Consumer Update | January 2019

Written on 29 Jan 2019

Welcome to the first edition of Osborne Clarke's quarterly Consumer Update. This Update takes a bite-sized and practical look at recent legal and regulatory developments in consumer law.

One of the “highlights” of this Update is the recent German ruling against Amazon’s Dash button (see below for further details). It’s a highlight because often our clients are under pressure from their business colleagues, who ask “If Amazon is doing [x], why can’t we?”. This case not only serves as a good refresher of some basic principles of consumer law, but also is proof that imitating a competitor, no matter how well known, will not necessarily ensure you are legally compliant, so it may provide you with a good example (if you need it) for your business colleagues.

Given the current political climate, it would also be remiss of us not to discuss the impact of Brexit on consumer legislation.

If you would like more information or have any questions about any of our articles, please contact a member of the our consumer law team. Alternatively, if you have suggestions for the newsletter in general please contact the editors.

In this edition :

Brexit

Much of the UK’s consumer law is derived from EU legislation. When the UK leaves the EU, all current EU law in force at that time will become “EU retained law” and will be incorporated into the UK’s statute books. This means that in general upon Brexit, UK consumer law will not change except: (i) where specific statutes are implemented in the UK (for example the draft Consumer Protection (Amendment etc.) (EU Exit) Regulations 2018) which amongst other things will revoke the operation in the UK of the EU Online Dispute Resolution Regulation; and (ii) certain legislation that contains an EU or EEA cross-border dimension (for example, portability or geo-blocking regulations), in which case the international element of that legislation will no longer apply after Brexit.

Brexit Business Brief

The UK’s exit from the EU will present both challenges and opportunities across the board, whether you are a business with a domestic UK market or one trading internationally, and regardless of whether your operations are based in the UK or not. Our regular Brexit Business Brief can help you to understand the legal issues, and what this could mean for your business.
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Consumer law

German court upholds decision that the Amazon Dash button breaches consumer law

What: EU law requires companies that sell directly to consumers to provide certain pre-contractual information. This is to ensure that consumers are treated fairly and understand when they are about to enter into a binding contract which requires them to pay.

The relevant EU legislation is the EU Consumer Rights Directive 2011/83. As this is a directive (rather than an EU regulation), Member States are required to implement these rules into local law, but have some discretion on exactly how to do this. The German legislation implementing the Directive states that the button “must be labelled with nothing but the words ‘order with obligation to pay’ or equivalent wording”.

The German court found that the Dash button, which simply shows the relevant brand logo and has no wording on it, breached this requirement and failed to provide mandatory pre-contractual information.

When: The decision was handed down on 11 January 2019. Amazon has announced that it intends to appeal, so this is unlikely to be the final decision.

Impact: The German ruling is not a binding precedent for the UK courts. However, since there is little UK case law on this matter and it relates to the same underlying EU directive, any UK court would likely find the German decision persuasive . In addition to the risk of court action, the Competition and Markets Authority (CMA) is empowered to enforce consumer protection law and could take the opportunity to sanction similar violations of consumer legislation by Amazon and other companies with similar products.

This judgment also sets down an interesting marker for the future. Connected, smart appliances have the potential to bring increasing simplicity and ease – we might never run out of key household products if our sensor-equipped appliances registered that something was running low and automatically reordered for us. However, the judgment is a reminder that convenience cannot trump consumer law.

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Enhanced enforcement measures on the horizon for the CMA

What: As a consequence of scandals such as dieselgate, there is a widespread feeling that consumer law is poorly enforced and that the sanctions for breach are inadequate. As a consequence, at both the EU and the UK level, there are proposals to enhance the enforcement powers of regulators. The EU has proposed GDPR-style fines of up to 4% of worldwide turnover for any breaches of consumer law which cause “mass harm”. At the same time the UK government’s modernising consumer markets green paper proposes giving the civil courts the power to fine businesses for breaches of consumer law up to a maximum of 10% of the company’s worldwide turnover.

When: The proposed directives under the new deal for consumers initiative are in draft form and are not expected to be approved by the EU for some time. As a consequence, we would not anticipate enhanced enforcement powers being available to regulators in the near future. Similarly, the UK government has not yet finished consulting on its green paper.

Impact: the proposed increased sanctions are indicative of the UK government’s and the EU’s concerns about the lack of enforcement and effective sanctions for breach of consumer law. This is part of a wider trend and even though these measures are currently only proposals, the trend is clear: companies should be prepared for more and tougher enforcement of consumer law in the future.

E-commerce

AG opinion on whether returns costs for faulty consumer goods have to be paid upfront by a trader.

What: The Advocate General (AG) Wahl has given his opinion on various issues around the return of faulty consumer goods bought online for repair or replacement. One of these issues was whether, in the context of a trader’s obligation to repair or replace goods ‘free of charge’ (under the Sales and Guarantees Directive, implemented in the UK by the Consumer Rights Act 2015, which imposes a mirror ‘bear any costs’ obligation), this necessarily meant that a trader should always fund the returns cost of these goods upfront (for example, by supplying a pre-paid returns label).

The short answer in the opinion is ‘no’ (contrary to previous case law), as long as the applicable returns cost did not in itself dissuade a consumer from enforcing their rights and was later reimbursed – it would always be fact / goods specific.

