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New EU Directive on Consumer Rights Affects Website Terms

altIn late October 2011, the European Council of Ministers formally adopted the new EU Consumer Rights Directive. The new Directive will drastically affect the rules that apply to online shopping. Numerous provisions will also apply to both the online and the offline markets.

Scope of the Consumer Rights Directive

The Directive is intended to protect “consumers,” i.e., all natural persons who are acting for purposes that are outside

 their trade, business, craft, or profession. It creates new obligations for “traders,” a broad term that encompasses all categories of persons who sell products or services. The Directive defines the term “trader” as any natural or legal person who is acting, directly or indirectly for purposes relating to his/its trade, business, craft of profession in relations to contracts covered by the Directive. These contracts include: sales contracts, service contracts, distance contracts, off-premises contracts, and public auction contracts that are concluded between a trader and a consumer.

There are numerous exceptions, such as contract for healthcare services, for financial services, for the construction of new buildings, for package travel, for passenger transport services, or contracts concluded by means of automatic vending machines.

Effect on US Companies

US companies that operate websites that sell to European customers, as well as their affiliates who make direct sales to EU consumers, must start evaluating the numerous consequences that the implementation of the Directive on Consumer Rights will have on their operations. The consequences include:

  • Practical consequences: The Directive introduces a new way of doing things. Thus, there will be a need to adapt the exisitng processes, procedures, and interaction with the customer to the new order. Forms and purchase orders will have to be revised.
  • Logistics: The Directive encourages returns. Under the new regime, customers will have 14 days to change their minds and return the purchased goods. Thus, the rate of return will increase. Logistics will have to change to allow the company to handle a heavier rate of returns.
  • Financial consequences: Merchants and traders will have to bear more costs. For example, hotline services will be permitted to charge only for actual telephone rate for phone calls.  
  • Rewrite of Terms:  Terms of sale will have to be clearer and more explicit. For example, the additional charges must be clearly explained, or the customer will not bear these charges. Thus, new terms will to be drafted in order to communicate better with customers.

Overview of the changes

The Directive will require extensive changes in the Consumer Protection Laws of the Member States, including changes to implement the following requirements:

  • Pre-ticked boxes on websites will be banned

Pre-ticked boxes will be banned, so that consumers do not inadvertently get charged for options or services that they did not intend to purchase. Currently, consumers are frequently forced to untick these boxes if they do not want extra services.

  • Price transparency will be increased

Consumers will not have to pay charges or other costs if they were not properly informed before they place an order. Traders will be required to disclose the total cost of the product or service, as well as any extra fees.

  • Hidden charges and costs on the Internet on the Internet will be eliminated

Consumers will be required to explicitly confirm that they understand that they have to pay a price. This measure is expected to prevent hidden charges and cost that arise when companies try to trick consumers into paying for “free services,” such as horoscopes or recipes.

  • Surcharges for the use hotlines prohibited

Traders who operate telephone hotlines allowing the consumer to contact them in relation to the contract will not be able to charge more than the basic telephone rate for the telephone calls.

  • Surcharges for the use of credit cards prohibited

Traders will not be able to charge consumers more for paying by credit card (or other means of payment) than what it actually costs the trader to offer such means of payment.

  • Better consumer protection in relation to digital products

Information on digital content will have to be clearer, including about its compatibility with hardware and software and the application of any technical protection measures, for example digital rights management applications, which limit the right for the consumers to make copies of the content.

  • 14 Days to change one’s mind on a purchase

Consumers will be able to return the goods that they purchased if they change their minds within 14 calendar days. This change extends by 7 days the current period during which purchases can be returned. In addition, if a seller has not clearly informed the customer about the right to return the goods, the return period will be extended to a year.

The 14-day return period will start from the moment the consumer receives the goods. The rules will apply to Internet, phone, and mail order sales, sales outside shops (e.g. on the consumer's doorstep, in the street, at a home party or during an excursion organized by the trader).

The right of withdrawal is extended to online auctions, such as eBay. However, the ability to return goods bought in auctions will be limited to goods bought from a professional seller. In the case of digital content, such as music or video downloads, consumers will have a right to withdraw from purchases of digital content only up until the moment the actual downloading process begins.

  • Better refund rights

Traders will be required to refund consumers for the product within 14 days of the withdrawal. This includes the costs of delivery. In general, the trader will bear the risk for any damage to goods during transportation, until the consumer takes possession of the goods.

  • Clearer information on who pays for returning goods must be provided

Traders who want the consumer to bear the cost of returning goods after they change their mind, will be required to clearly inform consumers about this requirement beforehand. Otherwise, they will have to pay for the return themselves.

At a minimum, they will have to clearly give, before the purchase, an estimate of the maximum costs of returning bulky goods (e.g. a sofa) bought on the Internet or through mail order.

  • Common rules will apply throughout the European Union

A single set of rules for distance contracts (sales by phone, post or internet) and off-premises contracts (sales away from a company’s premises, such as in the street or the doorstep) will apply throughout the European Union. Standard forms will be used, such as a form to comply with the information requirements on the right of withdrawal.

Implementation in the national laws

The EU Member States will have two years to implement the Directive into their national laws. The deadline for implementation will be computed from the date of publication of the Directive in the Official Journal of the European Union.

Based on experience with other implementations of other directives, we can expect that several EU countries will have implemented the Consumer Rights Directive by the end of 2013, and the remainder will follow during the following years. As always, the manner in which each country implements the Directive will be crucial. If the member states diverge in their interpretation of the Directive, websites, which reach customers across borders, will have to juggle with these discrepancies.

Relations with existing directives

The Directive on Consumer Rights will replace the current Directive 97/7/ECon the protection of consumers in respect of distance contracts and the current Directive 85/577/EECto protect consumer in respect of contracts negotiated away from business premises.

However, Directive 1999/44/ECon certain aspects of the sale of consumer goods and associated guarantees and Directive 93/13/EECon unfair terms in consumer contracts will remain in force.

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