BEUC and NOYB oppose Meta's pay-or-consent model

Freepik

I am sure you have noticed that in early November, Meta launched paid subscriptions for its social media. Now you may choose to stop receiving targeted advertisements on Facebook and Instagram under one condition -  you have to pay €9.99/month on the web or €12.99/month on the iOS and Android versions of the apps. Of course, without payment, you can still use the services, but then you have to accept the personalised advertisements, which means you accept that your data is processed for this purpose. This Meta policy is the result of various disputes with European institutions and national supervisory authorities related to Meta's practices of processing users' personal data (including the July ruling in case C-252/21 where the CoJ criticised some of Meta's illegal approaches to personal data)*.

The very announcements of paid subscriptions have already triggered a wave of criticism. So it didn't take long for the first steps to challenge the legitimacy of the Meta's actions. A few days ago NOYB, which is a non-profit organization led by privacy activist Max Schrems, announced that it filed a GDPR complaint against Meta over "Pay or Okey". According to NOYB, such a "privacy fee" is not only illegal, since you cannot be forced to pay for exercising your fundamental right to privacy, but moreover, it risks having a domino effect and being taken over by other leading players in the digital services market as well. 

But this is not the only step against Meta's new practice. Today BEUC, which is a European Consumer Organization, also has voiced its opposition to this practice, stating that it is "an unfair choice for users, which runs afoul of EU consumer law on several counts and must be stopped". Thus, BEUC together with its 19 members filed a complaint on grounds of Meta engaging in unfair commercial practices in multiple ways. As BEUC stated, partially blocking the use of Facebook and Instagram until users have selected one option or the other constitutes an aggressive practice under European consumer law. What is more, opting for the paid subscription doesn't guarantee that a user gets a privacy-friendly option involving less tracking and profiling - user's personal data still may be collected and used but for purposes other than ads. More detailed assessment of Meta's subscription model you can find here. 

It remains to be seen how these actions will affect the Meta approach in the future. One thing is certain - the story will have its continuation, perhaps before the Court of Justice.

*The Court, inter alia, questioned Meta's legal grounds for processing personal data for personalization purposes, i.e. Article 6(1b) of the GDPR (the necessity of processing data for the performance of a contract), and Article 6(1f) of the GDPR (the processing of data on the basis of legitimate interests of the controller or a third party) - see paragraphs 97-126 of the ruling. 

CJEU rules on excessive fees in consumer contracts (C‑321/22, Provident Polska)

Last Thursday, the Court of Justice delivered another interesting ruling on unfair terms in consumer credit contracts. The focus this time was not on mortgage loans, but on credit agreements for relatively low sums, often concluded by consumers in financial distress. The judgment deals with three separate issues: 1) the scope and interpretation of the fairness test; 2) the principle of effectiveness as applied to the proof of an interest in bringing legal proceedings; 3) consequences of finding a term unfair, i.e. invalidity of the term vs. invalidity of the entire contract. The focus of this comment is on the first and the last point.

 

Facts of the case

 

Case C‑321/22, Provident Polska, involved three consumers who concluded credit contract with a non-bank credit institution. The contracts were quite similar: in each case the loan amounted to less than 2000 EUR and the interest rate was between 7.2% and 10%. The dispute was not about those sums, however, but about non-interest costs, which could be almost as high as the amount loaned. The relevant costs included a 'disbursement commission', 'administrative charges' as well as non-optional 'flexible repayment plan fees'. In addition, the amounts were payable only in cash in hand to an agent of the lender during visits made at consumer's home.

Fairness test

Contrary to first intuitions, the focus of the case was not transparency (although it does come up later in the judgment). Rather, what the referring court wanted to know was whether a term which provides for payment of amounts which are manifestly disproportionate to the service provided may be unfair. And, in short, the answer of the Court was yes (kind of).

Now, there are several issues to unpack.

Significant imbalance

First, can a "significant imbalance in the parties' rights and obligations arising under the contract" (Article 3(1) UCTD) at all be established on the basis of an quantitative economic evaluation, involving a comparison between the total value of the transaction and the costs charged to the consumer? According to the Court, it can.

