Avoiding double claims at all cost - AG Saugmandsgaard Øe in Aegean Airlines (C-163/18)

On Thursday AG Saugmandsgaard Øe gave his opinion in the case Aegean Airlines (C-163/18), which examines the relationship between the provisions of Regulation No 261/2004 and Package Travel Directive (old one 90/314/EEC). Both these acts grant certain rights to passengers of cancelled flights, when these cancelled flights form a part of a package travel contract. 

Article 8(2) Regulation 261/2004 states that also passengers whose flights form part of a package travel may claim reimbursement of the full cost of the ticket on the basis of that Regulation, unless their right to reimbursement arises under the PTD. The national court asked for the interpretation of this provision, inquiring whether it limits the rights of passengers to make a claim against the operating air carrier for the reimbursement of the ticket pursuant to the Regulation, when the national law implementing the PTD gave them the right to claim the whole cost of the package travel, including the price of the ticket, from the package travel organiser (para 31). The answer to this question is especially important when the organiser is in liquidation, i.e. is not able to meet the financial obligations of the reimbursement and has not guaranteed such reimbursements, e.g. by not taking out an insurance (para 32). 

The Commission was of the opinion in this case that as long as the passenger does not get compensated in practice by the organiser, the operating air carrier should be held liable for the reimbursement of the ticket (para 33). The airline (obviously) together with the Czech and German governments disagreed (para 34). AG Saugmandsgaard Øe supports the second opinion, following the literal interpretation of the provision of Article 8(2) Regulation 261/2004 (para 36-39). Since Article 8(2) only refers to the right to reimbursement arising pursuant the PTD, it does not require that the passenger can actually acquire the reimbursement in practice. As previously the Court had not always interpreted Regulation 261/2004 on the basis of the wording of its provisions (cases of Sturgeon or Nelson), we will need to see whether the opinion of AG Saugmandsgaard Øe will be followed. Just in case, the AG supports his reasoning also by referring to: the legislative history of Regulation 261/2004, which shows that there were doubts about extending the scope of protection of the Regulation to package travellers (para. 43-45); and to the system of the Regulation, which set up the exception of Article 8(2) narrowly, only applying it to the right to reimbursement of the ticket (para 50), and which seemed to give priority to the protection of the PTD, also through Article 3(6) Regulation 261/2004 (para 52); as well as to the system of the PTD, which aimed to guarantee the reimbursement by organisers by obliging them to set up insolvency protection (para 55). 

The above reasoning of AG Saugmandsgaard Øe could be supported, however, his following statement that this conclusion is not hindering the achievement of the objectives of Regulation 261/2004 is less convincing. He draws attention to the fact that beyond ensuring strong protection of passenger rights the Regulation aimed to restore the balance between passengers and air carriers (para

59). Passengers would be protected too much, according to him, if they could claim reimbursement  both on the basis of Regulation 261/2004 and the PTD (para 64). Well, yes, of course passengers should not be allowed to claim the price of the ticket back twice (para 65), however, it seems in practice this opinion will not allow them to claim it even once. This clearly would not support the main objective of the Regulation. A better solution would then be to interpret Article 8(2) Regulation 261/2004 as only allowing claims on the basis of the Regulation, if for the passenger it is impossible, not only legally but also practically, to make a claim pursuant to the PTD. After all, the air carrier could also be protected by having redress on the package travel organiser. And the package travel organiser should be able to indicate the ticket price as a component of the package price (contrary to the argument made in para 66).

If it looks like withdrawal, it quacks like withdrawal... it may still be financial services. AG Pitruzzella in Romano

Yesterday, AG Pitruzzella published his opinion in Romano v DSL, a case concerning a somewhat less well-known instalment in EU consumer protection: Directive 2002/65/EC. The concrete issues discussed in the case, however, are quite similar to typical consumer cases: they have to do with withdrawal rights and information provision. 

In 2007, the Romanos entered a distance consumer credit contract. They signed a form acknowledging that demanding immediate performance of the credit meant that they were forsaking their right of withdrawal. For more or less ten years, they went on paying back the credit, until they decided to sue the bank arguing that the contract should be terminated: they had not been provided appropriate information on their withdrawal rights, and hence should not be held to the contract. Additionally, as provided by German law, the creditor should pay them compensation for having all the while retained use of their money. 

The right of withdrawal in distance consumer credit contracts, as featured in the Directive, appeared to have been implemented in the various sub-provisions going under article 312 of the German Civil Code, or BGB. These excluded withdrawal from already performed financial contracts, when performance had taken place at the express requests of the consumers before their withdrawal period expired. However, it appears to be the case that the German Supreme Court had affirmed that the consumer’s right of withdrawal in distance financial services was still regulated by article 355 (and 495) of the BGB, where the general provisions on withdrawal in consumer contracts find their place. This meant that the contract’s performance did not exclude the right of withdrawal when consumers had not been properly informed.

The referring court asked, in essence:

1)   Whether it was precluded, under the Directive, to regulate the right of withdrawal in the field covered by it in a way different than what established by Article 6(2)(c) of the directive itself; 

2)   Whether the information to be given under the Directive and concerning the right of withdrawal must be aimed at the “average consumer” as defined by CJEU case-law, or whether the directive allows for a different consumer image. 

