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Health and Consumer Protection

Surveys

This study was produced by PriceWaterhouseCoopers for Health & Consumer Protection DG and represents .the contractant's views. These views have not been adopted or in any way approved by the Commission and should not be relied upon as a statement of the Commission's or Health & Consumer Protection DG's views. The European Commission does not guarantee the accuracy of the data included in this study, nor does it accept responsibility for any use made thereof.

Study on Consumer Law and the Information Society

Executive Summary

Background to the report

Driven by information and communication technologies ("ICT"), the dawning of the Information Society - most manifestly demonstrated by the boost of the Internet - will fundamentally change our society. Consumers will have a profound role in unfolding the Information Society, being one of the driving and catalysing elements therein. Simultaneously, however, enhanced possibilities to communicate and to do business give rise to legitimate concerns as regards the protection of consumers (e.g. in the areas of new marketing techniques, privacy, payment, access to infrastructure, services and content).

Closely monitoring the changes brought about, European institutions have taken a keen interest in safeguarding the level of consumer protection provided under the EU legal framework. In its Resolution of 14 May 1998 1 Parliament stressed that a high degree of consumer protection constitutes a fundamental right which should be guaranteed and that consumer rights in relation to the Information Society should be ensured and if necessary adapted to the requirements set out by the new environment. Furthermore, in its Resolution of 19 January 1999, the Council invited the Commission to examine existing consumer law in the Community in the light of the new conditions created by the Information Society, so as to identify any possible loopholes with respect to specific problems that may arise in this context. Accordingly, the Commission initiated a study in conformity with the resolution of the Council.

This document is the product of the work carried out under this study. It has been produced by a consortium of a private company and two Universities: Marc de Vries (project leader) from PricewaterhouseCoopers NV (The Hague - the Netherlands), Professor Corien Prins (with the co-operation of Simone van der Hof and Miriam van Dellen), from Tilburg University, Professors Jan Kabel and Ewoud Hondius and Madeleine de Cock Buning from Utrecht University. The text was completed on 10 July 2000.

Main conclusions

Generally speaking, most EU consumer law provisions looked into can be regarded as Information Society proof and are, to a large extent, commensurate with the new environment of the Information Society. However, there are certain provisions that do not fit this description, requiring clarification. Additionally, there are areas that have not been touched by the European legislator and that will need further consideration, in view of the dawning of the Information Society.

Some terms are unclear in the context of the Information Society. For instance terms such as: 'intelligible and plain language' and 'main characteristics' will need to be clarified in view of the Information Society. Furthermore, the technological developments sometimes create practical problems, where new applications allow for alternative methods of (possibly) fulfilling legal obligations (such as providing access to general terms and conditions via a website).The study team has come to the conclusion that most of these clarification issues are merely technical and do not seem to threaten consumer interests in the context of the Information Society.

Thus, large parts of the EU legal framework seems Information Society proof. This is largely accounted for by the recent horizontal and sweeping directives issued (distance selling and electronic commerce directive). The more 'classical' directives (such as the timeshare, package travel, unfair contract terms directives), contain some provisions that would require adaptation or at least clarification, but this is now catered for by these new directives.

However, in relation to these sweeping directives, there is a more fundamental problem: the interaction of these directives with existing consumer protection rules is unclear. The directives aim to complement Community law, without prejudice to the existing level of protection for consumer interests. Nevertheless, in some cases the new directives may take precedence over higher levels of consumer protection, established by Member States under minimal harmonisation directives, possibly leading to a nullification of minimum protection rules clauses. Secondly, at a higher aggregational level, there is a second fundamental issue dealing with the relationship between the various directives looked into. Their (inter)relationships seem immensely complicated, taking into account the definitions, scope and exemptions. This leads to numerous questions that will need thorough consideration.

Apart from the issues relating to existing legislation, there are large areas in the field of consumer protection which are not covered by any form of binding EU rules, but, nevertheless, require attention in the context of consumer protection in the Information Society. The study team thinks that there are four fields of paramount interest, where consumer protection is needed under EU regulation. These concern: payments (particularly charge backs and the relationship between the card holder and the card issuer), regulation of self-regulation and marketing practices (especially in relation to children) and some areas of general civil law (mainly: the procedural aspects of the conclusion of contracts (audit trails and access to such data), value of electronic documents in court proceedings, service liability and parental control).

