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. Rather, such an imbalance 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 (pata. 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 provides for 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.

The court's doubts resulted from the fact that the term formed part of a longer clause, which also defined other payment arrangements, e.g. amounts and dates. The referring court was 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 entire 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 one 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:

it 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? 

Impact of pre-emptive denied boarding on passenger rights - CJEU in LATAM (C-238/22)

Last Thursday, on October 26, the CJEU issued a new judgment on rights of passengers who have been denied boarding, interpreting Regulation No 261/2004. In the LATAM Airlines Group case (C-238/22), the passenger booked return flights with Latam between Frankfurt am Main and Madrid for 22-12-2017 and 7-1-2018. When the passenger could not check in online on Dec 21, they contacted Latam and heard that the airline changed their flight date unilaterally to Dec 20. They just did not inform the passenger about this (which is a bit of a problem, you must agree). Oh, and since the passenger did not take the re-booked flight (they did not know about they were missing), they also lost the right to take the return flight on Jan 7. The airline's policy was that the outward flight had to be taken for the return flight reservation to remain valid. Latam still refunded the ticket the passenger did not use. They refused, however, to either pay compensation pursuant to Regulation 261/2004 or to compensate the passenger for the new reservation they made with a new carrier. 

Pre-emptive denied boarding

The CJEU clarifies that when the airline denies boarding to passengers in advance, against their will - here by informing the passenger that they lost the right to the return flight - the passenger is not expected to still present themselves for boarding to maintain their passenger rights (para 38). This is an important clarification as the literal wording of Article 2(j) of the Regulation 261/2004 qualifies 'denied boarding' as a refusal to carry passengers on a flight, although they have presented themselves for boarding (para 23). This in turns means, pursuant to Article 3(2), passengers being present for check-in (para 24). The CJEU confirms that the concept of 'denied boarding' should be interpreted broadly to offer a wide scope of passenger protection and covers also situations of pre-emptively denied boarding, that is boarding denied in advance (paras 28-29). Still, passengers may claim their compensation despite not presenting themselves for boarding as CJEU perceives their situation as not distinguishable from that of passengers whose reservation was transferred to another flight by the airline, who fall within the scope of Regulation 261/2004 pursuant to its Article 3(2)(b) (para 32). Further argument stems from the historical objective of the Regulation 261/2004 - to prevent passengers' hardship caused by overbooking of flights. As such, drafters did not anticipate pre-emptive denied boarding explicitly in the text of the provisions (para 34).

Right to compensation

Further question pertained to the application of Article 5(1)(c)(i) of Regulation 261/2004, which excludes passengers' right to claim compensation for a cancelled flight, if they were informed about the cancellation at least 2 weeks before the scheduled departure time (para 42). As this provision introduces an exception to passenger rights, it need to be interpreted strictly (para 44), and as such, it does not apply to denied boarding but only to cancelled flights (para 45).

EDPS Opinion on AI Act proposal

The proposal for the Artificial Intelligence Act has caused a lot of heated discussion as it reaches its final stage. Recently, the European Data Protection Supervisor (EDPS) issued an opinion on the current version of the AI Act proposal*, pointing out several legal uncertainties from a data protection perspective. This is the second EDPS opinion about the forthcoming AI Act, following one issued jointly with the European Data Protection Board shortly after the proposal was revealed.

Photo by julien Tromeur on Unsplash

The EDPS takes a tough stance as regards some of the solutions envisaged in the proposal. For instance, the authority once again emphasized that classifying several uses of AI as "high risk" is not enough in cases where such uses pose unacceptable risks to fundamental rights (see para. 7 of the opinion). This includes a.o.:

• any use of AI to carry out any type of "social scoring";
• any use of AI for automated recognition of human features in publicly accessible spaces, such as of faces, gait, fingerprints, DNA, voice, keystrokes and other biometric or behavioural signals;
• the use of AI to infer emotions of a natural person except for certain well-specified use-cases, namely for health or research purposes;
• any use of AI systems categorising individuals from biometrics into clusters according to ethnicity, gender, political or sexual orientation, or other grounds for discrimination prohibited under Article 21 of the EU Charter of Fundamental Rights.

According to the EDPS, such uses should be prohibited as they are intrusive and affect human dignity.

