SMEs balk at new Consumer Rights Directive

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Consumer groups are broadly satisfied with new consumer rights legislation in Europe, but SMEs fear the law will increase administrative burdens on small traders. Governments have two years to implement the EU's new Consumer Rights Directive after years of negotiations concluded with its passing into law last week by the European Parliament.  

An EU-wide right for consumers to change their minds about purchase decisions within two weeks and clearer rules for Internet sales, including requirements to give buyers precise details on the total price, the exact goods ordered and the trader's contact details were among the highlights of the new law.

'Cost traps' on the Internet whereby customers are misled into believing that offers are free are also outlawed by the directive.

"We wanted to regulate mainly off-premises and distance contracts such as online trading, as this is where the most cross-border sales take place," said German centre-right MEP Andreas Schwab, the European Parliament's chief negotiator on the directive.

The law was backed last Thursday (23 June) with 615 votes in favour and 16 against amid 21 abstentions.

Once it has been formally approved by the Council of Ministers in July – seen as a procedural step given that an inter-institutional deal on the dossier has already been struck – governments will have two years to transpose the legislation into national law.

Lawmakers have been wrestling with the legislation since it was first tabled by the European Commission back in 2008 (see 'Background').

Prior to last week's plenary vote, the Parliament's internal market and consumer protection (IMCO) committee had unanimously backed at first reading a compromise agreement on the draft law reached during trialogue talks between representatives of all three EU institutions, paving the way for last week's first-reading vote in plenary.

Lawmakers hope that the new rules will strengthen protection for online shoppers, particularly by specifying rules on delivery and digital downloads, whilst cutting red tape for small and medium-sized businesses (SMEs).

Brussels has long identified outdated EU consumer rights legislation – which predates the digital revolution – as a major hindrance to cross-border online shopping in the EU, while business cite legislative differences between EU countries as their main reason for not selling across borders.

Policymakers hope the new rules will address shoppers' concerns and give SMEs the legal certainty they need to sell to customers in other countries.

But observers warned that the success of the directive would depend on the ability and willingness of EU nations to assimilate it into national legislation.

"The way in which member states […] transpose the new rules into their national laws will be key to the directive's success in terms of unleashing the cross-border potential of distance selling on and offline," said Suzanne Czech, secretary-general of EMOTA, the association representing e-commerce and distance selling at EU level.

New law 'detrimental' and 'burdensome' for SMEs

Small businesses fear the new Consumer Rights Directive will increase the administrative burden on SMEs, warning that the final text fails to strike the right balance between shoppers' and traders' interests.

"The disappointing compromise rubber-stamped by the Parliament's plenary […] will increase administrative burdens for small traders without striking a fair balance between the needs of consumers and those of businesses," complained Andrea Benassi, secretary-general of UEAPME, the voice of SMEs in Europe.

"The text goes blatantly against the 'Think Small First' principle and will do precious little to increase SMEs' confidence, especially at this time of crisis," he added.

He was echoed by Arnaldo Abruzzini, secretary-general of Eurochambres, who warned that the new directive would be "detrimental" to millions of SMEs throughout Europe, producing uncertainty and hugely disproportionate administrative costs in return for "little or no gain for consumers".

Consumer groups, however, were broadly satisfied with the compromise deal voted into law last week.

"When first presented, this law was entirely geared to reducing obstacles for businesses and would have deprived European consumers of many precious national rights," said Monique Goyens, director-general of European consumers' organisation BEUC.

"Fortunately, the European Parliament and Council have listened to consumer organisations and any significant reduction of consumer rights will now be avoided. This law is a tough compromise and we regret that some national rules will be overruled, but on the whole there will be progress for consumers," Goyens added.

Strengthening digital rights

The new rules stipulate that traders of digital goods must reveal usage restrictions on software, music and video files prior to purchase.

Excessive charges for different payment means will also be scrapped, particularly when paying by credit card online.

Calling company helplines will also become cheaper as the directive bars traders from using premium-rate phone lines for customer services.

With years of negotiations on the controversial directive now having drawn to a close, the ball now lies in the court of member states to ensure that consumers will genuinely benefit from the new rules.

Andrew Williams 

EU Justice Commissioner Viviane Reding said the directive would "strengthen consumer rights by outlawing Internet fraudsters who trick people into paying for horoscopes or recipes that appear to be offered for free".

"Shoppers will no longer be trapped into buying unwanted travel insurance or car rentals when purchasing a ticket online. And everyone will have 14 days if they wish to return goods bought at a distance, whether by Internet, post or phone," Reding said.

"The European Commission will help ensure that the new rules are implemented swiftly in all member states so that consumers across Europe can have more confidence when shopping, whether online or offline," she pledged.

UK Conservative MEP Malcolm Harbour, chairman of the European Parliament's internal market and consumer protection (IMCO) committee, said: "The new legislation will strengthen protection for online shoppers and will also specify rules on delivery and digital downloads while cutting red tape for businesses trading cross-border."

"Businesses should now adapt to the new rules quickly and use this unprecedented opportunity to drive cross border sales. Market leaders in online sales are already ahead of the game and these rules will not impact on their practices. Those who weren't paying enough attention to the link between a successful business and high standards of customer service and transparency will need to innovate and get up to speed," Harbour concluded.

Polish MEP Adam Bielan (European Conservatives and Reformists) said "the picture is now much clearer with one and the same set of information requirements and rules concerning the right of withdrawal across the EU, which will help traders reduce transaction costs".

BusinessEurope, the employers' group, would have preferred the original proposal but understands that politically it was not possible to achieve. Nevertheless, it welcomed the fact that the agreement had preserved the full harmonisation principle as its main basis and warned that what mattered now was correct and timely implementation of the legislation.

