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Unfair Commercial Practices Directive: Overview and Current EU developments

Unfair Commercial Practices Directive (UCPD)

Scope of Directive

• Applies only to business to consumers relations

• It establishes a full harmonisation level: Member States cannot adopt either less or more restrictive or prescriptive rules in the area of unfair commercial practices

Unfair Commercial Practices Directive (UCPD)

General Objectives

Protect consumers from unfair commercial practices

Boost their confidence in buying from other Member States

Encourage businesses to sell cross-border through one set of applicable rules

Unfair Commercial Practices Directive

Important elements for the direct selling sector

• Aims for fair competition between different channels of distribution (retail, distance sales/internet and direct selling)

• Defines key principles of fairness and misleading or aggressive practices (art 5, 6-9)

• Prohibits pyramid schemes including financial scams (point No 14 of Annex I)

• Aggressive doorstep selling is prohibited too (point No 25 of Annex I)

General Clause (Article 5)

• Unfair commercial practices are prohibited

• Criteria to determine unfair practices:

against the requirements of professional diligence

materially distort the economic behavior of consumers

• Vague definition of «unfair practices» ensures flexibility when implemented by Member States and is future proof

• This Article (introducing the principle based approach) is used as a safety net when:

a) more specific prohibitions (e.g. provisions on misleading practices) are not applicable

b) the Black List of commercial practices does not apply

Misleading and Aggressive Practices (Articles 6-9)

• Misleading and aggressive practices are considered unfair

• Definition of misleading: a practice containing false information or deceiving/likely to deceive the consumer with regard to the product

Example: a trader falsely claimed that its loans to consumers had the lowest interest rates on the market.

• Definition of aggressive: Practice impairing consumer’s freedom by harassment, coercion, including the use of physical force, or undue influence

Example: a trader made it particularly burdensome for its customers to terminate their service contracts with it to the point that they were often trapped in de facto automatic renewals

Black List and Pyramid Schemes

• The Directive establishes a black list of unfair practices that are banned on all circumstances (Annex I of Directive)

All circumstances: means that the « unfairness» of these practices will NOT be assessed by authorities on a case by cases basis

• Pyramid schemes, including financial scams, are included in the Black List and therefore are always forbidden

• Definition of pyramid schemes in Point No 14 of Annex I: «a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products »

Commission’s guidance on definition of pyramid schemes

• Commission non-binding guidance document on Unfair Commercial Practices Directive was published in May 2016 to clarify a number of points

• The guidance document also clarifies definition of pyramid schemes

• It makes reference to a ruling of the European Court of Justice. According to the ruling, a pyramid scheme exists when:

- the members of such scheme are required to give financial consideration, regardless of its actual amount, to receive compensation derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products

- there is a link between the financial consideration paid by new members and the compensation received by existing members because the funding of the compensation that a consumer may receive depends primarily or mostly on consideration given subsequently by new participants in the scheme

Commission’s guidance on definition of pyramid schemes

Distinction between pyramid schemes and multilevel marketing

Pyramid Schemes (banned)

• Participants make money mostly or solely by recruiting new participants

Multilevel marketing

(legal)

• The sales force is compensated for sales they personally generate and also for sales of other salespeople in the sales group they support

Consumer Rights Directive

• Objective of Consumer Rights Directive: protection of consumers when they conclude contracts with traders

• Traders are required to give consumers a minimum of information for contracts concluded at the business premises /retail, off-premises/direct selling or via distance sales/internet

• List of 20 consumer information requirements for off-premises contracts

• Consumers can withdraw from off-premises and distance sale contracts within 14 days of the delivery of the good

• Consumer Rights Directive complements the Unfair Commercial Practices Directive, which regulates consumer rights before a contract is concluded.

Consumer REFIT and Pyramid Schemes

• 2016-2017: Commission launched evaluation (REFIT) of EU Consumer Directives, including the Unfair Commercial Practices Directive

• Purpose of evaluation: are the existing rules fit for purpose?