The EDPS also notes that the AI Act proposal exempts operators of high-risk AI systems already on the market or in use before the AI Act's applicability, except in cases when these systems are subject to significant changes in their design or purpose or in case of "substantial modifications" (para. 12 of the opinion, see also Article 83(2) of the AI Act proposal). However, the EDPS finds this solution unclear, leading to legal uncertainty and some high-risk AI systems never falling within the scope of the AI Act. The EDPS recommends removing this exemption and applying the AI Act to existing high-risk AI systems on the date of its applicability.

What is more, the EDPS suggests that the notion of AI "providers" should be further clarified, and probably (explicitly?) include AI operators who retrain pre-trained AI systems. Although training is a fundamental part of AI development, the current proposal does not clearly state whether activities such as retraining or continuous training should be considered as part of AI system 'development'. As a result, it is uncertain whether operators taking part in such activities could be assigned the status of "providers" of AI systems (para. 15-19 of the opinion). 

Finally, the authority shared specific recommendations on how to clarify the proposal's provisions on EDPS roles and tasks as a notified body, market surveillance authority and competent authority for the supervision of the development, provision or use of AI systems by EU institutions, bodies, offices and agencies (para. 29 et seq.).

* Updated information on the legislative process you can find here.

Addictive design of digital services

Today the Committee on the Internal Market and Consumer Protection (IMCO) of the European Parliament adopted the draft report on Addictive design of online services and consumer protection in the EU single market (file to the procedure is here). This times nicely with the increased attention give to addictive online design by the European Commission, which intends to devote one of its two panels to this topic at the forthcoming 3rd Annual Digital Consumer Event (held on 30 November - more information and agenda is here). 

By Rodion Kutsaiev on Unsplash

The report draws attention to psychological vulnerabilities that 'certain' platforms and tech companies exploit online. The main concerns are about addictive, behavioural and manipulative design that maximises the frequency and duration of user visits. This is seen as leading to both non-material and material harm. Thus IMCO calls on the European Commission to conduct more evaluation whether new regulation could help 'close existing regulatory gaps with regard to consumer vulnerabilities, dark patterns and addictive features of digital services'. This follows from the assessment that existing measures (Digital Services Act and AI Act, but also Unfair Commercial Practices Directive) are insufficient to address these issues. As examples of dark patterns that current legislation would not consider as unfair the report mentions: infinite scroll, default auto play function, constant push notifications, read receipt notifications. 

Interestingly, in the report: 

• Point 3 - mentions the need to re-evaluate the main current notions of EU consumer law from the perspective of digital age, such as 'consumer', 'vulnerable consumer' and 'trader'. 
• Point 4 - draws attention to the limited function of transparency to fight deceptive design and calls for urgent need to assess whether certain practices should not be blacklisted under the UCPD (rather than transparently disclosed). 
• Point 6 - argues for (amongst others): 
• the integration of the concept of digital asymmetry into the UCPD; 
• reversal of the burden of proof for practices presumed to be addictive; 
• an obligation to ethically design digital services, which would be necessary to comply with professional diligence obligation.
• Point 7 - concerns the need to re-evaluate addictive and mental health effects of interaction-based recommender systems, incl. hyper-personalised systems. Overall, this point calls for the re-assessment of the desirability of online personalisation, and replacing recommender systems based on it with such that are based on chronological order or that give users more control.
• Point 8 - proposes introduction of the digital 'right not to be disturbed' by 'turning all attention-seeking features off by design'.
• Point 9 – calls for fostering of ethical design by default, which could be supported by the Commission upholding a list of good design practices. As best practices it mentions: 
• ‘think before you share’, 
• turning of all notifications by default, 
• more neutral recommendations, 
• up-front choice between colour and greyscale apps, 
• warnings when users have spent more than 15-30 minutes on a specific service, 
• automatic locks for certain services after a preset time of use, 
• weekly summaries of total screen time (but also with an option for a break-down), 
• in-app awareness campaigns on potential risks. Educational campaign should promote ‘self-control strategies to help individuals develop safer online behaviours and new healthy habits’.

The European Parliament intends for the principle of ethical design to be predominant for digital services and products (see press release here) in order to counteract harmful impact of digital addiction on mental health. The attention to mental health issues arising from online interactions, especially amongst minors, is rising, not only in the EU. The UK has just finished accepting submissions to its inquiry into Preparedness for online safety regulation (see here). This sensitive topic definitely requires more attention, thus we will be keeping an eye on the forthcoming discussions on this.