As to the first question, the AG answers in the affirmative: the Directive must be understood as pursuing full harmonisation except when expressly providing otherwise.  A clause allowing for additional protection at MS level had been included with regard to information provision, but not to withdrawal rights. The fact that in this case the two issues were to an extent interrelated – the right of withdrawal being extended as a result of (allegedly) insufficient information provision – did not lead to a different conclusion, because the Directive (we must understand: intentionally) did not attach any consequences to the provision of insufficient information on the right of withdrawal. It only said that the withdrawal period only started running once the consumers were informed of their right. 

As to the second question, the AG engages in a sort of systematic interpretation, explaining that since the definition of “consumer” in Directive 2002/65 was essentially the same as the ones found in Directive 93/13 and 2005/29, and the Court of Justice has already clarified that the average consumer standard applies to both of those directives, the same consumer notion – postulating a reasonable, informed and circumspect consumer – should apply here. It is such a consumer, thus, that should be kept in mind when ascertaining whether sufficient information has been provided in the context of the Directive. In this case, the AG does not engage in a discussion concerning minimum and maximum harmonisation – likely because providing “additional protection” under the Directive is an activity that would only be open to national legislatures and is precluded to civil courts adjudicating on specific cases. 

The AG also answers the third question – which would fall if the court followed him on the first two points: can a member state require providers of financial services to pay the withdrawing consumers compensation for the availability of the consumers’ money between the contract’s conclusion/performance and the time of withdrawal? According to the AG, member states cannot introduce such a requirement: the Directive’s article 7 regulates exhaustively the consequences of withdrawal, without providing for such additional compensation. In light of the system of the Directive, which gives consumers two weeks to exercise their right of withdrawal, such additional compensation would make little sense. 

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The opinion contains some possibly controversial passages – such as the assumption that lending “imperialist” force to the average consumer standard is just a matter-of-fact operation – but does not come across as particularly surprising. Perhaps its most remarkable feature is to remind us of the complications arising from the EU’s resolve to treat consumer financial services as a field of its own, requiring national legislators and courts to fragment otherwise rather indistinguishable situations in accordance with the Union’s rather arbitrary legislative boundaries. Have a nice weekend!

Isn't it ironic: AG Tanchev proposes penalty Spain for failure to transpose Mortgage Credit Directive, just as new Law has been approved

The European Commission has brought infringement proceedings against Spain for failure to transpose the Mortgage Credit Directive (2014/17/EU) in time, and asked the EU Court of Justice to impose a daily penalty payment of EUR 105 991,60. The deadline for transposition was 21 March 2016, which was extended by the Commission until 18 January 2017. The new Law on Credit Agreements for Immovable Property (Ley de contratos de crédito inmobiliario) was only approved by the Spanish Parliament on 21 February 2019. Until it enters into force, consumers in Spain are unable to rely on the rights afforded to them under the Directive.

The Spanish government does not dispute that it missed the deadline. However, it argues that the penalty is disproportionate.

First, there was an unusual situation relating to difficulties in forming a government between December 2015 and October 2016. There was a political deadlock after the inconclusive election results of December 2015, which led to new elections being held in June 2016. The second election results were also inconclusive; attempts to form a government continued until the end of October 2016. After the financial crisis, consumer protection in the mortgage credit market had become a controversial issue in Spain, as we can testify by reference to the many preliminary rulings pertaining to Spain discussed on this blog. The new Law was approved only two months before the upcoming elections in April 2019.

Secondly, the Spanish government disputes that the lack of transposition may have adverse effects for competition in the mortgage credit market, and asserts that certain national measures had already been adopted that regulate aspects covered by the Directive.

In his Opinion in C-569/17, Advocate-General Tanchev rejects these arguments. EU Member States cannot invoke provisions, practices or situations existing in their internal legal system, such as elections or an interim government, in order to justify a failure to comply with their obligations under EU law, including the time limits laid down in a directive (point 36).

Moreover, Tanchev is unconvinced that the national measures that had already been adopted meet the requirements of the Directive (point 82). The effects of the failure to transpose the Directive on public and private interests is significant in the Spanish context, in light of problems in the Spanish mortgage sector (point 86). In this respect, Tanchev refers to the numerous preliminary references to the CJEU from Spanish courts. Thus, he concludes, the impact of non-transposition is serious.

AG Tanchev rejects the Commission's view that the penalty payment should be calculated from 22 March 2016 to the date of the start of the infringement proceedings: 27 April 2017. According to Tanchev, the duration of the infringement is assessed from the expiry of the extended deadline, i.e. 18 January 2017 (point 89). This means the period between December 2015 and October 2016 should not matter in any case (point 90). Still, the duration of the infringement is about 24 months, which may be considered a significant period of time.

The penalty payment must be decided according to the degree of persuasion needed in order for the Member State to alter its conduct and bring the established infringement to an end (point 80). Therefore, Tanchev proposes that the CJEU should order Spain to pay the daily payment as proposed by the Commission, with effect from the date of delivery of the judgment. At the date of the hearing, the new Law had not been approved yet. If the CJEU follows Tanchev's Opinion, Spain will no longer need to be persuaded and thus, not have to pay the penalty as soon as it notifies the Commission. Isn't the timing a bit ironic?

