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Brussels, 8 October 2008
SECTION 1 – OVERVIEW
The current situation
Currently, there are four different Directives which cover consumer contractual rights in the EU: Unfair contract terms, Sales and Guarantees, Distance Selling, and Doorstep Selling. These Directives set out the basic consumer rights which apply to consumer contracts across the EU. These include the information you receive on an offer, rules on unfair contract terms which are biased against the consumer, cooling off periods where you can change your mind on distance and doorstep selling contracts, as well as rights on repairs and guarantees for faulty goods.
The problem is that several of these laws date from the 1980s, and all of them set minimum standards. Since individual EU countries have adapted the rules in different ways nationally, a patchwork of laws which has evolved over the last 20 years.
The result is a maze of different rights and practices, from cooling off periods to guarantees, which are as unclear to consumers as they are confusing for business. Guarantees, for example, last for 2 years in one country but can be longer in others; cooling off periods last 7 working days in one Member State and can be 14 calendar days in another. In addition, the existing Directives are not adapted to recent technological developments.
The scale of the opportunity
The steady progression of technology, in the form of digital communications and internet, is on its way to utterly transforming our lives forever. Internet will change the way we conceive social life but also the way we interact economically. It will transform the economic environment of individuals and dramatically expand their range of opportunities.
Internet ensures consumers can find, in a few clicks, the product they want at the best price possible. Millions of individuals have gained easy access to secondary markets that provide good value for money, and thousands individuals are using the internet to develop small scale businesses. This is the result of a ground-breaking evolution of retail distribution online that offers innovative platforms facilitating transactions between individuals and firms.
At a time when European households are facing pressure on their budgets and watching their purchasing power deteriorate, we cannot afford to ignore this chance to bring such efficient retail to their desktops.
The problem: the Single Retail Internal Market is not functioning
Unfortunately, the reality today is that the EU-wide market at retail level does not yet exist, even when online cross border shopping should be practically costless. This greatly diminishes the opportunities available to consumers and the incentives for business to grow.
Percentage of individuals having purchased goods or services via the internet in the last 12 months, in their own country or elsewhere, and from a seller/provider located in another EU country.
[ Figures and graphics available in PDF and WORD PROCESSED ]
There is a significant variation in online shopping at country level: 68% of individuals in the Netherlands have made an online purchase in the past 12 months, while this is true for just 4% of Bulgarians. The average value is clearly lower in the EU10 than in the EU15, i.e. 50 to 200 euros and 500 to 1,000 euros respectively.
The opportunity cost for consumers and business.
The internal (B2C) business to consumer market is incomplete. Cross-border retail competition is weak and there is only limited pressure on traders to harmonise retail prices across Europe. Consequently, large differences exist between average price levels of the individual EU Member States which consumers could take further advantage of.
The price differences are striking for particular products that can be normally be bought online either domestically or cross-border.
A small scale online survey of three products was undertaken (see below). The products were: Euphoria perfume by Calvin Klein, 50 ml; an MP3 player (iPod nano 8GB); and a sports shoe (Nike Dart V). See tables in Annex 1.
Even though it was only possible to identify prices in a small number of countries, there were significant variations. The same perfume can cost anything from 51.88 Euro in the UK, to 58.5 in Ireland and 66.5 Euro in Germany. The same MP3 player can cost from 179 Euro in Spain, to 199 Euro in France and 231 Euro in Romania. For the same sports shoe you can pay 45.96 Euro in the UK and 50 Euro in France or Germany.
Prices for a Panasonic Lumix DMC-FZ8 digital camera (black) at a major distance selling company, by country (as of 13 March 2008)
In March 2008, a major European distance selling company specialising in electronic consumer goods sold a digital camera in the UK for £152, corresponding to €198.49. The price for the same product was €254 in neighbouring Ireland and €276 in Belgium. On the Finnish website of the trader, the same camera was listed for €306, making it over 54% more expensive for Finnish consumers than those in the UK (see complete table in Annex 1) .
The Belgian consumer magazine Test-Achat similarly reported that the prices of digital cameras can vary up to 30% even between neighbouring countries. Table 2.4 indicates the variations between countries for the camera illustrated in Figure 2.1.
Price differences – clothing, furniture, electronics, cars
In a more systematic way, four categories of consumer goods that are potential candidates for cross-border purchases were examined: clothing, consumer electronics, cars and furniture (the table is in Annex 1). Price differences compared to the best EU price were computed for each category.
