Opinion therefore recommends establishing a Digital Clearing House for enforcement in the EU digital sector, a voluntary network of regulatory bodies to share information, voluntarily and within the bounds of their respective competences, about possible abuses in the digital ecosystem and the most effective way of tackling them. This should be supplemented by guidance on how regulators could coherently apply rules protecting the individual. We also recommend that the EU institutions with external experts explore the creation of a common area, a space on the web where, in line with the Charter, individuals are able to interact without being tracked. Finally, we recommend updating the rules on how authorities apply merger controls better to protect online privacy, personal information and freedom of expression."
According to the opinion, the Digital Single Market strategy represents a good opportunity for taking a more coherent approach. We will see whether the different actors involved will be willing to seize the chance!

Monday, 3 October 2016

Tax increase on consumer goods - an effective nudging tool?

There is an interesting article in today's The Guardian by P. Barkham on how the introduction of a 5p charge for plastic bags last year in the UK has led to significant changes in consumer purchasing behaviours and ultimately contributed to better environment protection (Six billion plastic bags can't be wrong - so what do we tax next?). Logically, you wouldn't think that just the fact that consumers were faced with having a choice of paying less for their groceries if they brought their own bags, would lead to significant behavioural changes, considering the diminutive amount of the price increase. But still... of course, just the fact of having to confirm this additional charge might have been discouraging, as well as could have brought consumers' attention to the reason behind this sudden charge - environmental protection. The author poses a valid question whether tax policy is where we may expect more nudges to occur in the future.

Thursday, 29 September 2016

Online portal for participating in EU legislative processes

Within the Better Regulation Agenda, the EU Commission has launched an online portal over the summer that enables everyone to follow and to contribute to EU legislative processes.

The portal offers the possibility to track the law-making process, following the different phases of the annual Commission work programme, though the roadmaps, impact assessment reports and experts groups. It also offers the possibility to everyone to share their views on drafts that the Commission will take into account when further developing the acts.

See the press release here.

Wednesday, 21 September 2016

Consumers' attitudes to Terms and Conditions (T&Cs)

The European Commission has published a study on "Consumers' attitudes to Terms and Conditions" conducted by a consortium consisting of Ecorys, Tilburg University, University of Amsterdam and GfK. The legal expertise was provided for this study by Marco Loos (CSECL, University of Amsterdam) and Joasia Luzak (CESL, University of Exeter; CSECL, University of Amsterdam). Within the study experiments were conducted to, among other things, examine how quality cues impact consumer attitudes to standard terms and conditions, whether the length and complexity of text of disclosure matters etc. The Commission announces that the results of this study will inform the ongoing review of EU consumer and marketing law, as they are relevant both for the revision of Unfair Contract Terms Directive and the Digital Single Market proposals. No specific plans have yet been announced though.

The final report is available here.

