Are you representing a European consumer organization in need of funds? - EAHC call for proposals 2010

Executive Agency for Health and Consumers opened the call for proposals 2010 for financial contribution. Deadline for submission is 27 September 2010.

There are following categories in which you can apply:

• financial contribution for the functioning of European consumer organizations;
• financial contribution to the operation of European consumer organizations representing consumer interests in the development of standards for products and services at European Union level;
• financial contribution to the European Consumer Centres Network;
• specific joint actions;
• specific joint surveillance actions;
• exchange of officials in the area of consumer protection cooperation;
• exchange of officials in the area of consumer product safety (deadline for this one: 19 July 2010).
  

Consumer behaviour: the road to effective policy-making - brochure by DG SANCO

Recently DG Sanco published a brochure on 'Consumer behaviour: the road to effective policy-making'.

In the past few years the European Commission (and other European institutions have realized that consumer behaviour science might give them valuable insights as to how the European consumer law should develop. In order to research that link and find out exactly how to apply consumer behaviour findings to law, or how to shape consumer behaviour, more and more funds are spent on researching consumer behaviour.

The brochure that has just been published at the DG SANCO's website introducers the reader to the science of consumer behaviour. The purpose of the brochure is to present some of the principles of the consumer behaviour and to gain an understanding of the importance of their application in DG SANCO. Firstly, consumer behaviour is being defined and e.g. certain factors influencing decision-making process are being presented. Secondly, the reasons for exploring consumer behaviour are mentioned in the brochure.

"Understanding motivations and the main determinants behind consumer- and healthrelated behaviour is essential for policy-making because it allows us to better define the most effective tools for influencing behaviours and implementing the most effective policies."

Further, the brochure discussed practical applications of consumer behaviour as well as various tools for shaping consumer behaviour. Finally, it is specified for which areas of DG SANCO consumer behaviour is applicable.

The brochure presents rather basic findings and does not introduce any 'surprise' material. However, it is good to know that DG SANCO intends to continue its work with/on consumer behaviour. In the goals defined for DG SANCO for the coming years you may find a commitment to follow consumer trends on a regular basis and to put the consumer at the centre of all policies. One way of doing that, defined by DG SANCO itself, is to improve cooperation between academics and policy makers and to introduce scientific findings into policy decisions. I heartily approve the course set out by DG SANCO in this brochure.

The text of the brochure may be found here.

Pénzügyi Lízing (C-137/08): the follow-up to Pannon

Today the Opinion of Advocate General Trstenjak in the Pénzügyi Lízing-case has been published. The case is a follow-up to the Pannon-case (2009), dealing with the obligation of the national court to examine on its own motion the unfairness of a term when applying the Unfair Terms Directive (93/13/EEC).

After the ECJ made clear in the Océano-case that national courts are allowed to examine the unfairness of contract terms, Mostaza Claro and Cofidis went a step further, arguing that national courts have the obligation to do so. This was repeated in Pannon, but in that case the ECJ added that the obligation exists ‘where [the national court] has available to it the legal and factual elements necessary for that task’. With this judgment it was still not entirely clear under what circumstances the obligation exists. Advocate General Trstenjak concretizes this in her Opinion in Pénzügyi Lízing.

The Member States’ governments who have submitted their opinions regarding this case to the ECJ express opposition against far-reaching European influence in their civil procedures. They are also somewhat anxious for their courts being required to examine the fairness of contract terms in each and every case brought before them (see paras. 43-54).

Trstenjak makes clear that there is no general obligation for courts to examine the unfairness of terms on their own motion. For cases in which a contract term is possibly unfair, the national court is held to examine the fairness of the term only if, in the words of Pannon, ‘the national court has available to it the legal and factual elements necessary’. Trstenjak makes clear that this is only the case if there are indications for the existence of a possibly unfair term from the arguments of the parties or from other circumstances (para. 107-109). With reference to the principle of party autonomy in the civil procedures of the Member States, Trstenjak stresses that national courts are not required to determine the legal and factual circumstances needed to conduct this examination (para .110-111, with reference to the Van Schijndel-case).
Trstenjak concludes that the national court, if confronted with a possibly unfair term, is not held to start an investigation on its own motion in order to determine the relevant factual and legal circumstances, if national procedural law only allows such an investigation if ordered by one of the parties, and if none of the parties did.

In this sense, the Opinion is a recognition of party autonomy and of the governments who fear that the courts will not be able to deal with the workload as a consequence of the obligation to examine contract terms on their own motion.