Conference on the New Deal for Consumers

On Thursday 11 and Friday 12 April 2019 the conference 'A New Deal for Civil Justice? The New Deal for Consumers and the Justiciability of EU Consumer Rights' will take place in Amsterdam. Attendance is free of charge; you can register by sending an e-mail to: l.d.kaspar@uva.nl

The final programme is now available:

Sealed without a reason - CJEU in slewo (C-681/17)

The CJEU upheld today the opinion of AG Saugmandsgaard Øe (If it can be cleaned, it can be returned?...) in the case slewo (C-681/17). Therefore, the CJEU decided that goods such as a mattress, which is covered by a protective film that would be removed by consumers when they try on this mattress upon its delivery, are not exempt from being sold with the right of withdrawal. Article 16(e) Consumer Rights Directive does not apply as these goods cannot be seen as 'sealed goods which are not suitable for return due to health protection or hygiene reasons and which have been unsealed by the consumer after delivery'. The CJEU emphasises the need to interpret exceptions to the right of withdrawal in CRD strictly (para 34). Pursuant to the objective of the exception from Art. 16(e) CRD it aims to protect sellers from consumers returning goods that have been compromised by breaking a seal to an extent that it would be unsafe to resell such goods. A mattress does not classify as such a good, as it can be reused or resold, the CJEU gives here an example of a hotel where many people would use the same mattress and of a possibility to deep-clean mattresses (para 42). Just like the AG, the Court compares the mattress to clothing - that may come in contact with human body while being tried on (paras 43-45). Finally, the Court reminds that any unfairness towards traders should be removed by them being able to hold consumers liable for the diminished value of the goods (para 47).

By narrowly interpreting exceptions to the right of withdrawal, the CJEU increases consumer protection with this judgment. However, I could understand the frustration of traders with it. Cleaning of products does not come for free and not all stains are easily removed. The possibility to claim compensation from consumers for the diminished value of the goods is only an option when the consumer went beyond the scope of just testing the goods during the cooling-off period. On more than one occassion I have received clothing ordered online, which had make-up stains on it - clearly from consumers who tried this product on previously (within the scope of testing the product). Of course, similarly stained clothing can be found also in offline stores, as consumers may try clothes on in fitting rooms, whilst wearing make-up, deodorant etc. The difference for traders is that they may prevent consumers from trying on clothes in their stores, e.g. by not providing fitting rooms. When the clothes (or similar goods, like mattresses) are, however, purchased online, their means of protection were to try to seal the goods and thus deny consumers the right of withdrawal. This method is, however, no longer viable.

DSM proposals approved by the Parliament

We have announced in December that the work on the DSM proposals (on digital content and on the sale of goods) was moving more smoothly and that we expected the first EP reading to take place in March 2019 (2019 forecast...). This reading took place yesterday, with the EP approving proposals for both directives and passing the ball along to the Council for their formal approval. Since the changes introduced by the Parliament have previously been discussed with the Council, this final approval should really be just a formality and we may expect these new Directives to start binding in the Member States within the next 3 years. 

A few remarks on digital content

Just a reminder, one of the novelties of the DSM proposals is the stipulation that consumers who pay with their data for access to digital content or online services will need to be provided with consumer rights just like paying consumers (Recital 24). However, unless the Member States stipulate differently, if the trader only collects metadata or where consumer gets access to digital content by exposing themselves to advertisements - these situations will not fall within the scope of protection of the directive. The Directive on digital content also provides for different remedies in case of non-conformity of the digital content (price reduction or reimbursement) than of goods (whether purchased online or offline), but the same longer reversal of the burden of proof (non-conformity manifests itself with in 1 year from the date of supply, with the possibility for the Member States to extend this to two years for goods) and a two year guarantee period (with a possibility for the Member States to extend this for goods). The Directive on digital content fully harmonises requirements for conformity, remedies for non-conformity or a failure to supply and the modalities for their exercise, as well as the modification of digital content or service, thus it adopts the model of targeted full harmonisation. The Member States retain however the right to regulate some matters related to lack of conformity of digital content, e.g. liability of third parties, such as developers of digital content who are not traders. Curiosity: recital 23 recognises e-vouchers as a digital representation of value, digital currency, which is a method of payment and therefore on its own is not a form of digital content. See the final text here.

A few remarks on sale of goods contracts

The Directive on the sale of goods fully harmonises requirements for conformity, remedies for non-conformity and the main modalities for their exercise, thus it adopts the model of targeted full harmonisation. It allows the Member States for example to elect to provide consumers with the right to repudiate the goods shortly after delivery or to regulate sellers' duties to warn. It will apply to 'smart' goods, that is goods embedded with digital elements (whether digital content or digital services), where the goods would not perform their functions without the digital content and where the digital content was provided as part of the same contract. Recital 49 changes the nature of assessment whether the seller is able to bring the goods back into conformity, as the new Directive will allow sellers to refuse to replace the goods or repair them when one of these two remedies is impossible and the other one could only be provided at a disproportionate case (contrary to the Weber and Putz approach to impossibility/disproportionality assessment). See the final text here.

Confusing Grand Chamber judgment on 'accelerated repayment clauses' in mortgage loan contracts (C-70/17 and C-179/17)

Yesterday the Grand Chamber of the EU Court of Justice gave judgment in two Spanish cases on so-called 'accelerated repayment clauses' (vencimiento anticipado): Joined Cases C-70/17 and C-179/17, Abanca v García Salamanca Santos and Bankia v Lau Mendoza. We have discussed Advocate-General Szpunar's extensive Opinion in these cases in an earlier blog post.