Previous research has shown that when buying products and services online, the vast majority of consumers accept terms and conditions (T&Cs) without even reading them. Although by not reading the T&Cs consumers are disempowering themselves, this behaviour can be viewed as rational from a cost-benefit perspective. As such, it would be unrealistic but arguably also unnecessary to expect all consumers to read and comprehend all T&Cs that they encounter: In most cases these T&Cs will not have an impact on the performances of the parties. On the other hand, even in such cases consumers may want to have a short look at the T&Cs in order to assess the reliability of the trader with whom they are about to conclude a contract. Therefore, this research took on a dual approach as to how to help consumers assess the substantive quality of the T&Cs.
The first approach was to increase readability. We investigated whether readership and understanding would be increased by shortening and simplifying the T&Cs. The assumption was that some consumers are motivated to be informed about (specific parts of) the T&Cs before making a purchase. If consumers are motivated to read the T&Cs, they should be able to understand this information. This approach is in line with the case-law of the Court of Justice pertaining to the requirement in Article 5 of the Unfair Contract Terms Directive (UCTD) that terms and conditions must be drafted in plain and intelligible language. According to the Court, this requirement implies that terms must be drafted in such language that the average consumer can foresee, on the basis of clear, intelligible criteria, the economic consequences which derive from these terms for the consumer. Shorter and simpler T&Cs could contribute to the readability of the T&Cs and therefore to better consumer decisions regarding whether or not to conclude the contract with a particular trader.
The second approach was to create effortless awareness. This approach was not focused on increasing the share of consumers who read the T&Cs per se. Rather, it investigated how consumers can be made more aware of the content of the T&Cs, or at least of the quality thereof, without them spending much more effort. To that extent, we investigated whether trust in the T&Cs and purchase intentions would be increased by adding a quality cue to the online store, such as the presence of a logo of a national consumer organisation accompanied by the statement “these terms and conditions are fair”. The assumption was that when the T&Cs were accompanied by such a statement, consumers would trust the content of the T&Cs more and would therefore be more willing to conclude a contract with that trader compared to traders that did not accompany their T&Cs with such a statement. Again, this may then contribute to better decision-making by consumers regarding whether or not to contract.
On the basis of our findings, we have made the following policy recommendations:
1. To improve readership, T&Cs could be presented in a default exposure format.
- The study shows that where consumers can access the T&Cs by clicking on a link, only a small percentage of consumers (9.4%) opened the T&Cs in the absence of a quality or reading cost cue. When the T&Cs were directly provided on the screen and consumers had to scroll through them, only 22.1% indicated that they did not read the T&Cs at all, compared to the 90.6% in the voluntary exposure experiment. How much readership can be improved by this measure needs to be investigated in further experiments that directly compare free and default exposure conditions on the same outcome measure.
2. To improve readership and understanding, T&Cs could be standardised and presented in a simple and short format, containing no more than the most relevant information.
- From the perspective of general consumer law and product-specific regulations, certain information must be disclosed to consumers by traders. Standardised forms for providing this information may facilitate reductions in length. This study suggests that T&Cs do not need to be long and complex, and traders actually have a commercial and legal interest in keeping T&Cs short and simple.
- When the T&Cs were simplified and shortened, more consumers indicated that they had read the T&Cs. For example, when the T&Cs were extremely short and simple, 26.5% reported to have read the whole T&Cs compared to only 10.5% in the standard long and complex T&Cs condition. Consumers also understood the T&Cs better when they were short and simple. This was found on an objective comprehension test about the content of the T&Cs as well as on consumers’ self-report on how easy or difficult it was to comprehend the T&Cs.
- Moreover, consumers’ attitudes towards the T&Cs were influenced by the length and complexity of the T&Cs. Simple and short T&Cs were trusted more than long and complex ones. Consumers were also more satisfied with the content of the T&Cs, felt less frustrated while reading them, and felt that reading them was more worth their time when the T&Cs were simplified and shortened. It should be emphasised that in this part of the experiment the length and complexity of the T&Cs differed but their substance did not. This suggests that it is indeed the length and complexity of the texts as such that influence the trust that consumers have in the fairness of the T&Cs, irrespective of the content.
