09.03.2020 | KPMG Law Insights

Consumer protection and corporate compliance

Consumer protection and corporate compliance

The EU is modernizing consumer protection. The directive in question readjusts the existing EU consumer protection in many places and subjects it to regulatory control. The introduction of sanctions and the associated location in regulatory offence law makes consumer protection compliance-relevant. For companies and traders, it is advisable to adapt their compliance management systems and to check their offer practices and T&Cs in the B2C area for conformity.

The EU is reorganizing consumer protection with the amending Directive EU 2019/2161 (hereinafter referred to as the “Consumer Protection Compliance Directive”, or “VC-Directive” for short). The directive aims to modernize national consumer rights, strengthen them in e-commerce and enforce them by means of fines. It entered into force on January 7, 2020, and must be transposed into national law by member states by November 28, 2021. In doing so, the German legislator must observe the minimum harmonization prescribed in the Directive, but may also go beyond the Directive’s rules in terms of the level of protection.

EU consumer protection in German law
The VC Directive amends and supplements several existing EU consumer protection directives, specifically the Directives on the protection of consumers against unfair terms (Directive 93/13/EEC), on the indication of prices (Directive 98/6/EC), against unfair commercial practices (Directive 2005/29/EC) and on credit, distance and doorstep selling (Directive 2011/83/EU). In German law, these directives are reflected, among other things, in the provisions on general terms and conditions, on rights of withdrawal, on information requirements for doorstep or distance selling transactions, on sales law regulations, and on consumer loans. Other examples include the Unfair Competition Act (UWG) and the Price Indication Ordinance (PangV).

The scope of application of the VC Directive is limited to the B2C sector. Companies that operate exclusively in the B2B sector are therefore generally not affected by the changes. Geographically, the scope of application is limited to the EU member states – this includes, on the one hand, companies that have their registered office in a member state and, on the other hand, non-EU companies that offer their consumers goods or services in an EU member state.

The Directive introduces a number of new rules into consumer protection, for example:

– Different products may not be marketed as identical products.
– Aggressive or misleading marketing and sales practices in door-to-door sales and “coffee runs” are prohibited.
– The supplier must provide special information about atypical payment, delivery and service conditions.
– The information requirements for online markets will be expanded.
– Price reductions and personalized prices must be indicated.
– For unfair business practices, remedies such as repair or replacement are newly regulated.

The directive also introduces new rules for rankings in online search engines and for consumer ratings on offer pages. The providers and operators are to be subject to far-reaching disclosure and verification obligations.

Introduction of sanctions
A paradigm shift for German law is the introduction of sanctions. Up to now, German law has only stipulated legal consequences under civil law for violations of consumer protection standards: cease-and-desist proceedings and warning letters. Example: If general terms and conditions violate consumer protection rights, they are merely invalid, § 305 f. BGB. This is changing with the VC-RL.
Just as in the case of the GDPR, it now requires member states to introduce appropriate and dissuasive sanctions for violations of regulations that have already been or will be transposed into national law under the directives.

As part of the so-called minimum harmonization, the German legislator must therefore ensure that far-reaching violations of consumer protection regulations can be punished with a maximum amount of at least four percent of the trader’s annual turnover. If the annual turnover cannot be determined as the basis for assessment, a maximum fine of at least two million euros must be provided for instead. The VC-RL also introduces a list of circumstances to be taken into account when determining the fine. This includes the type, severity and duration of the violation as well as repeat offenses, restitution and financial benefits obtained. The national legislator must guarantee this catalog as a minimum, but may go beyond it.

Integration of consumer protection into compliance
The VC-RL moves consumer protection into the German Administrative Offenses Act (OWiG) and thus into the core area of corporate compliance. For companies, this means that they should anchor consumer protection in their compliance management system in the future. In particular, the new regulations will receive attention in the training and monitoring of sales and marketing in e-commerce.

The directive requires the adaptation of previously typical processes and competence allocations. Thus, until now, compliance with consumer protection and, in particular, the rules on general terms and conditions, has been the business of contract drafting in the legal department. As a result of the directive, companies should now integrate these tasks into the monitoring and control mechanisms of all operationally relevant business processes in order to prevent a supervisory law obligation (Section 130 OWiG) that could result in a fine.

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