In October 2008 the European Commission proposed a dramatic initiative to further harmonise consumer rights across the EU. Three years on, the end result is less dramatic, but the measure will still lead to significant changes in areas such as cancellation rights and credit card use fees as Jonathan Mayner reports.
Topic: Consumer protection
Who: Council of the European Union
When: 10 October 2011
Law stated as at: Directive adopted on 10 October 2011 with implementing national legislation due by October 2013
The Council of the European Union has approved a new Consumer Rights Directive (the "Directive"). The Directive was initially proposed in October 2008 but met with significant opposition and had to be reduced in scope, not least because it would actually have reduced consumer protection in some member states, including the UK.
What sorts of transactions are covered by the Directive?
In the main the Directive applies to distance selling and "off-premises" transactions. A distance contract is defined by the Directive as "any contract concluded… without the simultaneous physical presence of the trader and the consumer, with the exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded". This will of course include any form of telesales or transactions conducted via email or the trader's own website.
In relation to "off-premises" or doorstep transactions, the Directive has removed the distinction between contracts concluded during solicited and unsolicited visits by traders, in line with current UK legislation.
The Directive expressly does not apply to contracts for certain categories of goods or services including financial services, gambling, real estate, construction and package travel deals.
Who is a "consumer" under the Directive?
The Directive is intended to apply to contracts between businesses and consumers. So while it will impact on many online transactions, including auction sites and other e-retail venues, it will not apply where the seller is not acting as a professional trader. Article 2 of the Directive defines a consumer as "as natural person who is acting for purposes that are outside his trade, business, craft or profession".
Certain of the recitals to the Directive (there are 67 recitals in all) indicate that the definition of consumer may be broadened in certain circumstances and that member states may apply the new rules to certain categories of non-consumer. Recital 17 states that where a transaction partly relates to the business of the relevant party but the trade purpose is not the predominant purpose in the context of the transaction that person should also be considered a consumer. Additionally recital 17 states that member states have discretion to apply the rules to non-consumers such as business start-ups, small and medium sized enterprises or non-governmental organisations.
The Directive specifies that certain information must be communicated to the consumer before the contract is entered into, including: the main characteristics of the goods or services; certain details about the trader; the total price inclusive of taxes (including all delivery costs); and in relation to digital content (for example film or music downloads) information on functionality, compatibility and any technical protection or digital rights management measures which may restrict the consumer's use of the content.
Traders must ensure that immediately before a consumer places themselves under an obligation to pay (e.g. by clicking on a button marked "Order" or "Buy") that the consumer is made aware that an obligation to pay will arise. This sort of notification will already be familiar to most consumers as current practice by many, if not most, major online retailers. Under the Directive, if the trader fails to comply with this provision, the consumer will not be obliged to pay.
Consumers will have 14 days in which they may cancel a contract (for any or no reason), subject to a few important exceptions and qualifications. If the trader does not inform the consumer of their 14 day cancellation right then the consumer's cancellation period will extend to a further 12 months. When that 14 day period starts will depend on the type of contract. With service contracts the withdrawal period will begin at the conclusion of the contract. For sales of goods the withdrawal period will be calculated by reference to delivery but will vary dependent upon the number of goods being delivered and whether the order is for a one-off delivery or a series of regular deliveries.
Key exceptions to the cancellation right include: custom goods which have been made to the consumer's specifications; perishables; sealed goods which are not suitable for return once unsealed due to hygiene or health protection reasons; sealed audio, video or software goods which have been unsealed by the consumer (presumably to prevent copyright infringement by the consumer copying and returning of the goods); and the supply of digital content (such as audio, video or software downloads) where delivery has begun at the consumers request and the consumer has acknowledged that the right of withdrawal will be lost (again, presumably to prevent copyright infringement but also to avoid any technical difficulties associated with returning the content).
The Directive provides a model withdrawal form that should be made available to consumers which can be used to formally notify a trader of their withdrawal from the contract.
Surcharges and add-on sales
The Directive will prevent traders from profiting from charges in relation to certain payment methods. A surcharge on payments by a certain type of credit card may still be levied however that surcharge must not exceed the cost to the trader of providing for payment by use of that card type. This will be of particular interest to consumers and online traders in the UK where the OFT has been investigating this issue in response to consumer complaints.
Additionally if a trader provides a contact telephone number for consumers, the line must be charged at a basic rate (i.e. it cannot be a premium-rate number).
Furthermore traders must make it absolutely clear whether or not they are charging any additional fees in addition to the cost of the goods and services being purchased. The Directive states that "If the trader has not obtained the consumer's express consent but has inferred it by using default options which the consumer is required to reject in order to the avoid additional payment, the consumer shall be entitled to reimbursement of this payment". Users of online travel booking websites will be familiar with the practice of travel insurance or fast-track flight boarding being provided as add-on sales displayed next to pre-ticked selection boxes. Under the Directive, any add-on sales must be self-selected by the consumer for the consumer to be bound.
If on conclusion of a contract the parties have not agreed a delivery time then the trader should deliver the goods or services as soon as possible and in any event within 30 days.
Why this matters:
The Directive intends to harmonise distance and doorstep selling across the European Union and provide clarity for consumers who are increasingly likely to contract for goods and services with traders outside of their home state. Some of the benefits to consumers under the Directive are already in place in many member states, including the UK although, the Directive does include some important extensions of current rights and clarification on a few hot topics.
Member states will have two years to implement the Directive in national legislation. The Directive will be implemented in the UK as part of the Consumer Rights Bill which will aim to consolidate the UK's disparate laws and regulations relating to consumer protection.