The New Deal for Consumers: our outline of the key pillars and initial steps to get ready
10 March 2021
1. What is the New Deal for Consumers?
In early 2018, the European Commission adopted a new consumer protection initiative called the New Deal for Consumers (the New Deal). The New Deal aims to modernise and strengthen the enforcement of EU consumer law, mainly through: (i) a significant increase in fines, now up to 4% of a trader’s annual turnover; (ii) the increased regulation of the digital sector; and (iii) the introduction of class actions in each EU Member State. Key drivers of the New Deal were the exponential rise of the digital economy, including e-commerce, and the increasing risk of EU-wide infringements.
2. The Omnibus Directive
Scope: The first pillar of the New Deal is the Enforcement and Modernisation Directive 2019/2161 (the Omnibus Directive). The European consumer protection framework comprises an interlocking set of directives and regulations. The Omnibus Directive simultaneously updates the following four consumer protection directives to ensure consistency within the framework:
• Unfair Contract Terms Directive 93/13/EEC
• Price Indication Directive 98/6/EC
• Unfair Commercial Practices Directive 2005/29/EC
• Consumer Rights Directive 2011/83/EU
Impact: The main updates of the New Deal are:
A. Introduction of GDPR-style fines for a breach of the rules:
The New Deal allows for fines of at least 4% of the trader’s annual turnover in the Member State or Member States where the breach occurred, or 2 million euro where information on turnover is unavailable. Member States may maintain or introduce higher fines as well as other penalty measures during the implementation period.
B. Harmonisation of consumer rights:
The New Deal ensures that consumers enjoy the same legal protection irrespective of whether they buy digital or physical goods, services or content.
C. Equal treatment of services where a customer “pays” with data instead of money:
Digital content and services, such as cloud storage and social media accounts, are often supplied online for free, where the consumer does not pay a price but rather provides their personal data to the trader. The New Deal now applies the same rights to all contracts for digital content and services, regardless of whether consumers “pay” in money or in personal data. In practice, this mainly means that the same rights to
pre-contractual information and a 14-day withdrawal period will now apply to “free” digital services.
D. Introduction of the following transparency obligations for online marketplaces and platforms:
• They must clearly inform consumers whether the third-party seller is a trader or non-trader. Only if the seller qualifies as trader, will the consumer be able to enjoy consumer protection rights.
• They must disclose paid advertisements or arrangements leading to a higher ranking and provide a general description of the main default parameters and their relative importance to one another, without having to disclose the detailed functioning of the ranking mechanisms.
• They must inform consumers of the procedures in place to process and verify consumer reviews, as well as any prohibition against submitting and manipulating fake reviews and endorsements, such as social media likes.
• They must inform consumers of whether prices are adjusted based on automated decision-making and profiling of consumer behaviour.
E. Introduction of strict rules on “dual-quality” products:
Dual-quality products are products marketed across Member States by a trader in identical or similar packaging, even though they have a significantly different composition or characteristics, for example fresh cheese with a different fat percentage. This practice is potentially misleading, because a consumer might make a purchase assuming that the product is the same everywhere in the EU. Under the New Deal, dual-quality products are only allowed for legitimate and objective reasons, such as national law, seasonality of materials or voluntary strategy.
Timing: Member States have until 28 November 2021 to adopt and publish measures to comply with the Omnibus Directive, but do not have to apply these until 28 May 2022. Each Member State will have to update their domestic laws that implement the various pieces of consumer protection legislation.
3. The Collective Redress Directive
Scope: The second pillar of the New Deal is the Directive on representative actions for the protection of the collective interests of consumers 2020/1828 (the Collective Redress Directive) that replaces the current Injunctions Directive 2009/22/EC. The Collective Redress Directive will introduce “class action” style litigation for consumers across the EU. The Collective Redress Directive will cover instances where traders infringe EU law that harm or may harm the collective interests of consumers, such as in the areas of data protection (including the GDPR), financial services, travel and tourism, energy, telecommunications, and general consumer law.
Impact: Member States must create procedures by which “qualified entities” (ie public bodies or consumer organisations) may bring representative actions to seek injunctive or redress measures on behalf of a group of consumers harmed by a potential infringement. This will significantly increase the litigation risk for consumer protection infringements that often represent a low individual value.
Timing: Member States have until 25 December 2022 to adopt and publish measures to comply with the Collective Redress Directive, and must apply these measures from 25 June 2023.
4. The bigger picture
The New Deal is not the only recent sign of the EU’s increasing desire to regulate online platforms. While the New Deal focuses on the relationship between consumers and online platforms, the new Platform to Business Regulation (Regulation 2019/1150) (the P2B Regulation) centres on business users and online platforms.
Furthermore, the new Digital Content Directive (Directive 2019/770) regulates the supply of digital content and services, and complements the revised Sale of Goods Directive (Directive 2019/771) for the sale of non-digital goods and services.
Finally, the Digital Services Act (the DSA) and Digital Markets Act (the DMA) update the twenty-year-old
e-Commerce Directive and aim to open up the digital market by establishing limits to current digital “gatekeepers”.
5. How to prepare?
Given the important changes initiated by the New Deal, there are two main ways companies can prepare.
First, it is essential to monitor how Member States implement the directives within the EU, as each Member State may take a different approach. This may raise additional challenges for those services that are provided across the EU.
Secondly, when implementing these new consumer protection rules, companies should not consider the New Deal in isolation. Similar obligations are found in other parallel digital initiatives, like the P2B Regulation, the DSA and the DMA. This offers opportunities to increase efficiencies if tackled appropriately. In addition, the implementation of the New Deal raises the intertwined issues of data protection and antitrust.
Given the importance of the new rules regulating the digital sector, we will continue to share our thoughts on specific aspects of both directives as well as national transposition measures in future publications. You can also find further articles on the regulation of the digital economy on our digitalisation microsite.
In the meantime, please contact us if you would like to discuss the impact that the new proposals may have on your business.