Underused consumer ADR and ODR platforms - Commission's report

Some of our readers may be interested in the report that the European Commission has published this week assessing the functioning of the ADR/ODR systems for consumers across the EU. Whilst remaining positive about the ADR/ODR options for consumers, the Commission expresses mild concern about the fact that these dispute resolution platforms remain underused. The reports conclusion mentions as problematic: 

• ADR awareness and perceptions (e.g. awareness is lower in SMEs than in large retailers; consumers consider ADR as biased towards traders or as traders' customer care service; traders worry about ADR being biased towards consumers);
• The navigability of national ADR landscapes (e.g. if a Member State has a large number of certified ADR entities, there is lack of clarity to which of them to turn to, and sometimes due to their specialisation consumers may need to seek full dispute resolution with more than one entity at the same time);
• Traders' uptake of ADR (on average, 1 in 3 retailers is willing to use ADR at the moment);
• Workflow on the ODR platform (e.g. the fact that the dispute will not be referred from an ODR platform to an ADR entity unless the parties agree on the ADR entity hinders the dispute resolution; currently, the ODR platform is perceived as not providing sufficient information on consumer rights and redress options).

The Commission intends to further encourage traders to refer their disputes to ADR/ODR platforms, promoting their use in special campaigns, as well as by organising the second ADR Assembly in 2020. It also indicates in the report best practices on improving the awareness of ADR/ODR platforms in various countries, as well as on how to clarify the ADR landscape (read the full report here).

Consumer law & the Kardashians

The UK’s Advertising Standards Authority (ASA) recently banned three beauty advertisements, since the ads in question misled consumers and breached the UK’s Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing (CAP Code). The three ads, originating from three different beauty salons, appeared on Instagram in December 2018/ January 2019 and promoted beauty products and non-invasive cosmetic procedures. The decisions can be found here, here and here.

Besides advertising prescription-only medicines such as Botox, the beauty salons posted pictures of reality TV personalities Kim Kardashian and Kylie Jenner while promoting their own beauty treatments. Furthermore, two of the beauty salons added the terms ‘Kylie Jenner Package’, ‘Win the Kylie Package’ and the hashtag ‘kyliepackage’ to the text next to the photo of Kylie Jenner. According to the ASA, these practices ‘misleadingly suggested the package would give customers lips, cheeks and jawline that closely resembled those of Kylie Jenner’. The ASA concluded that the ads were misleading because the beauty salons did not provide sufficient evidence that substantiated the ads’ implicit claim that Kylie Jenner’s features could be achieved through the use of the advertised products only. Besides, in the ASA’s opinion, these practices misled consumers into thinking those products were used by the celebrities in question.

From a EU consumer law perspective, the act of posting pictures of widely recognized celebrities is an act by a trader directly connected with the promotion of a product to consumers, which would fall under the scope of the Unfair Commercial Practices Directive (UCPD). Under the UCPD, the conduct of the beauty salons would likely be considered an unfair commercial practice, even when based on a more tenuous link than the one mentioned by the ASA. The mere posting of the pictures of Kim Kardashian and Kylie Jenner does not have to cause consumers to think these celebrities used the products in question, but merely that using the products in question would make them look like these celebrities. This practice is likely to materially distort the economic behaviour of the consumer, since it is likely that, because of this practice, the consumer will acquire the product in the hope of looking like a celebrity. Specifically, this practice could be considered a misleading action under Article 6 of the UCPD. This explains why one of the beauty salons’ counterarguments – that it would be almost impossible for a consumer to look like a celebrity after a non-surgical cosmetic procedure – is legally irrelevant; what matters under EU law is how the average consumer perceives the pictures, even if (perhaps especially if) that perception is affected by biases.

The invasion of social media platforms such as Facebook or Instagram by misleading advertising and marketing campaigns raises several consumer law issues, stemming from the protection of children and teenage consumers to the blurred lines between an advertisement and an influencer’s ‘real’ opinion. In fact, the boundaries between what is an ad and what is not an ad are often unclear, so much so that the average consumer (if there is one) severely struggles with realizing when she is being targeted by marketing campaigns. Indirectly, this case also highlights the need to further study advertising and consumer law in the light of influencer marketing.

No one-size-fits-all approach to search engine de-referencing - CJEU in Google

Earlier this year we reported on the two opinions of Advocate General Szpunar concerning several aspects of the right to be forgotten: 1) the role of search engine operators in relation to sensitive data; 2) the nature of the respective obligation to respond to de-referencing requests; and 3) territorial reach of required de-referencing measures.

Today the Court of Justice delivered judgments in both cases. Importantly, despite the fact that the questions were referred from the point of view of Directive 95/46, the Court also took General Data Protection Regulation 2016/679 into account (by which Directive was replaced in the meantime), in order to ensure "that its answers will in any event be of use to the referring court".

Source: Pixabay

The direction of both judgments generally remains in line with the interpretation proposed in both opinions. In case C-136/17, the Court confirmed that restrictions on the processing of certain categories of sensitive data apply also to operators of search engines. Like in AG's opinion, that prohibition was nonetheless read in the context of responsibilities, powers and capabilities of search engine operators. Restrictions on the processing of sensitive data thus concern the stage of ex post verification triggered by a request from the data subject. The judgment further lays down which steps a search engine operator must take when assessing the notification (and these are far from trivial).