Such a perspective differs from the focus that the Court normally takes in its UCTD case law. As a typical passage goes: "a significant imbalance can result solely from a sufficiently serious impairment of the legal situation in which the consumer (...) is placed" (para. 45). To establish such an imbalance a comparison needs to be made between the rights and obligations of the consumer under the contract and the relevant rights and obligations under otherwise applicable national rules. However, as the judgment in Provident Polska prominently shows, the reference to "resulting solely" does not mean that there can be no other source of a significant imbalance, but rather that a "legal imbalance" is sufficient. Thus, an imbalance of rights and obligations can also be established on the basis of a quantitative economic evaluation (para. 47).

Article 4(2) UCTD

Of course, this does not mean that all contract performances can now be analysed for fairness by comparing the value of the transaction to the costs charged to the consumer. Nevertheless, this follows not from the concept of a "significant imbalance", but rather from the exclusion in Article 4(2) UCTD. Pursuant to this provision

assessment of the unfair nature of the terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other, in so far as these terms are in plain intelligible language.

The exception from Article 4(2) consists of two parts. The first one relates to the terms defining the "main subject matter of the contract". Not all fees charged by the trader are captured by that notion. For example, commission fees covering remuneration for services connected with the examination, grant or treatment of the loan do not (para. 51). The second part, however, is more relevant for our context and provides little space for assessing performances in economic terms. As noted by the Court:

terms relating to the consideration due by the consumer to the lender or having an impact on the actual price to be paid to the latter by the consumer thus, in principle, fall within the second category of terms covered by Article 4(2) of Directive 93/13 as regards the question whether the amount of consideration or the price as stipulated in the contract are adequate as compared with the service provided in exchange by the lender (para. 52).

Does it mean that excessive fees can never be assessed for fairness? Not quite. The Court is offering three ways out. The first two are well-known: minimum harmonisation (Article 8 UCTD) and transparency (Article 4(2) UCTD in fine). The third suggests that one cannot speak of assessing the adequacy of the price/remuneration as against the services or goods supplied, if no goods or services are supplied at all. In the words of the Court:

[I]f the unfairness of such a term is alleged before the national court on the basis of the lack of any actual service provided by the lender that could constitute consideration for a commission fee that it provides for, the issue thus raised does not concern the adequacy of the amount of that commission fee as compared with a service provided by the lender, and does not therefore fall within the scope of Article 4(2) of Directive 93/13 (...) (para. 54).

Overall, there are quite some hurdles to finding excessive fees unfair, but it is not impossible. The formulation of the Court's response is rather telling:

[P]rovided that the examination of the possible unfairness of a term relating to the non-interest costs of a loan agreement concluded between a seller or supplier and a consumer is not precluded by Article 4(2) of [the UCTD], read in conjunction with Article 8 thereof, such a term may be held to be unfair as a result of the fact that that term provides for the payment by the consumer of charges or a commission fee in an amount that is manifestly disproportionate to the service provided in exchange.

Partial removal of the clause

Another question concerned payment arrangements. The national court was quite convinced that the term requiring the consumer to pay in cash during the agent's visits at his or her home was unfair. Such a term - the court observed - could only be explained by the possibility it offered the lender to exert emotional pressure on the borrower. However, the court was not quite sure about the consequences it should draw from finding the unfairness.

Part of the problem was that the term formed part of a longer clause, which also defined other payment arrangements, e.g. amounts and dates. The referring court was thus unsure if it can remove part of the clause containing the unfair term (about paying in cash to the agent), or if it should rather invalidate the whole term. Since the latter would result in the inability to enforce the contract, the question was raised if the whole contract had to be annulled.

The Court of Justice considered it possible to remove part of the clause containing the unfair term and keep the remaining part in force. At first glance, this may seem incompatible with its previous case law. Indeed, the Court repeatedly found that the UCTD precludes a term that has been found to be unfair from being maintained in part, with the elements which make it unfair removed, where that removal would be tantamount to revising the content of that term by altering its substance (para. 89). However, this has to be distinguished from a situation "where the unfair element of a term consists of a contractual obligation distinct from the other requirements and capable of being the subject of an individual examination of its unfairness (...) since the stipulation laying down such an obligation may be regarded as severable from the other requirements under the term concerned" (para. 90).

