Consumer Update | December 2020

Written on 14 Dec 2020

This Update takes a bite-sized and practical look at the recent legal and regulatory developments in consumer law.

What are the main takeaways from this edition?

  • Regulators continue to be active despite current conditions. The UK Competition and Markets Authority and the Italian Competition authority are both actively dealing with coronavirus and non-coronavirus consumer law issues.
  • It is time to start planning for the new deal for consumer compliance. The European Parliament has passed the Collective Redress Directive, which will be published in the Official Journal of the EU shortly. This means both pieces of legislation for the New Deal for Consumers are effectively passed into EU law. Together, this means that companies will be facing General Data Protection Regulation-style fines and the possibility of collective actions for compensation by consumers for breaches of consumer law. As of January, businesses will have less than 18 months before the sanctions come into effect. For tips on how to start planning see our article on the new deal for consumers and our dedicated new deal for consumers page.

In this edition:

The cloud

Italian investigations launched against cloud computing services

What: The Italian Competition Authority (AGCM) has launched six investigations against some of the main global operators of cloud computing services including Apple and Dropbox.

The operators are being investigated for alleged unfair commercial practices, violations of the Consumer Rights Directive, and the presence of unfair clauses in the contractual terms.

The investigations for unfair commercial practices against Apple and DropBox concern the failure to inform users about the usage of their data for commercial practices and the failure to obtain genuine consent from users for the collection of their data. According to the AGCM, consent cannot be freely given by consumers if consent is a condition of using the services.

DropBox is further being investigated for failure to provide clear and accessible information on the consumer's right to withdraw and cancellation rights.

The regulator is also considering whether the following terms are unfair and therefore should be unenforceable against consumers:

  • the broad rights of service providers to suspend or interrupt the service;
  • disclaimers of liability for loss of documents stored by consumers; and
  • the ability of service providers to unilaterally modify terms and conditions.

When: The investigations were launched on 7 September 2020.

Impact: The AGCM has the power to impose sanctions of up to €5 million for each unfair commercial practice. The regulator may also prohibit the use of the alleged unfair clauses identified above. It is possible that other regulators may follow suit and we may begin to see more regulatory enforcement action in this area. 

The New Deal for Consumers

New 'GDPR level' fines for breaches of consumer law

What: The New Deal for Consumers is the European Commission's overhaul of consumer law, which is set to introduce hugely increased GDPR-level fines for breaches of consumer law to give regulators more teeth against non-compliant businesses .

We can use the lessons learned from the GDPR to ensure an orderly and well thought through implementation of the new consumer regime. Our main takeaways for businesses are:

1. Prepare as soon as possible – these types of compliance projects often take much longer than one might think, particularly where multiple stakeholders are involved within the business. The project will need to be scoped out, the team prepared, and the business informed and resource and budget obtained (if needed) in the first half of 2021. 

2. Plan – a basic plan will help businesses understand the steps needed to get to compliance, breaking down the tasks and turning the whole project into a more manageable exercise. A plan should establish the changes to the law, conduct an impact assessment, prioritise where there are known vulnerabilities, and manage stakeholders. 

3. Risk assessment – where the business decides to take a certain risk, it will need to understand the potential consequences and prepare for those. For example, recently there has been an increase in enforcement of consumer law breaches in Germany and Italy. So if a decision is taken to risk non-compliance in those territories, the business should understand the potential implications, sign off on that basis and prepare for the consequences, such as litigation. 

4. Prepare the business – stakeholders in the business need to be informed of this new legislation as soon as possible. This is a particularly essential step if resource and budget need to be obtained to assist with the project. Businesses should consider setting up a cross-functional team to ensure stakeholders are kept informed about the changes required, the impact on their products and the timeframes. Businesses should also consider producing some materials or training to circulate, to ensure they understand what is coming down the tracks and to assist in identifying products and services that may be affected. 

5. Compliance by design – one of the requirements of the GDPR is "data protection by design". Just as data protection should be an essential part of the creation of new products and services, so should consumer law. Businesses should make sure that any new consumer-facing products and services are designed to be compliant with the new laws at launch.

When: Member states have until 28 November 2021 to adopt and publish their implementing legislation. The laws will then come into effect on 28 May 2022.

Impact: The overhaul of consumer regulation will mean potentially complex implementation projects for any affected companies.