Judgment in case C-507/17 concerned the territorial scope of de-referencing measures which a search engine operator must take. The Court referred to the objective of ensuring a high level of protection of personal data in the EU, pursued by both Directive 95/46 and Regulation 2016/679. It further admitted that a de-referencing carried out on all the versions of a search engine would meet that objective in full and argued that the EU legislature enjoys competence to lay down such an obligation (para. 58). That being said, the Court considered that the EU lawmakers have not done so, thus far. In consequence, for the time being, EU data protection law does not require search engine operators to carry out a de-referencing on all world-wide versions of a search engine. Importantly, however, the Court also did not exclude a possibility for a supervisory or judicial authority of a Member State to weigh up, in the light of national standards of protection of fundamental rights, a data subject’s right to privacy and the protection of personal data concerning him or her, on the one hand, and the right to freedom of information, on the other, and, where appropriate, to order such de-referencing (para. 72).

As regards the EU, the Court began by observing that, in principle, de-referencing is to be carried out in respect of all Member States (para. 66) and, if necessary, the search engine operator should be obliged to take sufficiently effective measures to ensure the effective protection of the data subject’s fundamental rights. Measures of this kind should have the effect of preventing or, at the very least, seriously discouraging internet users in the Member States from gaining access to the links in question while searching on the basis of that data subject’s name (para. 70). The Court left the question open whether automatic redirecting to a different national version of the search engine's website constitutes such a measure. It would seem that such blocking or redirection would then fall under the exception to customers' right of access to online interfaces, set out in Article 3(3) of Regulation 2018/302 on geo-blocking. 

At the same time, however, the Court accepted that the interest of the public in accessing information may, even within the Union, vary from one Member State to another, meaning that results of the balancing exercise are not necessarily the same for all the Member States. The Court thus emphasized the role of cooperation between supervisory authorities in the Member States as an adequate framework for reconciling the conflicting rights and freedoms. It is through this framework, therefore, that a de-referencing decision, covering all searches conducted from the territory of the Union on the basis of a data subject’s name, should be adopted (para. 69).

Thomas Cook's liquidation puts package travel rules to a test

Earlier today Thomas Cook, one of the world's oldest package tour organizers, entered compulsory liquidation, affecting about 600,000 travellers. The company explained its financial problems by a variety of factors: from political unrest in important holiday destinations to prolonged Brexit negotiations. Since the decision comes before the UK's exit from the EU, the follow-up process, including important consumer protections, is subject to Directive 2015/2302 on package travel.

A short history of package travel law

Source: Pixabay

Harmonised rules on package travel belong to the earliest EU instruments of consumer law. The relevant discussions date back to the 1981 Council resolution on a second programme for a consumer protection and information policy, and were based on pre-existing laws on package travel in Member States like the UK. Directive 90/314/EEC on package travel was first to harmonise this framework at the European level. It introduced a set of minimum protections for the travellers who bought 'packages', defined as a pre-arranged combination of not fewer than two tourist services (in particular transport and accommodation), sold or offered for sale at an inclusive price, when the service covered a period of more than twenty-four hours or included overnight accommodation. The directive laid down rules on pre-contractual information, the content of contracts, consumer's right to transfer the package, changes to contract terms, liability for non-performance as well as security for the refund of money paid over and for the repatriation of the consumer in the event of insolvency.

This framework was recently updated in the wave of a broader reform of the European consumer law. As of 1 July 2018, Member States are obliged to apply national measures implementing a new act - Directive 2015/2302 on package travel and linked travel arrangements. Unlike its predecessor, the updated framework provides for a full level of harmonisation. It addresses a similar set of matters as Directive 90/314/EEC, but in a much more comprehensive way. 

Insolvency protection

As regards insolvency protection, Article 17(1) of Directive 2015/2302 requires Member States to ensure that organisers established in their territory provide security for the refund of all payments made by or on behalf of travellers insofar as the relevant services are not performed as a consequence of the organiser's insolvency. If the carriage of passengers is included in the package travel contract, organisers shall also provide security for the travellers' repatriation. Pursuant to next paragraphs, an organiser's insolvency protection shall benefit travellers regardless of their place of residence, the place of departure or where the package is sold and irrespective of the Member State where the entity in charge of the insolvency protection is located (para. 3). When the performance of the package is affected by the organiser's insolvency, the security shall be available free of charge to ensure repatriations and, if necessary, the financing of accommodation prior to the repatriation (para. 4). For travel services that have not been performed, refunds shall be provided without undue delay after the traveller's request (para. 5).

This provides an interesting background for the today's coverage of Thomas Cook's liquidation. The UK government and the Civil Aviation Authority are reported to have launched "the largest repatriation in peacetime history" codenamed Operation Matterhorn. Hotels accommodating Thomas Cook customers have been informed that the cost of accommodation will be covered by the government, through the Air Travel Trust (ATT) Fund/ Air Travel Organiser’s Licence (ATOL) cover. Assistance will reportedly be provided to all customers, regardless of their nationality. It can be assumed that customers whose return flights were scheduled to countries other than the UK will also be able to reach their destinations, although current statements focus understandably on UK travellers. A dedicated website is further being launched "to let customers know how to get their money back", which suggests that refunds for services not performed will also be available.