When: The AG’s opinion was delivered on 15 January 2019. The CJEU’s decision will follow in the coming months.

Impact: Although an AG opinion only, this potentially gives online sellers more flexibility as to how to structure their returns processes and policies for defective consumer goods.

Products

Draft Regulations seek to give greater power to EU regulators

What: The draft Compliance and Enforcement Regulations, which are currently awaiting their first reading in the European Parliament, seek to increase enforcement powers for regulators in the EU. Of particular note is the proposal to introduce the concept of a “reference person”, which would require anyone selling consumer products governed by harmonised legislation into the EU to have an EU-based authorised representative taking on the compliance responsibilities of a manufacturer. While a seemingly small change, the proposal has proved controversial with SMEs from third countries, who feel it is an additional compliance burden.

When: The progress of the draft regulations has currently stalled following disquiet from third countries about the proposed regulatory burden. However, if approved, they would be likely to come into force on 1 January 2020.

Impact: The most controversial proposal is to require manufacturers to have a reference person based in the EU. This would allow EU regulators to more easily enforce against manufacturers based in third countries selling directly into the single market. Additionally, the regulations would result in greater co-operation of enforcement agencies and tougher customs controls on products imported from third countries.

Competition

New consumer pricing restrictions? UK CMA tackles the “loyalty penalty” in consumer markets

What? The CMA has spelt out its dislike for “loyalty penalties”: pricing structures where the cost increases if the consumer does not shop around but lets the contract renew automatically. The CMA has urged regulators to be bolder in enforcing consumer law and has published its interpretation of what constitutes fair pricing under UK consumer law. More detail is available here.

When? The CMA’s interpretation of fair pricing is based on the current law, so is of immediate relevance.

Impact? Suppliers that lock consumers into an initial fixed-term need to review their terms against the CMA’s interpretation of fair pricing. Divergence – and any “loyalty penalty” structures – carry a material risk of regulatory intervention and/or consumer complaints.

Payments

Approach Document for Payment Services and Electronic Money under the revised Payment Services Directive.

What: the Financial Conduct Authority has set out its approach to the implementation of the core European legislation for the payment services and electronic money sectors. In the December 2018 update to the ‘Approach Document’, readers are given a comprehensive picture of the payment services and e-money regulatory regime in the UK. It covers the final European technical standards on a range of matters including: cross-border activity, strong customer authentication, secure communications, and fraud reporting requirements.

When: this is the current version of the Approach Document.

Impact: for those businesses looking to become authorised payment institutions or small payment institutions, authorised e-money institutions or small e-money institutions, registered account information service providers, or credit institutions, the Approach Document will help navigate the regulatory requirements applicable to the payment services and electronic money sectors, and provides guidance for a practical understanding of the requirements.

New Rules for Customer Authentication and Fraud.

What: new European legislation being implemented in the UK brings in new rules and guidance designed to ensure strong customer authentication and secure communications, as well as other fraud reporting measures. The Financial Conduct Authority has published a recent policy statement PS18/24 on these rules.

When: PS18/24 sets out a number of key dates during 2019.

Impact: PS18/24 will be of interest to all payment service providers, consumer and relevant trade bodies, retailers, consumers, micro-enterprises and those involved in open banking initiatives.

Victims of APP Fraud and Complaints Handling Options.

What: the FCA has decided to introduce new rules which help victims of ‘authorised push payment’ fraud’ (“APP fraud”), as it is a growing problem and the existing rules meant victims faced restrictions in terms of who they could make fraud complaint to. Now, the rules have been extended to include these particular payment service providers, and victims that are unhappy with the outcome of their compliant to the payment service provider will be able to refer their complaints to the Financial Ombudsman Service.

When: the new rules come into force on 31 January 2019.

Impact: APP fraud causes serious harm to consumers and the FCA has made it one of its priorities across all sectors. These new complaints handling rules open up the options for victims to try and seek redress.

Telecoms

Ofcom consulting on helping consumers get a better deal

What: One of Ofcom’s duties, as the regulator of the UK communications services, is to further the interests of consumers by preventing consumer harm. Ofcom has launched a series of consultations focusing on helping consumers to get a better deal. The consultations cover: end-of-contract notifications; the provision of annual best-tariff notifications; and pricing practices in the fixed broadband market.

Ofcom is separately consulting on the impact of mobile airtime contracts with handsets where the mobile service provider continues to charge the same monthly fee after the expiry of the initial contract period and once the cost of the handset has been recovered.

When: The consultation statements on end-of-contract notifications, best-tariff notifications and pricing practices in the fixed broadband market are expected by May 2019. The findings arising from the consultation on bundled handsets is due in summer 2019.

Impact: These consultations are part of a trend of requiring service providers to proactively provide greater information to consumers. We may also see a shift to service providers having to proactively reduce contract pricing to reflect the best deal the consumer could be on – or at least changing from a handset plus airtime contract to SIM-only. These changes could lead to a greater churn, with customers moving to alternative service providers that they perceive as offering a better deal.

With measures relating to the provision of information likely to have just a six month implementation period, service providers should be reviewing now what changes might be needed to their processes.

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