Summary of the preliminary references

In short, both cases pertain to the consequences of a finding of unfairness of a clause allowing for the early termination of a mortgage loan contract - also referred to as an 'acceleration clause' or 'early maturity clause'. Spanish procedural law provides that on the basis of such a clause, the bank can call in the entire loan and initiate enforcement proceedings against the debtor. After Aziz, the minimum time period for access to mortgage enforcement proceedings was changed to 3 months instead of 1 month. Early termination is still allowed, if agreed by the parties. Thus, it is not a default provision.

The question the Spanish Supreme Court put before the CJEU in Abanca was whether the national court could consider only the 1-month period as unfair, so the rest of the 'early maturity clause' would remain valid. In that event, the bank could still claim the full amount in the enforcement proceedings, as long as it respected the statutory 3-month period.

In Bankia, a Court in First Instance in Barcelona questioned the case-law of the Supreme Court that allowed continuation of the enforcement proceedings, because this was arguably more favourable to consumers. According to the Barcelona Court, the enforcement proceedings should be terminated after the clause was found to be unfair. The bank could only claim termination of the contract in ordinary court proceedings, which would possibly result in a favourable outcome for consumers.

Thus, the preliminary reference in Bankia challenged the Supreme Court's approach. The Spanish Government even contested the admissibility, on the ground that the Supreme Court had already made a preliminary reference on this issue.

Summary of AG Szpunar's Opinion

AG Szpunar's clear and elaborate analysis of the issue led to his conclusion that it is not possible for the national court to "replace" the 1-month period in the 'early maturity clause' with the statutory 3-month period. Once the clause is found to be unfair, it must be struck out in its entirety. This would mean there is no longer a basis for enforcement of the full amount and therefore, the bank no longer has access to mortgage enforcement proceedings. However, the decision should ultimately be left to the consumer, who can then decide if she wants to avail herself of the protection offered to her.

As we have noted in our blog post, AG Szpunar rightly observed that when the 'early maturity clause' is struck out, this does not extinguish the creditor's rights. The loan agreement is still valid. The creditor can still claim unpaid instalments due and/or seek termination of the agreement in ordinary court proceedings.

The CJEU's judgment: rejection of the Spanish Supreme Court's approach?

Yesterday's preliminary ruling is a Grand Chamber judgment, yet it is much less clear than the AG's Opinion. On the one hand, the CJEU holds that the mere removal of the 1-month period from 'early maturity clauses' is "tantamount to revising the content of those terms by altering their substance", which undermines the dissuasive effect (para 55).

On the other hand, the CJEU expressly leaves the door open for substitution with the statutory 3-month period, if the consumer would otherwise be exposed to unfavourable consequences (para 61). What makes this part of the judgment confusing, is not only that it is doubtful whether the use of an ordinary procedure rather than the special mortgage enforcement procedure does entail "a deterioration of the procedural position of the consumer" (para 62).

[NB: In this respect, it is confusing that the CJEU refers to "the ordinary enforcement procedure", where a declaratory action is meant (cf. para 35).]

Source: bufeterosales.es

Also and more strikingly, the judgment seems to be based on the erroneous presumption that removal of the 'early maturity clause' could potentially mean that the continued existence of the mortgage loan contract is no longer possible (para 60). It seems obvious that the invalidity of the clause at stake does not require the national court to annul the contract in its entirety. Whilst the CJEU reinforces its case law on the modification, revision or replacement of unfair contract terms, in particular Kásler (paras 53-60), it is not relevant for the present cases. The exception of Kásler does not apply here, as - again - AG Szpunar already observed.

The only way forward for the national court is to exclude the application of the terms at stake (cf. para 63). The CJEU's judgment suggests that in that event, the supplementary application of the 3-month period is not possible, and the Spanish Supreme Court's approach must be rejected. We hope this will be clarified in another case on this issue that is still pending: C-486/16.
The 'early maturity clause' must be removed in its entirety, unless the consumer objects. The role of the consumer, who must be consulted in the matter, is indeed an important point. The consumer must be heard in case of non-application of unfair terms, as well as - presumably - in case of substitution of unfair terms, although the CJEU does not say this explicitly. As noted in our previous blog post, the consumer can be informed by the court about the advantages and disadvantages of the mortgage enforcement procedure vs. the ordinary procedure. She can then consent to maintaining the 'early maturity clause', although this seems to be an unlikely scenario.

The Transparent Trap: Disclosing Information to Consumers - conference program

If you have been waiting to see the conference program before deciding whether to register for the July event devoted to analysing the issue of transparency from a multi-disciplinary perspective, you may now find it online. We attach it also to this post. Please remember to register!

Forward to the past: AG Hogan in Lovasné Tóth

Last Thursday, AG Hogan delivered his opinion in case C-34/18, Lovasné Tóth v Erste Bank Hungary Zrt. It does happen, every now and then, that one reads an AG opinion so remarkable that it is difficult to decide what to comment with. In this case, let me begin this post by expressing the wish that this opinion be quickly discarded and possibly forgotten. Nothing had let me prefigure, on a quiet March morning, that I would be witnessing a single-handed attempt, by a recently appointed AG, to undo much of the CJEU's adjudication on unfair contract terms over the past ten years. Yet, this seems to be pretty much what AG Hogan set out to do in his Lovasne Toth opinion. Let us see how. 