- Importantly, consumers indicated that they did not miss relevant information in the short and simple T&Cs. Thus, despite shortening them, the T&Cs appeared to contain all relevant information of the longer version, at least from consumers’ viewpoint. This suggests that the shorter T&Cs were at least equally effective in providing the necessary information as the longer and more complex T&Cs.
- The effects did not depend on whether the online store was domestic or foreign (meaning that the effects were present on both types of online stores), and hardly differed between countries.
- Shortening the T&Cs is in line with other European legislative instruments. In this respect it is important to note that under the Consumer Rights Directive (CRD) traders need to present a list of information items in a clear and comprehensible manner before the consumer is bound by the contract. This information needs to be actively presented to consumers and cannot be buried in the T&Cs. Similarly, relevant practical information could possibly be included in the FAQ section at a website instead of in T&Cs, thus further enabling traders to shorten the T&Cs.
3. To improve readership of T&Cs, a statement with an estimation of the time it takes to read the T&Cs could be added (a reading cost cue). If providing such a reading cost cue is made mandatory it may also work as an incentive for traders to reduce the length of their T&Cs.
- Experiment 2 showed that readership of the T&Cs was influenced by the presence of a reading cost cue. In one condition, we added the message that “reading the terms and conditions takes less than five minutes” next to the link by which the T&Cs could be accessed. This reading cost cue increased the number of consumers opening the T&Cs from 9.4% to 19.8%. Moreover, the time spent on the T&Cs indicated that when a reading cost cue was present, respondents who opened the T&Cs also spent, on average, more time on that page than respondents who opened the T&Cs when no such reading cost cue was present.
4. To increase effortless awareness of the T&Cs, quality cues may be helpful. Customer feedback, national consumer organisation endorsement, and European consumer organisation endorsement cues can be used, as they positively influence trust and purchase intentions. The most positive effects are achieved with a national consumer organisation endorsement cue on domestic online stores, and with a European consumer organisation endorsement cue on foreign online stores.
- Adding a quality cue indicating that the terms and conditions are fair had an effect on consumers’ trust in the T&Cs and their purchase intentions. Adding a customer feedback quality cue, an endorsement by a national consumer organisation, and an endorsement by a European consumer organisation increased trust and purchase intentions. These positive effects were found on domestic as well as foreign online stores (though more pronounced on domestic stores) and on existing as well as non-existing online stores.
- The quality cues were not all trusted to an equal extent. Although all cues had positive effects, a positive customer feedback cue was trusted the least, indicating that (supposed) endorsement by customers is trusted less than (supposed) endorsement by a consumer organisation. Which of the consumer organisation endorsement cues was trusted the most depended on the type of online store. On domestic online stores, a national consumer organisation endorsement cue was trusted the most. On foreign online stores, a European consumer organisation endorsement cue was trusted the most.
- A promise-to-be-fair by the seller and expert endorsement sometimes decreased trust and purchase intentions. This study therefore does not find evidence to support the promotion of such quality cues.
– Adding a quality cue seems to be effective on both familiar and unfamiliar online stores, although the effects appear to be larger on familiar online stores. Preliminary study 2 highlighted that the positive effects of adding a quality cue are more pronounced on existing (familiar) than on non-existing (unfamiliar) online stores. A similar result was found with subjective familiarity. The main study did, however, also find positive effects on non-existing (unfamiliar) online stores (experiment 3). Taken together, these findings suggest that the effects of adding a quality cue are present on existing (familiar) and non-existing (unfamiliar) online stores, although the effects are sometimes more pronounced on existing (familiar) online stores.
- When deciding on whether to add a quality cue to an online store, differences across Member States do not appear to be so large as to warrant that they be given much weight.
5. Policy may also focus on raising general and specific awareness, thus making consumers more aware of their basic rights.
- Both preliminary studies demonstrated that consumers’ knowledge of consumer rights (general awareness) is limited. Interestingly, consumers' self-reported knowledge is not equally low, indicating that consumers are generally unaware of their lack of knowledge.
- In order to raise general awareness, one can think of information campaigns initiated by governments, consumer authorities, or consumer organisations through media channels or at the point-of-purchase (e.g. when entering a mall).
- Finally, policy may focus on raising specific awareness. An example is that information about the delivery period and length of the right of withdrawal and commercial guarantee must be mentioned on the first page/screen of the order form, as this is typically the type of information consumers need before they can make their decisions.