Customers of Thomas Cook are therefore likely to obtain the protection provided under Directive 2015/2302. The ATT/ATOL cover appears to be directly linked to this framework. It requires ATOL holders to pay a fee of £2.50 for each traveller, which is held in a fund managed by the ATT. This fund is used to support consumers currently abroad and provide financial reimbursement for the cost of replacing parts of the package. While all of this points to the well-functioning package travel scheme, parts of today's reporting are painting a slightly different picture. 

For example, the UK government announced that it is "stepping in" to assist all impacted passengers, including those who are not ATOL protected. Considering that Thomas Cook is an ATOL holder, a question can be asked: which group of travellers is in fact covered by this statement and how significant this group is?

Of interest are also the widely reported last-minute rescue talks carried out between the company and the UK government. Prime Minister Boris Johnson revealed that the government had rejected a request from Thomas Cook for a bailout, while questioning whether directors of the company were "properly incentivised" to avoid bankruptcy. This seems to disregard the existence of insolvency protections discussed above, to which companies of this kind are also contributing. As long as the United Kingdom remains in the EU, it is also required to ensure an effective functioning of this scheme.

Concluding thought

Today's news about Thomas Cook's liquidation is remarkable for a number of reasons. It concerns one of the oldest organisers of package tours, established in the UK, which itself is on its track to leave the European Union. It raises the question about the functioning of existing insolvency protections and especially how they will apply to travellers from outside the UK. One can also wonder if their situation would be different, had the liquidation happened post-Brexit.

Thomas Cook's story also sheds light on the broader transformation of the travel sector. What the company has not mentioned as a likely factor for its financial troubles is the growing role of direct booking channels and new types of intermediaries, like online platforms. While effects of this transformation on the long-established companies like Thomas Cook may be regretted, its story should primarily be a wake-up call for the law- and policymakers. The potential connection between increased regulatory burdens and the inability to compete with other travel companies is perhaps one of the questions to be asked. More importantly, however, the collapse shows that package travel is no longer the principal way how people travel and this is not really reflected in the legal framework. The 2015 reform of package travel law has partially extended its scope to the so-called "linked travel arrangements", thus capturing at least part of the transformation. For now, however, the discussion does not ensure that interests of those who prefer to assemble their trip on their own are adequately safeguarded.

* The author carries out a research project on consumer protection in the collaborative economy, financed by the National Science Centre in Poland on the basis of decision no. DEC-2015/19/N/HS5/01557.

CJEU in Lovasne Toth: 0-0 for AG Hogan and consumer protection

Dear readers, yesterday the Court of Justice (third chamber) published its decision in Lovasné Toth, a Hungarian case concerning the potential unfairness of contractual mechanisms facilitating debt recovery on the side of banks.

The referring court doubted the compatibility with the Directive - and with Hungarian law - of a clause allowing the lending bank to ask a notary, who had also underwritten the contract containing the clause itself, to certify the consumer's non-performance and turn the agreement into an executive title on the basis of the bank's own records.

In the proceedings before the CJEU, it appeared that there was some disagreement, in Hungary, whether such term did or did not have as a result an inversion of the burden of proof, to the consumer's detriment, in comparison with the otherwise applicable rules. The Kuria, ie the highest court, deemed the term to merely repeat Hungarian law. Some lower courts, however, disagreed.

Terms inverting the burden of proof to the consumer's disadvantage are blacklisted in Hungary and they are included in the Directive's annex at point q, concerning terms having the object or effect of:

excluding or hindering the consumer's right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract.

Hence, if the terms in question did invert the burden of proof, they were illegal under Hungarian law, but Hungarian courts were divided on the issue. Was there possibly a different way of considering the terms unfair? This question must have been in the mind of the referring court when they formulated their preliminary ruling request - resulting in four possibly quite confusing questions. 

The first question sought to ascertain whether the Directive's annex on its own was tantamount to a total prohibition of terms reverting the burden of proof upon consumers. The CJEU's answer to this question is quite straightforward - no it does not. Member States legislators can include such terms in a so-called "black list" of forbidden terms, but otherwise the annex is always subject to the interpretation of national courts, who must consider the list in connection with the general criteria of article 3.

The second question tried to push the interpretation of the annex: if the list envisages terms that have the object or effect of hindering the consumer's access to justice, what about terms that legally do not do so while in practice making the consumer believe that their redress options are limited? To this question the court of justice answers in the negative, affirming that only an actual legal impediment is covered by the provision. On the other hand, should a notary stipulation such as the one in consideration make it possible for the creditor, under the applicable law, to have a final incontestable claim to the outstanding amounts - then the stipulation would be covered by the annex and very possibly be unfair.

