A key part of the EU’s New Deal for Consumers entered into force on January 7, 2020: the Omnibus Directive, which strengthens consumer rights through enhanced enforcement measures and increased transparency requirements.
The headline changes introduced by the new Directive are:
- GDPR-style penalties.
- A requirement for increased transparency online, in particular for search result rankings and personalized pricing.
- The extension of consumer rights to “free” digital content and services.
EU Member States have two years to transpose these new rules: national implementation measures must be adopted by 28 November 2021 and in force by 28 May 2022.
EU consumer legislation applies to traders targeting consumers in the EU, regardless of the trader’s location. Online traders worldwide will need to use this two-year window to ensure their EU-facing practices comply with the New Deal, and mitigate the risk of fines.
Changes in detail
New Directive (EU) 2019/2161, known as the “Omnibus” or “Enforcement and Modernisation” Directive, amends several existing pieces of EU consumer protection legislation: Council Directive 93/13/EEC (unfair contract terms) and Directives 98/6/EC (price indications), 2005/29/EC (unfair commercial practices) and 2011/83/EU (consumer rights).
1. More effective powers to enforce consumer rights
The Directive provides for attention-grabbing enforcement powers: fines of up to 4% of the trader’s annual turnover in the Member State (or Member States) where the breach occurred, or EUR 2 million in cases where information on turnover is not available, with individual Member States able to introduce even higher fines. National authorities will be able to work together on widespread cross-border infringements. The Directive also grants new individual remedies to consumers, giving them direct rights to compensation for unfair commercial practices.
The proposed Collective Redress Directive, another key part of the EU New Deal for Consumers, aims to further modernise the framework for enforcement of consumer rights. For more information, see our recent publication “Collective Actions: A New (Revised) Deal”.
2. Increased transparency obligations on online traders
The Directive imposes increased transparency obligations in several key areas.
- Ranking and search results
Traders must provide clear information on the criteria used to rank products in online searches, and disclose paid advertising and whether specific payments have been made to achieve a higher ranking.
- Fake reviews and endorsements
The Directive not only expressly prohibits submitting or commissioning a fake review or endorsement (conduct which is likely to fall foul of existing consumer protection laws), it also imposes an obligation on traders to justify the reasonable and proportionate steps they have taken to ensure that the reviews on their site are genuine, such as limiting the ability to post a review to verified purchasers only.
- Personalized pricing
Traders are required to inform consumers whenever a price presented to them has been personalised based on automated decision-making and consumer profiles.
- Online marketplaces
Online marketplaces are obliged under the Directive to inform consumers whether an item is purchased from a private individual, and that transactions with private individuals will not benefit from EU consumer protection rules.
3. Extension of consumer rights to “free” digital content and services
The Omnibus Directive extends the definition of “price” to include payment with personal data, which will bring “free” services within the reach of existing EU consumer protection laws (for example, the 14-day cancellation right).
4. Other amendments to EU consumer protection law
- Increased powers to tackle misleading marketing of dual-quality goods, which have different composition or characteristics but are misleadingly marketed as identical.
- Harmonisation of rules relating to price markdowns.
- Exception from the right of withdrawal for individual deliveries of non-network energy.
- Prohibition on the resale of event tickets bought using automated software.
- Stronger rules around doorstep selling and commercial excursions.
If (as appears likely at the time of writing) the UK is no longer a Member State in November 2021, the UK will not be obliged to implement the Directive. The UK government has indicated previously that similar legislation will be introduced separately, with proposed fines capped at 10% of the firm’s worldwide turnover (see BEIS Consumer Green Paper “Modernising Consumer Markets”, April 2018).