IP/08/157

Brussels, 31 January 2008

Consumers: Commission launches new system of Consumer Investigations

EU Commissioner Meglena Kuneva today announced the launch of the new "Consumer Market Watch" process which investigates how markets in various sectors of the economy perform from a consumer perspective. There are two steps to the new process. The first is a comprehensive screening of retail markets against 5 key consumer indicators - prices, complaints, switching rates, satisfaction and safety - for patterns which could indicate market malfunctioning. These irregularities – which may be indicative of practices which distort consumer choice and hinder competition at the retail level - can then trigger the second phase of the process, an in-depth, targeted consumer market investigation and corrective actions. The far reaching new Consumer Market Watch process also benchmarks the strength of the consumer environment in different Member States and the degree of integration of the retail internal market. The process will complement the monitoring and analysis proposed in the recent Single Market Review. The first screening results published today underscore the lack of comprehensive, EU wide comparable consumer data in key areas – Compiling this data is a major task for the next years for consumer policy. On the basis of the available evidence, presented by indicator for more than 20 sectors (services and goods), Commissioner Kuneva announced her intention to partner with Commissioner McCreevy to boost current initiatives to target the retail financial services, in particular the conditions faced by consumers in retail banking, as the priority sector for in-depth consumer analysis for 2008.

"The Single Market has come a long way in 15 years, but we believe that consumers are still not getting the deal they deserve. This powerful new tool investigates how consumers are really experiencing markets on the ground. What is letting consumers down when they try to switch? What about complex pricing? What about hidden charges and tying and bundling of offers? These new investigations are a systematic reality check that consumers are getting a fair deal. Europe is making a fundamental shift putting consumer interests at the centre of its policy making."

The screening

The results of the first screening exercise are presented in the consumer scoreboard 2008. This embryonic scoreboard draws on data from within existing European Commission departments – including competition, information society, enterprise, and department of consumer affairs - as well as data from Eurostat (the Statistical Office of the European Communities) which works in co-ordination with national statistical offices. Much of the data presented is already in the public domain.

The results

The central finding of the first scoreboard is the lack of comparable, comprehensive consumer data on key issues for consumers. There is major work to be taken forward in 2008 and beyond to gather this evidence, in close cooperation with Member States' statistical offices, consumer agencies and regulators. Key issues for 2008 include

• launching a consultation process on the development of an EU wide classification of consumer complaints;
• working with Eurostat and national statistical offices to develop comparable price data;
• extending the scope of sectors covered by the monitoring on consumer satisfaction.

In the first screening, consumer indicators – pricing, switching, complaints etc - by country and by sector point to possible malfunctioning at the retail level in a range of consumer markets, which could merit further investigation. Five examples demonstrate some of the problems consumers are experiencing at the retail level. For example:

• 1. Consumer organizations report that the prices of digital cameras can vary up to 30% even between neighbouring countries.^[1] How do we reconcile this with a supposedly 'single' market?
• 2. Evidence from Portugal, confirms that over 90% of subscribers do not use the tariff that minimizes their mobile communication expenses. The study revealed that, on average, Portuguese consumers waste over 100 euros per year^[2].
• 3. Why is fixed telephony 20% more expensive in Belgium than in the Netherlands? Maybe it is taxes, maybe not. We want to know. Electricity in Italy is twice as expensive as in Finland or Greece. Why?
• 4. Average fees for the management of bank accounts can vary between zero and more than 80 Euros across countries in the EU. Why?
• 5. We see confusion in energy markets where consumers have a hard time understanding and comparing offers and therefore do not switch. A study in the UK showed that between 20 to 32% of people who switched suppliers in 2000 after the liberalization of the energy markets actually switched for worse contracts.^[3]

The next steps

Work is ongoing in many key sectors such as telecoms and energy which will address issues raised. Given resource constraints, and based on the available evidence in the scoreboard screening - Commissioner Kuneva announced three areas for priority action in 2008 .

• 1. Retail financial services. Building on the work already undertaken by the Commission in the area of retail financial services we will work to deepen the analysis in particular from a consumer outcome perspective. There will be a targeted investigation in order that the factors determining price transparency, comparability and mobility of customers in financial services be better understood. The results will be published within a year.
• 2. Cross border sales in tradable consumer goods (cameras, CDs, books). Consumer confidence in cross border trade remains low and price differentials in cross border tradable goods need to be studied. This will be a priority area for action – with a report back in 2008
• 3. Consumer redress: Consumers trust at national and cross border level in getting complaints handled or obtaining redress effectively is low. Targeted work will be done in this area.

Background

In an increasing number of sectors, we have witnessed the appearance and proliferation of a range of practices at the retail end of the market which seem to be distorting consumer choice and behaviour and might even act as barriers to effective competition. These include strategies of obfuscation or complex pricing that impair a consumer's ability to compare offers and make an optimal decision. They include commercial practices that exploit behavioural biases to distort consumer choice with teaser offers, or by tying offers and bundling smaller services consumers pay little attention to when they make a bigger purchase. More visible ways to restrict consumer choice, such unfair contract terms that lock in a consumer and make it difficult to switch, remain also a concern.
Instruments for market investigations already exist in the European Commission and at national level. There are competition inquiries and fact finding exercises on the barriers to the realization internal market. They typically emphasise the health of business environment and rely on information pertaining to firms. Market Watch will provide the instruments to assess whether we have set the right conditions for the last leg of retail trade: the final purchase by the consumer. We want that final transaction to happen by way of an undistorted and informed decision so that it can promote healthy competition based on the merits of the services and goods.

http://ec.europa.eu/consumers/overview/cons_policy/index_en.htm

^[1] Test-Achat No 515, December 2007

^[2] Data from DECO/PRO TESTE in February 2005.

^[3] 'Do consumers switch to the best suppliers?' Chris Wilson and Catherine Price, CCP Working paper May 2006.