The third preliminary question is the one that gets the potentially most controversial answer: if a clause if grammatically clear but its effects can only be understood by interpreting a controversial provision of the applicable law, should the professional provide the consumer with additional information in order to comply with the duty to use clear and comprehensible terms? This question arises in connection with a number of cases in which the court had said that clear and comprehensible means that the consumer must be able to understand what the consequences of a certain term are for their economic (Invitel) or legal (VKI v Amazon) position. Where provisions of national law actually directly impacted the meaning of a certain term, the cases suggested, not recalling them in the contract amounted to intransparent drafting. The Court explains that none of its previous decisions are directly relevant to this case. In the present case, according to the court, it would go beyond what can reasonably expected of the professional to require them to reconstruct the general rules of civil procedures and the allocation of the burden of proof - and related jurisprudence - in order to clarify the meaning of a term. (see para 69)

The problem with this answer, it seems to me, is the utter lack of reasoning leading to the statement - making the outcome very difficult to turn in guidance or a semblance of a legal rule. We now know that this would be unreasonable - but what would be reasonable? The previous case law could be made sense of by inferring a principle that, wherever possible, the consumer should be able to infer what a certain term meant for their interests. Do we need to take this as a case which still falls under this rule of thumb, but represents a situation where achieving clarity was not reasonably possible? Or should we take the court literally and interpret the decisions in Invitel, Andriciuc and Amazon to be entirely separate and each limited to a specific type of term and rule? 

The first interpretation makes more sense as a matter or legal logic, but the second is easier to square with the extremely casuistic language used by the Court throughout paras 61-68. I would still like to suggest that the quite sensible interpretation of transparency which transpired from the court's previous case-law should be maintained, and the case-by-case language put down to bad arguing on the side of a Court that had to make do of the absence of a sensible AG opinion (the very intense plead by AG Hogan may well have influenced the results in this case, but is not once quoted in the decision).

The fourth and last preliminary question concerned again the content of the annex: the referring court wanted to know whether item m), concerning terms giving the seller or supplier the right to determine whether the goods or services supplied are in conformity with the contract,, could also be interpreted to cover terms enabling the seller to unilaterally appreciate the appropriateness of the consumer's performance. According to the Court, it doesn't. It seems quite reasonable to claim, as the court does (at para 74), that the consumer's performance is clearly not what the provision is aimed at. A different interpretation, albeit possibly very welcome in terms of consumer protection, would have required a significant manipulation of the text's plain meaning and intentions.

To conclude, reading the decision feels a bit like one of those football matches where both teams have another game in a couple of days and little stakes in the night's result. A few nice passes, some questionable moves and in the end it's a draw and it's time to go to bed. Let's see whether there will be more games to come. 

A call to improve enforcement of consumer law: BEUC Dieselgate report

The European Consumer Organisation BEUC has just published an interesting report summarizing the enforcement and policy-related actions in four years following the exposure of the Volkswagen emissions scandal (and subsequent reports of similar practices by other car manufacturers, see eg Commission investigates collusion...). The key message of the report concerns the flaws of the European enforcement system in the field of consumer law. The report notes that while multiple consumers around the world have already received compensation for the damage suffered, EU consumers are still waiting for car manufacturers to make amends.

Substantive rules

Source:  Pixabay

BEUC report begins with an overview of particular enforcement actions taken by its members in different types of proceedings. A reader who is less clued-up about the substantive legal rules may, however, find it useful to first have a look at later sections, which shed a bit more light on the legal background. As regards civil claims a distinction can be made between repair and compensation. This distinction is well illustrated by the settlement reached in the proceedings before the US court, in which affected car owners could, firstly, choose between a buyback or a free fix and, additionally, receive compensation ranging between $5,100 and $10,000 (p. 19). Aside from civil claims, a manufacturer, who installs defeat devices to manipulate emission results, can face monetary sanctions imposed by courts or administrative authorities. Much of BEUC criticism concerns the difficulties of the European consumers to receive compensation and the comparably low level of fines imposed by relevant authorities.

From a private law perspective, a particularly interesting part of the BEUC report concerns "a comprehensive comparative table" prepared by the organisation, analysing among others the concept of damage and the grounds for breach of contractual and non-contractual obligations (p. 16). According to BEUC, the analysis revealed significant correspondence of private law across the EU in all relevant aspects: the notion of compensation loss, such as the lower value of the car, the higher fuel consumption, repair costs or lesser performance; the grounds for breach of contractual obligations, such as non-conformity, fraud and error; and the grounds for breach of and non-contractual obligations, such as tort, misleading practices and unjust enrichment. This is appears to be a broad-brush approach as important differences emerge when each of the listed matters is analysed in more detail (e.g. tort liability in Germany and France, remedies for unfair commercial practices in different Member States). All in all, however, it is true that consumers across EU can rely on a diverse menu of options in order to claim compensation, and that some of them are connected to EU law.

Private enforcement

According to BEUC, the experiences made by its members demonstrate the ineffectiveness of collective redress mechanisms in most European countries. The report discusses particular collective proceedings initiated by national consumer organisations. What certainly stands out is the legal framework in Belgium and Portugal where collective redress is based on an 'opt-out' system. The report further discusses the proceedings in Italy and Spain, where an 'opt-in' mechanism appears to be in place. Austrian example is discussed somehow separately, although is is clear that important enforcement efforts are also put in there. According to the report, the Austrian consumer organisation VKI had brought "16 group actions in front of 16 courts representing a total of 10,000 consumers". The dispute currently revolves around jurisdictional matters, on which earlier this year a request for a preliminary ruling was directed to the Court of Justice.

