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June 09, 2022

New rules of the game in consumer law

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On May 28, 2022, changes to various laws took effect that will help lead to innovations in consumer information obligations, the implementation of discount campaigns, and the design of online marketplaces and price comparisons. The changes indicate that non-compliance may in some cases result in severe regulatory penalties.

1. BACKGROUND

The "New Deal for Consumers" the European Commission announced in 2018 is moving forward. The so-called "Omnibus Directive" (EU) 2019/2161 launched the European legal framework for numerous changes in national legal systems, with a focus on strengthening consumer rights.

Although the Omnibus Directive (sometimes referred to as the Modernization Directive), which amends four directives at once, was adopted in November 2019, the changes did not become mandatory throughout Europe until May 28, 2022. In Germany, the Directive is the subject of various implementation acts focusing on individual topics, and it led to amendments to the German Civil Code (BGB), the Introductory Act to the German Civil Code (EGBGB), the Unfair Competition Act (UWG), and the Price Indication Ordinance (PAngV).

Changes to sales and contract law for digital products that took effect at the beginning of 2022 already have received attention and criticism in Germany, while the imminent changes the Omnibus Directive introduced are less well known—but not for long. Germany's implementation of the Omnibus Directive will lead to significant changes in the e-commerce sector and establish an official sanction mechanism for the "violation of consumer interests" by introducing high fines for the first time. These changes will also affect a variety of previously unsanctioned behaviours.

2. KEY CHANGES REGARDING ONLINE COMMERCE

2.1 Fines for infringements of consumer interests

The Omnibus Directive imposes tighter sanctions for consumer rights violations in two respects: (1) through the introduction of large fines for certain violations, and (2) through the addition of a claim for damages from consumers to the UWG. 
Thus, in the future, a wide range of conduct will be subject to fines, including:

  • the use of clauses in general terms and conditions vis-à-vis consumers that are inadmissible under Section 309 of the German Civil Code (BGB); 
  • the failure to repay the purchase price in good time or at all following consumer revocation or withdrawal; 
  • violations of information obligations vis-à-vis consumers, e.g.,: 
    • missing or incomplete consumer information pursuant to Art. 246 EGBGB, missing or incomplete qualified information according to Art. 246a EGBGB in the case of contracts concluded away from business premises, as well as violations of the obligations for operators of online marketplaces set out below according to Art. 246d EGBGB; 
    • the absence of mandatory contract confirmation for contracts concluded away from business premises; 
    • the design of the ordering process in a way that does not comply with the requirements of Section 312j BGB, i.e., the absence of lawful order summaries or the insufficient labelling of the "order button"; 
    • the omission of any confirmation of cancellation in the case of contracts concluded away from business premises; 
  • demanding shipping costs or return shipping costs from consumers without informing them in accordance with Article 246a EGBGB), or making demands of consumers in connection with sending unsolicited goods; 
  • late delivery of purchased goods to consumers (i.e., after more than 30 days) contrary to Section 475BGB; 
  • violations of the new obligations established by Section 19a UWG in connection with customer ratings, as outlined below, as well as many known violations of competition law, e.g., misleading business conduct. 

However, according to the new regulation, a fine can only be imposed if the (intentional or negligent) "infringement of consumer interests" constitutes a "widespread infringement" (or a "widespread infringement with Union dimension") within the definition of the "CPC Regulation" EU 2017/2394. This is always the case if consumer interests from at least two EU member states, in which the respective company is not established, are affected by the infringement or if the infringement otherwise takes place in at least three member states in a comparable manner. Purely national (German) infringements would therefore not incur a fine. Also, a so-called "coordinated enforcement action" (as defined in the CPC Regulation) between the competent authorities of the affected member states is required in any case to enforce the fine.

The maximum initial fine is 50,000 euros. However, entrepreneurs whose annual turnover in an affected member state exceeds 1.25 million euros could be subject to penalties of up to 4% of their annual turnover, an equivalent compliance risk as under the General Data Protection Regulation (GDPR).

The German legislator has largely exhausted the scope of the Directive to ensure that the fines for violations of the law on general terms and conditions, which run somewhat counter to the system established for such fines under German law, are incurred as seldom as possible. Nevertheless, the scope of application is considerable, especially for e-commerce sites offering products in several EU member states. 

Furthermore, if an entrepreneur takes an illegal action under Section 3 UWG, there is now a claim for damages not only from competitors but also from consumers if the action caused them to perform a business act they would not have performed otherwise.

2.2 Transparency obligations for online marketplaces

From now on, online marketplace operators will be subject to their own information obligations, i.e., independent from those of retailers. Among other things, the new regulations oblige marketplace operators to disclose the main parameters used when creating ranking systems for the products offered and their relative weighting to each other.