However, the degree to which national courts have to examine contract terms on their own motion is to an important extent decided by another question, i.e. what should be understood as ‘legal and factual elements necessary’. Advocate General Trstenjak does address this question along the way. While arguing that a far-reaching duty for national courts to determine the legal and factual circumstances is not necessary, she argues that national courts will often already have the ‘legal and factual elements necessary’, because they will usually have received a copy of the contract (para. 113). Hence, there is still a general obligation for the courts to examine the fairness of terms on their own motion if they have the information needed to do so (e.g. based on parties’ arguments or on the contract). But the obligation does not extend to determining the legal and factual circumstances needed for the examination.

Click here for the full Opinion (not yet available in English).

The Commission's Green Paper on European Contract Law is there!

This morning the European Commission presented its Green Paper on policy options for progress towards a European Contract Law for consumers and businesses. Options under consideration include:

- model contract rules;

- a 'toolbox' for EU lawmakers;

- a Contract Law Recommendation (in the style of the US Uniform Commercial Code);

- an optional instrument for European Contract Law ('28th regime');

- harmonisation of national contract laws by means of a Directive;

- full harmonisation of national contract laws by means of a Regulation; and...

- a full-fledged European Civil Code.

A public consultation on this strategic policy paper will run till 31 January 2011.

For more information see the press release of the Commission. Contributions to the public consultation can be posted through the Commission's website.

Changing mobile phone operators while keeping same number: ECJ in C-99/09 Polska Telefonia Cyfrowa (PTC)

1 July 2010: ECJ case C-99/09 Polska Telefonia Cyfrowa (PTC)

This judgment concerned interpretation of Article 30(2) of Directive 2002/22/EC - Universal Service Directive. Pursuant to this Article:

"[NRAs - National Regulatory Authorities] shall ensure that pricing for interconnection related to the provision of number portability is cost oriented and that direct charges to subscribers, if any, do not act as a disincentive for the use of these facilities."

First of all, to all the laymen between us - what does porting numbers/number portability mean? The concept of number portability covers the facility available to a telephone subscriber to retain the same number when changing operators. (Par. 15) Most of us, at one point or another, were not happy with our (mobile) phone providers and considered making a switch. One of the factors that effectively stopped us from making that step was the fact that we did not want to go through the trouble of changing our phone number and having to let everyone we have ever met know what our new number is. Anyone who has ever lost their phone knows what a bother it is. EU authorities were aware of that and realized that consumers not being able to keep their old number (or having to pay for the switch of the number) was an obstacle to consumers' freedom of choice and effective competition. (Par. 17) That is why the Universal Service Directive required the phone providers to facilitate number portability and obligated the national authorities to ensure that the price for that service will not dissuade the consumers from making the switch. The operators may charge the consumers since they have to make certain costs to facilitate that service, but that price has to be not only compatible with the costs they made but also not dissuade the consumers from switching. (Par. 19)

In the given case a Polish company - Polska Telefonia Cyfrowa (PTC) - requested a one time fee from its subscribers for porting their number to another operator. The amount of the fee (ca. 30 Euro) was deemed to be too high by the Polish authority enforcing the Universal Service Directive: Urzad Komunikacji Elektronicznej (UKE). PTC claimed that they set the amount of the fee based on the costs they had made and therefore the fee was reasonable. UKE considered the fee to be too high for the Polish consumers.

The ECJ confirmed the view of PTC that the amount of the fee should depend on the costs encumbered by the phone providers, however, it could not be a decisive factor in estimating its height. Namely, the national authorities have a right to establish the maximum height of the fee up front, taking into account what prices dissuade the consumers from switching between operators. (Par. 21)

The ECJ decided further that: (Par. 25-26)


"(...) the NRA has the task, using an objective and reliable method, of determining both the costs incurred by operators in providing the number portability service and the level of the direct charge beyond which subscribers are liable not to use that service. Following that examination, the NRA must oppose, if necessary, the application of a direct charge which, although in line with those costs, would, in light of all the information at the disposal of the NRA, be a disincentive to the consumer."

The decision of the ECJ in this case is very clear and consumer-friendly. Even though it might seem that the PTC got the confirmation it wanted, the ECJ managed to turn the question around and put a limitation on the interpretation of Article 30(2) of the Universal Service Directive.

From a bit personal perspective (coming from Poland)... it was about time someone stood up to the Polish phone operators and limited their powers.

