BMJV publishes draft legislation – consumer protection enters compliance!

The Federal Ministry of Justice and Consumer Protection (BMJV) on 3. and 4 November 2020 published a total of three draft bills to transpose the provisions of EU Directive 2019/2161 (OJ L 328, 18.12. 2019, p. 7 – hereinafter: Omnibus Directive) into German law. With the Omnibus Directive, the Commission is pursuing the goal of improving existing consumer protection in Europe and strengthening its enforcement at the national level (see Federmann / Asbach Platow on the Omnibus Directive). The Omnibus Directive is part of the “New Deal for Consumers” package and an expression of the EU’s “Digital Strategy”. According to its provisions, consumer protection is to be increased, strengthened and its enforcement harmonized, particularly in the area of e-commerce.

The “Draft Law to Strengthen Consumer Protection in Competition and Trade Law” (Referentenentwurf I) tightens up the requirements for consumer information in rankings and consumer ratings in particular. Amendments are also envisaged for extended information requirements under the prohibition of misleading statements and for aggressive marketing and sales practices, such as coffee tours and home visits. Finally, the consumer is entitled to damages in the event of culpable violations by entrepreneurs of consumer protection provisions of the UWG .

“The Draft Law Amending the Civil Code and the Introductory Law to the Civil Code in Implementation of the EU Directive on Better Enforcement and Modernization of Union Consumer Protection Rules” (Referentenentwurf II) primarily concerns changes for extended information obligations and the extension of the right of withdrawal for digital online services and marketing and sales practices in the private sector.

The “Draft Law on the Implementation of the Directive on Certain Contractual Aspects of the Provision of Digital Content and Digital Services” completes the implementation of the directive. Its new provisions, in combination with the changes to the revocation regulations and extended information requirements, are intended to bring consumers numerous improvements when purchasing software, apps or e-books, as well as when shopping on the familiar online marketplaces.

The draft bills are available at

(https://www.bmjv.de/SharedDocs/Gesetzgebungsverfahren/DE/Staerkung_Verbraucherschutz_Wettbewerbs-_und_Gewerberecht.html) and https://www.bmjv.de/SharedDocs/Gesetzgebungsverfahren/DE/Bereitsstellung_digitaler_Inhalte.html.

The Omnibus Directive also specifies, among other things, that companies are subject to fines in the event of a cross-border violation of consumer rights. The protection covers in particular unauthorized business acts and contractual rights of consumers, which are regularly regulated in general terms and conditions. In order to ensure that national sanctions are also sufficiently dissuasive, the Commission has specified to Member States that the maximum amount of a fine to be imposed must, in principle, amount to at least 4% of the trader’s annual turnover in the Member State or Member States concerned if the infringement is “widespread”. This is already the case, for example, if the infringement affects consumer interests from at least two Member States in which the trader is not itself established. A widespread infringement shall also be presumed if it occurs simultaneously in at least three Member States and has common characteristics, i.e. in particular concerning unlawful conduct and interests harmed. A purely national infringement in Germany alone, on the other hand, is not sufficient.

In addition to a large number of new or supplemented consumer protection provisions, the German draft bills I and II therefore contain provisions on fines that are to be incorporated into the law against unlawful competition (Section 19 UWG-Ref-E) and German civil law (Article 246 e EGBGB-Ref-E). The latter represents a paradigm shift, since German civil law – with few exceptions – does not provide for any intervention by the state. This is a step towards more sanction-based law enforcement with implications for appropriate compliance management.

Under the new fine provisions of the draft bills I and II, widespread violation of certain consumer protection regulations constitutes a misdemeanor.

Violations of a wide range of known and new consumer protection regulations can be punished as a misdemeanor, and in particular, the following violations fall under it:

• Unfair commercial practices;
• Aggressive commercial action – e.g. “coffee runs”;
• Misleading the consumer in the case of untrue statements or deception,
• Misleading by withholding information. In addition to the characteristics of the goods or services, these include, for example, the total price, identity of the trader or consumer rankings. In the latter case, the entrepreneur must ensure that the published reviews come from consumers;
• Assertion of claims against the consumer if an unordered item was sent to him;
• The use of invalid general terms and conditions;
• Violation of information duties in digital business transactions;
• Demanding freight, delivery and shipping costs without information about these costs;
• No personal disclosure on sales calls;
• Not providing copies of contracts;
• Failure to meet additional deadlines for product delivery;
• Failure to return payments or take back goods after revocation when providing digital products;
• Failure to confirm receipt of a revocation;
• No delivery of the ordered item within 30 days.

In principle, a fine of up to 4 percent of the trader’s annual turnover in the Member States concerned can be imposed on the infringing trader. The fiscal year preceding the decision by the authorities is decisive for the assessment. The amount of annual sales can be estimated. If there is no evidence to estimate the annual turnover, the maximum fine is two million euros. For companies with annual sales of less than two and a half million euros, the fine is limited to one hundred thousand euros. This limit also applies to the imposition of a fine on the acting person (e.g. the employee). These regulations supersede the general fine limits of the misdemeanor law.

The Federal Office of Justice (Bundesamt für Justiz) and, in special cases, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) as well as the competent authority under state law are responsible for assessing and imposing fines. For the prosecution of the administrative offense, it is mandatory to have a coordinated enforcement action (Regulation EU 2017/2394) between the competent authorities of the Member States concerned. Without this, no fine can be imposed for an administrative offense committed on the basis of draft bills I and II.

The coordinated enforcement action will be carried out in coordination with the competent authorities of the Member States in the affected EU consumer markets. They should have the effect of ending the violation. In this context, fines may be imposed by the competent authorities in the affected markets. Among other things, enforcement action is particularly appropriate when there is a need for a prompt and effective cessation of the violation, as well as when the violating business has not given a commitment to cease or the commitment is insufficient to ensure cessation of the violation or to provide relief to the aggrieved consumer. In addition, an enforcement action may be appropriate if, among other things, the infringing business has failed to meet a deadline set to end the infringement or to remedy the situation vis-à-vis the aggrieved consumer.

The new consumer protection rules and fine provisions apply to all economic operators inside and outside the EU who offer goods or services to consumers residing in the EU. The application of the new regulations extends from one-man online stores to multinational corporations. Although it will still take some time for the implementing legislation to come into force, entrepreneurs should start early to prepare for the new legal situation. In addition to the possible adaptation of general terms and conditions, measures should be initiated to integrate consumer protection and its observance in operational business into existing compliance systems.