"Full harmonisation is essential to allow a level playing field in business-to-consumer relations and for the further completion of the internal market," said BusinessEurope Director-General Philippe de Buck.

"Co-legislators have abandoned one of the two guiding objectives of the original text of the directive: to reduce barriers for businesses. Instead, they have focused on securing and improving consumers' protection, but with limited effect," said Arnaldo Abruzzini, secretary-general of Eurochambres, the Association of European Chambers of Commerce, which represents millions of SMEs.

"Policymakers highlight the need to balance the interests of traders with those of consumers. But fundamentally, both traders and consumers share a desire for the removal of barriers to buying and selling across the EU. As such, we consider this directive wholly unsatisfactory," said Abruzzini.

"The move away from maximum harmonisation undermines the whole rationale underpinning the Commission's original proposal and has the potential even to increase market fragmentation. According to businesses involved in e-commerce, the compromise also opens up the possibility of the provision of services for free, creates new opportunities for criminal behaviour and will lead to significant additional IT costs for distance-selling SMEs," he warned.

"The disappointing compromise rubber-stamped by the Parliament's plenary […] certainly does not fulfil the original aim to simplify EU legislation on consumer rights," said Andrea Benassi, secretary-general of UEAPME, the voice of SMEs in Europe.

"The wording on withdrawal rights is a major drawback for small entrepreneurs and craftsmen who must visit consumers' homes to assess what needs to be done and make an offer. Consumers will have two weeks to withdraw their orders, even if they solicited the visit in the first place. Inserting a distinction between solicited and unsolicited offers would have solved the issue, but our calls to do so fell on deaf ears," he explained.

"As a consequence, the same withdrawal rights will apply to all contracts concluded off-premises. While some safeguards will indeed apply in case of urgent repairs and maintenance and for services already completed, this comes as little consolation and is already the case under the current rules," the small business chief said.

"Information requirements were also substantially increased. It will be now up to the trader to inform consumers on the rights that they have, and sometimes even on the rights that they do not have. Small companies will have a hard time complying with these new rules, and will require external legal assistance since they certainly cannot rely on an internal legal department to check the wording of their offers," warned Benassi.

"Rules on reimbursements are also likely to cause problems, as repayments can now take place even before the consumer has returned the goods to the trader. If the goods are then received in a poor state, the only way for the trader to get the money back would be to file a lawsuit. This makes no sense," he concluded.

"Consumers will benefit from more information and transparency, in particular when buying online. Moreover, this law will put an end to growing unfair business practices, like when buying flights: [consumers] will not be charged unjustified fees just to use their credit card," said Monique Goyens, director-general of European consumers' organisation BEUC.

"We are pleased MEPs listened to Which?'s concerns about the Consumer Rights Directive – as a result, we will keep some of the important consumer protection laws enjoyed by UK consumers. It's just a shame the EU hasn't taken this opportunity to extend these rights to countries where consumers have less protection," said Richard Lloyd, executive director of UKconsumer organisation Which?.

"Work to improve consumer rights mustn't stop with this directive. We'd now like to see an EU-wide dispute resolution services put in place to protect individuals making cross-border purchases, as well as a mechanism to enable collective redress," Lloyd added. 

"We welcome this compromise between the interests of all parties involved and highly appreciate the European institutions' readiness to consider the 'pros' and 'cons' of the many divergent opinions brought to their attention during the whole negotiation process," said Suzanne Czech, secretary-general of EMOTA, the association representing e-commerce and distance selling at EU level.

"The future directive should […] put an end to the legal uncertainties [facing] distance sellers […] when serving customers outside their national borders, and this is an important improvement," said Czech.

One area where EMOTA would have liked to see better safeguards for distance sellers is new rules on reimbursement of payments made by consumers in the event of withdrawals from contracts.

But the association was confident that such drawbacks would be "counterbalanced by those rules in the text that will offer more clarity and flexibility to distance sellers compared to the present legal framework".

The new Consumer Rights Directive does not do enough to protect car buyers, warned the Fédération Internationale de l'Automobile.

"The Parliament has missed a good opportunity to protect families when investing in something as expensive as a car. The text agreed upon is much less ambitious than the original proposal," said Jacob Bangsgaard, director-general of FIA Region I.

"We welcome the agreement as a first step towards better protecting consumers but feel it lacks ambition, in particular with regard to protection of car buyers," he added.

The FIA believes more account should have been taken of the special nature of high-value, long-lifespan goods such as cars. 

The proposal for a new Consumer Rights Directive, first tabled by the European Commission in October 2008, seeks to merge the existing four EU consumer rights directives into one set of fully harmonised rules (EURACTIV 08/10/08; EURACTIV 10/10/08).

The proposed directive concerns business-to-consumer (B2C) sales contracts for goods and services and specifically covers issues such as pre-contractual information, delivery rules, 'cooling off' periods for distance sales, repairs, replacements and guarantees as well as new selling technologies.

Just before Christmas, the Belgian EU Presidency angered consumer groups by deleting the most contentious parts of the draft Consumer Rights Directive, including chapters on unfair contract terms and legal guarantees or consumers in the event that a trader breaches a contract, in order to secure a deal on the law before the end of its term at the EU helm.

Belgium's move was formally endorsed by governments on 24 January.

  • July 2011: Formal approval of Consumer Rights Directive by Council of Ministers.
  • Oct. 2011: Tentative date for publication of Consumer Rights Directive in Official Journal of EU law.
  • Before end 2013: Deadline by which member states must have fully implemented Consumer Rights Directive. 

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