We read *that* preliminary ruling request so you don't have to

Dear readers, 

as many others, I was mesmerised yesterday when a twitter user shared a preliminary reference (Italian version here - the English translation contains some mistakes so it's not super reliable right now) from the Italian Consiglio di Stato (that is the highest court in administrative matters, competent for final decisions on actions of the Italian Competition and consumer authority) bluntly asking the CJEU to renege on the UCPD definition of "average consumer". 

This is the bit from the reference that almost got viral: 

Should the concept of ‘average consumer’ referred to in Directive 2005/29/EC, understood as a consumer who is reasonably well informed and reasonably observant and circumspect — given that it is vague and flexible — be worded according to the best science and experience and thus refer not only to the classic concept of homo economicus, but also to the findings of the latest theories on bounded rationality, which have shown how people often act by limiting the information they need through decisions which appear ‘irrational’ when compared with those that would be taken by a hypothetically observant and circumspect person; findings that impose a need for greater consumer protection where — as is increasingly the case in modern market dynamics — there is a risk of cognitive influence?

Now, of course one could wonder whether the CJEU would want to venture into theoretical debates on appropriate consumer images. Utrecht colleague Catalina Goanta has suggested that the Court could answer the question in typical CJEU style, by referring to the margin of appreciation for national courts (+ statement that average consumer is not a statistical test) in the Directive's recital 18 and somehow quoting own case-law. 

One could also expect the Court to go around the question, depending on the underlying issue. What was it, then? Based on the preliminary reference, which contains four more questions, it seems that the following has happened: 

- the authority has ordered Compass Banca, a credit institution offering jointly some consumer credit and an unrelated insurance, to grant consumers a 7-day "cooling off period" between signing the two contracts;

- this on the assumption/theory that selling the two products together would make consumers falsely believe that entering the insurance contract is a mandatory requirement for obtaining the desired credit;

- the Authority thus considers the practice as always unfair because, in essence, it appears to exploit a cognitive bias that the Authority has connected to "framing" - whereby the presentation of a product alongside a different one gives the consumer a different impression compared to a situation in which the product would be offered on its own (see question 2);  

- it seems that in this case the Authority has claimed that the bundling as such would be an aggressive practice, which the defendant company must have challenged, claiming that the contracts being signed at the same time should be consider as unproblematic considered that consumers get the express opportunity to withdraw from the insurance contract or confirm their choice during a devoted phone call (see the authority decision - in Italian - here); the defendant company's actions (hinted to at question 4) to limit the potential effects of the practice were not considered sufficient commitments to prevent the issuance of a fine;

- hence the Consiglio di Stato seems unsure whether the prohibition needs to be seen as a move akin to "blacklisting" the bundling practice, without considering whether the concrete practice at hand should be considered aggressive, or whether indeed the specific form of bundling - combining insurance and credit - can be considered as so bad that it would be for the company concerned to show that it does not concretely affect the autonomy of the average consumer (see question 5). Should it be seen as blacklisting, the Authority would have gone beyond the space left to national authorities under the Directive's maximum harmonisation standard. 

Looking at the case, it seems that there could be several ways for the CJEU to answer the question without entering into the specifics of the debate hinted to in the first preliminary question that caught all our attention yesterday - also depending on the submissions by the parties during the preliminary ruling proceedings. 

Concern with the overall "environment" in which consumers make decisions concerning, in particular, distance credit contracts is something that is really not specific to the Italian AGCM - the Dutch financial markets authority for instance has been for years advocating for a responsible "choice environment" in the provision of credit to consumers (see eg here), with a specific focus on framing effects. 

At the same time, should we wish for the CJEU to embrace "bounded rationality" as "best science" and "most recent insights"? Current debates in consumer psychology and social sciences seem to have already gone far beyond the idea of bounded rationality to account not only for cognitive limitations but also for social constraints, habits, motivations... not to mention, as Martijn Hesselink has observed in passing, of reinforcing the idea that when no obvious exploitation of cognitive bias is at stake, "homo oeconomicus" could actually be a viable standard. 

New Commission study on insurance services

On 27^th October the European Commission published a study on consumers’ decision making in insurance services. Insurance services are particularly important due to the size of the market (with non-life premiums rising to € 343bn in 2015, according to Insurance Europe) as well as for ensuring financial stability.

The study focused on non-life insurance products purchased domestically and cross-border, with cross-border purchases being key for the internal market. The methodology of the study combined a systematic literature review, market data collection and stakeholder interviews along with behavioural experiments both online and in the laboratory. The use of behavioural experiments shows the increasing influence and status of behavioural economics in EU policy making, as the results of the study are meant to inform the European Commission’s Consumer Financial Services Action Plan. 

The study produced some interesting findings. For example it highlighted that consumers are more likely to engage with the information provided when it is presented in a concise, salient and user-friendly way. However, the real challenge lies in pointing out exactly the strategies that would make the presentation of the info user-friendly, and the study provides some insights on that. For example, separating sections using boxes and presenting text in two columns, using icons to indicate the subject of each section, and using traffic light coloured ticks as bullet points to indicate risks covered and not covered. Weight is placed on national authorities frequently monitoring the provision of information and harmonising the rules on provision of information where possible. Price comparison websites, another informational aspect, can be helpful for consumers but the study raised concerns as to their impartiality and independence.

Another key finding of the study is the negative effect of pressure in the decision making of consumers, with pressure selling being particularly prevalent in car rental and add-on insurance. Pressure selling makes consumers make sub-optimal decisions or buy products they do not need. Beyond improving enforcement, what is suggested could help with pressure selling is better information, especially underlining the existence of alternatives and presenting the product in a balanced way. Timing is key for addressing pressure, as well as for processing information. Allowing consumers time to reflect on their decisions and to modify them at a later date can prove to be helpful, according to the results of the study. However, there is the issue of how much consumers make use of such measures and what can be done for addressing pressure selling ex ante.

As most behavioural studies, this one also points out that consumers tend to be passive, they prefer the familiar and do not devote sufficient time and effort in comparing alternatives in the market. Consumers have a low awareness and understanding of contract terms. Behavioural biases play a role in consumers buying excess that is too low for their needs or choosing not to buy insurance at all. The image of the consumer painted in this study is at odds with the that of the average consumer as used in CJEU case law, a consumer who is expected to be ‘reasonably well-informed, observant and circumspect’.

In relation to cross-border shopping for non-life insurance the study found that although there is some interest for it, there are barriers preventing consumers from cross-border purchases, including low awareness of the possibility for cross-border purchases, language barriers and the complexity of the market, as well as regulatory differences and concern over problem solving. Harmonisation is key for promoting cross border purchases and it is one of the suggestions made, especially for harmonising definitions and contract formats.

Though the study itself calls for further research and collection of more data, it is a welcome systematic effort to study the European insurance market with robust methodology and concrete suggestions. It remains to be seen how much it will influence EU policy when it comes to taking concrete measures.