The report also elaborates on the state of play in Germany - where, of course, Volkswagen and other important car makers are established. Most noteworthy development is a declaratory court action (Musterfeststellungsklage) brought by the consumer organisation vzbv. More than 430,000 consumers are reported to have joined the action to date (compared to 75,000 consumers in the Italian proceedings and 7,500 in the Spanish case). The proceeding, however, only allows the court to declare that VW infringed the law and damaged consumers, on which subsequent claims for compensation can be based.

BEUC also reports on several developments in the Member States where consumer organisations have no feasible options to engage in collective redress. Slovenia provides an interesting example: here consumer organisation ZPS has reportedly teamed up with a law firm which brought claims of Slovenian consumers before a German court (in a different type of proceeding than Musterfeststellungsklage, apparently). Importantly, the fact that certain countries are not mentioned in the report does not mean that no significant developments regarding VW case can be observed there; it rather suggests that the relevant consumer organisations are not involved. This seems to be the case for Poland, where law firms have taken the initiative from the very beginning. For example, after Polish courts had found to have no jurisdiction in some early proceedings, thousands of Polish consumers joined the declaratory court action brought by vzbv in Germany.

Public enforcement

A significant part of BEUC report concerns public enforcement. In this respect, indeed, VW has so far managed to avoid major blows (particularly compared to the numbers overseas). The highest sanction so far - totaling €1 billion - was imposed in a case brought by public prosecutors in Germany. There are also ongoing criminal cases in other Member States, among others France and Poland.

BEUC appears to be particularly disappointed with the (lack of) action of the European consumer protection authorities, including as part of the Consumer Protection Cooperation (CPC) network. It describes the dialogue carried out by the European Commission with VW and its very modest achievements. More severe measures have only been taken by consumer authorities in Italy and the Netherlands, which hit VW with the highest possible fines of €5 million and €450,000 respectively.

Concluding thought

The report is set against the background of ongoing EU developments. It welcomes the review of the CPC framework and the relevant type-approval/market surveillance system. Most importantly perhaps, the report comes at a time when the European legislators are still working on the proposed directive on representative actions for the protection of the collective interests of consumers. The negotiations on this file have remained controversial as, indeed, the proposal seems difficult to reconcile with many Member State traditions. Whether an improvement of consumer law enforcement can truly be achieved with amendments that are currently discussed remains an open question. Without doubt, however, the state of play of consumer law enforcement leaves much to be desired.

AG opinion in VKI v TVP Treuhand (C 272/18) - a test case for the Amazon judgment

Last week, a seemingly very technical opinion has been delivered in a case concerning the transparency of a choice-of-law clause included in a fiduciary contract to be concluded by non-professional investors with an investment firm, Verein für Konsumenteninformation (VKI) vs

TVP Treuhand- und Verwaltungsgesellschaft für Publikumsfonds mbH & Co. KG (C-272/18) The case was triggered by an action brought about by VKI, seeking to obtain an injunction prohibiting the defendant to use the choice-of-law clause in the contracts it concludes with non-professional investors.

From the point of view of consumer protection, the case poses two main questions: 

1. Does the Rome I Regulation, including its rules concerning consumer contracts, apply to contracts of the type at stake?
2. If it does, is the choice-of-law clause unfair for failing to comply with transparency requirements and hence misleading the consumers as to their legal position?

As to the first question, the AG concludes that neither of the exclusionary rules possibly relevant to the case leads to attracting the case outside the sphere of application of the Regulation. More in detail, the case does not concern the functioning of a legal person (excluded under art 1.2.e); it also does not concern contractual obligations related to the provision of services exclusively in a country different than the consumer's country of residence. The latter exclusion (art 5.4.b), the AG claims, must be interpreted strictly and autonomously - ie not on the basis of a possibly relevant national rule. Given that some of the services rendered under the contract were to be performed in the consumer's country of residence, this exclusion does not apply according to the AG. 

If the Regulation applies, then the choice of law clause is only of limited impact - according to article 6.2. of the Rome Regulation, choice of law in consumer contracts cannot deprive consumers of the protection offered by mandatory rules of law in the country where the consumer has their habitual residence. In so far as a choice of law clause purports to determine exclusively which rules apply to the contract, the Court has declared in its Amazon decision, such clause is misleading and unfair under Directive 93/13 (UCTD). According to AG Øe, the Court's previous finding is applicable to this case and, hence, the clause is unfair. 

The Amazon case, one should say, was welcomed by consumer advocates but is also object of criticism - inter alia, by Øe's colleague Hogan -, thus it will be interesting to see how the Court will respond to this question as it may indicate whether it intends to stand by its previous findings or reconsider/restrict them. 

CJEU in Romano v DSL (C-143/18): sorry BGB, you can't sail around EU law implementation

Today, the CJEU published its decision in a case we had reported on a few months ago, Romano v DSL. In this case, two consumers had taken out a loan - renouncing their right of withdrawal (RoW) in order to obtain immediate performance. In such cases, the 2002 Directive on distance marketing of consumer financial services prescribes the extinction of the RoW when the creditor's performance has been entirely delivered, ie once the consumers have actually received the money. 

