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IP/03/857

Brussels, 18 June 2003

Rough times for rogue traders: Commission proposes EU-wide ban on unfair commercial practices

The European Commission adopted today a proposal for a Directive on unfair business-to-consumer commercial practices. Consumers' rights will be clearer and cross-border trade made simpler under the directive which establishes a single, common, general prohibition of unfair commercial practices distorting consumers' economic behaviour. This single set of common rules will replace the existing multiple volumes of national rules and court rulings on commercial practices. This will give consumers the same protection against sharp business practices and rogue traders whether they buy from the shop around the corner or from a website in another Member State. There are two main categories of unfairness: misleading and aggressive practices. Independent economic studies predict the Directive will increase consumer choice, stimulate competition and enlarge the horizons of small and medium sized businesses in Europe. The Commission's proposal follows several years of consultation with consumer groups, businesses and governments and is accompanied by an extended impact assessment. The proposal will now be forwarded to the European Parliament and the Council for adoption through co-decision and could enter into force beginning 2005.

"This directive creates a triple-win situation: for consumers, businesses and Europe's economy. Studies show that the maze of national rules we have at the moment is holding back cross-border commerce. Consumers are uncertain of their rights. Businesses, particularly smaller ones, are daunted by the prospect of having to comply with the accumulation of rules, court judgements and guidelines that exist. Both are deterred from taking full advantage of the economic opportunities of the Internal Market that the euro has made evident. Unfair business practices are recognised as a problem in all EU countries and harm consumers as well as respected companies with established business practices. They also affect confidence in markets. This proposal seeks to stamp them out in a simpler and more effective way," said Health and Consumer Protection Commissioner David Byrne.

The 2001 Cardiff report highlights the fact that the average retail price for a product in one Member State can be up to 40% above or below the European average, compared to a variation of around 5% around the national average within Member States. Despite large divergences in retail prices of consumer goods between Member States, cross-border business-to-consumer sales have stagnated in the EU since 1991. Consumers are unwilling to take advantage of the potential benefits of the Internal Market as long as they are not confident enough to shop cross-border.

Several surveys confirm that unfair commercial practices undermine consumer confidence if they are not addressed by effective consumer protection (see e.g. Eurobarometer 57.2 and Flash Eurobarometer 128).

The European Advertising Standards Alliance concluded in its 2002 annual report that "cross-border complaints overwhelmingly concern the activities of 'rogue traders' and other fringe operators, who deliberately set out to exploit the loopholes between national regulatory systems". At the same time, nearly one in two businesses (47%) cite the need for compliance with different national regulations on commercial practices, advertising and other consumer protection regulations as important obstacles to legitimate cross-border advertising and marketing (see Eurobarometer 57.2). Advertising is one of the areas covered by the proposed directive, others are for example marketing and after-sale services.

To overcome these barriers to the Internal Market and to achieve the same high level of consumer protection throughout the EU, the Commission has adopted today a proposal for a Directive on unfair business-to-consumer commercial practices.

Details of the proposed Directive

The Directive lays down rules for determining whether a commercial practice is unfair. Its aim is to define a limited range of "sharp practices" which are prohibited EU-wide. This leaves room for business to innovate in developing new fair commercial practices.

Because the Directive ensures EU-wide standards of protection, businesses will only have to comply with the requirements of their country of origin when selling to consumers around the EU. The Directive prevents other Member States from imposing additional requirements on them.

Member States will have a duty to ensure the rules on unfair commercial practices are enforced and that traders in their jurisdiction who break them are punished. The duty to pursue "rogue traders" applies equally whether the consumers targeted live in the Member State or another part of the EU.

    General prohibition of unfair commercial practices

The Directive establishes two general conditions to apply in determining whether a practice is unfair:

  • The practice is contrary to the requirements of professional diligence;

  • The practice materially distorts consumers' behaviour.

    The benchmark consumer to be considered in assessing the impact of a practice is the 'average' European consumer who is “reasonably well informed and reasonably observant and circumspect”(1). However, where a specific group of consumers is targeted (for example, children or adolescents), the characteristics of the average member of that group must be taken into account in assessing the impact of the practice.