New EU Commission study on consumer over-indebtedness

At the end of September, the EU Commission published a new, comprehensive, and timely Study on European consumers' over-indebtedness and its implications. The study takes a muti-disciplinary approach aiming to get a clear and updated picture of over-indebtedness among European households and consumers.

The aim of the study was broken into five distinct tasks:

• obtain a granular and updated mapping of the situation of over-indebtedness among European households and consumers in all 27 EU Member States 

• gather improved knowledge of the perspectives, perceptions, and challenges of EU consumers in relation to over-indebtedness, including in light of whether or not they have personally experienced it and their knowledge of financial matters 

• collect more, and more precise, information about the macro-economic drivers of over-indebtedness and their short-, medium- and long-term impact, including an analysis of the impact of the COVID-19 pandemic, as well as recent energy price shocks and rising inflation 

• provide an in-depth legal analysis of concrete interactions between EU and national rules and provisions covering consumer credit, mortgage credit, and other contiguous matters

• conduct a behavioural experiment focused on assessing the capacity of households and consumers to make informed and optimal credit choices.

With almost 300 pages of empirical data, behavioral experiments, legal analysis, and literature review, this study could be useful for everyone working or interested in the area of financial consumer law.

Update of ADR rules on the horizon

By GR Stocks on Unsplash

Today the European Commission announced their proposal to modernise ADR rules in Europe, in line with the digitalisation agenda (New measures to simplify the resolution of disputes out of court and boost consumer rights). This follows from the 2023 Consumer scoreboard results showing continued low numbers of consumers proceeding with enforcing their rights (1/4 of consumers experiences a significant consumer problem, but 1/3 of them does not complain for reasons related to time, cost and low confidence). The key points of the new plan to address these issues are: 

• Abolition of ODR (see for the proposal for a new regulation repealing ODR here) - currently the ODR platform facilitates ca 200 cases per year in the EU, which the Commission perceives as not justifying the costs of keeping this platform open and costs of business having to comply with ODR Regulation obligations (e.g. providing a link to ODR platform and assuring appropriate communication channels). The plan is to replace the ODR platform with 'user-friendly digital tools' assisting consumers in choosing a redress option.
• Broadening of the scope of ADR - it will no longer be necessary that a dispute stems from a concluded contract between the parties. This will allow encompassing all EU consumer law, incl. pre-contractual issues especially pertinent to online environment, e.g. misleading advertising and deceptive design, access to services and unjustified geoblocking. It aims also to start facilitating procedures against non-EU traders (although they as well would need to voluntarily join the scheme).
• Providing for additional consumer advice in accessing and during ADR process - to be delivered by designed bodies, e.g. European Consumer Centres Network. This could consist of translation, explanation of consumer rights, ADR procedures, etc.
• Removing some of the burdens for traders to encourage their uptake of ADR participation - e.g. reducing information obligations for traders. Additionally, ADR entities will ask traders whether they intend to participate in ADR when a consumer raises a complaint, which traders will need to answer in 20 days. This is aimed at prompting traders to (re-)consider their ADR participation.
• Removing some of the burdens and costs for ADR entities - e.g. reducing their reporting obligations (from every year to every 2 years, and requiring a more condensed report); facilitating bundling of cases with similar elements (although only upon consent of relevant consumers).
• Improving transparency - e.g. when a dispute is resolved through automated means, parties may request review by a natural person.

Additionally, the European Commission recommends online marketplaces to align their dispute resolution systems to European ADR principles, especially effectiveness, fairness, independence, expertise, impartiality, and transparency. See here for the Recommendation on quality requirements for dispute resolution procedures offered by online marketplaces and Union trade associations C(2023) 7019 final.

See for the new proposal for amending ADR Directive here. Additional information on the whole ADR review is here.

Influencer Legal Hub: New resource

By Laura Chouette on Unsplash

The European Commission launched today a new legal resource: Influencer Legal Hub. Prepared in collaboration with experts from Utrecht University and University of Leeds, it provides both textual and audio-visual help to influencers on their legal obligations. The idea behind this new legal resource is to ensure that the complex (by now) landscape of European consumer law could be easier traversed by content creators engaging in commercial transactions (earning money from promoting specific content). With them better informed, consumer protection level should increase, as the amount of misleading practices on various social media should decrease. Having said that, this new portal provides also plenty of information as a starting point for anyone researching influencer marketing; or even more broadly, for anyone interested in assuring fairness online.