Proposed EC Directive on Consumer Rights
Posted: Monday 10 November 2008
Introduction
The European Commission has recently proposed a new Directive on Consumer Rights relating generally to all contracts for the sale of goods or services from businesses to consumers (http://ec.europa.eu/consumers/rights/docs/Directive_final_EN.pdf). The proposed Directive is intended to merge four existing Directives on consumer protection, namely:
- the Doorstep Selling Directive (85/577/EEC) which covers contracts negotiated away from business premises;
- the Unfair Contract Terms Directive (93/13/EC) which covers unfair terms in consumer contracts;
- the Distance Contracts Directive (97/7/EC); and
- the Sales and Guarantees Directive (99/44/EC).
The existing Directives take a minimum harmonisation approach which has led to a fragmented approach to EU consumer protection regulation, dissuading many businesses from trading cross border and a negative impact on consumers. The proposed Directive will take a maximum harmonisation approach which is intended to simplify and update the existing rules by removing inconsistencies and closing gaps, addressing changes in technology and sales methods. It will create one set of rules for businesses trading with consumers, reducing the regulatory burden for businesses.
The fields to be harmonised will cover:
- rules on information to be provided before conclusion and during performance of the contract;
- the rights of withdrawal for distance and off-premises contracts;
- consumer rights specific to contracts of sale; and
- unfair contracts in consumer contracts.
Financial services are covered by the new Directive’s rules on unfair contract terms and mortgages or other loans, secured on property, negotiated at a consumer’s home by the rules on off-premises sales. For the rest there is an exclusion because there is existing legislation in place, for example, the Distance Marketing of Financial Services Directive applies to distance sales of financial services and the Consumer Credit Directive applies to credit agreements concluded at the doorstep.
Areas covered in this briefing note
The intention of this briefing note is to firstly consider some preliminary matters, where we look at:
- the scope of the Directive
- the definition of “consumer”
- implementation of the Directive
We will then highlight a number of the main Articles of the Directive and we will look in particular at:
- Article 5 – General information requirements
- Articles 12, 13 & 14 – Right of withdrawal
- Articles 22 & 23 – Delivery and passing of risk
- Articles 26 - 29 – Repairs and replacement
- Articles 34 & 35 – Unfair contract terms
Which agreements fall within the scope of the Directive
In terms of the Directive all contracts for sales of goods and services from business to consumer will be covered. There are specific rules covering distance contracts (where the trader, for conclusion of the contract, makes exclusive use of one or more means of distance communication, for example sales by telephone, internet or mail order) and off-premises contracts (where a contract is concluded away from business premises in the simultaneous presence of the trader and the consumer).
In order to prevent the rules on the conclusion of contracts off-premises being circumvented a contract negotiated, for example at a consumer’s home but concluded in a shop (the trader’s premises), will be regarded as an off-premises contract.
Please note that the definition of “business premises” includes “market stalls and fair stands where the trader carries on his activity on a regular or temporary basis”. This would not however include premises rented for a short time where the trader is not established, for example a room at a hotel, restaurant or conference centre.
Definition of a “consumer”
The Directive only covers contracts between a trader and a “consumer” which is defined as meaning “a natural person who, in transactions covered by this Directive, is acting for purposes which are outside his trade, business or profession”.
Implementation
The Directive is still to be approved by the European Parliament and EU Governments in the Council of Ministers. At present there is no fixed timetable for this. Current market conditions may dictate that this take some time to come to fruition. If approved the Member States will require to adopt and publish the laws and regulations necessary to comply with the Directive within 18 months after the Directive has been published in the Official Journal of the EU. Those laws and regulations will apply from two years after the date of publication in the Official Journal.
Proposals from the Directive
The underlying principle of the Directive is to harmonise consumer rights regulation across Member States to increase consumer confidence particularly when making cross-border purchases, while maintaining a high level of consumer protection. To that end the Directive aims to give consumers standard pre-contractual and contractual information, to establish uniform EU wide rules for delivery and passing of risk to the consumer, a single EU wide cooling off period of 14 days along with rules on the beginning of the withdrawal period, the introduction of a standard withdrawal form, a standard set of remedies for a consumer who has bought a faulty product and a new blacklist of unfair contract terms which are prohibited in all cases across the EU together with an EU wide grey list of contract terms which are deemed to be unfair unless the trader proves to the contrary.
