With all that is going on with Brexit and trade deals you may believe EU legislation will not affect your business or your dealings with your consumers in future. However, commercial solicitors say that isn’t the case, businesses need to understand the ‘new deal Omnibus Directive’ and start to get their business ready for it and its impact on consumer rights. Just like Brexit, it is not something that your business can ignore. In this guide we look at the ‘new deal’ Omnibus Directive and how new UK consumer rights could affect UK businesses.
- What is the new deal for consumers Omnibus Directive?
- What are the EU legislative amendments?
- How will Brexit affect UK consumer protection laws?
- What are the main elements of the new EU consumer deal to enhance consumer protection?
- Why is the new consumer deal important to UK businesses?
- The new consumer deal and digital trading
- The new consumer deal and dual-quality goods
- The new consumer deal and trading
- The new consumer deal and price indications
- What does the Omnibus Directive mean for your business?
- How should UK businesses prepare for the new consumer deal?
What is the new deal for consumers Omnibus Directive?
Consumer protection is being strengthened in what is referred to as a ‘new deal for consumers’. The drive to improve protection for consumers comes from the EU in an Omnibus Directive that came into force on the 7 January 2020. The Omnibus Directive strengthens consumer rights through increased transparency obligations on the part of traders and businesses and enhanced enforcement measures.
What are the EU legislative amendments?
The EU conducted a review of consumer protection regulations and laws in 2017. As a result of that review it was decided that various Directives needed amendment, namely:
- Directive 93/13/EEC (unfair contract terms) - This was implemented through Part 2 of the UK legislation, The Consumer Rights Act 2015.
- Directive 98/6/EC (price indications) - This was implemented in the UK by the Price Marking Order 2004.
- Directive 2005/29/EC (unfair commercial practices) - This was implemented in the UK by the Consumer Protection from Unfair Trading Regulations 2008.
- Directive 2011/83/EU (consumer rights) - This was mainly implemented in the UK by the Consumer Contracts (Information, Cancellation and Additional Charges Regulations) 2013.
The Omnibus Directive is the name given to the ‘Directive on better enforcement and modernisation of EU consumer protection’, or the Enforcement and Modernisation Directive (2019/2161/EU). The Directive amends each of the above four Directives.
The EU also intends to provide a new Directive on representative actions for the protection of the collective interests of consumers, enabling them to repeal the Directive 2009/22/EC on injunctions. The intention is to modernise injunctions and allow consumer organisations (not for profit) to bring class or collective actions on behalf of consumers.
How will Brexit affect UK consumer protection laws?
EU member states have been given deadlines of:
- The 28 November 2021 to adopt the new deal for consumers Omnibus Directive, and
- The 28 May 2022 to bring the Directive into force.
As the UK is entering the end of the transition phase after exiting the EU on the 31 January 2020 it will not be an EU member state in November 2021, so you may question why the new deal for consumers is relevant to your UK business. However, a UK government publication indicates that the UK government plans to introduce similar domestic consumer protection legislation to that referred to in the EU Omnibus Directive.
In addition, with ongoing uncertainty over a trade agreement with the EU, there is the potential that the UK could agree to legislative and regulation alignment between the EU and UK. This will allow for a consistent approach to consumer protection.
Furthermore, even if the UK doesn’t agree to legislative and regulation alignment on consumer protection, UK businesses and traders with an EU client base will have to comply with the updated consumer laws. That’s the case even if the company is UK based and doesn’t have a branch located in an EU member state.
With many UK companies and traders operating internationally and wanting to continue to trade in the EU, the Omnibus Directive cannot be ignored. It is essential that UK businesses are aware of what the new deal for consumers entails and start to get their businesses ready for it.
What are the main elements of the new EU consumer deal to enhance consumer protection?
The essential key points of the new consumer deal are:
- Consumer claims - The Omnibus Directive will result in consumers gaining rights to individually pursue claims against any companies in breach of the new consumer protection rules.
- Consumer protection when using free digital services - Existing EU consumer protection laws are to be extended to include protection for consumers using free digital services that are paid for through use of personal data. The rules will also cover what happens to personal data after cancellation. There will be new definitions of digital goods and goods with digital elements, and the Consumer Rights Directive (CRD) will apply to them.
