The EU Council of Ministers has agreed to adopt Directive 2005/29/EC, which regulates business to consumer commercial practices within the internal market. It is hoped the Directive will provide a European wide framework for the protection of consumers against misleading and aggressive practices and at the same time, provide protection for legitimate businesses against competitors who do not "play by the rules".
The position Pre-Directive:
Prior to the adoption of the Directive, there was already some EU legislation concerning the regulation of commercial practices for the protection of consumers. The problem was one of harmonisation. Despite this legislation, there were still "marked differences" between the laws of different Member States as individual countries were still free to retain pre-existing national measures or implement new ones to provide more extensive protection in their individual territories. It is hoped that the new Directive will put an end to this confusion and establish a uniform set of rules that provide both a high level of consumer protection and also legal certainty.
In order that both the old and new legislation sit comfortably together, it has been decided that the following will be amended by the new Directive:
84/450/EEC - Misleading and Comparative Advertising
97/7/EC - Distance Contracts
98/27/EC - Injunctions for the Protection of Consumer's Interests
2002/65/EC - Distance Marketing of Consumer Financial Services
Industry-specific EU laws will however generally remain in place and so in essence the new Directive will fill in the gaps where there is no "specific sectoral legislation". It is felt that this is particularly needed in certain 'high-risk' sectors such as financial service products. The national transposition of the Directive is due by the end of 2007.
Unfair Practices
The Directive defines 'Unfair Practices' in a broad sense in Chapter two at Article 5 of the Directive. In essence unfair practices are any commercial practices which:
- Are contrary to the requirements of professional diligence; and
- materially distort (or are likely to materially distort) the economic behaviour in relation to the product of the average consumer whom it reaches or to whom it is addressed, or of the average member of the group when a commercial practice is directed to a particular group of consumers.
Two Elements
The Directive goes on to make the distinction between "Misleading" and "Aggressive" actions. A misleading practice is defined, in essence, as a commercial practice, which either contains false information so as to make it untruthful, deceitful or likely to deceive the average consumer. Similarly if the practice causes or is likely to cause a consumer to undertake a transaction he would not normally have undertaken, it will be held to be misleading. Examples of misleading practice include:
- False or omitted information relating to the nature or characteristics of a product;
- False or omitted information relating to the price of a product;
- Any marketing of the product, including comparative advertising which creates confusion with any products, trade marks, trade names and other distinguishing marks of a competitor.
An "Aggressive" practice is construed as that which makes use of harassment or coercion in order to impair the average consumer's freedom of choice when making a transactional decision. Examples of aggressive practice include:
- The use of threatening or abusive language;
- The exploitation of any specific misfortune or circumstance of such gravity as to impair the consumer's judgment, of which the trader is aware, to influence the consumer's decision with regard to the product;
- A threat to take legal action which cannot legally be taken.
Targeted Practices
Annexed to the Directive is a list of commercial practices that the Council has decided are unfair. Amongst these are the following:
- A trader displaying a trust mark or quality seal for his goods/services without actually having the necessary authorisation to do so;
- Stating or otherwise creating an impression that a product can be legally sold when it cannot;
- Falsely stating that the product will only be available for a very limited time or that it will only be available on particular terms for a very limited time in order to elicit an immediate decision and deprive consumers of sufficient opportunity or time to make an informed choice;
- Claiming in a commercial practice to offer a competition or prize promotion without awarding the prizes described or a reasonable equivalent.
Comment
Greater clarity in the regulation of business to consumer commerce at European level is undoubtedly beneficial to both consumers and to legitimate businesses that operate within the framework of fair practice. In order that fluidity of trade within the internal market be preserved it is essential that traders have legal certainty. With this is mind and provided that the list of "unfair" practices remains updated and targeted upon specific problem areas across the spectrum of industries, then this Directive will probably be welcomed.
For more information please contact Sarah Hanson at sarah.hanson@cmck.com or on +44 (0) 20 7367 2559 or Louise Wallace at louise.wallace@cmck.com or on +44 (0) 20 7367 2181.