The Romanos claimed that, ten years after entering the contract, they should still be entitled to withdraw because they had not been given correct information. Given that German courts did not recognise withdrawal in distance financial services to deserve different treatment than other transactions and hence ignored the restriction, they should have been told that they were actually entitled to withdrawal even after having nominally renounced the possibility. 

According to the AG, the position maintained by German courts was untenable under the Directive. As a consequence, there was also no misinformation on the side of the lender, who had correctly notified the consumers that they were giving up their RoW.  The Court follows this reasoning, which  seems to trump the German courts' quest for systematic consistence in view of the integral application of  the concerned EU directive. Nice try for the claimants, but no belated Easter egg in this case.

CJEU judgment in Salvoni: no extra consumer protection in cross-border enforcement

In May we reported on this blog on AG Bobek's Opinion in C-347/18 Salvoni v Fiermonte. The referring Italian court that was requested to issue a Certificate for the cross-border enforcement of an order for payment against a consumer in Germany under the Brussels I Regulation (Recast). The order appeared to be in breach of the Regulation's jurisdiction rules; the consumer was domiciled in Germany, not in Italy. Should the court review and rectify the order, or inform the consumer of the possibility to challenge its enforcement? In this respect, the court referred to the CJEU's case law on Article 47 EUCFR and the Unfair Contract Terms Directive. According to AG Bobek, however, such an "extra layer of protection for consumers" could not be read into the provisions of the Regulation.

The CJEU confirms this in its judgment of 4 September. First, it found that the Certificate-procedure under the Brussels I Regulation can be qualified as judicial in the sense of Article 267 TFEU. Therefore, the preliminary reference was admissible. Secondly, it held that the court that issues the Certificate does not have to (re-)examine (ex officio) the jurisdiction of the court that has given the underlying judgment, even if it involves a consumer. The CJEU made a distinction between jurisdiction (see e.g. Article 17(1) of the Regulation for specific rules on consumer contracts) and recognition and enforcement. In the latter phase, it is the party against whom enforcement is sought who must oppose it. Because jurisdiction is one of the opposition grounds, there is no violation of Article 47 EUCFR. The CJEU's case law on the Unfair Contract Terms Directive does not apply in the context of the Brussels I regulation, which contains rules of a procedural nature. 

As we pointed out earlier, this outcome is understandable in light of the Regulation's framework, which aims to enhance the free movement and rapid enforcement of judgments within the EU, in the light of mutual trust based on legal certainty. From a consumer protection perspective, it possibly leads to a gap in the effective judicial protection of consumers. Not only is a court that has failed to apply mandatory jurisdiction rules (ex officio) in violation of the Regulation not allowed to rectify this; it is not allowed to subsequently inform the consumer of her defence possibilities either.  

Banks prevented from manipulating reimbursements following early credit repayment - CJEU in Lexitor (C-383/18)

Today the CJEU issued a judgment in the case Lexitor (C-383/18). As we have presented the facts of this case before, we refer the readers to our description of the AG Hogan's opinion first - Early birds and credit costs' repayment... here. 

Article 16 Directive 2008/48 (Consumer Credit Directive, CCD) states that 'The consumer shall be entitled at any time to discharge fully or partially his obligations under a credit agreement. In such cases, he shall be entitled to a reduction in the total cost of the credit, such reduction consisting of the interest and the costs for the remaining duration of the contract'.

The dispute pertained to the interpretation of the last part of this provision ('reduction consisting of the interest and the costs for the remaining duration of the contract'), namely, whether it allowed for the compensation in case of an early repayment of the credit of fees and charges placed on the consumer by the credit institution but unrelated to the duration of the credit agreement (para. 21). The CJEU believes that is indeed the case based on the purposive approach to CCD provisions. Art. 16 CCD replaced previously binding Art. 8 of Directive 87/102 (old Consumer Credit Directive), which referred to the consumer's right to 'an equitable reduction in the total cost of the credit'. Art. 16 CCD intended to make the general right of 'an equitable reduction' more precise by adding that this reduction would pertain to both interest and costs (paras. 27-28). The total cost of the credit as defined in Art. 3(g) CCD encompasses all fees and charges, with the only exception of public notary costs. The total cost of the credit includes, therefore, also fees and charges that are unrelated to the duration of the credit agreement (para. 23). The general objective of the CCD is to ensure a high level of consumer protection (para. 29), which aim would be endangered if during an early repayment the consumer could only be entitled to the reduction of costs presented by the credit provider as dependant on the duration of the credit agreement. It is, after all, the credit provider that unilaterally determines the fees and charges, and their amount, which could facilitate the credit provider choosing to limit fees and charges related to the duration of the agreement (paras. 31-32). The credit provider's interests are protected during the early repayment of the credit by Art. 16(2) and (4) CCD, which allow the credit provider to deduct costs related to the early repayment and for the Member States to set rules on ensuring the fit of the early repayment with the particular credit terms (para. 34).

