Consumers and Consumer Protection Law
1. Subject and purpose
EU consumer protection law is one of the main driving forces for the modernization of private law. Predetermined by directives, EU law regularly provides for the protection of individuals who conclude legal transactions with professionals for private purposes. This typified dichotomy can be traced back to the industrial revolution that led to mass production and mass distribution on the one hand and mass consumption on the other. While concentrated ‘rationalization’ and instrumental rationality dominates the producers’ and distributors’ sphere, findings from the economic, social and behavioural sciences, together with recent brain research, cast doubt on whether private end-users act like fully rational, evenly matched counterparties.
One of the reasons is that, most of the time, consumers conclude transactions with a very limited trade volume. Therefore, investing excessive intellectual effort—regarding, for example standard contract terms and other non-price or performance-oriented factors—barely makes sense from the perspective of the consumer’s cost-benefit analysis. Because of the advantages of being a ‘repeat player’, this works exactly the other way around for the business side. Moreover, a rational transaction is also hindered by advertising, modalities of distribution and—with some limitations—the appeal of trademarks. That is why a mere information model that focuses on counterbalancing asymmetries through the duty to supply information quickly meets its limits.
The fact that the modern consumer society and its associated concept of protection only came into existence after World War II explains the impact of consumer protection as a driving force since the early 1960s (a landmark being President John F Kennedy’s 1962 declaration ‘Consumers, by definition, include us all’). Therefore, older bodies of law and the 1957 Treaty of Rome for the most part barely recognized the notion of consumer protection. Still, there are affinities to classic fields, eg the restriction of private autonomy by the law of errors or the law on legal transactions contrary to public policy that depend on the individual instances. On the other hand, forerunners can be traced back to older regulations of markets and professions.
Consumer private law is characterized by its categorizing approach. It responds to new structural challenges and increasing imbalances before, during and after the conclusion of mass transactions. Due to transnational transportation and communication infrastructures, this is particularly the case regarding transborder and distance transactions. Characteristically, the EU legislature does not react by establishing rules that solely refer to cross-border transactions. In fact, this legislation is applicable to both national and international cases in order to avoid total fragmentation of the law. Moreover, market-orientated secondary law is meant to stimulate a ‘consumer internal market’, which is partly based on reality, partly based on an ideal still to be achieved. Ultimately, the participation of the consumer in the internal market is essential ‘to raising the standard of living and the quality of life in its territory’ (see ECJ Case C-168/05 – Mostaza Claro [2006] ECR I-10421 para 37). In these two aspects, EU consumer law differs from the CISG (sale of goods, international (uniform law)), which in part follows the tradition of lex mercatoria though being international (public) law in nature.
Approximately 80 per cent of EU contract law concerns the field of consumer protection. It combines the three principles of consumer information, consumer protection and consumer organization. The concepts of information and protection, the latter gaining importance in recent legislation, are connected by the contractual directives concerning doorstep selling (Dir 85/ 577), consumer credits (Dir 87/102, Dir 2008/48), distance selling (Dir 97/7) distance contracts, distance selling of financial services (Dir 2002/ 65), purchase of the rights to use immovable properties on a timeshare basis (Dir 2008/122) time-sharing agreements (shared right of use), package travel (Dir 90/314) package travel contracts (package tours), unfair terms in consumer contracts (Dir 93/13), standard contract terms and sale of consumer goods (Dir 1999/ 44). Consumer protection under private law is also included in the Product Liability Directive (Dir 85/374) and supported by product safety laws (product liability).
Special norms in support of consumers in international private and procedural law are primarily provided for by Art 6 Rome I Regulation (Reg 593/2008) and Arts 15–17 Brussels I Regulation (Reg 44/2001) (consumer contracts (PIL)). The applicable law in cases of product liability claims is determined by Art 5 Rome II Regulation (Reg 864/2007). The aforementioned collective representation of interests (in the sense of an organizational approach) is so far only promising in a few areas. The Directive on injunctions for the protection of consumers’ interests (Dir 98/ 27) establishes the right of action for consumer associations and Dir 2006/2004 stipulates cooperation between them. Directive 2002/8 provides for common minimal standards on legal aid in cross-border disputes.
