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Questions and answers on the Unfair Commercial Practices Directive
Commission Européenne - MEMO/05/64 24/02/2005
Brussels and Strasbourg, 24 February 2005
The European Parliament today approved the final text of a new EU law on Unfair Commercial Practices (see: IP/05/213). The Council of Ministers is likely to give its approval to the new law in the coming weeks, and the new rules will be implemented in 2007.
What is the new law all about?
The new law will ban unfair advertising, marketing and other commercial practices used by businesses in their dealings with consumers. In particular, practices which are misleading or aggressive will be banned. It will replace the complex tangle of existing national rules and court judgements with a single, EU-wide regime. Business will be able to advertise and sell to all consumers in the EU on the basis of one common set of rules. Consumers will have access to a greater range of offers and will be protected from unfair behaviour by businesses throughout the EU.
Who are the winners and losers?
The only real losers from this directive will be rogue traders and rip-off merchants who exploit the gaps and differences between national laws to cheat consumers.
Consumers, honest businesses and the EU's internal market are all winners. Consumers will be guaranteed the same high level of protection whether they are buying from their local corner shop or a website located in another country. Businesses will be able to advertise and market to all 480 million EU consumers in the same way that they market to domestic customers. This will increase consumer choice, stimulate competition and boost cross-border commerce.
Why is EU action needed?
Independent economic studies have shown that consumers and businesses, particularly small and medium sized enterprises (SME), are deterred from taking full advantage of the EU's Internal Market by the maze of different national rules, court judgements and guidelines on consumer protection. These regulatory differences are not the only reason why retail markets continue to be fragmented along national lines. Language and cultural differences also play a role. However, consultations and studies carried out by the Commission in 2001 – 2002 highlighted the regulatory barriers as being an important issue that must be addressed. After having carried out an Extended Impact Assessment, the Commission decided to table a draft directive in July 2003.
Where are the internal market obstacles for consumers and business?
Existing EU rules cover a number of unfair commercial practices, such as aggressive selling of timeshare property and misleading advertising, but they allow Member States to do this in different ways – and to prevent firms which don’t follow that particular country’s way of doing things from selling to their consumers.
As a result, businesses have to comply with a maze of different national rules and case law in this area if they want to sell throughout the EU, and consumers worry about the risk of being treated unfairly by businesses in other countries. The underlying principles of consumer protection law can differ quite significantly from country to country. Each Member State has a distinct idea of the types of business practices it regards as unfair. A directive is therefore needed to go to the heart of the problem, by setting in place a framework of common EU-wide principles to address unfair commercial practices. The directive lists a number of practices to be prohibited EU-wide and lays down principles for regulating new types of unfair practices as they arise.
How will the Directive improve the Internal Market?
Consumers will be able to buy with confidence anywhere in the EU. Businesses will be able to sell with confidence anywhere in the EU. Studies carried out by the Commission in its Extended Impact Assessment predict that this will boost cross-border commerce in the Internal Market. See the answers to 2 and 3 above.
Does the Directive add another layer of EU regulation?
No. Where there are already specific EU rules, for example governing the content of pre-sale information about products, they will take precedence and this directive will not add to them. Where there are no specific EU rules, traders will need to check that they comply with the principles in the Unfair Commercial Practices Directive.
How does the Directive fit with the new Enforcement Co-operation Regulation?
The two are complementary. The Unfair Commercial Practices Directive lays down common rules prohibiting a range of sharp business practices and requires Member States to put in place effective ways of ensuring that traders who break these rules are punished. The Enforcement Co-operation Regulation, adopted by Parliament and Council in October 2004 (see IP/04/1197) will establish a network of public enforcers with the aim of strengthening enforcement of all consumer protection rules, and beating rogue traders who exploit differences in national laws to run cross-border scams. This system of co-operation will help in the enforcement of all EU consumer protection laws, including the Unfair Commercial Practices Directive.
What is the scope of the Directive?
The directive covers businesses’ behaviour in relation to transactions with consumers where this affects consumers’ economic behaviour. In other words, practices that impact on decisions like whether or not to buy a product, and if so from whom. This definition also covers behaviour that might influence consumers' decisions on whether or not to exercise a right under a contract with a business, like making a claim on an insurance policy for instance, or exercising a right to return goods, withdraw from a loan contract or end a subscription.
The directive does not cover businesses’ dealings with other businesses. Nor does it cover any matters of taste or decency, health and safety or contract law.
How does the Directive define ‘unfairness’? Why doesn’t it define ‘fairness’?
The directive defines ‘unfairness’ to ensure that the things that really cause problems for consumers are clearly spelt out and can be addressed, without creating uncertainty and extra costs for honest businesses. This leaves room for business to innovate in developing new fair commercial practices.
In order to be unfair, a commercial practice has to:
What about advertising to children?
Adverts that encourage children to use “pester-power” to make adults buy a product and adverts that directly tell children they must buy a product will be banned throughout the EU. The directive will also ensure that where advertising is targeted at children its effect on the average child is taken into account when the fairness or unfairness of the practice is considered. The same test will be applied where advertising – or any other commercial practice – is targeted at any specific group, whether this is children, adolescents, low income households or high income households.. This puts in place safeguards to ensure responsible advertising to children. The directive does not, however, ban advertising to children.
What is the status of the list of examples on unfair commercial practices? How was the list decided on?
The list of examples of unfair commercial practices contained in Annex I of the directive is a legally enforceable "blacklist". The practices it describes are prohibited EU-wide in all circumstances. All Member States will be obliged to prohibit these practices when they transpose the directive into their national law and when they enforce the directive. Of course, this does not mean that only the practices on the list are unfair, but for commercial practices not on the list, the presumption will be that they are fair until they are shown to be unfair.
How will the list be updated, amended and reviewed?
The list is an integral part of the directive. It can only be amended through the normal legislative process in the same way as any other part of the directive. In other words, amending the list will require a formal legislative proposal from the Commission and positive votes in both the European Parliament and Council.
Will self-regulatory enforcement, such as advertising codes, still be allowed?
Yes. The directive allows for the role of business associations and civil society organisations, at national or EU level, in enforcement. However, this will always be in addition to, and never instead of, a legal backstop.