What is it called?
The "New Deal for Consumers" is a package of two new Directives, aimed at strengthening consumer rights in the EU. Directive (EU) 2019/2161 on the better enforcement and modernisation of Union consumer protection rules came into force on 7 January 2020. A further Directive on Representative Actions for the Protection of the Collective Interests of Consumers is expected to follow shortly. Member States have up to two years from the date of publication to implement the Directives.
What is being proposed?
Directive (EU) 2019/2161 amends 4 key pieces of EU consumer protection legislation, in order to strengthen sanctions for violations of EU consumer laws, and harmonises the rights of consumers to bring claims where they have been harmed by unfair commercial practices. It also seeks to provide more transparency for online sales and sets out information that must be provided where products are advertised with a price reduction.
The proposed Directive on Representative Actions allows 'qualified entities' such as consumer organisations (but note, not law firms) to seek cross-border injunctions and/or redress from traders for a breach of a wide range of EU rules, including consumer rights, product liability and product safety rules. Member States can only designate qualified entities for the purposes of cross-border actions if they meet specified criteria, including that they are independent and non-profit.
Member States that do not already have a domestic system for collective consumer actions will also be required to legislate for one. They may set their own criteria for qualified entities who can bring domestic actions, provided they are consistent with the objectives of the Directive.
The EU representative actions will differ significantly from the US system of class actions. The EU system will limit recovery to actual losses (not punitive damages) and cross-border actions can only be brought by eligible non-profit consumer organisations on an opt-in basis. The EU has also built in extra protections to prevent abuse, including cost recovery, powers to dismiss unmeritorious claims, and disclosure obligations for the source of funding.
Who will it apply to?
Both Directives will enhance a consumer's rights against "traders", which is interpreted broadly under EU law. Manufacturers, importers and retailers are likely to be within scope, amongst others.
These Directives will not apply in the UK if the Brexit transition period ends on 31 December 2020 as planned. However, the UK may choose to take further steps in order to keep close alignment with EU rules, including the introduction of fines by reference to annual turnover (as suggested in the Government's 2018 Green Paper). The UK already has a representative actions procedure (as well as a group actions procedure), which is not widely used.
Why does it matter?
It is likely that traders including manufacturers and retailers will face higher sanctions and an increased risk of litigation in the EU as a result of the new Directives.
Directive (EU) 2019/2161 requires national authorities to impose stronger penalties for certain violations of EU consumer laws, including – where infringements affect several EU countries – fines representing 4% of annual turnover in each country. Member states will be free to levy higher fines if they wish, including fines based on worldwide turnover. Where information on turnover is not available, fines of at least EUR 2 million may be levied.
Alongside this, the Directive on Representative Actions for the Protection of the Collective Interests of Consumers will empower consumer organisations to bring representative actions for compensation for defective products or to force traders to repair, replace or provide refunds for products. The powers in this Directive are not new in most Member States, but the ability to amass claims across the EU makes bringing large collections of relatively small claims a much more viable prospect for consumer organisations, and a much more threatening one for businesses.
Where can I find it?
Directive (EU) 2019/2161 is available here.
The current text of the Proposal for a Directive on Representative Actions is available here.
Originally published by Cooley, October 2020
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