This seems quite understandable. A clause can consist of several terms and it should not be generally impossible to remove only some of them. In the remainder of the judgment, the Court attempts to help with this assessment by drawing a distinction between "ancillary terms" and the "substance of the terms". In the words of the Court:

[I]t appears that a stipulation determining such specific arrangements for the performance of the consumer’s payment obligation constitutes a contractual obligation distinct from the other stipulations of a single term, as described in the preceding paragraph of the present judgment, and is ancillary to the elements of the contract which define the substance of that term, such as those relating to the determination of the amounts to be paid and the dates on which those payments must be made. Furthermore, the deletion of that stipulation does not appear to be such as to affect the very substance of the term concerned, since the consumer continues to be obliged to perform his or her repayment obligation in accordance with the other conditions laid down in that term by choosing any method of payment from among those which are permissible under national law (para. 93).

The added value of this distinction is yet to be seen. Was it not enough to say, as the Court did previously, that a clause can contain several distinct requirements which can be separately assessed for unfairness and which, therefore, can be invalidated independently of each other? The distinction between the substance of the terms and ancillary terms suggests a hierarchy, but a single clause can also refer to apples and oranges. Overall, the outcome is certainly well-founded, but the case law on the consequences of finding unfairness is not the easiest one to navigate.

Repayment in full of consumer credit – The CJEU on the fairness of acceleration clauses and their judicial review (Case C-598/21)

On November 9th, the CJEU delivered an important ruling on the application of the Unfair Contract Terms Directive (UCTD) to consumer credit agreements. In particular, the request of the Slovakian referring court concerned suspension of the extrajudicial enforcement of the charge of the consumers’ family home which secured their credit agreement with the bank. 

In 2012, SP and CI entered into a consumer credit agreement with Všeobecná úverová banka a.s. (VUB). The credit was repayable over 20 years and was secured by a charge on the family home where they lived. SP and CI were not new to consumer credit: they had taken out several other consumer credits with Consumer Finance Holding (CFH) which was linked with VUB. VUB decided to allocate almost the entire sum granted to the consumers under the new agreement to the repayment of the loans given by CFH, which they were unable to repay. After less than a year from the conclusion of the credit agreement, provided that the consumers were in default of payment, VUB used the acceleration clause of the contract to demand repayment in full. SP and CI were notified that VUB would have proceeded with the enforcement of its charge, namely, it would have sold the family home by extrajudicial auction. When a creditor proceeds with this type of extrajudicial auction, an auctioneer sells the immovable property ‘without any judicial process and without a court having first been able to examine whether the amount of the claim is well founded or whether the sale is proportionate to the amount of the claim’. Even when the consumer is opposed, Slovakian law describes this auction – which can be initiated after 30 days after the notice of enforcement of the charge – as voluntary. 

The Regional Court of Prešov took the view that ‘protection against disproportionate interference with consumers’ rights, including their right to a home, is particularly important before the sale of property’. It noted how Slovakian law does not provide any ex ante protection to the consumer when the voluntary auction is in place and that, in the case at hand, the consumers were in default of only EUR 1106.50 after less than a year from the agreement. In essence, the Court observed how domestic rules may be ‘contrary to EU law and, in particular, to the principle of proportionality, since they allow the property where the consumer is residing to be sold, even in the event of a minor breach of contract’.

The Court thus referred to the CJEU. It asked whether Articles 3(1), 4(1), 6(1) and 7(1) of the Directive on Unfair Contract Terms, read in light of Articles 7 and 38 of the Charter of Fundamental Rights, ‘must be interpreted as precluding national legislation under which a judicial review of the unfairness of an acceleration clause (…) does not take account of the proportionality of the option available to the seller (…), in the light of criteria relating in particular to the extent of the consumer’s failure to fulfil his contractual obligations, such as the amount of the instalments that have not been paid in relation to the total amount of the credit and the duration of the contract, and to the possibility that the implementation of that clause might result in the seller (…) being able to recover the sums (…) by selling, without any legal process, the consumer’s family home’. 

Put simply: can the judicial evaluation of the unfairness of an acceleration clause not consider the proportionality of the creditor’s reaction to the default of the consumer when the family home of the consumer will be sold to repay the creditor? 