The mere provision of a legal framework is insufficient and, therefore, the study team has also looked at its broader context (e.g. rules of law lose their value and justification if they are not complemented by other basic (non-legal) forms of protection (such as security). Without appropriate measures that cater for the surrounding issues, a legal framework will be less effective. Access to infrastructure, services and content will be critical to the sound development of the Information Society; competition (law) will need to ensure such access for consumers. Additionally, education is a prerequisite to the rise of the EU Information Society consumer. Without proper skills and knowledge (and the maintenance thereof) (large sections of) consumers will be cut off from the benefits the Information Society will offer. Simultaneously, the creation of trust will be enhanced through the application of technology that can ensure consumer security (e.g. protection against viruses, secure payment etc.) Finally, the Internet allows consumer organisations not only to do their work more effectively and efficiently, it also allows them to shift their attention towards other areas, formerly uncovered.

In addressing these more social aspects of the study, the study team has looked at three basic issues - Internet for all, creating a safer Internet and making the consumer voice heard. The most prominent conclusion of part II is that the needs of consumers in the Information Society seem to lack appropriate and timely attention. This applies to many areas of action, such as (preparatory) legislative actions (most manifestly demonstrated by the draft copyright directive), 'third pillar' actions, 'accompanying measures' actions and actions by other (non-governmental) organisations.

The eEurope initiative may serve as an example here. Although the aim is to create a high-level information society with the participation of all European citizens, the specific role of a citizen, being a consumer, does not seem to be adequately covered. Although 'building consumer trust' is mentioned in one of the objectives, this has not been substantiated any further in one of the 10 priority areas. The document fails to underscore that consumer trust needs to be linked in with corresponding consumer rights. Thus, from a consumer point of view, on the important points such as data protection and access the document seems to fall short. The study team thinks that this is somewhat symptomatic for the way consumer protection is catered for throughout most of the Commission services.

The main recommendations

Based on this analysis of the legal framework and the policy environment, the study team has come up with 5 general and a subsequent set of specific recommendations.

A. General Recommendations

1. The Information Society is an opportunity for consumers that should be seized

The study team advocates that neither consumers, nor policy makers should perceive the dawning of the Information Society as a threat to consumers, but instead as a vehicle to increase consumer confidence and to enhance consumer protection where needed.

2. The possibilities of the Internet do not lower the protection needed

Some say that the dawning of the Information Society will renter consumer protection redundant, since consumers will be able to perceive their goals without constraint and since they will be able to inform themselves extensively. The study team does not share this view. It thinks that the ease of gathering information does not outweigh the enhanced powers of businesses. Therefore, the current level of protection should at least be maintained and in some areas it requires enhancement.

3. Lack of attention for consumer interests creates risks

The needs of consumers in the Information Society seem to lack appropriate and timely attention. Here, consumers hold an importanttrump card: without their confidence, electronic commerce - one of the main drivers in the Information Society - is not likely to yield benefits neither in the short nor in the longerterm. Both economic actors and particularly policy makers at national and supranational level should be aware of these sensitive interdependencies: if the European Union is going to actively promulgate electronic commerce, it will have to see both ends, otherwise it will run the risk of a backlash. Thus, it is in the interest of all involved to address consumer needs appropriately.

4. Exploiting the political momentum

The study strongly advocates linking consumer protection with consumer confidence. It feels that, since consumer confidence is so high on the political agenda, consumer protection may benefit from increased attention within the Commission and in member states.

5. There is a strong need for a long-term view

Finally, the study team stresses the need for the development of a long-term view on consumer protection, closely linked to the development of electronic commerce. What will be the next steps after the adoption of the electronic commerce directive? The Commission should look at the role of technology and the new business models that will emerge. How do these link in with traditional safeguarders of consumer protection, such as competition (law), privacy, law in general (especially private (international) law (at a European level)), education, (the role of) representation and regulating mechanisms. In this framework, it may be worthwile considering whether the use of minimum clauses is still recommendable in the context of the Information Society.