    The concept of professional diligence referred to in the first condition is a notion familiar to most legal systems of the Member States. It is the measure of care and skill exercised by a good businessman, in accordance with generally recognised standards of business practice in his or her particular sector of activity. This concept is necessary to ensure that legitimate business practices, such as advertising based on brand recognition or product placement, will not be caught by the Directive even if they are capable of influencing consumers' economic behaviour.

      Misleading and aggressive commercial practices

    Two specific types of unfair commercial practice are defined in more detail - "misleading" and "aggressive" practices.

    A commercial practice may mislead either through action or omission. The Directive does not attempt to define a comprehensive list of information to be positively disclosed in all circumstances. Rather, the duty imposed on businesses is not to omit 'material' information which the average consumer needs to make an informed transactional decision where this information would not be apparent from the context.

    The Directive lays down a limited number of core information items that should be regarded as the 'material' information a customer needs to know before making a purchase. These include the main characteristics of the product, the price inclusive of taxes and, where appropriate, delivery charges and the existence of a "right of withdrawal" where one exists. Where this information is not apparent from the context, the trader will need to disclose it.

    The Directive incorporates the current provisions of the misleading advertising Directive and applies them to other commercial practices, including those after sale.

    The Directive describes three ways in which a commercial practice can be aggressive, namely harassment, coercion and undue influence. Criteria are set out to be applied in differentiating between aggressive practices on the one hand and legitimate marketing on the other.

    Specific unfair commercial practices prohibited by the Directive

    The Directive contains an Annex listing some specific types of unfair commercial practice that are banned in all circumstances. These include:

      Misleading practices

    • Claiming to be a signatory to a code of conduct when the trader is not.

    • Claiming that a code of conduct has an endorsement from a public body when it does not.

    • "Bait advertising" scams (advertising a product as a special offer without actually having it in stock, or having only a token stock of the product)

    • Using the expression “liquidation sale” or equivalent when the trader is not about to cease trading.

    • Stating that a product can legally be sold when it cannot.

    • Using "advertorials" to promote a product (paid for media coverage), without making clear the "advertorial" is an advertisement.

    • Falsely arguing that the personal security of the consumer or his family is at risk if the consumer does not purchase the product.

    • Establishing, operating, or promoting a pyramid scheme.

      Aggressive practices

      • Creating the impression that the consumer cannot leave the premises until the contract is signed or the payment made.

      • Conducting prolonged and/or repeated personal visits to the consumer's home ignoring the consumer's request to leave.

      • Making persistent and unwanted solicitations by telephone, fax, e-mail or other remote media.

      • Targeting consumers who have recently suffered a bereavement or serious illness in their family in order to sell a product which bears a direct relationship with the misfortune.

      • Advertising to children in a way which implies that their acceptance by their peers is dependent on their parents buying them a particular product.

      • Demanding payment for products supplied by the trader, but which were not solicited by the consumer (inertia selling).

    Further Information

    The adoption by the Commission today of its proposal for a Directive on Unfair Commercial Practices follows its Green Paper on EU Consumer Protection in October 2001 (see MEMO/01/307) and the Follow-up to the Green Paper in 2002 (see IP/02/842, IP/02/1683 and MEMO/02/135). This consultation process, which included an extended impact assessment, concluded that a Directive harmonising EU Member States' rules on unfair commercial practices was the best policy option.

    At an informal ministerial meeting on EU consumer protection, held during the Greek Presidency, participants strongly supported the idea of a Directive. The Commission has produced a "Question and Answers" on the Unfair Commercial Practices Directive (see: MEMO/03/135). Further information, including the text of the proposed Directive can be found at:

    http://ec.europa.eu/consumers/cons_int/safe_shop/fair_bus_pract/index_en.htm

    (1)The Directive takes its definition of the "average consumer" from the definition used by the European Court of Justice (see cases C-315/92 and C-210/96).


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