Overall, the variations in prices are significant for some countries, depending on the product category. For example, the price for furniture is 59% higher in Italy, Ireland and the UK, the countries with the highest price for this category, than in Romania, the country with the lowest price. Bulgaria has the lowest price for cars while prices in Denmark are 61% higher (the country with the highest price for this category).
In consumer electronics, Lithuania was found to have the best price, while Austria had the highest price in this category (34% higher than in Lithuania). As for clothing, Austria was found to have the highest price, which was 69% higher than in Slovakia (best price). The price dispersion (expressed as the standard deviation) was highest for clothing and cars, followed by furniture. Consumer electronics is the category for which prices vary the less.
It is clear that even in neighbouring countries significant prices difference remain. Consumers should have everything to gain from shopping around.
For example, for electronic goods (percentages based on table in Annex 1):
The problem: The low level of consumer confidence
Two-thirds of Europeans think there are more potential problems in making cross-border purchases rather than domestic purchases. 68% of EU citizens consider there to be a greater risk of falling victim to scams and fraud when purchasing from suppliers located in another EU country than from providers in their home country. A clear majority (56%) of Europeans agree, while only one-quarter (24%) disagree, that providers from other EU countries are less likely to respect consumer protection laws than suppliers from their home country.
There are three main causes for this problem.
Business reluctance to trade cross border.
Regulatory fragmentation is one of the main obstacles to cross-border trade identified by the traders in the Eurobarometer 2008 (Flash Eurobarometer 224) on Business attitudes towards cross-border sales and consumer protection. According to the survey results, the additional cost of complying with different national laws regulating consumer transactions – which is in the scope of the current review of the EU Consumer Acquis – was identified a an important barrier by a majority of respondents (60%).
According to the 2008 Eurobarometer, 75% of the traders who do not currently sell cross border indicated that they would start doing it if regulations were harmonised. This figure clearly indicates that retailers would be much more open to engage in cross border sales if the risks of failing to comply with various national regulations could be eliminated by establishing EU level rules in this regard. The cost of fragmentation is a heavy burden on business. For businesses which currently only sell domestically, the estimated administrative cost linked to complying with consumer laws as they now stand is 5525,9 Euro for distance sellers and 6625 Euro for direct sellers.
These costs would increase to 9775,9 Euro for distance sellers and 10375 Euro for direct sellers who wish to sell to consumers located in one or two other EU countries. The estimated administrative costs for a business wanting to sell in all 27 Member States are 70525,9 Euro for distance sellers and 71625 Euro for direct sellers.
Practical Consumer complaints
In concrete terms, it is clear that a range of regulatory problems are holding consumers back. According to the European Consumer Centres, problems with delivery, defective products and after-sales service are the main issues causing consumer complaints.
Complaints and disputes reported to an European Consumer Centre office by type of problem
Source: The European Online Marketplace: Consumer Complaints 2005
These trends are widely reflected in a range of other studies from the UK and France and from focus groups and the feedback from Consumer Organisations. The other clear trend is a lack of information for consumers about their rights.
SECTION 2. THE NEW PROPOSALS
The new proposals
The Consumer Rights Directive concerns contracts for sales of goods and services from business-to-consumer (B2C). Generally all contracts are covered, i.e. purchases made in a shop, at a distance or away from business premises. On top of that, the Directive includes rules specific to particular situations (e.g. providing for a right of withdrawal in the case of distance and off-premises contracts).
A distance contract means any sales or service contract where the trader, for the conclusion of the contract, makes exclusive use of one or more means of distance communication, for instance sales by Internet, mobile phone or catalogue.
An off premises contract is a sales or service contract concluded away from business premises with the simultaneous physical presence of the trader and the consumer (e.g. a salesman offers a good in the consumer's home, at his work, in the street or at a home party) It also covers contracts concluded on business premises (e.g. in a shop), but negotiated away from business premises (e.g. a door salesman makes an offer, but the contract is later concluded in his shop).
The proposed Consumer rights Directive aims to put in place clear EU wide rules covering:
The Directive strengthens protection for consumers in relation to 2 key issues – online auctions and pressure selling.
SUMMARY OF THE 12 MAIN IMPROVMENTS FOR CONSUMERS
1. Tough new rules on delivery.
Delivery is the biggest problem for consumers in cross border shopping. At present the definition of delivery is not elaborated in EU consumer law. Different rules apply in different Member States. Now goods must be delivered in 30 days everywhere in the EU. Consumers are fully protected with new rules covering any damage which occur during transport. For late delivery, or non delivery – as a consumer you have a new right to get your money back in 7 days.