Article 5 – General information requirements
In terms of this Article before concluding a contract a trader is obliged to provide the consumer with clear information so that the consumer has all the information required to make an informed decision on whether or not to buy.
The prescribed information includes the main characteristics of the product; address and identity of the trader; the price inclusive of taxes; all additional freight, delivery or postal charges; the arrangements for payment, delivery, performance and the complaint handling policy; if applicable the right of withdrawal; the duration of the contract or if the contract is open-ended the arrangements for termination.
Articles 12, 13 & 14 – Withdrawal
There will be a single EU-wide cooling off period of 14 calendar days for off-premises contracts and distance contracts (increasing the current UK 7 working days cooling-off period). There are also rules regarding the date when the withdrawal period commences. In the case of off-premises contracts the period commences from the day the consumer signs the order form or where the order form is not on paper, when the consumer receives a copy of the order form in another durable medium. If the trader has not provided the consumer with information on his rights of withdrawal the period for withdrawal shall expire three months after the trader has fully performed his other contractual obligations.
An easy to use standard withdrawal form is set out in the Directive which can be used by the consumer when withdrawing or the consumer can send a statement, on a durable medium, addressed to the trader in his own words informing the trader of his decision to withdraw.
The trader must reimburse the consumer no later than 30 calendar days from the day on which the trader received the notice of withdrawal.
Articles 22 & 23 – Delivery and passing of risk
Unless agreed otherwise the trader must deliver the goods to the consumer within a maximum of 30 calendar days from the conclusion of the contract. The risk of loss or damage to the goods shall pass to the consumer when the consumer takes material possession of the goods.
When a trader fails to fulfil his obligation to deliver the goods the consumer is entitled to a refund, of any sums paid, within 7 calendar days from the last date for delivery i.e. 37 calendar days from conclusion of the contract.
Articles 26 – 29 – Repairs and replacement
A standard set of remedies will be available to the consumer where the goods are faulty. In the first instance the trader will have the option of replacing or repairing the product. Where the consumer wishes the product repaired or replaced this is to be free of any cost to the consumer. The consumer must inform the trader of any defect within two months from the date on which he became aware of the defect.
In the event the trader proves that repair or replacement is unlawful, impossible or would cause the trader a disproportionate effort the consumer may choose to have the price reduced or the contract rescinded. The consumer may only rescind the contract where the fault is not minor.
The trader will be liable for any defect which arises within two years of the passing of the goods to the consumer. In the case of used or second-hand goods the trader and the consumer may agree on a shorter liability period which must not be less than one year.
Articles 34 & 35 - Unfair contract terms
The proposed Directive contains a new blacklist of unfair contract terms which are prohibited across the EU in all cases. In addition there is an additional list of unfair contract terms which are deemed to be unfair unless the trader proves the contract terms are fair in accordance with Article 32. Contract terms which are unfair shall not be binding on the consumer. Where there is any doubt about a term, the interpretation most favourable to the consumer shall prevail.
These go beyond the current EU legislation, which provides a list of indicative-only unfair terms.
Changes required to UK legislation
The new 14 calendar day right of withdrawal would require to be introduced in relation to all contracts falling within the scope of the Directive.
The usual rounds of negotiation and lobbying for changes to the proposed Directive will follow, and there will no doubt be significant developments and amendments to the current wording. The Directive is to cover contracts for the sale of goods, and so conditional sale and credit sale will be affected. The 'usual' EC definition of “consumer” applies (see above) but “trader” is defined very widely and will catch, for example, finance companies who sell goods under conditional sale and credit sale for the purposes of their business.
We shall update this briefing note as matters develop.
Contact Details:
Name: John Lunn
DDI: 0131 247 1066
Email: john.lunn@morton-fraser.com
The contents of this article are for information only and are not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser accepts no responsibility for the content of any third party website to which this article refers.
Morton Fraser LLP is authorised and regulated by the Financial Services Authority.