Collective Redress Directive

European Parliament approves Collective Redress Directive

What: The European Parliament has approved the Collective Redress Directive, which protects the collective interests of consumers by allowing consumer group actions for compensation where there have been breaches of consumer law along with a wide range of other laws that impact on consumers (including the Geo-blocking Regulation, the Portability Regulation, Online Dispute Resolution Regulation, the Audiovisual Media Services Directive and the General Data Protection Regulation). The Directive will make it possible for consumer groups to bring cross-border actions, such that as a class could involve consumers from more than one Member State.

When: Member States will have until Christmas Day 2022 transpose the Directive into national law and a further six months to apply the new provisions. The rules have to come into force by 25 June, 2023 at the latest.

Impact: Once the Directive is implemented, consumers will be able to bring collective actions for infringements of consumer law and a wide range of other laws that touch on consumer rights. Businesses will need to factor this new litigation risk into their approach to consumer compliance. The risk will be particularly significant in those member states that allow opt out classes.

For further details on the impact of the Collective Redress Directive please click here.

Covid-19

CMA updates consumer rights guidance in light of Covid-19

What: The Competition and Markets Authority (CMA) has published an updated version of its "statement on coronavirus (Covid-19), consumer contracts, cancellation and refunds".

The statement now address:

  • consumers' rights where lockdown laws do not prevent a trader providing a service but change how it can be provided; and
  • the position where compliance with Covid-19 restrictions imposed as a matter of government guidance (rather than legislation) prevent a consumer receiving a service.

When: The CMA published their guidance on 28 August 2020.

Impact: Where lockdown laws change how a service can be provided: If the service can be provided but is radically different to what was agreed, the consumer would normally be able to cancel and receive a full refund. If the differences in the service that can be provided are only minor, the revised guidance states that the consumer should be able to choose between cancelling on the trader's standard terms (provided these are fair) or going ahead and receiving a proportionate discount. 

Where compliance with Covid-19 restrictions is matter of guidance (rather than legislation): The CMA's revised guidance considers that in these circumstances a contract is less likely to be frustrated and the consumer would have to cancel on the trader's standard terms, as long as these are fair. However, the statement stresses the importance of encouraging compliance with such guidance and urges traders to treat consumers fairly.

Other revisions to the CMA' statement

Other notable revisions to the CMA's statement flag the following:

  • Consumers should not be required to take unreasonable or unnecessary steps in order to obtain refunds and a formal claim is not required in order for a refund to be due.
  • Amendments to the section dealing with the timing of repayments suggest that disruption caused by COVID-19 is now less likely to be an acceptable excuse for late payment.
  • Trader standard terms should set out clearly and prominently what sums traders will retain or charge on consumer cancellation and notes that such sums must reflect what they are actually losing and not be excessive.

European Electronic Communications Code

Ofcom confirms protection rules for EECC

What: The UK Communications Regulator, Ofcom, has published a statement confirming the changes it will enact in new regulatory rules established by the European Electronic Communications Code into the General Conditions.

A focus of the EECC was to improve fairness to end-users when buying and using broadband, mobile, pay TV and landline phone services.

Ofcom's confirmed new rules include:

  • Mobile device locking – mobile providers will be banned from selling devices to consumers that are locked and cannot be used on another network;
  • Extension of rules on accessible formats – the introduction of new rules to ensure disabled customers have equivalent access to all information about their communication services;
  • Annual best tariff notifications – communication service providers are no longer required to send annual best tariff notifications to any customer who did not previously have a contract with a fixed commitment period;
  • Contract duration – rules on not offering contracts which stipulate commitment periods of longer than 24 months are being extended to bundles and to small businesses and nod not-for-profit customers;
  • Customer usage notification requirements – consumer, small business and not-for-profit customers must be notified when a service included in their tariff is used up and of the charges they will incur for continuing to use the service; and
  • Right to exit for contract changes – customers must be permitted to exit their contract without the payment of exit fees if the communications service provider makes a change to the customer's contract during the fixed commitment period.

When: On 27 October 2020 Ofcom published its statement assessing telecom industry responses to consultations issued in December 2019 and July 2020.

Ofcom has listened to the feedback from respondents on the implementation period and the impact of COVID-19 and has confirmed that the period will now vary between 12 and 24 months from 21 December 2020 depending on the rule and the significance of the change.

Impact: The new rules will require changes to internal processes, changes to the sales process as well as internal system changes. Many of the end user protections that are being introduced will also apply to small businesses and not-for-profit customers for the first time.

Further details can be found in our full article here.

