New consumer contracts rules in Germany tighten regulatory regime further
Published on 14th Oct 2021
Far-reaching changes for all consumer-facing businesses go beyond harmonised rules of EU
Contracts can no longer bind consumers for a year upon renewal, businesses must provide a “cancellation” button for consumers to easily cancel online subscriptions and terms and conditions may no longer prohibit the assignment of claims to third parties. The recent adoption of the Fair Consumer Contracts Act (FCCA) has far-reaching consequences for all consumer-facing businesses operating in Germany. These affect subscription-based business models in particular, including gaming, streaming and other provisions of digital content.
The FCCA not only increases the implementation efforts that business are currently already facing with the European New Deal for Consumers – it also thwarts the European goal to harmonise the digital single market. Once again, Germany has decided to implement additional consumer regulation that deviates from the European consensus.
Transition periods apply for the new regulation, which require businesses to adapt their user interfaces and business models for the German market.
From 1 July 2022, the FCCA requires businesses to implement a “cancellation button” that enables consumers to easily terminate ongoing contracts concluded on websites.
The functionality is mandatory and must be permanently accessible, comparable to the legal notice already required under German law (Impressum). In addition, it must be legible and clearly labelled (for example, with the text "Cancel contracts here"). The button must lead consumers to a confirmation page where they can provide information on:
- the type of termination and, in the case of extraordinary termination, the reason for the termination;
- clear means of identification;
- a clear identification of the contract;
- the time at which the termination shall take effect; and
- contact data to confirm the termination easily by electronic means.
The website must also include a confirmation button that allows consumers to directly submit the cancellation. It must be legibly labelled with nothing other than the words "cancel now" or similarly clear wording.
Consumers must be able to save the termination notice, which must clearly indicate that the termination was submitted by pressing the confirmation button.
The consumer must be provided immediately with a confirmation of the termination by electronic means, including the content of the notice as well as both the time the notice was received and the time the termination will take effect. A legal presumption applies that a notice submitted by using the confirmation button is received by the business immediately after submission.
In case of doubt, the termination takes effect at the earliest possible date.
If the business does not comply with the above requirements, the consumer may terminate the contract at any time without notice. The right to extraordinary termination remains unaffected.
This regulation also applies to contracts concluded before 1 July 2022. This means that every customer must be given the opportunity to terminate subscriptions and other ongoing contracts concluded on a website by clicking a button.
The regulation is likely to trigger a far-reaching need for adaptation in the entertainment and media industry. Cancellation buttons must also be implemented in apps or on game consoles if users can conclude subscription contracts there.
Duration and renewal of contracts
As of 1 March 2022, the possibility to automatically extend subscriptions by another year after the initial two year period will no longer apply. The new regulation affects all contracts that involve the regular delivery of goods or regular provision of services or work.
Contracts with customers may still remain binding for a period of two years. After this initial period, automatic extensions are only permitted for an indefinite period. In such cases, the consumer must be given the right to terminate the extended contract at any time with a notice period of no more than one month.
In addition, notice periods of more than one month before the end of the initial contract term will be invalid.
The new requirements have implications for all subscription models. Wherever they are used, the contracts and terms and conditions must be amended:
- Unless the renewal is for an indefinite period of time, contracts may no longer include provisions that automatically include binding renewal clauses. Companies may consider actively approaching customers and agreeing on an express extension of the contract or offer customers a new contract. Otherwise, contracts may be extended for an unlimited period of time, in which case customers can terminate the contract on a monthly basis after the end of the initial term.
- Contracts that bind consumers for less than two years must also be amended so that they continue to run indefinitely after the end of the initial term and the user is granted a monthly right to terminate.
- All contracts and business models must be revised to ensure that users are not required to provide more than one month notice of termination to the end of the respective contract period.
While the legislator initially planned to limit consumer contracts to a maximum duration of one year, this plan was rejected during the legislative procedure. Thus, the current cap of two years remains in place.
The new regulations apply to all contracts concluded from 1 March 2022. Therefore, it is not necessary to make changes to existing contracts. However, in view of the termination options for existing customers at the end of the contract term, it may be reasonable to offer the new conditions to all users.
Prohibition of assignment
From 1 October 2021, clauses in general terms and conditions that prohibit the assignment of certain claims will be considered void. Consumers will be able to assign claims more easily to third parties that assert claims on their behalf. Companies that have so far relied on such prohibitions of assignment are likely to face a higher number of lawsuits.
The new provision primarily applies to monetary claims a contractual partner may have against users. However, prohibitions of assignment can also be void if they relate to other rights of the contractual partner: the decisive factor here is a weighing of interests - with corresponding legal uncertainty.
The new rules apply to all contracts entered into after 1 October 2021, the rule of non-assignment does not apply to contracts concluded before that date.
If you would like to discuss any of the points raised in this article, please speak to the authors or your usual Osborne Clarke contact.