All in all, this is the positive judgment for consumers, as they can be assured that the early repayment would entail a fair reduction in the total cost of the credit, which could not be manipulated by the banks by arbitrary setting of special, one-off fees and charges.

Unfairness assessment of variable interest rates - AG Szpunar in Gómez del Moral Guasch (C-125/18)

Facts of the case

In 2001 M. Gómez del Moral Guasch concluded a mortgage loan contract, with a variable interest rate, with a Spanish bank in order to purchase a residential apartment. In 2017 the consumer contested the fairness of a term in that contract that determines the mechanism of calculating the variable interest rate - based on the Spanish IRPH index. The consumer claimed that it is unfair that the interest rate is not indexed pursuant to EURIBOR index, which would have been more beneficial to him and is more commonly applied to Spanish mortgage contracts (in ca 90% of all contracts - para. 30). 

The IRPH index used in this loan contract was one of six IRPH indexes that have been adopted by the Spanish government. In 2011 it has been replaced - automatically - by a new IRPH index, also determined by the Spanish government. In a judgment of 14 December 2017 the Spanish Supreme Court declared, in a similar to this case, that if the IRH index is adopted as such in loan contracts it should not be subject to the unfairness or the transparency test from the UCTD, as it reflects a mandatory statutory provision (para. 53). The Supreme Court further decided that a contractual term based on IRPH index, which was drafted similarly to the one used in the case referred to the CJEU, was transparent, both formally and materially. Formally it was transparent as it was placed in the contract in a grammatically clear way, it was comprehensible and allowed consumers to understand and accept the fact that the variable interest rate will be calculated on the basis of an index controlled by the Spanish central bank. Materially it was transparent as it allowed average consumers to calculate the costs of concluding the agreement and it could not be required from banks to propose differently indexed loan agreements and explain how various indexes have been set up (para. 54).

Opinion

Scope of application of UCTD to terms that reflect national mandatory statutory provisions

First, AG Szpunar reasonably differentiates between evaluating the unfairness of an index rate that has been set out in national statutory provisions and a contractual term that foresees the use of such an index rate in calculating the variable interest rate of a loan contract (para. 59). Then he proceeds to consider whether the exception of Art. 1(2) UCTD should be applicable in this case, i.e. whether the contractual term reflects both a mandatory and a statutory provision of national law. His analysis leads to the conclusion that the mandatory character of the provision regulating the IRPH index is missing, which leaves it possible to subject a term reflecting it to the unfairness test of the UCTD. This conclusion is based on the fact that at the moment of the conclusion of the contract Spanish banks could choose whether to apply the IRPH index or another index that would fulfill the same conditions (e.g. EURIBOR index) (para. 78, 83). Therefore, as the exception from the scope of application of the UCTD should be strictly interpreted and applied only to situations where parties' freedom of choice is taken away, it cannot be said that the use of this index had a mandatory character (para. 82). 

Side note: It is irrelevant that subsequently, in 2011 the IRPH index used in the contract has been automatically substituted by a different IRPH index (here the freedom of choice of parties was eliminated, therefore, we could determine its mandatory character), as the unfairness should be assessed considering the facts of the case at the moment of the conclusion of the contract (para. 64).

Transparency

- of core terms

Whilst implementing the UCTD the Spanish legislator chose not to apply the exception for the application of the Directive to core terms of a contract (Art. 4 UCTD). This leads to an interesting conundrum in this case. Namely, whether Spanish courts could still refuse to assess the unfairness of a transparent core contract term, which is what Art. 4(2) UCTD stipulates, despite this provision not having been implemented in the Spanish legal order.

AG Szpunar rightly observes along the lines that: you cannot have the cake and eat it too. Principles of legal certainty and transparency require full transposition of provisions of directives that will then be applied in national legal systems (para. 93). In the previous CJEU judgment (Caja de Ahorres), it was decided that the Spanish legislator could have made a legislative choice, by not implementing Art. 4 UCTD, to submit also transparent core terms to the unfairness control, as this provides more consumer protection and the UCTD is a minimum harmonisation directive (para. 89). If, however, the Spanish legislator made a transposition mistake and actually intended to subject transparent core terms to the unfairness control, then, following the CJEU's judgment, we would have expected a change of the Spanish legislation. This has not occurred. Instead, the Spanish Supreme Court took upon themselves to clarify Spanish law as indeed not submitting transparent terms to the unfairness control. Such a judicial and not legislative clarification could be, however, perceived as in breach of the above-mentioned principles of legal certainty and transparency of EU law (para. 96). Therefore, Spanish courts may subject transparent core terms to the unfairness control (para. 100).

- what does it entail?

AG Szpunar reminds the previous CJEU case law referring to the principle of transparency as being fulfilled when an average consumer not only receives information that is grammatically correct but also that allows them to determine economic consequences of concluding a particular contract (paras. 106-108). In light of a given contractual term, he considers the term to definitely be grammatically clear and comprehensible in a way that it informs consumers as to what index will be applied to their variable interest rate and how the rounding-up of the interest will occur (para. 112). Does the term, however, sufficiently inform consumers about the economic consequences of the concluded loan agreement? AG Szpunar is inclined to believe that it may have done so, provided that the method of calculating the interest rate and its elements was clearly related to the applicable index rate, which has not only been fully defined, with a reference to appropriate legal rules establishing it, but also mentioned changes in the past values of that index (para. 125).