1) Good faith

The court has, indeed without much support in the original intentions of the drafters, developed a test that distinguishes the "significant imbalance" and "good faith" prongs within the Directive's Article 3 - by trying to also increasingly specify the contents of both prongs. AG Hogan, however, does not agree with considering good faith as a separate requirement. And perhaps rightly so, especially if one understands good faith as the AG does - as some form of lack of malice rather than the duty to take the other party's interest into account. When the AG says that "significant imbalance" to the detriment of the consumer is the sole requirement, with no need to establish "that the clause was inserted as a result of the absence of good faith", he takes us back 20 years to the discussions in national laws surrounding the introduction of the directive. Is this necessary?

The feeling of being transported back to a couple of decades ago, however, runs highest in the following parts of the opinion, which delve on...

2) Transparency, back to contra proferentem

According to AG Hogan, the appropriate place for transparency is Article 5 of the directive, setting out an interpretation rule according to which unclear terms must be interpreted to the consumer's advantage. Remember VKI, where the ECJ said that lack of transparency was also capable of resulting in unfairness when it led to the consumer being misled as to their rights? 

According to the AG, VKI "has perhaps somewhat overstated the scope of the transparency requirement" and "the court should revert to its previous approach" (para 89). 

With an interesting formalistic turn, the AG explains that, since the Directive's Article 3 talks about "rights and duties arising from the contract", only "the legal effect produced by a term" matters to unfairness (para 85). 

3) Transparency continued, hollowing out substantive transparency

While the AG only expressly asks the CJEU to reconsider its judgement in VKI, the Opinion can be seen as implicitly taking a stance against a much larger bunch of CJEU transparency cases. This is particularly obvious where the AG turns its criticism to a specific passage in VKI, according to which

"where the effects of a term are specified by mandatory statutory provisions, it is essential that the seller or supplier informs the consumer of those provisions" (VKI, para 69)

The requirement, if generalised, seems indeed to raise considerable - and likely undesirable - practical consequences: should all terms be specified by explaining their legal implications by reference to the background legal rules? The AG is not entirely wrong by claiming that, if taken literally, the requirement may well amount to consumers being faced with "a seminar in basic contract law given by unqualified personnel" (para 99).

Interpreting the requirement cum grano salis seems, hence, a worthy enterprise. Removing it altogether, on the other hand, sounds like a call for the restauration of an order in which the Directive essentially lays inapplicable. This sound resonates louder due to the AG's insistence on separating information duties from transparency, and thus drawing a rigid separation between, in his own analysis, the Unfair Commercial Practices Directive (see for instance para 90 and 109) and unfair terms assessment.

Given the CJEU's insistence on substantive transparency in a long line of cases starting with RWE and, so far, culminating in Andriciuc (through Kasler and others), the AG's emphasis on the fact that the unfairness assessment should concentrate on "the wording" (para 93) of a contentious clause is way more than a rebuke of VKI. It rather promises to undermine much of the most significant developments in European consumer law adjudication in the past several years. The fact that the AG, in passing (at para 92), acknowledges that terms "should clearly articulate the legal effects" [my emphasis] arising from their insertion does not provide any meaningful reassurance in light of the wholesale down-grading of transparency that the opinion as a whole pursues.

This is obvious if one considers what a clear articulation of the legal effects of a term requires: where, like in the case at stake in Lovasne, a certain term may look like it prevents the consumer from objecting to enforcement, while this is not the case, explaining the legal consequences of the terms under mandatory law merely requires adding a line stating: please note that this does not affect your otherwise existing rights to object to the contract's enforcement. Yet, the obligation to include such language, or to provide a similar reassurance in person, is precisely what the AG seeks to exclude from the scope of the Directive - thus de facto hollowing out any meaning transparency could have besides some mild cautioning against purposefully confusing language (lest it be, let's not forget, at most interpreted against the drafter).

To conclude, I would like to wish AG Hogan a great time at the Court of Justice - but also to express my hope that he drops the project of taking EU consumer law forward to the past with a resolution that sounds more ideological than the institutional position of the AG would recommend.

Pre-ticked checkboxes NOT informed consent - AG Szpunar in Planet49 (C-673/17)

With the entry into force of the GDPR last year, the issues of data processing became more prominent. As many internet users are consumers (AG Szpunar also uses the average consumer notion for internet users in para. 113) and many issues of data processing correspond to issues of consumer law, we would like to draw our readers attention to the opinion of AG Szpunar from last Thursday in the case Planet49 (C-673/17). It elaborates on the notion of 'informed consent' and the requirements for it, which according to AG Szpunar are the same under the GDPR as under the previously binding Directive 95/46. Informed consent is a fundamental notion of both consumer and data processing law. It creates a presumption that as long as a weaker party had been provided with transparent information, a decision taken based on that information (such as giving consent to data processing) should be considered binding.

Internet users in Germany could have participated in an online, promotional lottery at the website www.dein-macbook.de. In order to play they had to fill in their personal details, such as their address and name. They could also not participate unless they agreed to various parties sponsoring the competition contacting them with their offers. In order to agree to this, they had to tick a corresponding checkbox. The promotional entry form came also with another, already pre-ticked, checkbox, which intended to convey the internet users consent to installing cookies by Planet49, which would track their online behaviour and provide them with targeted advertisements.

May a pre-ticked checkbox lead to informed consent?

