E-cigarettes not the same as cigarettes - Commission decides against harmonisation of duties for e-cigarettes

Consumption of e-cigarettes is on the rise with consumers using them as they consider them a ‘healthier’ alternative to traditional cigarettes or a way to cut down on smoking.(see a surveyconducted by Ernst and Young) Therefore, regulating e-cigarettes and their relationship with traditional tobacco products can be highly controversial. 

Traditional tobacco companies who have seen their sales fall argue that e-cigarettes are not adequately regulated. In a recent interview, Commissioner for Health and Safety Andriukaitis said that tobacco industry is feeling the pressure from EU regulation and expressed concern that EU citizens seem to consider e-cigarettes harmless. 

The latest development in the field is the publication by the European Commission of a Report on Directive 2011/64/EU (hereafter ‘the Directive’). Directive 2011/64/EU is the main regulatory instrument for excise duties for tobacco products. Tobacco products are broadly places in two categories: 1) cigarettes and 2) other tobacco products.

The current report is part of the evaluation every 4 years mandated by art.19 of Directive 2011/64/EU. The Commission considered a revision of the Directive and decided against it and the newly published report sets out the reasons for that. One of the topics considered for review was the harmonisation of excise duties for e-cigarettes. It should be noted that e-cigarettes are currently not covered by the Directive. 

The Commission is taking a cautious approach and underlined the need for further evidence to be made available before a decision to include e-cigarettes in the scope of Directive 2011/64/EU can be made. E-cigarettes may not fall under the Directive, but this does not mean they are not regulated on an EU level, as they are regulated by Directive 2014/40/EU (the Tobacco Products Directive), and according to the report the relationship between the Tobacco Products Directive and Directive 2011/64/EU has not been made clear. 

A similar approach is taken in relation to heat-not-burn tobacco products, which are a novel type of tobacco product, not yet available in all Member States. The Commission argues there is not enough data to decide on potential harmonisation of the tax regime. 

Is this decision to be interpreted as the Commission going easy on novel tobacco products, choosing not to regulate them so strictly? It is still too soon to tell, as this story is far from over. The Directive will undergo a REFIT evaluation in 2019, where the topic of regulating e-cigarettes will be once again on the table. So it seems like the Commission does not want to make big changes in light of the REFIT evaluation and would rather wait for its outcome.

Procedural autonomy and effectiveness - a delicate balance; Opinion of AG Wahl in C-483/16 Sziber

For those who are interested in consumer credit agreements in a foreign currency, the legal consequences of unfair terms and the 'proceduralization' of Directive 93/13, we will discuss the Opinion of Advocate General Wahl in Sziber (Case C-483/16) that came out last week. This case is a successor to the much-discussed Kásler judgment (C-26/13). In short, the questions asked to the EU Court of Justice by the referring court from Hungary pertain to national legislation adopted after Kásler and follow-up case law of the Kúria, the Hungarian Supreme Court.[*]

Source: ERSTE Bank Hungary

Mr. Zsolt Sziber - a consumer - had brought an action against ERSTE Bank Hungary, claiming that the agreement he concluded with the bank was invalid in its entirety, inter alia because the bank had not carried out a credit assessment, because the contract contained a foreign currency conversion without clearly stipulating the exchange rate , and because he could not evaluate the extent of the risk on the basis of unintelligible information. Alternatively, he sought a declaration that some of the contractual terms were unfair and thus invalid. During the proceedings, the applicable national laws were amended and additional requirements were introduced. The new legislation applies to consumer credit agreements concluded between 2004 and 2014. It declares standard terms void that set, for the purpose of repayment of the debt, a different exchange rate from the one set when the loan was paid out. Those terms are replaced by the official exchange rate for the foreign currency concerned. Standard terms that permit the unilateral increase of the interest rate, costs and commissions are also deemed to be unfair (and void). The sums paid in excess have to be refunded, and the credit institution must carry out a 'settlement of accounts' with the customer. 

In addition, to harmonise the case law, transitional procedural rules provide that the contracting parties may make an application to the court for a declaration of (partial) invalidity, but only if they also request determination of the legal consequences of invalidity, including the settlement of accounts between them. Otherwise, the application is inadmissible and the court may not examine the case on the merits. 