2. An End to hidden charges – no display no pay!
The new rules target hidden charges – a new plague for consumers – with tough new transparency requirements. The new directive makes it very clear where the consumer was not informed upfront, in pre-contractual terms, about extra costs and hidden charges they are not obliged to pa the charge and they are entitled to a refund. This breaks new ground for EU consumers.
3. A strengthened EU wide 14-day "cooling off" period and right of withdrawal for consumers.
Cooling off periods are strengthened to build confidence. The new 14 day right is a significant forwards from the situation (7 day minimum) It is essential for consumers to have peace of mind buying at a distance and under pressure. They need to be able to "cool off" and change their mind. For many member states this is a significant step forwards.
4. A new ban on default pre-ticked opt-in boxes.
There is new protection to crack down on default options which are being increasingly used deny consumers a real choice. All pre-ticked box which apply to payments are banned – for example, for travel insurance, priority boarding and baggage. Consumes have to expressly consent to such additional payments by for example ticking a consent box. Under the new rules consumers, for the first time, have a right to be reimbursed any the sums unduly paid using these default options.
5. New "see through clauses" - full pre-contractual information must be provided in all contracts.
Independently of hour a consumer concludes a contract – in the face to face situation, over the internet, on the phone or on the street, he will be entitled to the same information. For the first time, omissions in the information provided to the consumers will have a mandatory contractual remedy. Full information for consumers is essential not an-add on luxury. National courts will decide on the remedy depending on the scale of the omission– from refunds, to replacement or declaring a contract void.
6. A major crackdown on pressure selling.
The new rules significantly extend protection against pressure selling to cover all "off premises selling." This has been one of the biggest areas of complaints for consumers. All direct transactions which are carried out (face to face), away from a business premises will be covered, compared to the old limited rules covering only "doorstep" sales at home. The loopholes exempting "solicited" visits and causing a very high number of complaints are closed."
7.Closing loopholes for distance selling
New definitions means that ALL distance contracts are fully covered - closing existing loopholes. For example, contracts negotiated away from business premises, but concluded by means of distance communication will now be covered. In fact, all distance sales are covered.
8. New transparency obligations
New transparency to inform on any deposits or guarantees to be taken by the trader eg blocking a sum on a credit card or debit card and there is obligation to reveal if the trader is acting as an intermediary (as B2C rights do not then apply). These are two areas that have been causing a high number of consumer complaints.
9. New protection for Mobile-commerce and Tele-commerce:
EU Consumer rights are extended to cover m-commerce and tele-commerce for the first time. The new rules make it possible for traders selling - often using small screens - to provide only key information on price and product to the consumer. But they put in place a mandatory obligation for full information on the consumers rights to be provided via web link, or toll free number- so they are clearly available to the consumer.
Updating the existing rules, to allow modern technology such as Email, and pdf files (e.g. scanned letter) to be easily used by consumers to notify the trader They are now considered a "durable medium."
10. New EU Black list and grey list of unfair and abusive contract terms –
so that consumers cannot be caught out by hidden clauses in the small print. These binding lists of unfair terms are a significant improvement for consumers compared to the current situation. Now some Member States have purely indicative lists – that in practice offer weaker protection to consumers.
11. New EU wide protection for online auctions:
Protection for online auctions for consumers is significantly strengthened across the EU. Now all online auctions are covered by the information provisions. The biggest problems online auctions come from the goods not being as described and consumers not being able to contact the trader.
12. Information for consumers rights at point of sale
There is a specific requirement in the directive for Member States to ensure that consumers are given clear information about their rights at point of sale. The low level of awareness about rights has been raised by consumer organisations throughout the consultation process. Rights are no good unless people know about them.
THE MAIN IMPROVEMENTS FOR BUSINESS – REDUCTED COMPLIANCE COSTS – BY 97% FOR EU WIDE TRADERS
Traders will be able to use the same contract terms in all countries. The Impact Assessment Report shows that for instance a distance seller already trading in his home country will be able to expand his sales to 26 Member States by incurring a cost, to comply with relevant legal requirements, of 2,153 euro instead of 70,526 euro. For a newly established distance seller the cost of setting up a new business that complies with the regulation of 27 Member States will diminish from 70,526 euro to 5,526 euro.