Side note 1: Here, AG Szpunar differentiates between the previous case law on transparency, which addressed transparency of loan contracts concluded in foreign currencies, and the given case on a loan with a variable interest rate. When a loan is concluded in a foreign currency, the mechanism of calculating the exchange rate may be very complex and there are potentially serious economic consequences following from non-understanding that mechanism and the fact that there is a future, uncertain risk related to its application. These potentially serious economic consequences shape the transparency requirements (paras. 115-118). In the given case, however, such a future, uncertain risk is not present, as the economic consequences of concluding a loan contract with a variable interest rate are more foreseeable (para. 119). This leads AG Szpunar to not see as necessary that bank warns consumers about the possibility of future changes to an index rate. However, by obliging banks to provide consumers with an indication of past changes to the index values, a possibility of future fluctuation should become clear, as well. Consequently, the difference in transparency requirements seems subtle.

Side note 2: AG Szpunar did not consider it necessary that the banks provide consumers with a separate information on the mathematical formula that allows to clearly follow the method of calculation of the index rate, as this information was publicly available (paras. 122-123). If, however, the information would have been difficult to access, we could possibly expect the information obligations of the banks being extended.

Full harmonisation of consumer credit rules re-explained - judgment in C-331/18 Pohotovosť

Last Thursday the Court of Justice delivered its judgment in C-331/18 Pohotovost’. The case forms part of the series of Slovak references concerning the interpretation of EU consumer law in the context of credit agreements. It is not to be mistaken with previous disputes involving the same creditor and focusing on Directive 93/13/EEC on unfair terms (especially C-470/12 Pohotovost' and C-168/15 Tomášová - see the relevant posts here and here). Rather, it revolves around disclosure duties laid down in Directive 2008/48/EC on consumer credit, and as such, presents a direct follow-up to the ruling in C-42/15 Home Credit Slovakia.

Facts of the case

The case involved a consumer who questioned his obligations under a credit contract, arguing that the creditor failed to comply with several disclosure duties set out in national rules implementing Directive 2008/48/EC. As we have learnt from Home Credit Slovakia, non-compliance with key disclosure duties may result in the credit being deemed as free of interests and charges - a sanction established among others by Slovak law, which the Court of Justice found to be compatible with EU law. 

Home Credit Slovakia, however, also addressed another important matter - the scope of disclosure duties which Member States can impose on the creditors in the first place. This part of Court's reasoning was not really surprising: the CJEU held that, due to the principle of full harmonisation, to which Directive 2008/48/EC is subject, Member States may not adopt information obligations which are not established in that act. In response to this ruling, the Slovak legislator decided to adjust the national act on consumer credit, among others by removing the duty to break down the payment of the credit in terms of the capital, interest and other charges. The consumer in the present case nevertheless sought to rely on precisely on that duty, arguing that, firstly, the legislative changes undertaken in response to Home Credit Slovakia were too far-reaching and, secondly, they could not be applied to him as the disputed agreement predated the legislative amendment. This faced the referring court with questions about the scope of disclosure duties in Consumer Credit Directive and the limits of its obligation to interpret national rules in conformity with EU law.

Judgment of the Court

The Court of Justice did not consider the dispute to be all that complicated and, in any case, did not find arguments to support the pro-consumer approach considered by the referring court. Firstly, no obligation to break down credit payment was found in Directive 2008/48/EC. As noted by the Court, Article 10(2)(h) refers merely to frequency of payments, Article 10(2)(i) to the right to receive an amortisation table, and Article 10(2)(j) to a statement showing the periods and conditions for the payment of the interest and associated charges, if charges and interest are to be paid without capital amortisation. As a result, the duty relied upon by the consumer in the main proceedings was precluded by the principle of full harmonisation. 

Secondly, the Court recalled that interpretation of EU rules provided in its judgments clarifies and defines the meaning and scope of these rules as they ought to be understood and applied from the time of their entry into force. It follows that a rule must be interpreted according to the CJEU judgment also when the legal relationship, to which it is applied, was established before that judgment. The referring court should, therefore, apply the law applicable at the time when disputed agreement was concluded in conformity with EU law, as interpreted in Home Credit Slovakia. While it is true that the requirement to interpret national rules in conformity with EU law cannot serve as the basis for an interpretation of national law contra legem, a national court cannot consider this to be the case merely because it would have to change the established, national case-law.

Concluding thought

The analysed case is not groundbreaking but it helps to systematise several important pieces of CJEU case law, notably on the principle of full harmonisation and interpretation of national rules in conformity with EU law. As regards the more specific context of consumer credit, the ruling should be read together with the previous judgments in C-76/10 Pohotovosť and C-42/15 Home Credit Slovakia. Some of the parties intervening in the proceedings observed that the consumer could also have relied on inaccurate definition of annual percentage rate - a matter which the previous case law clarified to his advantage. This shows that - regardless of the analysed judgment - Consumer Credit Directive leaves room for important safeguards of consumer interests.