AG Szpunar interprets provisions of Directive 95/46 as requiring active and separate consent. This follows, according to him, from Art. 2(h) referring to an "indication" of the data subject's preferences and from Art. 7(a) requiring 'unambiguous' consent (para. 60). An expectation of active consent precludes obtaining it through pre-formulated means (para. 61). Moreover, the provision of consent should be separated from the activity pursued on the internet, as provision of consent should not have an ancillary nature (para. 66). And the user should be informed whether he could pursue the activity, and to what extent, without providing his consent (para. 67). These requirements bind also under the GDPR, where they have been further elaborated on in the recitals 32 and 43 (paras. 72-74). The e-Privacy Directive has also been interpreted by Article 29 Data Protection Working Party as requiring such an active consent (para. 81). It has been argued in the scholarship on the topic that Art. 5(3) e-Privacy Directive requires opt-in consent rather than opt-out, which requirement, however, was not rigorously enforced to date in the Member States. The overlap in requirements related to active informed consent means that there is not much of a distinction between a consent for the use of cookies and for processing of personal data, pursuant to AG Szpunar.

Following the above-listed requirements for informed consent, a pre-ticked checkbox may clearly not be seen as satisfying them. Forcing internet users to untick a box to show that they do not consent,  does not allow to argue a contrario that they have consent by leaving the box pre-ticked as there is no way to prove their activity in providing consent (para. 88). Moreover, there is no separation between the provision of consent and the participation in lottery in the given case, as by clicking on the participation in the lottery button the user consents at the same time to the installation of cookies (para. 89). This is especially problematic as the provision of consent to the installation of cookies was not a pre-requirement for the participation in the lottery, but the users were not informed about this (para. 92).

What about checkboxes that were not pre-ticked? ... and prohibition of bundling

In cases of boxes that need to be ticked, there is no doubt that internet users were active in providing their consent. National courts still need to examine, however, whether the consent was given separately to engaging in the main online activity. AG Szpunar advises online traders who would want to avoid any ambiguity to provide two separate buttons that would need to be clicked, rather than just require a tick in a box (para. 96). National courts also have to consider whether the processing of personal data was necessary for the provision of service, pursuant to Art. 7(4) GDPR, which prohibits bundling. AG Szpunar indicates that it was indeed necessary for the participation in the lottery (para. 99). This last view could be (and is) contested, as it lessens the importance on the prohibition of bundling by creating a broad exception to bundling. Luckily, the CJEU was not asked to answer the question on this issue, and, therefore, remarks by AG Szpunar on this topic may remain non-binding.

Transparency about cookies' application

Final question pertained to the scope of an obligation to provide 'clear and comprehensive information' about cookies. AG Szpunar rightly points to evidence of the lack of knowledge of internet users about cookies and their operation (para. 114), which means that in order to make this information transparent detailed explanations need to be given to internet users, including on the duration of the operation of cookies and whether third parties, and who, are given access to cookies (para. 116).

This opinion could potentially increase the legal protection of internet users online, by widening the scope of interpretation of the transparency principle and narrowing down the situations, in which informed consent could be found. It is very much in line with the previously argued for interpretation of the provisions of e-Privacy Directive and Data Protection Directive. The drawback of this interpretation, if upheld by the CJEU, will be practical: it will lead to more boxes having to be ticked by consumers online, which is what they often find annoying.

New Deal for Consumers - update on the legislative process

In the course of last years we reported multiple times on the "fitness check" of EU consumer law undertaken by the European Commission and the follow-up legislative actions marketed as the "New Deal for Consumers" (see e.g. New Deal for Consumers: proposals on online transparency).  To recall, the package of proposed reforms consisted, on the one hand, of amendments to the four consumer law directives: Directive 93/13/EEC (unfair terms), Directive 98/6/EC (price indication), Directive 2005/29/EC (unfair business-to-consumer commercial practices; UCPD) and Directive 2011/83/EU (consumer rights; CRD) and, on the other hand, of a proposed directive on representative actions, replacing Directive 2009/22/EC (injunctions). Earlier this month the Council presented its position on the former proposal, introducing some amendments to Commission's original text. The position will now form the basis for the upcoming negotiations with the European Parliament. It is foreseen that the amending directive could still be adopted in this term of the EP, together with the regulation on fairness and transparency in platform-to-business relations (P2B regulation), on which an inter-institutional compromise has already been reached (for a background see Beyond B2C...).

Sanctions and remedies

The declared objectives of reforming the four consumer law directives are improved enforcement of consumer rights and modernisation of existing rules, taking into account the outcomes of the fitness check exercise. As regards the former, the Council's compromise text shows that Member States are not quite willing to limit their procedural autonomy in the name of enhanced consumer protection. Many of the Commission's proposals on particular remedies available to consumers or specific criteria for imposing penalties were watered down, leaving Member States with a broader leeway. For example, in all four amended directives a clear statement was made that the list of criteria to be considered when imposing a penalty is merely an non-exhaustive and indicative one. Additionally, some criteria proposed by the Commission, for example the intentional or negligent character of the infringement, were altogether removed.

Right to withdraw

A controversial aspect of the originally proposed amendments to the Consumer Rights Directive concerned limitations to the consumers' right of withdrawal. According to the Commission, certain elements of this framework, such as trader's obligation to accepts returned goods even if the consumer had used these goods more than necessary to inspect them or to reimburse the price paid by the consumer even before receiving the goods back, were disproportionately burdensome for the trader. The Council, however, rejected the respective proposals and considered traders' rights to sue for damages to be sufficient. Similarly, whenever, for the sake of consistency, the Commission proposed to leave out an information duty, the Council rather opted for the duty to be repeated (see e.g. the proposed amendments to Article 7(3) and Article(8) of the CRD).  