By incurring the cost of change, existing distance and off premises businesses will comply with the relevant legal requirements across the EU and will be able to trade freely in 27 Member States. This will result in a significant reduction of the burden for companies wishing to sell cross-border in the EU. For example, a distance or off premises seller already trading in his home country will have the same cost for trading in for instance 5, 10 or 27 Member States as in one, given that the rules will be the same. No additional burden is envisaged for face-to-face retailers.
ADDITIONAL INFORMATION ON THE LEGAL DETAIL OF THE CONSUMER RIGHTS DIRECTIVE
WHAT SECTORS ARE EXCLUDED?
Financial services are covered by the new directive’s rules on unfair contract terms and mortgages or other loans on real estate negotiated at the consumer's home by the rules on off premises sales. For the rest, there is an exclusion because there is special separate legislation in place (for example, the Distance Marketing of Financial Services Directive of 2002 applies to distance sales of financial services; the Consumer Credit Directive applies to credit agreements concluded at doorstep).
Timeshare and Package travel, only the new directive's rules on unfair contract terms apply, since there is separate specific legislation in place for other aspects.
Exemption from the information requirements and the right of withdrawal regarding distance sales and off-premises contracts:
Sale of immovable property. The sale of a house is about rules on ownership and therefore outside the scope of the Treaty (Article 295).
Distance contracts for the provision of accommodation, transport, car rental services, catering or leisure services, where the trader undertakes, when the contract is concluded, to provide these services on a specific date or within a specific period. The reason for this is that in transport legislation, there are already a considerable number of information obligations and the introduction of a right of withdrawal would not fit very well with the price setting of transport where, for instance, the price of an airline ticket may change several times a day, and if the reservation is made shortly before departure a 14-day withdrawal period would make no sense.
Other excluded areas are: Automatic vending machines; the use of phone boxes; the supply of foodstuffs or beverages by regular roundsmen (e.g. the milkman in the UK).
Services are excluded from the two-year guarantee eg, energy water gas. Services are excluded from the right of withdrawal in distance contracts when the consumer has given his express consent to waive such a right (for example, when the consumer has downloaded music on the Net and has given his prior express agreement, he cannot later withdraw from the contract since he has already enjoyed the service. It would be unfair to ask for a refund while he has downloaded the music file on his computer).
Contact: Helen Kearns +32 2 2987638;
Emer Traynor +32 2 2921548
ANNEX – PRICE TABLES
TABLE 1: A small scale online survey of three products was undertaken (see below).
The products were: Euphoria perfume by Calvin Klein, 50 ml; an MP3 player (iPod nano 8GB); and a sports shoe (Nike Dart V). Even though it was only possible to identify prices in a small number of countries, there were significant variations
Excess prices paid for a sample of three products across Member States
Source: GHK web survey quoted in: Preparatory study for the Impact Assessment on the review of the Consumer Acquis, Draft final report, CPEC, March 2008 (draft)
TABLE 2: Prices for a Panasonic Lumix DMC-FZ8 digital camera (black) at a major distance selling company, by country (as of 13 March 2008)
[ Figures and graphics available in PDF and WORD PROCESSED ][Image]
TABLE 3: Price differences index to the best price for four product categories (expressed as a percentage over the best price)
In a more systematic way, for the impact assessment, four categories of consumer goods that are potential candidates for cross-border purchases were examined: clothing, consumer electronics, cars and furniture Price differences compared to the best EU price were computed for each category.
Source: ESTAT: Statistics in focus, n°24 (2007) and UBS: Price and earnings (2006)
 Council Directive 93/13/EEC on
Unfair Contract Terms
 No 515, December 2007
 Average final prices as paid by consumers including sales taxes
 ESTAT: Statistics in focus, n°24 (2007) and UBS: Price and earnings (2006)
 EBE 252.
 The European Online Marketplace: Consumer Complaints 2005.
 The European Online Marketplace: Consumer Complaints 2005
 Realities of the European Online Marketplace. A cross-border e-commerce project by the European Consumer Centre's Network. 2003
 Office of Fair Trading, Internet Shopping, June 2007
 Weighted average of individual country deviations, with the calculated volume of household expenditure on goods potentially sold through distance means being used as weights
 Conversion at official ECB exchange rates as of 13 March 2008
 Calculating with the standard VAT rate for 2008, as indicated by DG TAXUD (http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf)
 Average final prices as paid by consumers including sales taxes