• On the provisions of the Directive on pyramid schemes, the evaluation found that:

(i) The inclusion of pyramid schemes in the Black List of Unfair Commercial Practices helped Ireland to address those practices efficiently

(ii) Belgium extended the ban of pyramid schemes to business-to-business relations

(iii) No issues were reported by Member States on the current legislation on pyramid schemes and its practical implementation

(iv) Other targeted changes to the Unfair Commercial Practices and Consumer Rights Directives were, however, needed

Update of EU Consumer Rules

• Commission Proposed Draft New EU Consumer Rules in April 2018

• Final version of law was negotiated by co-legislators in early 2019; final agreement was reached in March 2019

• Directive (EU) 2019/2161 on modernisation and better enforcement of EU consumer protection rules entered info force on 7 January 2020

• Member States must transpose it into national law until 28 November 2021

• The Directive will start to apply as of 28 May 2022

• This Directive updates a number of EU Consumer Directives, including the Unfair Commercial Practices and Consumer Rights Directive

Update: Unfair Commercial Practices Directive

• Increased transparency requirements for online traders and marketplaces:

addition to the list of prohibited commercial practices (Annex I of Directive) of the following:

a) Providing information to a consumer in the form of search results in response to the consumer’s online search query without clearly disclosing any paid advertising or payment specifically for achieving higher ranking of products within the search results

b) Stating that product reviews are submitted by consumers who used or purchased the product without taking reasonable and proportionate steps to check that they originate from such consumers

• When harmed by unfair commercial practices, consumers must have access to effective remedies (price reduction or termination of contract)

• Members States can adopt provisions against aggressive or misleading marketing or selling practices in the context of unsolicited visits by a trader to a consumer’s home or excursions. Those provisions should be proportionate, non-discriminatory and justified by reason of consumer protection

Update: Consumer Rights Directive

• Before imposing penalties for infringements of the Directive, Member States should consider the non-exhaustive EU list of criteria (Article 24), such as nature, gravity or duration of act

• For cross-border extensive infringements, Member States may impose fines, the maximum amount being at least 4 % of the seller’s annual turnover in the Member States concerned.

• The above apply also to penalties for infringements of the Unfair Commercial Practices Directive

• Member States can extend the 14 day withdrawal period to 30 days for contracts concluded in the context of unsolicited visits by a trader to a consumer’s home or excursions

Enforcement of EU Consumer Legislation

• Consumer REFIT results: while some limited amendments to EU laws were needed, stepping up enforcement of current rules and providing quick consumer remedies are equally important

• Ensuring enforcement and harmonised application of EU consumer rules

CPC Network (national enforcement authorities)

• Uniform EU rules on powers granted to the national authorities against unlawful practices: e.g. ordering the take down of websites hosting scams or requesting information from banks and domain registrars on identify of trader (CPC Regulation)

Consumer Redress

• EU promotes use of alternative dispute resolution: settling a complaint out of court in an easier, faster and cheaper way

• Alternative Dispute Resolution (ADR) Directive and Online Dispute Resolution (ODR) Regulation set out rules on out of court dispute resolution mechanisms

• ODR introduces a platform (automated online tool) allowing consumers to make a complaint when products are bought online; complaint will be dealt by an approved ADR body

• European Consumer Centers (ECC) Network: national offices providing information to consumers or helping them settle a dispute with a seller based in other EU country

Useful Links to EU Documentation

• Directive 2005/29/EC on Unfair Commercial Practices

• Guidance on Unfair Commercial Practices Directive

• Consumer Rights Directive 2011/83/EU

• Results to Consumer REFIT evaluation

• New Commission proposals on EU Consumer legislation

• Directive (EU) 2019/2161 on better enforcement and modernisation of Union consumer protection rules

• Regulation (EU) 2017/2394 on cooperation between national authorities responsible for the enforcement of consumer protection laws

• Directive 2013/11/EU on alternative dispute resolution

• Regulation (EU) 524/2013 on online dispute resolution