- Greater protection for consumers of digital goods and services - The sale of digital goods and provision of digital services will be included in the definition of goods and services, so consumers have the same rights as consumers of non-digital goods and services.
- Transparency - Businesses or traders will need to provide information on their criteria for internet rankings search results, justify steps taken to ensure reviews on their website are genuine, and inform consumers whenever prices have been personalised. Online marketplaces must inform consumers whenever an item is bought from an individual, and if so, that they will not benefit from EU consumer protection law.
- New obligations on traders and online platforms - The intention behind this change is to better protect consumers.
- Enforcement - The key point about enforcement is the size of fines for breaching the new consumer deal. The Directive allows for what are commonly referred to as GDPR level or style fines. Those fines could amount to a minimum of four per cent of the annual turnover of a company in the relevant EU member state, or a two million euros fine if a turnover calculation is not possible.
Why is the new consumer deal important to UK businesses?
Despite Brexit, back in 2018 in a government green paper the government indicated that it will enhance consumer protection in the UK. If the UK does not implement the Directive in full it has suggested:
- Fines for consumer protection non-compliance could amount to up to ten percent of a firm’s global revenue.
- Consumer claims could increase through use of class actions.
The new consumer deal and digital trading
For businesses who trade online there will potentially be significant changes depending on your current trading practices and policies. The key point is that extra information will need to be given to consumers about:
- How search results are ranked - Clear information needs to be provided about the main criteria used to rank products, such as price, distance and ratings. There needs to be clear disclosure of both paid advertising and whether specific payments have been made to achieve a higher ranking. How search rankings work must be explained and displayed to consumers (for example, searches for a trader’s name or a keyword), and whether the trader’s rankings are affected by paid placements. The intention is that consumers have the information to understand why certain products are offered to them in preference to others. This information must be clearly displayed on the page where the search results appear.
- Whether traders verify user reviews - The submission of fake reviews will be a blacklisted practice. The Omnibus Directive stops the submission or commissioning of false or fake reviews and endorsements. Businesses and traders will need to justify what are referred to as the ‘reasonable and proportionate steps’ they have taken to ensure that the reviews on their site are genuine. For example, through limiting the ability to post a review to verified buyers only.
- The identification and status of the seller.
- Whether the customer has the benefit of consumer protection law - The consumer won't have protection if the seller is an individual who is selling an item in their individual capacity as opposed to as a trader or business. The Omnibus Directive requires online sites to inform consumers about whether an item is being bought from a private individual or a trader. If the seller is a private individual, the consumer must be warned that the EU consumer protection rules (such as legal guarantees or cancellation rights) don’t apply to the transaction.
- How the consumer’s rights are allocated - between the business and the selling platform or marketplace.
- Whether the price the goods are offered at has been personalised to the consumer - If an online business personalises prices for specific consumers or specific categories of consumer through automated-decision making or customer profiles, the Omnibus Directive requires the business to inform the consumer each time the price of goods or service are offered to them, based on a personal pricing algorithm. This means that consumers can take into account the potential that the price may have been increased for them due to their special interest in the product.
One positive for businesses is that the Omnibus Directive recognises that there are many different channels of communication with customers, including web forms and bots. These will be permitted, as long as traders are open about these channels, and customers are able to easily monitor and keep copies of this type of correspondence with the business.
The sale of digital goods and services will now be subject to similar rules as tangible goods, and traders will have to supply pre-contract information and provide cancellation rights. If customers exercise their right to cancel the purchase of goods or services then:
- The business can't use any content provided by the consumer unless use of the content is permitted by the detailed rules.
- The business must deal with the consumer’s personal data in line with the GDPR.
The new consumer deal and dual-quality goods
In the Omnibus Directive regulators will be given additional powers to prevent the misleading marketing of goods. This will target the trading of goods that have different characteristics or composition but are marketed by a business or trader as identical goods or products. The product types that are likely to be caught by this regulation include foods, such as beverages and processed food, as well as cosmetics, baby food and household products. The aim of these new rules is to stop multi-national companies selling inferior products to certain countries while marketing the products as a globally consistent brand.