The question concerns the judicial review of the acceleration clause. The CJEU thus had to: 

1. Establish whether the UCTD is applicable to the acceleration clause. Article 1(2) of the UCTD in fact provides that the Directive is not applicable to contractual terms which reflect mandatory statutory or regulatory domestic provisions. 
2. If the UCTD is applicable, establish whether the acceleration clause causes significant imbalance between the parties and what the judicial review must consider to determine if such imbalance exists. 

First, the Court observes that, although the acceleration clause does reflect Slovakian provisions, the latter are not mandatory; therefore, the UCTD is applicable. 

Second, the Luxemburgish judges noted how the CJEU has consistently held that, to determine if the acceleration term has caused an imbalance, the judicial review must consider whether: 

1. The right of the creditor to demand repayment in full is conditional upon the consumer having breached an obligation of essential importance in the contract or 
2. The creditor has the right when the non-compliance by the consumer is sufficiently serious considering the term and the amount of the loan or 
3. The national law provides the consumer with means to remedy the effects of the repayment being demanded. 

In essence, when reviewing if the acceleration clause is fair, the national court must always consider whether the right of the creditor is proportionate to the breach of the consumer. It must consider ‘the amount of the instalments which have not been paid in relation to the total amount of the credit and the duration of the contract’ and when appropriate the judicial review must take into account any additional criteria which may be relevant. 

In the case at hand, the national court thus must take into account that the recovery of the credit from the bank may lead to the sale of the consumer’s family home and thus the eviction of the consumers and their family. The national court must take into consideration that the right to accommodation is protected as a fundamental right. 

The CJEU thus concludes that the Directive must be interpreted as precluding national legislation which allows for a judicial review of the unfairness of the acceleration clause which does not take into account 1) the proportionality of the creditor’s action to the breach of the consumer and 2) the fact that the implementation of that clause may result in the creditor being able to recover the sums by selling, without any legal process, the consumer’s family home. 

The ruling of the Court arrives just a few days after the publication of the New Consumer Credit Directive (commented on our blog here). From the decisions it emerges once again that, given the potential vulnerabilities related to consumer credit, it is crucial to have an adequate interpretation of the provisions directly and indirectly related to it.

What will the new Directive 2023/2225 on consumer credit bring to consumers?

Last week the new Directive (EU) 2023/2225 on consumer credits (new Directive) was published in the official journal. The new Directive comes 15 years after the current 2008/48/EC Directive (CCD) that has been only partially effective due to the wording of the CCD itself and the developments linked to digitalisation, the practical application and enforcement in Member States as well as from the fact that certain aspects of the consumer credit market are outside the scope of the current CCD. The new Directive follows the Proposal published at the end of June 2021. Most of the key major changes highlighted in our comment on the Proposal have stayed in the final text.

The new Directive is expected to bring major improvements to consumers in the following areas:

·       Scope (Article 2)- the new CCD now includes very small loans (no lower limit) and interest-free loans - so-called buy now pay later products.

·       Better pre-contractual information - mode detailed rules on information to be included in credit advertisements (Article 8) and the introduction of general information (Article 9)

·       Introduces rules on advisory services (Article 16)

·    Regulates common unfair practicing rules on fair, clear, and not misleading communication in advertising and marketing (Article 7), tying and bundling practices (Article 14)

·       Contains more detailed rules on creditworthiness assessment (Article 18)

·       Introduces information rules on contract modification (Article 22)

·     Require Member States to introduce measures to prevent the excessive charging of borrowing rates, the annual percentage rate of charge, and total cost of credit (Article 31)

·    Lays down professional standards in the ways creditors treat consumers from manufacturing products to executing/performing contracts (Conduct of business rules - Article 32) and requirements for knwoledge and competence for staff of creditors (Article 33) 

·   Requires Member States to support financial education on responsible borrowing and debt management (Article 34)

·       Introduces European rules on arrears and forbearance (Article 35)

·       Contains more detailed rules on credit intermediaries (Article 37, 38)

·       Contains rules on competent authorities (Article 41).