Regulating consumer behaviour, or: why one might wait getting an iPad and other lessons from behavioural studies

Last Friday and Saturday, 25 and 26 June, an international and interdisciplinary symposium on ‘Behavioural economics, consumer policy and consumer law’ took place at the European University Institute in Florence. The symposium was organised by Professor Hans-W. Micklitz (EUI) and Professor Lucia Reisch (Copenhagen Business School) on behalf of the Journal of Consumer Policy and brought together experts in the fields of law, economics, law & economics, psychology and sociology, as well as policymakers from the EU and US.

The more empirically oriented presentations gave interesting insights into the effects of information on consumer decision making and behaviour, addressing the shaping of consumer preferences (an iPhone introduced at a price of $600 will seem a bargain if some months later it is offered for ‘merely’ $200), the possible counter-effects of full disclosure of information (consumers paradoxically acquiring more financial products after having been informed of a conflict of interests of the seller), the psychology of impulsive buying (the understanding of which could, for instance, help nudge consumers towards healthy food and away from unhealthy snacks on display in stores), the impact of health policies on eating behaviour (e.g. governments signing agreements with the fashion industry to increase the size of fashion models, in order to prevent eating misbehaviour by young people trying to conform to the beauty ideal portrayed in the media), and the relation of a client’s financial knowledge to the quality of financial advice obtained from a bank (clients with high knowledge obtaining better advice than those with less expertise).

From a more theoretical perspective, the question was confronted of how to implement the results of these behavioural studies in policy making. To what extent is it possible to predict errors that consumer contracting parties will make? And should these be translated into a framework of limited choices for consumers? To what extent does this involve both the legislature and the judiciary? In other words, to what extent can normative guidelines be derived from behavioural studies?

These questions were addressed in the remaining presentations and the discussion. In very broad lines, one could say that EU consumer policy has so far concentrated on redressing the information asymmetry between consumers and professionals. As Professor Micklitz pointed out, a radical self-assessment would be called for in order to find out what has so far been achieved with legal tools in consumer policy – in particular, have the remedies available to consumers in case of breach of contract, damage, etc, been useful? (a topic that is also being discussed in the context of the proposal for a Consumer Rights Directive, as was signalled in an earlier post on this blog)

The direction that the development of consumer policy on the basis of behavioural law & economics, psychology and sociology should take mostly seemed to puzzle the lawyers in the audience, well, in any case the undersigned. Is it only one-way traffic or can legal scholarship also contribute to behavioural studies?

As a conclusion to this (way too long) post: it is clear that behavioural studies have an impact on consumer policy making in Europe, as one can see in the importance awarded to monitoring instruments such as the Consumer Markets Scoreboard, the development of an OECD Toolkit for policymakers, and the general emphasis on information duties in the existing consumer Directives. Surprisingly enough, however, it seems that researchers from the different disciplines have hardly begun the dialogue on how to combine forces to reach better results in the field of consumer protection. This conference managed to get one started. The floor is open…

NB: The Journal of Consumer Policy will publish a special issue on the topic and invites the submission of papers.

Branding - a candidate for unfair commercial practice?

In the past few years more and more attention is being devoted to branding and its (negative) effects on consumers. I have just read about another research that shows even more clearly how big the influence of branding on consumers is.

Melanie Dempsey and Andrew A. Mitchell tested the power of branding by conditioning consumers to like or dislike certain brands that they made up. The consumers were not aware of the conditioning, however, when they were later asked about brands they were supposed to 'get to like' - indeed, they liked them without being able to give a reason why. The researchers called it 'I like it, but I don't know why' effect. This sounds alarming, but what is even more worrying is that when later the consumers were given facts about these brands that contradicted their conditioning, they still preferred products of the brands that they 'got to like'. This means that they chose certain inferior products only because they had received positive branding message about them.

Shouldn't branding be considered an unfair commercial practice then and banned? Apparently it materially distorts the economic behaviour of an average consumer whom it reaches - which is the definition of the unfair commercial practice (Article 5 of the Directive 2005/29/EC on Unfair Commercial Practices). Oh, yes, the other part of the definition mentions that commercial practice needs to be contrary to the requirements of professional dilligence to be considered unfair. So far branding has been allowed and is not seen as contrary to the requirements of professional dilligence. Hopefully, with more research, that will change.

The article on this research may be found at the website of neurosciencemarketing and science daily. The paper of the two researchers has been published in the Journal of Consumer Research:

Melanie Dempsey and Andrew A. Mitchell. The Influence of Implicit Attitudes on Consumer Choice when Confronted with Conflicting Product Attribute Information. Journal of Consumer Research, December 2010

New targets for consumer rights – hit or miss?