Directive 2000/31 concerning e-commerce only partly contains special norms for consumers. Additionally, Reg 261/2004 provides compensation and financial support for aircraft passengers in case of non-carriage or when there is an annulment or a significant delay. Moreover, consumer protection is also provided by EU legislation concerning insurance, banking, investor, data protection and telecommunication law. The Service Directive (Dir 2006/123) indirectly and marginally provides for consumer protection.
Rules on unfair competition are vital for ensuring freedom of choice among customers (directive on unfair commercial practices (Dir 2005/29) and the directive on misleading and comparative advertising (Dir 2006/114); commercial practices, aggressive; commercial practices, misleading; advertising, comparative). They are complemented by special rules on advertising, eg by the directives on audiovisual media services (Dir 89/552) as amended by Dir 2007/65) and on tobacco products (Dir 2003/33) (advertising (tobacco products)). In a wider sense, antitrust measures also serve consumers’ interests.
2. Tendencies of the development of law
a) A cross-sectional subject
The various aforementioned overlaps are manifestations of a cross-sectional characteristic that requires consideration of horizontal consumer protection in numerous areas (Art 12 TFEU/ 153(2) EC). In public law, relevant aspects include technical safety, food safety, product labelling, pricing statements (Dir 98/6) and health protection (Art 168 TFEU/152 EC). Here, however, the private law directives are essential. In light of the competency question, they mainly serve the realization of the European internal market without distortion of competition (Art 114 TFEU/95 EC). But they are also meant to contribute to a high standard of consumer protection (now Arts 4(2)(f), 12, 114(3) and 169 TFEU, then Art 3(1)(t), 153(2) and 95(3) EC) (interpretation of EU law). Therefore, these dual-function directives typically have a dual basis of justification.
b) Definition of the consumer transaction
Consumer protection under private law requires precise situational and personal delineations in order to increase legal certainty and to avoid evidentiary problems. Besides the specific substantive scope of application defined in the directives, the personal requirements are usually as follows: A ‘consumer’ is a natural person acting for purposes outside his trade or profession. This is illustrated by, eg, Art 2 of the Doorstep Selling Directive; a different concept of the consumer is apparent in Art 2(4) of the Package Travel Directive that broadly defines the consumer as any ‘person who takes or agrees to take the package’.
Necessarily, the consumer’s contracting partner party needs to be a professional. Conversely, this counterpart is every natural or legal person that acts within its professional or commercial occupation (eg Art 2(c) Unfair Contract Terms Directive). In this respect, two uniform, strict and typified concepts have developed. It should be noted, however, that Art 15(1) Brussels I Regulation—dating back to the 1960s—makes an exception by not necessarily excluding legal persons from the definition of consumer (consumer contracts (PIL)). With less significance, the latter concept also applies to Art 9(b) Product Liability Directive.
On a national level, there are major discrepancies regarding the concept and the definition of consumer protection. Concerning directives prescribing minimum harmonization, Member States are allowed to expand the group of people that are protected to create a higher national standard of protection. In many cases, Member States strive for a coherent system and a comparatively narrow definition of the consumer in the sense presented above (eg Art 7:5(1) Burgerlijk Wetboek; consumer definition overlapping contract types: Art 3(1)(a) Codice del consumo and § 13 Bürgerliches Gesetzbuch (BGB)).
As an opposing model, the French Code de la consommation (C. cons.) does not follow a uniform concept of the consumer. The consumer is partly equated with the customer and partly defined merely as a person acting non-professionally. Predominantly, the determination of the subjects to be protected is left to the courts. Legal persons are not strictly excluded. The French approach also applies in Spain according to Art 1(2), (3) Ley General para la Defensa de los Consumidores y Usuarios of 1984 as well as in Austria according to Art 1(1) no 2 Konsumentenschutzgesetz (KSchG), as well as to Belgian, Danish and Greek law. In contrast, German, Italian, Dutch, Polish and Swedish law exclude legal persons, as does Art I.-1:105(1) DCFR.