New consumer rights:

One of the rationales for the adoption of the new Directive was market developments in digitalisation that were not foreseen at the time when the CCD was adopted. The rapid technological developments registered since the adoption of CCD have brought significant changes to the consumer credit market such as the emergence of new products and the evolution of consumer behaviour and preferences (Recital 4). The new Directive acknowledges these changes by various measures. To this effect, the new Directive acknowledges that a durable medium can be a machine-readable document (Recital 34), and introduces new consumer rights. When consumers are presented with offers based on automated processing of personal data, consumers have a right to be informed on this in a clear and comprehensible way (Article 13). When the creditworthiness assessment involves the use of automated processing of personal data, consumers now have the right to request and obtain human intervention from the creditor that may include a clear and comprehensive explanation of the assessment of creditworthiness with automated data processing and the review of the credit application.

An area for further improvement:

The most controversial provision in negotiating the new Directive was Article 31 the price regulation measure of the new Directive. As the compromise solution, the current provision is fairly vague, talking about ‘measures’ on the Member State level, leaving room for Member States to determine the best price regulation technique for their circumstances, which may range from usury laws to direct cost caps by way of a percentage of the fixed figure (for more detailed comments on this provision see my paper here).

"Particularly unfavourable" consequences of unfairness and renegotiation - CJEU in C-645/22 (Luminor)

On 12 October, the CJEU decided on a slightly odd but in its way challenging case coming from Lithuania - Luminor (C-645/22). 

In this case, the consumer had objected to the interest rate clause in a foreign currency loan. The clause had been held unfair by the Lithuanian Supreme Court after some initial reticence in lower instance. The consumer's wish with respect to the fate of the unfair clause was to convert the currency reference into Euros. 

The court of appeals tasked with issuing a decision on the underlying dispute once the Supreme Court had decided that the term may be unfair drew the conclusion that the term was unfair and invalid - then it went on to an understandable but somewhat unusual move. Namely, the Court asked the parties to indicate how they would like the term to be replaced so that the contract could be upheld. The consumer insisted on their original claim - replacing the exchange currency with the Euro - while the defendant bank kept maintaining that the term was not unfair and the replacement not possible for want of applicable non-mandatory rules. The court of appeals went on to amend the contract as requested by the applicant and the defendant appealed. 

The case, hence, ended up once again before the Supreme Court, which upheld the finding that the term was unfair - but what about the consequences? The Supreme Court found that the court of appeals had not run all the steps prescribed by the CJEU's case law - namely it had not ascertained whether the consequences of invalidating the contract as a whole would be "particularly unfavourable" for the consumer. Only when this is the case, we should recall here, can courts consider further actions than just removing the unfair terms.

Was this step one that could under no conditions be skipped, the Supreme Court now asked? 

This wasn't a particularly open question, even though the Lithuanian courts seemed to think that acting immediately would be in line with the spirit of the Directive and CJEU case-law. The CJEU concluded, without AG opinion and with a reasoning that is not always entirely the clearest but is not surprising in its conclusions, that assessing whether the consequences of invalidating the contract would be "particularly unfavourable" for the consumer is a necessary step that national courts cannot set aside. Only when the prospect of such consequences is positively ascertained can further measures be taken - whether replacing the term by means of supplementary rules or "a provision applicable where the parties to the contract in question so agree" [see para 38]. This is also the case when the parties have made no submissions concerning the invalidation of the contract - the assessment of what consequences a terms' unfairness has for the contract must be carried out objectively under the applicable national law and this duty is not dependent on parties' submissions [para 37].

The Court does not touch on a further question that had been disputed between the parties but had not explicitly been included in the Lithuanian Supreme Court's preliminary questions: If the court invested with the dispute had found that the consequences of invalidating the contract would be "particularly unfavourable", what would be possible courses of action? Recent CJEU case-law has insisted that, when replacement by supplementary rules is not possible, courts must "take all measures" which are necessary to protect the consumer from particularly unfavourable consequences of unfairness - except by replacing the term [see para 34 with references to previous case-law]. What are these measures? The CJEU recalls that under its previous case-law such measures are "not exhaustive", but it is unclear whether what the Lithuanian Court of Appeals did - namely soliciting proposals form the parties and taking a decision itself - would fall within the admissible scope. How many more cases will it take until we figure this out?