Digital market

Many of the proposed amendments, especially the ones to the CRD and UCPD, were designed for digital markets. Following the original proposal, the Council text seeks to extend the scope of the Consumer Rights Directive to cover also contracts under which the trader supplies a digital service to the consumer, in exchange for which the consumer provides personal data. Data-related consequences of a consumer's withdrawal from the contract were also specified in the proposed Article 13(5) of the CRD. Moreover, the Council text maintains an additional information duty imposed on the providers of online marketplaces, which were slightly redefined as "services which allow consumers to conclude distance contracts with other trader or consumers using software, including a website, part of a website or an application that is operated by or on behalf of the trader" (Article 2(19)). The scope of specific information duties of such providers was elaborated on as well. Under the Council's text it would cover not only information about the status of consumer's counterparty (trader or not) and information that consumer law does not apply to C2C transactions, but also information about the allocation of contractual obligations in three-party settings (where applicable). A more general information duty imposed on the providers of online marketplaces would further concern the main parameters determining ranking of offers presented to consumers as a result of search queries and the relative importance of those parameters as opposed to other main parameters. The Council text further specifies that this information should be provided "in a specific section of the online interface that is directly and easily accessible from the page where the offers are presented". Such a clarification is certainly well-intended, although not as technologically neutral as the remaining parts of the reform. This is somewhat surprising because, on other occasions, the Council explicitly takes account of services in which offers are not presented on the "pages", such as voice operated shopping assistants. Overall, this minor inconsistency does not seem to result in a protection gap. Transparency about ranking parameters seems to be one of the most extensively covered topics in the whole reform, also forming part of the proposed Article 7(4b) of the UCPD and in Article 5 of the proposed P2B regulation. Additionally, the provisions of the CRD on online marketplaces are meant to introduce only a minimum level of harmonisation, which means that Member States can potentially impose further requirements, including those specifically addressing voice assistants.

Concluding thought

Less than one year after the New Deal for Consumers was presented by the Commission, the proposed reform of four consumer protection directive appears to gradually take its final shape (in contrast to the second file on representative actions). In January the IMCO committee adopted the report on the proposal and the European Parliament decided to enter into negotiations with the Council on the basis of that report. The most important aspect of the report seems to be the lack of support for any of the proposed changes to the right of withdrawal - a subject which the Council appears to also see this way. Negotiations may be a bit more difficult with respect to the EP's proposed additions to the list of commercial practices prohibited in all circumstances (Annex I to the UCPD) as well as further details for transparency on online marketplaces, including issues such as personalised pricing and collection of consumer reviews.

All in all, the texts proposed by both the Council and the European Parliament are more consumer-friendly than the original proposal of the Commission. This will surely be welcomed by consumer organisations, which have criticised the proposal for its insufficient level of ambition. The question remains to what extent further-reaching and more forward-looking proposals of the European Parliament will be reflected in the final draft.

Tecnoservice judgment (C-245/18): Payment services providers not liable for payer's incorrectly provided IBAN

On the 21st of March, the ECJ published its judgement in the Tecnoservice case (C-245/18) on the Payment Services Directive (PSD1), which can have interesting repercussions for everyday payments. The case revolved around a payment made to a wrong payee, an occasion feared by most consumers when making a payment in a bank, even though it is not as common. Should the bank warn you about such a mistake, if it is clear that the name of the payee and the account number do not match, and would it be hold liable if it does not but simply proceeds with a transaction?

A debtor of Tecnoservice, an Italian company in liquidation, made an order for payment via a bank transfer in a branch of Poste Italiane. The transfer order stated the name of the account holder, as well as the international bank account number (‘IBAN’).

The transfer was made to the IBAN number provided, which, however, did not correspond with Tecnoservice, meaning the payment went to another account. Tecnoservice proceeded to bring an action against Poste Italiane for failing to check whether the IBAN provided corresponded to the account holder's name. Poste Italiane argued they transferred to the IBAN provided and were not required to conduct any additional checks.

Articles 74 and 75 of Directive 2007/64, which were in force at the time of the dispute (now replaced by Directive 2015/2366), regulate such errors.

Article 74 of Directive 2007/64, entitled ‘Incorrect unique identifiers’, provides:

‘1. If a payment order is executed in accordance with the unique identifier, the payment order shall be deemed to have been executed correctly with regard to the payee specified by the unique identifier.

2. If the unique identifier provided by the payment service user is incorrect, the payment service provider shall not be liable under Article 75 for non-execution or defective execution of the payment transaction.

However, the payer’s payment service provider shall make reasonable efforts to recover the funds involved in the payment transaction.

3.      If the payment service user provides information additional to that specified in Articles 37(1)(a) or 42(2)(b),he payment service provider shall be liable only for the execution of payment transactions in accordance with the unique identifier provided by the payment service user.’

Article 75 of the directive, entitled ‘Non-execution or defective execution’, provides, in essence, in paragraphs 1 and 2, that the liability established by those paragraphs is ‘without prejudice to ... Article 74(2) and (3)’ of the directive.

The referring court asked whether articles 74 and 75 must be interpreted as being applicable only to the payment service provider of the person who ordered the payment, or as being applicable also to the payee’s payment service provider?’

