Radical Commission proposals on consumer trading

The European Commission has issued in October 2001 a Green Paper on EU consumer protection, which indicates that the Commission is considering radical proposals to regulate business-to-consumer trading and favours the introduction of a framework directive which would include:-

· a general requirement for businesses to trade fairly, supplemented by specific rules covering information disclosure, misleading and deceptive practices, undue influence, fair advertising, marketing and commercial practices linked to the contractual and after-sales phases;

· provision for self-regulatory codes of good practice;

· the involvement of stakeholder participation in the elaboration of fair practices, notably an increased role for consumer organisations;

· a framework for market surveillance and collaboration on enforcement between national authorities, including information exchange, nomination of competent authorities, reciprocal mutual assistance rights and obligations under which national authorities could act on behalf of all EU consumers, common databases and communication networks, coordinated enforcement, and cooperation with third countries.

The Commission’s thinking is that a general, horizontal duty to trade fairly is needed to provide adequate consumer protection cover, since existing Directives give piecemeal coverage: there leading existing Directives are on misleading and comparative advertising (85/450, 97/55); unfair terms in consumer contracts (93/13); certain aspects of the sale of consumer goods and associated guarantees (1999/44); indication of prices on foodstuffs and non-food products (79/581, 88/314, 95/58); package travel, holidays and tours (90/314); doorstep selling (85/577); consumer credit (87/102); distance contracts (97/7); timeshares (94/47); injunctions for the protection of consumers’ interests (98/27); electronic commerce (2000/13); and various product regulatory and safety measures. They say that a general duty is also needed to enable existing entrenched and differing national laws and practices to be superseded by a uniform approach so as to further the internal market.

The Commission also wishes to simplify the position so that business does not have to comply with 15 different sets of regulations (almost certainly increasing with future enlargement of the Union). They also argue that the only way to achieve consistency of enforcement is to do away with the currently differing laws and replace them with a single, standard but simple law. The Commission is significantly influenced by practice in the USA and Australia, where they see general backdrop legislation supplemented by more detailed specific provisions on particular topics.

Industry strongly objects to the proposal to introduce a broad, basic duty to trade fairly, which it believes would introduce enormous uncertainty and scope for widely differing interpretation by enforcement authorities and courts. In response, the Commission proposes that codes of practice should be produced by industry on a voluntary basis that would give the relevant level of detail and certainty on what the general duty means in specific circumstances. Codes are therefore described by the Commission as operating on a "safe harbour" principle. The Commission has in fact adopted the analogy of harmonised standards, as used in new approach directives, in relation to the function of the proposed codes of practice. Compliance with such standards is voluntary but compliance gives a presumption of conformity with the underlying legal requirements. The difference here would be that production of codes would not be mandated by the Commission or any other authorities: there would be an incentive on industry to produce codes in order to protect themselves. It would be up to enforcement authorities to scrutinise such codes and object to specific provisions. Codes would not (unlike under the Data Protection Directive) be given formal approval by the authorities.

The Commission hopes that industry will have an incentive to produce codes governing practice in specific sectors so as to give protection from over-interpretation of the “general duty, since it is proposed that breach of a code would lead to a presumption (or at least an implication) that the legal duty had been broken, thereby exposing the company to prosecution. The Commission envisages that regulators would monitor codes and object to provisions which are insufficiently stringent.

Naturally industry has strong objections to any presumption that breach of a code would be taken as a legal offence: many codes contain some aspirations and can operate effectively as such in improving practice but would not work if taken as enforceable law. There would also be an enormous task for industry in producing trading codes, and interim uncertainty and exposure.

The Green Paper is COM (2001) 531 final, 2.10.2001. It supplements a proposal for a Council Regulation concerning sales promotions in the internal market, COM (2001).

For further information please contact Christopher Hodges by telephone on +44(0)20 7367 2436 or by e-mail at [email protected].