The referring court found that Mr. Sziber was entitled to a refund and invited him to amend his application in line with the new legislation, but he failed to do so. Therefore, the referring court considered itself unable to rule on the merits of the case, which meant that Mr. Sziber would be left empty-handed. Subsequently, the referring court raised doubts as to whether the national laws involved were compatible with EU law, in particular Articles 38 and 47 of the EU Charter of Fundamental Rights, Directive 93/13 and Directive 2008/48 (which, according to AG Wahl, does not apply to the present case; see para 29). In the referring court's view, the additional requirements were prejudicial to consumers, whether applicant or defendant. Moreover, these additional requirements did not apply to consumers who had not entered into a credit agreement between 2004 and 2014 or who entered into a different kind of agreement. Then, it suffices to merely seek a declaration of invalidity, without having to specify the legal consequences. 

AG Wahl's Opinion is divided in two parts: (i) admissibility, and (ii) substance, i.e. the 'equivalence and effectiveness' test. 

First, AG Wahl remarks that the national legislation at issue already seems to have the effect of rendering the contractual terms that Mr. Sziber regarded as unfair null and void (para 32). In Kásler, the CJEU held that Directive 93/13 does not preclude provisions of national law "enabling the national court to cure the invalidity of that term by substituting for it a supplementary provision of national law". So far, so good: new legislation has indeed been adopted in Hungary. The problem in this case, however, is that the referring court was prevented from 'curing the invalidity', due to the applicable procedural rules. In this respect, the case appears to be a classic example of national procedural law that could make the exercise of consumer rights under e.g. Directive 93/13 "impossible or excessively difficult". Although the Member States have procedural autonomy, they must still observe the principles of equivalence and effectiveness. Furthermore, according to established case law of the CJEU, the full effectiveness (effet utile) of Directive 93/13 requires that national courts offer consumers ex officio protection against unfair contract terms. 

Yet AG Wahl's Opinion shows how delicate the balance is between procedural autonomy and effectiveness. He even concludes that the case is inadmissible, because Mr. Sziber's claims regarding unfair terms have already been addressed by the national legislation at issue. The remaining claims are unrelated to EU law, says Wahl (para 32). At the same time, Wahl acknowledges that, as a consequence of Mr. Sziber's inaction, the referring court had to dismiss the claims before it could substitute the terms and/or order a refund (cf. para 64 of the Opinion). Why, then, the case would be inadmissible is a bit of a mystery.

AG Sharpston states in a recent Opinion - referring to Asturcom (C-40/08) - that, while the national court does not have to make up fully for 'total inertia' on the part of a consumer, the Directive must be applied irrespective of the parties' procedural actions or submissions, except (of course) if none of them has brought proceedings. Indeed, the CJEU has held in Asturcom that the national court must assess the potential unfairness of contractual terms of its own motion, "in so far as, under national rules of procedure, it can carry out such an assessment in similar actions of a domestic nature. If that is the case, it is for that court or tribunal to establish all the consequences thereby arising under national law, in order to ensure that the consumer is not bound by that clause". This appears to seamlessly apply to the present case.

In light of the CJEU's case law, AG Wahl's Opinion is all the more curious. Not only does he seem to defend a rather 'passive' role for national courts (cf. para 54), he also argues that placing a heavier burden on the consumer is justified. In his view, the new procedural rules are "more favourable" than the ordinary rules: they would make the enforcement of consumer rights more simple, quicker and cheaper (paras 51-52). It may be true that specific, possibly more effective procedures have been introduced for consumers, but in Mr. Sziber's case they are not of any help. For Mr. Sziber, the new requirements do have "unfavourable consequences" (para 64). Thus, the question should not be whether the new system "taken as a whole" (para 50) is compatible with EU law, but whether Mr. Sziber and other consumers in a similar position are afforded sufficient protection of the rights they derive from Directive 93/13. Wahl does not substantiate why it would be legitimate and necessary to request that claimants like Mr. Sziber make an extra effort by submitting an 'express' and 'quantitatively defined' claim (cf. paras 54-55 and 59-62). He does not explain either why the adoption of such additional steps would not prejudice the effective judicial protection of Mr. Sziber's rights, in particular his right of access to court, guaranteed by Article 47 of the Charter (cf. para 65). Unfortunately, the referring court does not seem to have provided much more information. For instance, why could the desired outcome - a settlement of accounts - not be achieved by requiring the bank to provide the necessary documents? We hope that the CJEU's judgment will clarify which test is to be applied here, as well as how procedural autonomy, effectiveness and, finally, effective judicial protection are (inter)related.