In addition, marketplace operators must state whether the traders of the products offered are entrepreneurs or private individuals and, in the latter case, separately indicate that certain consumer regulations do not apply.

In addition to websites, other software interfaces from which consumers conclude distance contracts are also considered online marketplaces, even if the actual conclusion of the contract takes place with another company.

2.3 Price Indications for Discount Promotions

In order to avoid drastic price fluctuation when granting discounts, entrepreneurs now have to indicate to consumers the lowest price previously charged for the relevant goods or services within 30 days prior to the application of the discount. If the goods were offered for fewer than 30 days prior to the discount, the shorter period applies.

The only exception to this new obligation applies to perishable goods, which may reduce in price  exclusively because of an imminent expiration date.

2.4 Extension of the information obligations of the EGBGB

Entrepreneurs, who are already required to inform consumers about their identity, must now also provide  telephone numbers and email addresses. In addition, if a trader acts on behalf of a third party, the trader must provide their identity and address. The fax number, on the other hand, is no longer required.

In addition, consumers must now be informed about so-called "profiling", i.e., personalized prices based on automated decision-making. This obligation cannot be fulfilled by a general notice in the Terms and Conditions. Instead, clear, comprehensible information must be provided prior to the conclusion of the specific contract with the specific consumer. Not covered by this regulation are techniques of dynamic pricing or real-time pricing, where instead of personalized automatic decision-making, the price reacts flexibly and in real time to general market demand.

Adjusted information requirements now also apply to the categories of digital products and so-called "goods with digital elements", which were already introduced at the beginning of 2022. As of the end of May, entrepreneurs must provide information in these areas on functionality as well as, when relevant, on compatibility and interoperability. The mandatory reference to the existence of warranty rights for defects also now applies to the new digital categories. 

2.5 Information on customer ratings and competition law

Because consumer decision-making in online commerce is increasingly based on reviews by other customers, the Omnibus Directive also expands the information obligations of companies in this area. According to the new regulations in the UWG, consumers must now be informed whether and how entrepreneurs ensure the reviews they publish actually originate from other consumers who have purchased or used the respective product. Entrepreneurs may no longer state that a review originates from a consumer if this has not been verified beforehand by means of "appropriate and proportionate measures". Falsified consumer reviews or their commission are now even more expressly anticompetitive, although they previously qualified as general anticompetitive behaviour. Under the Directive, a violation of these requirements not only qualifies as an anti-competitive omission by withholding essential information but may also be subject to fines (see above). 

2.6 Right of withdrawal

Traders must provide a name, telephone number, address, and email address in a notice of withdrawal. Fax number is no longer required. Omitting any of this information could lead to a one-year right of revocation.

The Omnibus Directive also amends the right of withdrawal for products made available to the customer as a download. In the case of contracts for services with no payment obligation on the part of the consumer, i.e., contracts where the consumer provides data to the entrepreneur as consideration, the right of withdrawal now expires when the entrepreneur has provided the service in full. In the case of contracts for digital content that is not provided on a durable medium and does not obligate the consumer to pay, the right of withdrawal expires when the entrepreneur begins to fulfill the contract. If the consumer must pay for these products, on the other hand, the right of withdrawal expires only after the consumer has been informed accordingly and has given consent if the download takes place before the end of the two-week withdrawal period.

3. CONSIDERATIONS FOR COMPANIES

Companies that conduct business with consumers should closely examine the changes brought about by the Omnibus Directive and modify their own standard documents and business processes accordingly. In particular, businesses should adapt their standard cancellation policies to comply with the Directive.

This is particularly important if the business activity is not limited to a single member state because of the risk of severe fines if the standard terms and conditions or the many new information requirements are not met. Additionally, adjustments must be implemented in all relevant language versions if business is conducted in several member states. 

4. OUTLOOK

The Omnibus Directive and its implementation into German law makes clear the importance of compliance in the field of e-commerce. The second element of the "New Deal for Consumers", the Associations' Complaints Directive (EU) 2020/1828, has already been adopted and will be implemented by the end of 2022 and applied by June 25, 2023.

With the right of action for qualified bodies (i.e., authorized consumer protection organizations) to enforce consumer rights provided for therein, the practical requirements for compliance with e-commerce law will increase once again, especially because decisions from representative action proceedings may be used by all affected consumers of the member state as "evidence" in their own lawsuits against entrepreneurs in accordance with Art. 15 of the Directive.

ALM expressly disclaims any express or implied warranty regarding the OnPractice Content, including any implied warranty that the OnPractice Content is accurate, has been corrected or is otherwise free from errors.

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