This new consumer protection won't affect a business owners’ ability to market identical items differently. For example, with different branding, packaging or price depending on the target market or geographic market. But it is designed to prevent different composition or formulations being marketed as if they are identical to one another. For example, use of differing ingredients in identically marketed food products with the ingredients depending on the country where they are marketed and sold. The use of different content formula will only be permitted if the difference can be justified objectively.
The new consumer deal and trading
The Omnibus Directive permits stricter rules to be introduced by individual countries in some areas, such as:
- Traders selling through unsolicited home visits and excursions
- Information provided to consumers on online marketplaces
- Discounts - a reference price used to indicate a discount must have been in force for at least a month
The new consumer deal and price indications
Businesses are already obliged to provide information to consumers when contracts are concluded ‘at a distance’ (see our guide on Distance Selling Contracts and the Consumer Contracts Regulations). Under the Omnibus Directive they will now also have to tell consumers if the price they are being shown has been ‘personalised’. For example, price personalisation on the basis of:
- The consumer’s location, or
- Browser, or
- Other data obtained by automated decision-making.
If a discount is offered, the discount must relate to the previous price of the product and that price must have been in effect for at least the previous month (certain exceptions may apply to perishable goods or goods that have only been on the market a short time).
What does the Omnibus Directive mean for your business?
The principal impact of the Omnibus Directive is likely to fall on the following businesses and practices:
- If you produce slightly different goods for sale in different countries of the EU ;or with slightly different formulations, yet your business markets them as the same product, this will now be deemed to be misleading unless you can objectively justify the differential.
- If you offer discounted goods, your business must ensure that the goods have been for sale at a higher price for at least one month prior to the discount taking effect, unless the goods fall within an exemption.
- Your business will need to ensure that polices for compensation and termination are identical across all the EU countries in which you operate.
- If you sell at a distance, your customers will no longer have the right to cancel goods where they have used them (as opposed to merely trying them out).
- The fines for breach of consumer rules will be substantial (at least four percent of turnover in the country concerned). This is to mitigate the effect of cross-border infringement.
How should UK businesses prepare for the new consumer deal?
Commercial solicitors say that the best advice for UK businesses is to start their preparations for the new consumer deal early to avoid frantic last minute changes or the risk of enhanced fines and penalties.
It makes sense for most traders and businesses to have an understanding of the Omnibus Directive and new consumer deal if they are already trading in the EU, plan to expand into the EU market or want to be ready for the UK legislative and regulative changes that will affect UK consumer protection.
You may think that your business has other priorities with Brexit and Covid-19 and their impact on trading. However, new consumer protection rules will come into force in the EU member states by May 2022. That date has been partially designed to give businesses trading in the EU, or planning to do so, time to review their current consumer protection practices and procedures and make changes. In addition, your business needs to keep appraised of any UK legislative changes to UK consumer protection and the timescale for those changes.
The top tips from our commercial solicitors on planning for the new consumer deal are:
- Take some initial legal advice to identify the areas in your business where you need to look at consumer protection afresh.
- Set up a working group within your company to address the highlighted areas to ascertain your current practices, identify if they will be compliant with the new consumer deal and, if not, what changes will need to be made and what the practical and projected financial consequences of any changes will be.
- Think about whether your business will need to work with third parties to meet the new deal consumer protection measures, such as subcontractors who manufacture your food products, cosmetic ranges or provide your digital services.
- Conduct a risk assessment so that you know what areas you need to work on first or focus on, such as product composition or the marketing of your digital services. To manage the risk, you may need specialist consultancy services to ensure that you have the resources available to make the changes required and to implement them.
- Agree a timescale for the implementation of any changes so that you have sufficient time to take further legal advice on your plans. That way your business can make sure that they will be compliant with the Omnibus Directive and the new consumer deal and any new UK consumer protection legislation. It will also allow time to bed in those changes before the new laws are brought into force. Adhering to a timescale should mean that the new consumer deal should not have a sudden impact on your business or your financial projections, as you will have been able to budget and plan for them.
- Think ahead so if your business is planning to expand into trading in the EU or is intending to extend its free digital services or launch a new food product with different ingredients that are marketplace dependant, your business can plan for the new consumer deal so you don’t have to make further product or service changes at a later date that will ultimately cost your business time and money.