[*] For more details, see: Judith Fazekas, 'The consumer credit crisis and unfair contract terms regulation - Before and after Kásler', Journal of European Consumer and Market Law 3/2017, pp. 99-106.

Consumer Law in the Data Economy - conference invitation

Below you may find the programme for the conference on "Consumer Law in the Data Economy" which will take place on Friday, April 13 at the University of Amsterdam. Attendance is free, but registration is mandatory (registration at email address: y.terhorst@uva.nl). We are looking forward to interesting discussions!

The brave new world of open banking: a bit more on PSD2

The 13th of January 2018 is an important date in advancing the framework of financial consumer protection. From today the Second Payment Services Directive (PSD2) became applicable in Member States.

As we already mentioned in previous posts, PSD2 is bringing many benefits for consumers by using the product regulation technique, a technique that is rarely applied on EU level as a consumer protection tool. The PSD2 abolishes charges for credit cards, regulates the price of cross-border payments, and bans firms to charge for fulfilling their information duties under the Directive. In addition, it also aims to protect consumers by transferring the risk and associated costs of a fraudulent payment or payment by mistake on the payment institution (see the summary here). These are without a doubt important milestones in advancing consumer protection, we must therefore hope that the rules will be enforced properly conferring the intended benefits on consumers.

There is another important aspect of the system of protection established by the PSD2 that we have not mentioned so far. PSD2 goes into the heart of a relationship of a customer and payment service provider enabling customers to decide on the fate of their data and enabling third parties to access data upon the customers' consent. PSD2 gives the possibility of opening up banking data for third party access, leaving the final choice in taking up the possibility to national regulatory authorities. Seeing the great potential for opening up the banking sector for competition, UK's Competition and Markets Authority instructed the 9 largest banks to open up their data, calling the initiative 'open banking.' This is said to be 'Britain's gigantic financial experiment' (see more here and here) that will be come to life gradually in the coming months. Banks must start allowing third parties, such as retailers, technology groups and rival lenders to access the accounts of customers who authorize it, accessing information such as bank statements and account balances. This is said to bring the biggest shake-up in the retail banking since the ATM has been invented 50 years ago (see here)! Sharing customer data via Open Application Programming Interface intends to increase innovation in the banking sector, opening up the market for fintech enterprises who are able to offer competitive prices and more innovative products to those provided by traditional banking.

Those UK customers that participate in the open banking project could benefit from bespoke budgeting advise and more convenient payment services. Several apps has already been launched that aggregate all of a persons financial information held by multiple banks, offering tailored products and services to customers. For example, Plum a savings account provider whose app analyses the customers income and spending habits calculating an affordable amount to save and then depositing this amount on a separate account. Or the online mortgage broker app Trussle that alerts consumers when they should remortgage to find a better deal taking into account information such as the value of the home, early exit fees and the cost of the new deal (see more here). In the future, there could also be apps that enable consumers to compare how much they spend for electricity bills with other people like them, or to receive real time offers from shops while they are shopping.

Sharing data however is not without risks. As mentioned above, PSD2 already incorporated a safety mechanism of transferring the risk of fraud and mistaken payments to payment service providers. The other risk that remains are those related to data protection, that are addressed by GDPR. Even though the supporting framework is in place, opening up access to personal, financial data is not an easy choice. There seem to be a lot more work to be done on informing consumers (this seem to be an area where information could be a useful consumer protection tool given the established framework of protection). Consumers should be at least made aware of what data will be shared, with potentially which providers and what are the limits of data sharing, or how will they be protected should something go wrong. Consumers should the be further educated in understanding the new offers, and in being able to compare the exciting opportunities offered by fintech firms.

Open banking and fintech therefore opens up a brave new world, it will be seen whether consumers are brave enough to participate in it.

More on PSD2

As anticipated yesterday, tomorrow is the deadline for MS to implement the Payment Services Directive two. Here some recap and useful links.

While the stop to payment surcharges may be the most visible change for consumers, the Directive contains a number of other rules aimed at facilitating market entry for a number of operators providing payment-related services, next to some additional consumer-friendly provisions (for instance, consumers will bear no responsibility for online frauds if their bank has authorised payments without identification procedures).   