B. Specific Recommendations

Furthermore, the study team has reached a set of specific recommendations and following recommendations should be followed. These recommendations relate to three areas: legislative measures, institutional measures and other forms of support.

1. Legislative measures

a. Address the technical imperfections (not necessarily by means of legislataion)

Looking at the gaps and the rules whereupon clarification is needed, none of them seem so substantial that immediate EU action is needed (e.g. terms such as: document, brochure, product, main characteristics, plain and intelligible language). They appear to be able to function (and possibly evolve) in the Information Society. In respect of the gaps identified (e.g. procedure on and moment of conclusion of contracts, rules on complaint procedures and pricing (exchange rates)), an assessment will need to be made whether they are substantial enough to be addressed by means of a directive; stimulating self-regulation or the initiation of a recommendation may seem more proportionate. In respect of some of these issues, the OECD guidelines on consumer protection in electronic commerce could serve as a model here.

b. Address the non-Information Society proof rules and the blank areas, where appropriate, by means of directives

The study team has identified 6 main blank areas, being: payments, advertising and marketing practices, protection of children (advertising, privacy, conclusion of contracts and illegal and harmful content), regulation of self-regulation, creation of European civil law and the establishment of global rules.

  • payments

Considering the importance of the act of payment for consumers and the absence of binding EU rules, regulation of payments is an area for action with high priority. In this context two fields of priority are emerging: charge backs and reconsideration of the relationship between the cardholder and the card issuer, especially in view of the prepay model that seems to join in with the Internet.

  • advertising and marketing practises

The Internet allows for unprecedented commercial communications, in terms of intensity, targeting and reach. Rules on advertising are in many cases especially aimed at certain types of media. Generally, a broader concept of fair advertising that is valid both off-line and on-line will be beneficial for consumers. However, it may not be feasible to transfer existing rules that apply to television to the Internet environment since many of those rules are predicated on the technology that is used and the regulation is based on that. The Commission will need to think through what tools are workable, especially in view of the question whether the distinction between mass communication and one-on-one communication can still been made, also taking into account the future technology developments, such as webcasting and the telecom aspects of electronic commerce. In summary, in order to raise the standard of marketing in general it might be suggestible to introduce a broader base of what marketing has to comply with by introducing fair marketing requirements, not only a prohibition of misleading advertising but to enlarge this basis. This could be done in the context of the announcement by the Commission to revise the advertising directives.

  • protection of children

In respect of children, various blank areas have been identified: marketing practices aimed at and targeting children, data protection in relation to children, contracting by children and protection against unsought content. Especially children will not be aware of the sensitive data they may be providing in an Internet environment. Also they will be easier to persuade to give away certain data. The study team thinks that urgent action is needed here.

In relation to advertising, the Court of Justice of the European Communities has in several cases taken into account the presumed expectations of an average consumer who is reasonably well informed and reasonably observant and circumspect in order to determine whether a promotional statement is liable to mislead the purchaser. The concept of the average consumer does not hold for vulnerable groups like children. One could however use this concept as a normative guideline while at the same time accepting exceptions to this guideline, dependant on the target group, the nature of the products or services, and of the advertising medium.

In the field of contracting, no EU rules exist in relation to the validity of contracts concluded by minors and it is highly questionable whether in this area the Commission will be able to produce binding rules, although the study team would advocate this. Thus, realistically, the Commission could undertake awareness actions to flag out this issue and perhaps to establish guidelines or recommendations.

Finally, in the early stages of the Internet-boom the Commission has been aware of the perils of this new medium, especially in view of protection of minors against illegal and harmful content. So far, no legislative initiatives have been taken. Instead the Commission has focused on awareness actions, stimulation of self-regulation and rating, filtering and labelling techniques 2 . Given the principle of subsidiarity and the sensitive matter of freedom of speech, the study team advocates the intensification and continuation of this work. Simultaneously, it endorses the further commitment in the framework of the third pillar, which, eventually may lead to legislative actions.