In France, consumer protection is also largely extended to professionals concluding atypical contracts (Cour de Cassation, Cass. civ. 1er (5 March 2002), Bull. civ. IV., nº78, 60; rejecting the non-professionnel in EU law ECJ Case 361/89 – Di Pinto [1991] ECR I-1189). In contrast, German law is strict even when it comes to transactions in the course of starting up a business. Persons acting in the course of commencing a commercial or self-employed occupation are professionals in terms of § 14 BGB (BGH 24 February 2005, BGHZ 162, 253; the same goes for Arts 15–17 Brussels I Regulation ECJ Case C-269/95 – Benincasa [1997] ECR I-3767). Conversely, Art 1(3) Austrian KSchG categorizes the starting businessman as a consumer, rather than a professional. As another characteristic of German law, an employee can also be a consumer in the sense of § 13 BGB when his business objective is not attributed to a self-employed or commercial occupation.
Concerning mixed private and commercial transactions, Art 1:201 Acquis Principles, Art I.-1:105(1) DCFR as well as § 1(1) of the 1990 Swedish consumer sales law (Konsumentköplag) contain a clarification: contracts that are concluded between a professional and a consumer for a ‘mainly’ private purpose are also included. In these cases, the German courts assess which use is predominant (OLG Celle, NJW-RR 2004, 1645). EU law is of little help here. The EU legislative could not agree on an inclusion of transactions that are partially carried out for commercial purposes in the Sale of Consumer Goods Directives (which had been suggested in COM(95) 520 final). Only Art 9(b)(ii) of the Product Liability Directive mentions the criterion of main use. By contrast, Brussels I demands that the trade or professional purpose be so limited as to be negligible in the overall context (see ECJ Case C- 464/01 – Gruber [2005] ECR I-439; consumer contracts (PIL)).
c) Integration or exclusive approach for implementation?
Today, consumer law is an integral part of private law. Accordingly, its location in a central codification is systemically logical. The DCFR, the Burgerlijk Wetboek (BW) and the Bürgerliches Gesetzbuch (BGB) prove that integration does not necessarily lead to ‘system inconsistencies’. Since 2000 and 2002 the latter has contained almost all consumer provisions (primarily §§ 13, 241a, 310(3), 312 ff, 355 ff, 474 ff, 481 ff, 491 ff, 499 ff, 505, 506, 661a BGB). Formerly, consumer protection was codified in a number of special statutes. This multi-tracked nature had already begun in 1894 with the statute concerning instalment sales, a main reason being the fear of damaging the BGB’s overall concept of equality and self-determination of all individuals. However, this concern is unjustified. In addition to the legal relationships between citizens, the modernized BGB now not only regulates the professional business-to-business transaction (b2b) (supplemented by the HGB), but also the special business-to-consumer transaction (b2c) in a systemically consistent way.
There is no need to reinvent the law with regard to consumer protection. General private law can be adjusted to meet consumers’ demands for rights with a higher level of protection, and it can be specialized accordingly. Along with the clearer visibility of consumer protection law, the integrational approach has other advantages: it provides legal simplification compared to the mainly isolated single statutes, it prevents overlaps and it strengthens legal certainty and efficiency. Moreover, the integration promotes doctrinal clarification of the relationship to the law on defect of consent, on negligent violation of the duty to inform and to (other) provisions protecting weaker individuals.
In contrast, the current consumer codes cannot do without reference to the main code. In that way, the 1993 C. cons. is a collective statute. To a lesser degree, this also applies to the 2005 Codice del consumo (also regulating the sale of consumer goods) and the Austrian KSchG 1979 (but the sale of consumer goods can mainly be found in the ABGB). The C. cons. combines existing rules on consumer protection as a codification administrative. This explains why the aforementioned divergent definitions of the consumer were simply carried forward. Such consumer codes are a compromise between full recognition in the core codification and (formal) fragmentation. The latter is characteristic of English law with its ‘bolt on’ implementation. Here, the Unfair Terms in Consumer Contracts Regulations of 1994 (later 1999) were simply added to the Unfair Contract Terms Act 1977 in order to implement Dir 93/13. Nevertheless, the Sale of Goods Act 1979 and two other statutes where updated to implement Dir 99/44.