The ban on surcharges, to which MS were allowed to make exceptions for a limited set of cases (business cards, PayPal, Amex...), is applicable both on- and offline. There seems to be nothing, however, in respect of traders who simply refuse non-cash payments - which is the problem consumers most often encounter in high-street shopping. 

For retailers, the new possible burden is alleviated by the Directive's interaction with Regulation 2015/751, which aims to reduce the interbank exchange charges ultimately making card payments expensive for consumer service providers. 

A summary of the main points addressed by the Directive is available here. BEUC, the consumer union, celebrates the news but also points out that some countries - like Belgium and Slovenia - have already announced delays in implementation. 

Charging consumers extra - how will PSD2 be enforced?

The rules of the Payments Services Directive 2 (PSD2) are to start applying in the Member States as of January 13th. A few days before the implementation deadline this Directive is already a cause of controversy in some Member States. Namely, one of its major achievements in consumer protection was the adoption of the ban on all surcharges, however small, related to consumers paying with their debit and credit cards. This didn't however mean that traders and service providers would not be allowed to ask for any extra charges from consumers, e.g. booking fees would still be acceptable when consumers bought a cinema ticket - but only provided that this booking fee would apply irrespective of the payment method chosen by the consumer. Of course, it was anticipated that consumer goods and services' prices may increase slightly as a consequence of traders passing the costs of operating debit and credit cards on to consumers. Another prediction was that some businesses may stop accepting debit and credit cards instead, though this likely would not be sustainable in the coming years with the amount of cashless transactions increasing. What was not included in the official predictions, but is unsurprising from the practical point of view, is that traders and service providers could simply rename payment charges as other charges. BBC reported on Just Eat - a popular takeaway food app - asking consumers to pay a 50p service charge on all its orders, which new charge unsurprisingly is of the same amount as the previously charged 50p surcharge on debit and credit card payments by this company (Just Eat criticised over service charge). Obviously, such actions by traders and service providers could be seen as circumventing the new law, but would the enforcement agencies actually step in and demand the removal of these new charges as hidden payment surcharges? This remains to be seen.

The new rules on financial benchmarks: are consumers adequately protected?

Starting with 1 January 2018 the new Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (known as the EU Benchmarks Regulation) that entered into force 30 June 2016 (see our earlier report here) is applicable in Member States. The regulation responded to the serious abuses of the regulatory gap in forming financial benchmarks, the most well known being the manipulation of Libor (London Interbank Offered Rate).

Libor is a benchmark that reflects the rate of interest a bank is willing to lend to another bank. It has a significant consumer dimension given that it influences the formation of the prices of consumer loans. The scandal therefore concerned EU consumer and mortgage loan consumers, the most affected being those with variable rate mortgage loans.

What happened in the Libor scandal? Every day a group of the largest banks submitted their interest rates for 10 different currencies and 15 different lengths of loans to the largest benchmark administrator, Thomson Reuters that would average out the submitted rates (see for more here) and publish the average as Libor. Importantly, the rates submitted were estimates that the banks are willing to lend at, and were not based on actual transactions. Subsequent investigations showed that the traders involved colluded by submitting false rates to benefit their institution and themselves. The scandal triggered heavy fines for the banks and criminal sanctions for the traders involved. Some US  based businesses also sued for damages. As far as I know, consumers so far remained (largely) uncompensated. Given the difficulties in proving the damages sustained (see for more here), consumers are likely to be better off with regulatory redress (like in the case of PPI in the UK) that has not happened yet.

The new rules aim to regulate governance and control over the benchmark formation process by improving the quality of data used by benchmark administrators insisting that benchmarks reflect economic realities, and ensuring that the data submitters are subject to adequate control, especially that they avoid any conflict of interest. In addition to these general requirements aiming to secure the safety and reliability of benchmarks, the new rules specially address consumer protection concerns by using the most common EU consumer protection tool, the provision of information.