The debate about the Consumer Rights Directive, on which we reported earlier on this blog, continues now that the European Parliament is revising the proposal. Recently, two draft reports have been produced under the direction of MEP Andreas Schwab, one dated 31 May 2010 and one dated 9 June 2010. Glancing through these, the many stakeholders that were dissatisfied with the initial proposal can take comfort, it seems, from Schwab´s efforts to “completely change the original Commission proposal”.

Which are the main changes then? The most significant change of direction relates to the decision to let go of the intention to opt for full harmonisation for every part of the Directive. As Commissioner Viviane Reding indicated, this approach does not seem appropriate nor feasible in light of the needs and wishes of Member States with regard to consumer law. Instead, a shift to ‘targeted full harmonisation’ for those issues where this degree of harmonisation would be of benefit to the single market may be welcomed. In the draft reports we see this reflected in the new proposal for Article 4, which reads: “Save as otherwise provided by this Directive, Member States may not maintain or introduce, in their national law, provisions diverging from those laid down in this Directive” combined with a range of exclusions at various places in the draft (e.g. in Article 4 itself, and in Article 5(3a), (3b) and (3c), Article 19, Article 22(2a), Article 26(5b), Article 28(5a), Article 34(1a), Article 35(1a)). The overall purpose appears now to be to put in place a uniform set of rules on distance and off-premises contracts, consumer sales and unfair terms which applies to simple sales and services transactions. The exclusions ensure that the Member States have a lot of leeway to diverge in cases where contracts are either specific (e.g. relating to immovable property, transport, or financial, healthcare and welfare services) or where it is deemed on other grounds that stricter provisions are required to ensure a high level of consumer protection (e.g. by designating additional terms as terms presumed to be unfair).

In the draft reports, this new plan for targeted harmonisation is backed-up with an evaluation scheme that requires Member States to report back to the Commission on actual diverging measures that have been taken in order to ensure a higher level of consumer protection. The advantage of this could be, one presumes, to at least be able to chart the remaining differences in national laws; and perhaps to encourage the Member States to conduct a review of their national consumer laws to see if and how greater alignment with EU law and policy is something that should be pursued.

For now, it seems to early to say whether these drafts should be regarded as a hit or a miss. One thing that is clear is that they open up the debate on the Directive in a positive way, giving interesting suggestions as to how the further revision of the acquis should unfold. And more importantly: placing the emphasis back on the substantive consumer rights that EU legislation seeks to ensure.

More developments on this are expected later this year, so stay tuned…

End of information era close?

The SECOLA (Society of European Contract Law) congress was this year devoted to the failure of contracting in respect of the financial crisis of last years. Various speakers discussed European and national regulations of the financial market and how gaps and unclarities in them might have contributed to the worsening of the financial crisis.

One of the most interesting presentations was given by Omri Ben-Shahar, professor at the University of Chicago Law School, on the failure of mandated disclosure. Last year he published an interesting article in the European Review of Contract Law: "The Myth of Opportunity to Read in Contract Law". In this article he explains why, according to him, there should not be a legal obligation on the service providers and sellers to present, prior to the conclusion of the contract, standard contract terms that will bind the consumers who do business with them. It has been widely researched that consumers tend not to read the standard contract terms, even if they are given them and have a theoretically unlimited time to read them. Why then do we insist to obligate service providers to deliver these standard contract terms to the consumers? The well accepted argument is - 'so that the consumers have a possibility to read these contract terms if they want to use it. Omri Ben-Shahar in his article is sceptical about the positive value of leaving this opportunity open (e.g. he mentions that while most of the consumers will not make use of it, the courts might then easier dismiss consumers' arguments as to the unfairness of a clause by saying that they did not do enough to prevent it prior to the conclusion of the contract). Still, he considered then certain forms of disclosure that could be effective, e.g. labeling. In his presentation at the SECOLA congress Omri Ben-Shahar presented shortly his new article on the failure of mandated disclosure in which he goes even further with his conclusions, basically rejecting the possibility of information duties having any positive effect for the consumers. He talked about regulatory failure, putting more and more information duties on the professional parties, while the behavioral research shows that the consumers are overloaded with information and don't know what to do with it.

I, like many others, were fascinated by his speech and the discussion that followed afterwards. Still, I cannot help but remain hopeful as to the future of the information duties. Why not work on the form of information first before he completely dismiss it? We could make information forms more legible and more approachable. Of course, that might be a naive view but it feels like we would open a Pandora's box if we just let the professional parties to reveal whatever they wanted to, without any directions nor boundaries. Anyways, I am looking forward to the forthcoming article by Omri Ben-Shahar.

SECOLA conference

I am currently in Istanbul at the SECOLA conference which this year is devoted to the financial crisis and and consumer protection in these times.