Monday, 19 September 2016

GDPR, e-Privacy and beyond: more certainty and coherence for the online sector (or quite the opposite)?

The interplay of GDPR and e-Privacy Directive

One of the objectives of the General Data Protection Regulation (GDPR), which was adopted earlier this year and will effectively replace Directive 95/46/EC in 2018, was to make the European data protection framework fit for the 21st century. The extensive regulation does indeed bring the existing framework up to date and promises greater uniformity of national standards and interpretations. Driven by the desire to empower data subjects to fully exercise their right to personal data protection (Article 8 of the European Charter of Fundamental Rights, Article 16 TFEU, Article 8 ECHR), the instrument builds on the existing safeguards and extends or clarifies them where it deems necessary. Among many other things, the new data protection regulation strengthens the conditions for a valid consent, ensures that data subjects are provided with information and access to their data and can effectively object to the processing, reiterates the right not to be subject to a measure based on automated data processing and explicitly clarifies that this includes profiling. It also introduces a widely cited right to be forgotten and the equally important right of data portability. All these are correlated with the corresponding obligations of data controllers according to the newly formulated principles of data protection ‘by design’ and ‘by default’. Both principles bring about a significant paradigm shift as they not only require data controllers to ensure data protection compliance ex ante (i.e. already at the planning stage), but also to design standard settings in a way that only the minimum amount of personal data necessary is being processed. The regulation also elaborates on the data controller’s obligation to ensure data security and report data breaches.

In line with the previous personal data protection directive, the principles laid down in GDPR apply to any information concerning an identified or identifiable person (as explained in recital 26). The novelty, however, lies in the clarification that online identifiers provided by devices, applications and protocols as well as location data may be used to identify a person (see further clarification in recital 30). Without going into detail, it seems fair to assume that under the new regime many online identifiers – such as IP addresses, device IDs and cookies, in particular third-party cookies used for profiling and targeting – will be regarded as personal data.

In short, what emerges from the updated data protection act is an increasingly comprehensive regime with an intentionally broad scope of application. Nevertheless, believe it or not, there are still several issues that have not been addressed by data protection framework. These relate more broadly to the protection of privacy (Article 7 of the Charter), and have so far been regulated by Directive 2002/58/EC on privacy and electronic communications (e-Privacy Directive). In the words of the European Commission the directive “sets out rules on how providers of electronic communication services, such as telecoms companies and Internet Service Providers, should manage their subscribers’ data”. It touches upon issues such as: confidentiality of communications, security of networks and services, data breach notifications as well as requirements regarding, among other things, unsolicited commercial communications (spam), storing of information in subscribers’ terminal equipment [Article 5(3) – the source of the ubiquitous cookie consent pop-ups] and processing of traffic and location data. The interplay between e-Privacy Directive and the general personal data protection legislation is mentioned in recital 173 of the GDPR, which stipulates that:

This Regulation should apply to all matters concerning the protection of fundamental rights and freedoms vis-à-vis the processing of personal data which are not subject to specific obligations with the same objective set out in Directive 2002/58/EC of the European Parliament and of the Council, including the obligations on the controller and the rights of natural persons. In order to clarify the relationship between this Regulation and Directive 2002/58/EC, that Directive should be amended accordingly. Once this Regulation is adopted, Directive 2002/58/EC should be reviewed in particular in order to ensure consistency with this Regulation

As a result, the directive is currently undergoing review and has yet again attracted considerable public interest. In August the European Commission presented a summary report on the public consultations which were carried out in this context. A careful, consumer-oriented analysis was, as usual, submitted by BEUC and is now available on its website.

Review of e-Privacy Directive and BEUC response

Why do we need an e-privacy instrument and which services should be included in its scope?

BEUC: While recognising the important developments within the framework of personal data protection, BEUC remains convinced that the e-Privacy Directive should continue to form a lex specialis for the online sector, complementing and particularising the provisions of GDPR. In view of BEUC, sector-specific rules should address, in particular, the issue of data mining and tracking/profiling of users as well as confidentiality of communications. The scope of such an act (ideally – a regulation) should cover both traditional electronic communication services and over-the-top (OTT) services such as Voice over IP and instant messaging (Skype, Whatsapp, Messenger). OTTs are currently outside the scope of e-Privacy Directive, as they do not fall under the definition of an electronic communication service, which requires inter alia "conveyance of signals".