Consumer protection rules are laid down in Title IV titled 'Transparency and consumer protection'. The key addition of the section is that firms are required to publish a benchmark statement with information specified in Article 27. The benchmark statement should define the economic reality measured by the benchmark and circumstances under which the measurement may be unreliable; identify the elements that are subject to discretion; provide notice of possible factors that may necessitate changes or the cessation of the benchmark and advise that the change may have impact on the financial contract. In addition to these rules, Article 58 of the EU Benchmark regulation amends the 2008/48/EC Consumer Credit Directive and the 2014/17/EU Mortgage Credit Directive in a way to mandate the provision of information on benchmarks. Consumer credit and mortgage firms will be obliged to inform consumers of the name of the benchmark, the administrator and the potential implications of the benchmark on the consumer. these provisions are applicable from 1 July 2018.

Although the recognition of consumer protection concerns should be applauded in such an important regulatory instrument, my impression is that  the special consumer protection rules, the one section devoted to consumer protection, do little to actually protect consumers. I wonder how consumers will understand the complex financial terminologies of benchmarks and how they will assess the associated risks of uncertainties for example of the circumstances under which measurement of economic realities reflected in benchmarks become unreliable, and what can they do even if they would understand the implications of the use of selected benchmarks. We can therefore only hope that the rest of the regulatory instrument setting out the actual process of benchmark formation will make benchmarks sufficiently safe and stable for everyone, including us, consumers.

Shopper-gate going on in Italy

Assuming at least some of our readers will be interested in the interface between consumer issues and environmental measures, what follows are some highlights on a dispute that is dominating the news in Italy. 

As of 1 January, the Italian legislator has finally implemented the 2015 Plastic Bags Directive, requiring member states to take measures securing they meet set targets in the reduction of waste from plastic bags. Lightweight shoppers, one should keep in mind, are a major source of pollution - particularly at sea. 

So, what is the matter in the Mediterranean? While bigger supermarket bags have already for some time been replaced by biodegradable bags that supermarkets provide for a fee (of around 10 eurocents), the new law puts a ban on free "very lightweight" bags for fresh produce, mainly fruit and vegetables. These will also have to be made of at least partially biodegradable material and shops will have to charge consumers per bag. The exact fee may vary from shop to shop, likely ranging from 1-5 eurocents. 

Image from: cianciullo.blogautore.repubblica.it

In the midst of what promises to be a very heated electoral campaign, consumer association and some opposition parties have been very vocal in criticising the law, which, one must say, goes beyond the requirements of the 2015 Directive: the latter, indeed, allowed MS to exempt these "very lightweight" plastic bags. Many have observed, however, that imposing a fee and composition rules on this specific form of packaging was made necessary by the frequent abuse consumers make of the availability of free veggie bags and the vast number of them which households consume. 

Local practices, such as the fact that fruit and vegetables are usually weighted and price-tagged within the fresh department rather than at cashier desk and the supermarkets' expectation that consumer use separate bags for different sorts of produce, may have contributed to aggravating the situation. Fact is, the solution is quite radical in comparison with other countries, where the same bags continue to be available for free. 

The consumer associations that have complained about the new measure also seem not to be appeased by the fact that consumers will be able to use the bags for their organic waste (which is collected separately in large parts of the country) instead of buying those bags separately - perhaps they think their "constituents" are also not that interested in waste recycling?

All in all, an interesting not-so-small example of a clash between consumer and environmental advocacy (one may think turtle and fish lovers should be pretty happy with the measure). Have a good Thursday! More info (in Italian) here.

Nutrition information as a tool of consumer empowerement and public health protection? - conference at University of Lausanne 25-26 January

Data protection in 2018: waiting for the GDPR...

Happy 2018 dear readers! 

The new General Data Protection Regulation, which may make it more difficult for websites and other providers to collect our data without express consent, will only come into force in a few months. 

Meanwhile, national authorities seem to be reaching a point where they are ready to adopt less straightforward strategies to put a halt to what feels to many as excessive practices. See for instance the German competition authority, Bundeskartellamt, whose president has just announced in the press (with an interview in the Rheinischen Post, see also here a summary in Die Zeit) that the authority is investigating Facebook's data collection activities as an abuse of dominant position.

Although Facebook has no German subsidiary, action under competition law seems to be made possible as long as the practice exerts its effects in German territory. The authority had already put Facebook on notice a few weeks ago, especially with reference to the practice of collecting data when consumers browse outside of the social network to later reconnect such data to the user's Facebook account. 

Facebook's main defence against the charge is that they are just one social network and users can easily opt for one of their competitors, so they do not enjoy the position of market dominance which is a precondition for any charge of abuse under competition law. Looking forward to seeing this issue develop!