Consumer Rights Act

Proposed amendment on the transfer of ownership of goods

What: The Law Commission has published a draft Bill to amend the Consumer Rights Act 2015 (CRA) in order to reform the currently complex and technical rules on the transfer of ownership of goods under a sales contract between a consumer and a trader.

The reform aims to clarify the position on who owns the goods when a consumer pays in advance and the retailer goes insolvent before the goods are delivered to the consumer. The Law Commission has said that the current rules contained in the Sale of Goods Act 1979 are outdated and do not take into account internet shopping. The Law Commission is therefore proposing to give consumers a clear and up to date statement on the law in this area.

The draft Bill sets out different rules for different types of goods:

  • The ownership of goods which are identified and agreed on at the time of sale (for example, items selected in a physical store or where a unique product is bought online) will transfer when the contract is made. This is the case even if the goods are left with the trader, for example for alteration. 
  • The ownership of goods which are not identified and agreed on at the time of sale (for example, items bought online according to a generic description) will transfer on any of the following: when goods are labelled or set aside for the consumer in a way that is intended to be permanent, when goods are delivered to the consumer or a carrier for delivery, when the consumer is told the goods will bear a unique identifier or when the goods are altered to an agreed specification.

When: The Law Commission published a draft Bill and consultation paper on 27 July 2020.

Impact: If implemented, the draft legislation will amend the CRA and will affect consumers and traders in England and Wales.

Consumers will receive increased protection when they have paid substantial deposits for goods prior to a trader's insolvency. Traders will also need to be aware of how the new rules will affect their practices, for instance traders will no longer be able to delay the transfer of ownership until they have received full payment.

It is important to note that the draft Bill does not propose any changes to the transfer of risk rules contained in section 29 of the CRA; the goods will remain at the trader's risk until they come into the physical possession of the consumer.

Environmental claims

CMA launch investigation into environmental claims

What: The UK consumer regulator, the Competition and Markets Authority (CMA) has launched an investigation to understand better how consumer protection legislation can be used to tackle false or misleading environmental claims.

The CMA is investigating how claims about the environmental impact of products and services are made, whether evidence is given to support the claim, whether the claims influence consumer behaviour, and whether consumers are misled by a lack of information about the environmental impact of products and services.

When: The CMA launched its investigation on 2 November 2020 and is asking for consumers, businesses and stakeholders to complete surveys to help the investigation until 14 December 2020.

Impact: Historically, CMA investigations have typically resulted in high-profile enforcement followed by guidance to business on how to deal with the issue. Businesses should be particularly cautious at present about making bold environmental claims. 

GPSD

General Product Safety Directive (GPSD) and aligned digital consumer law

What: On 13 November 2020, the European Commission launched the New Consumer Agenda. focussing on green and digital policy, as well as consumer rights and enforcement. One of the focal points of the Agenda is a modernisation and harmonisation of existing consumer protections, particularly the online sale of goods.

The GPSD (Directive 2001/95/EC) sets safety requirements for products which do not benefit from sector specific or "New Approach" directives. The intention of the legislation is to provide a "safety net" for consumers. The GPSD also established the EU Rapid Alert System, now known as Safety Gate, enabling the fast exchange of information about measures in response to dangerous products.

However, the GPSD was enacted in 2001. Being nearly 20 years old, the GPSD was not written within the context of modern online consumer retail, with platform marketplaces and pure-play retailers. Additionally, in 2001, concepts such as artificial intelligence and the Internet of Things were not considered by the GPSD.

When: Between June and October 2020, the European Commission carried out a consultation on consumer policy which included a review of the GPSD, and a proposed revision of the GPSD is expected in the second quarter of 2021.

The Bureau of European Consumer Associations (BEUC) represents 44 independent consumer organisations in 32 countries, and has been an active contributor to the consultation process.

Impact: BEUC has proposed that the GPSD's revision is an opportunity to seek to align the level of safety that a consumer can expect from products sold online with those sold in brick-and-mortar shops. It argues that consumers would benefit if the market surveillance improvements introduced in relation to New Approach directives were also applied via the GPSD. This would require all products to provide the name and address of the manufacturer, and, where the manufacturer is outside of the EU, a contact person or representative in the EU.

If the revised GPSD gives market regulators powers to sanction platforms for non-compliance, it would, BEUC argues, provide more effective avenues for remedies when consumers are sold unsafe products. This would be a significant step change for platforms that are not geared up, at the moment, to check the product compliance of everything sold.