As the main question of the referring court related to the interpretation of art. 74(2), namely the case where the unique identifier provided (IBAN) is incorrect, the Court focused on that provision. According to the Court, the use of the term 'payment service provider' in that article should include both providers involved (payer's and payee's) as no other distinction is being made (para. 25). This means the limitation of liability applies to both.

Conversely, the second subparagraph of art. 74(2) states that it is only the payer’s payment service provider that shall make reasonable efforts to recover the funds. Therefore, if there was an intention to limit the applicability of also the first subparagraph of art. 74(2), it could have specified only the payer's payment service provider, as well (para 27).

Following that, the Court decided that the limitation of liability provided for by art. 74(2) of Directive 2007/64 in the case of a payment order executed where the unique identifier and the payee name provided do not match, applies to both payer’s and payee’s payment service providers. (para 31).

However, the Court made sure to point out that thet MS can require payment services provider of the payer to act with due diligence in order to correct such mistakes.

So, you've been warned, payment services providers will not be held accountable for mismatching IBAN and account holder names!

UCTD applicable to other than employment contracts concluded between employees and employers - CJEU in Pouvin (C-590/17)

The CJEU supported today the AG Bobek's opinion in the case Pouvin (C-590/17) that the notion of consumers and sellers from the Unfair Contract Terms Directive should be interpreted broadly. This means that also employees (and their spouses) who are acquiring a loan from their employers should be seen as consumers when these loans are meant to finance the purchase of a real estate for private purposes. Simultaneously, the employer in this situation would be seen as a seller within the meaning of the UCTD, as the loan contract would be provided within its professional activity, even if it not the employer's main professional activity.

We have previously commented on the AG Bobek's opinion in this case in detail (see AG Bobek in Pouvin C-590/17: The scope of the UCTD should be interpreted broadly), thus we send our readers to this post for the summary of the facts of the case and the main arguments raised. The CJEU repeats the argumentation that the exclusion of employment contracts from the scope of application of the UCTD is not applicable to other than employment contracts concluded between employees and their employers, as long as these contracts do not regulate the employment relationship or employment conditions (paras 31-32). What is then only important to ascertain, in order to determine whether an employee is a consumer, is the purpose for which he is purchasing goods/services (needs to be private) (paras. 23, 26). It remains irrelevant that not every consumer could have concluded this contract, as they were reserved only for employees of this particular undertaking, as long as the employees who were eligible to conclude this contract did this in their private capacity (para. 30). Further, the employer should be seen in this case as a 'seller', as even if their main professional activity lies in supplying energy rather than offering loan contracts, the latter activity is ancillary in their business dealings - allowing them to attract a skilled workforce (para. 42). Moreover, the employer has more resources and, therefore, more information than any natural person, his employee. This puts the employees at a contractual disadvantage that the application of the UCTD will remedy (para. 40).

In light of the earlier judgments in Karel de Grote case and Costea, this is by no means a surprising judgment.

FCA report on debt management firms: A long way to go to address consumer vulnerabiltiy

On 15^th March 2019, the UK regulator for financial services, the Financial Conduct Authority (FCA) published a report on consumers and debt management firms. The report focused on the impact of advice provided by debt management firms to vulnerable consumers. This report comes shortly after the publication of the Access To Cash review report on the declining use of cash in Britain and its impact on vulnerable consumers (you can read the blog post on that report here.  

This publication is a follow-up on the 2015 review of the sector conducted by the FCA. The FCA is a newly established authority and these reviews have the dual aim of assisting the FCA in gaining a better understanding of the sector as well as an nudge to traders to increase their standards (though the report does not set any goals). For the report a sample of 12 firms was selected including both commercial debt management firms and not-for-profit debt advice bodies.

The results of the 2015 review were grim, exposing an unacceptably low standard of services, especially by commercial fee paying firms and a high risk of detriment for vulnerable consumers. Has the situation improved since then?

The 2019 report shows that there has been an improvement, and commercial firms tend to be more customer-focused now, compared to a few years ago. However, there is still a long way to go for improving standards in the area. The two main areas identified for improvement are:

1) Debt advice given to customers seeking help together or who are already on a joint debt management plan.

Firms often treat consumers as a unit and fail to provide them with options that apply only to one of them, meaning they may lose out on a more favourable solution.

2) The identification and treatment of vulnerable customers. 

While most firms have good intentions, they do not have the proper procedures in place, quality assurance and staff training for identifying and assisting vulnerable consumers in an appropriate manner. Consumers’ vulnerability or vulnerabilities may go unnoticed or unrecorded. Worse yet, it may be identified only to later be buried under a pile of documents or processes and not accessible to the next person handling the case. 

Identifying consumer vulnerability has a severe impact on the advice that should be provided to these consumers and how they will respond to it. Firms need to take the circumstances of each consumer into account, also in the advice provided.

Furthermore, the report point out that there is no one-size-fits-all when addressing vulnerability and firms should be flexible and be able to adapt to the needs of vulnerable consumers where necessary. Some firms have done that successfully by creating specialist units that receive further training and had greater autonomy within the company on how the communicate with customers. Such specialist units could be key in addressing the needs of vulnerable consumers.

The report is a welcome development to bring attention to the needs of vulnerable consumers of financial services and the FCA is showing its commitment to pursue this agenda further by taking action against firms as well as publishing a new guidance on vulnerable consumers.