Which issues remain unresolved under the current data protection regime?

Security and confidentiality

BEUC: Providers of electronic communication services should be obliged to secure all communications by using the best available techniques to ensure security and confidentiality. Users should remain free to apply other techniques.

Comment: While the need to ensure security of electronic communications seems undisputed, a potential overlap of the e-Privacy instrument and other pieces of legislation, in particular GDPR, NIS Directive and their implementing acts, should be taken into account. At the same time, there seems to be a strong case to maintain and even extend the scope of existing provisions referring to confidentiality to OTTs, as this issue does not seem to be addressed elsewhere.

Accessing users’ devices (e.g. in order to place a cookie)

BEUC supports the existing consent requirement laid down in Article 5(3) of e-Privacy Directive. More importantly, however, it argues that users should not be prevented from accessing non-subscription based services if they refuse the storing of identifiers (i.e. cookies) that are not necessary to provide the service. Furthermore, according to BEUC, the lifespan of cookies should be linked to their purpose.

Comment: Five years after the implementation of the cookie consent provision, no one dares to deny that the directive failed to achieve its desired impact. Indeed, consent requests are generally treated as a formality and essentially confront the users with a take-it-or-leave-it situation. BEUC proposal appears suitable to address this problem. At the same time, questions relating to the interface between e-Privacy Directive and the remaining EU acquis continue to arise. Couldn’t the requirement to provide users with a clearer and more granular choice and to adhere to the principle of data minimisation be derived from GDPR (now that online identifiers are clearly in its scope)? To what extent could the collection of data for purposes of tracking/profiling, without the knowledge of the user, be considered a misleading omission of material information and potentially an unfair commercial practice? Does anyone still remember the recent UCPD guidance which has actually elaborated on this matter? What about the proposed Digital Content Directive and Distance Sales Directive - shouldn't they have something more to say about this? Is the privacy rationale sufficient to extend the legal effects of Article 5(3) and, consequently, is the e-Privacy Directive the right instrument to regulate this issue? Before reopening of the whole cookie debate once again, it would seem reasonable to first assess where we stand.

Traffic and location data

BEUC: The consent requirement for the processing of traffic and location data should be maintained and the exemptions to this rule should not be broadened. On the contrary, the scope of the provision should be extended to cover GPS location data and Wi-Fi network location data used by information society services in mobile devices.

Comment: Stricter conditions for the lawful processing of traffic and location data (consent requirement for certain types of the processing) along with specific requirements as to erasure or anonymisation of data can indeed be seen as justifiable, given the undeniable privacy concerns at hand. There also seem to be no convincing reasons for maintaining a distinction between data collected by electronic communications service providers and by other information society services providers. At the same time, while understanding BEUC concerns about anonymisation, it needs to be recognised that traffic and location data are essential for the proper functioning of many digital services. The European legislator should therefore make sure that the revised instrument does not throw the baby out with the bathwater.

Unsolicited commercial communications

BEUC argues that marketing messages sent through social media should be subject to the same opt-in obligation that applies to email. Indeed, both channels of communication share certain similarities. In fact, however, unsolicited commercial messages on social media do not seem to present a serious problem and in this domain the issue of targeted advertisements appears much more pressing. 


Beyond doubt, the principles of personal data protection ‘by design’ and ‘by default’ enshrined in GDPR constitute a significant development in the data protection regime. In the technologically-mediated digital ecosystem, where traditional concepts are often difficult to apply and even harder to enforce, an increased focus on ex ante compliance (e.g. already at the stage of designing products/services or programming algorithms) could present a promising way forward. According to BEUC, the concepts of ‘privacy by design’ and ‘privacy by default’ should become “fundamental guiding principles in the online environment”. Given the growing importance of data-driven business models this appears to be a noble aim. The European legislator should, however, also make sure that innovation is not killed on the way – and to ensure that, more clarity as to the practical application and the interdependence of particular legal acts is necessary.