  • regulation of self-regulation

The study team thinks that, taking the bottom line, self-regulation by its very nature will never be able to replace legislation and expectations in relation to self regulation as regards consumer protection issues may be too high. Taking into account the various roles a government can take in self-regulatory processes, the study team advocates a fundamental (re)assessment of the usefulness of the mechanism of self-regulation in the context of consumer protection in the Information Society. In those cases where self-regulation is an appropriate tool, legislation on self-regulation is needed, embedding (any) self-regulatory action into the regulatory framework and establishing rules on procedural and processual aspects. Most likely this will need to be shaped by means of a directive: binding force will berequired, since it is highly questionable whether a recommendation hereon would be followed.

  • Further creation of European civil law

In the last decades various European initiatives have been taken to work on the principles of European contract law. Without doubt, these have demonstrated that the establishment of European civil law will be a long load to take and will synchronise with further integration in Europe. Nevertheless, there are some areas that merit particular attention in the framework of the Information Society. First of all, there is a strong need to addressthe shortcomings in the Brussels and Rome Conventions. In its draft regulation on jurisdiction the European Commission intends to remedy these inadequacies by including on-line consumer contracts in the special consumer protection rules on jurisdiction, expressly deciding in favour of the Internet consumer. Furthermore, the study team advocates the regulation of service liability.

In this framework, the importance of legislative actions in some areas is clearly demonstrated by three proposals for directives which have been produced quite recently (proposals for (a) a Directive concerning the processing of personal data and the protection of privacy in the electronic communications sector (COM(2000) 385), (b) a Directive on universal service and users' rights relating to electronic communications networks and services (COM(2000) 392), and (c) a Directive on a common regulatory framework for electronic communications networks and services (COM(2000) 393).

  • Creation of legislation beyond Europe

By its nature, the Information Society is not limited to the European territory. Therefore, certain issues are required at a supra-European or even a global level. The study team thinks that there are a number of areas where a global dialogue is needed with the aim to establish international treaties. In this respect, most notably, (the principles of) data protection, the concept of minimal harmonisation, the country of origin principle, rules on self-regulation (e.g. in relation to ADR) and issues on general civil law should be looked at (for instance in the framework of the The Hague Conference on Private International). The study team thinks that the OECD Guidelines on consumer protection in electronic commerce may be very beneficial in this field. These reflect carefully sought compromises and balances among Member States and with third countries.

2. Create institutional mechanisms to increase the attention for consumer interests.

First of all, the study team would advocate the creation of a 'consumer-impact-test', allowing an assessment of the effects certain measures proposed would have on EU consumers. Article 153 provides a legal basis for such a test. Secondly, in a more general context it may be advisable to create some kind of Information Society proof tests of legislation: an anterior test and subsequently, a posterior test, looking at the usefulness and the issue whether the rules are in fact realistic as regards certain provisions. Finally, there is a great variety of working groups dealing with issues that are relevant in the context of consumer protection in the Information Society. In some cases the interests of consumers may not be addressed properly, either because it is not known within the Commission that such working groups are actually dealing with consumer issues or because of the absence of people supporting consumer interests. In a broader context, it will be beneficial to increase transparency in respect of these working groups (existence, objective, character, members, meetings, minutes etc.) both inside and outside the Commission.

3. Other forms of support

Finally, the study team thinks that, in view of creating awareness in respect of consumer interests, projects could be initiated to help the consumer community to make proposals or to find partners, in order to increase their participation in European tenders. Secondly, to an increasing extent governments tell consumer organisations that they should negotiate directly with businesses. There are practical difficulties therein in terms of resource differences between consumer organisations and businesses. The Commission may want to take this into account, also in relation to the differences in strands for consumer organisations in different member states. Finally, businesses may want to take part in educating consumers, since this may be an interesting business case in the short and in the longer term. The Commission could stimulate businesses to do so.

Download the entire study in PDF format (512KB)

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1 Resolution of the European Parliament A4-0173/98 on the Communication from the Commission to the Council, the European Parliament, the Economic and Societal Committee and the Committee of the Regions (COM(97) 157 final.

2 Recently, the Commission has released two reports within the framework of the Action Plan on promoting safer use of the Internet on the two main types of technologies currently available to help parents ensure that their children can use the Internet safely - content filtering based on self-labelling and on third-party rating. The conclusion of the reports is that further work is needed to improve existing technologies so that they meet the needs of European users.

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