By and large, the divergence of EU and national consumer law is clearly visible—despite the decisive influence of the EU as the main driving force. Unfortunately, consumer statutes have not led to more unification. This is partly connected to the lack of (horizontal) coherence of EU law. Therefore, a pan-European consumer rights directive, regulation or model would be a good conduit for the condensation of EU law with regard to both content and legal certainty for all parties involved.
3. Concept of protection in EU law
a) Information model and other instruments
The enormous power of consumers to influence the market system goes astray when basic information is incomplete or false (information obligations (consumer contracts)). Informed consumers therefore do not act as opponents of the commercial side but rather—as emphasized by the economic theory of information—as partners in the market process. Quality and price competition are to be advanced (especially in liberalized markets) by increasing transparency and autonomy, eg by encouraging a change in established consumption patterns, suppliers, brands or rates on the side of the consumer. This is beneficial to reliable market players and—because of fairer competition—also to consumers. This is why reliable information and serious distribution practices have to be ensured by the law on fair trading practices in the first place.
In the directives regarding consumer contract law, the EU places considerable emphasis on the supply of information—as for example in tourism and timeshare law. Therefore, the principle of minimum or proportionate intervention applies for the benefit of informed consumers. But in light of complexities and asymmetries, further contractual instruments entailing a more intense curtailment of the principle of pacta sunt servanda are required. Examples are the rights of withdrawal based on the situation of contract conclusion, the type of contract or the distance of the contracting parties as contained in the directives on doorstep selling, time-sharing, as well as, more recently, consumer credits and the two directives concerning distance selling. Europeanizing core areas of civil law, judicial review of terms across different kinds of contracts and the directive on the sale of consumer goods and warranties with their numerous rules of a semi-imperative nature are of utmost importance. The EU bases this on the need to increase the level of consumer confidence in the internal market (eg recital 5 of the Sale of Consumer Goods Directive).
There is only a thin line separating appropriate protections from paternalism and overstraining. In any case, the single European consumer remains fictional, eg in view of different experiences, education and intellectuality. The fundamental goal of the EU is to promote effective freedom of choice through information and to create room for decision-making by extending the market boundaries. The fundamental ECJ case Cassis de Dijon clarifies this second foothold of consumer law: it militates against excessively precautionary consumer protection by Member States and in favour of the implementation of the free movement of goods (ECJ Case 120/78 Cassis de Dijon [1979] ECR 649; concerning the information model also ECJ Case C-362/88 – GB-INNO-BM [1990] ECR I-667).
In order to determine a breach of unfair competition and trademark law, the presumed perception of an average consumer of the goods or services in question has to be taken into account. The standard is a reasonably well informed and reasonably observant and circumspect consumer (ECJ Case C-210/96 – Gut Springenheide [1998] ECR I-4657). Social, cultural and linguistic circumstances can also be considered (ECJ Case C-220/98 – Estée Lauder [2000] ECR I-117 para 29); recital 18 of Dir 2005/29).
b) Questions of coherency and reform
The (non-binding) first Consumer Programme of 1975 had already recognized consumer interests regarding health protection, protection of economic interests, information and self-organization. With the Treaty of Maastricht, this concept has also found its way into primary law (Art 169(1) TFEU/153(1) EC). Nonetheless, EU consumer law, which has developed in several phases since the 1980s, is incoherent and fragmentary.
Partly based on compromise, it emphasizes individual problem areas in different consumer contracts. An extensive standardization of concepts, obligations to inform, rights of withdrawal, formal requirements, etc would be desirable. Based on the green paper on the review of the consumer acquis (COM(2006) 744 final), the European Commission strived for a comprehensive consolidation and reform of the aforementioned Dirs 85/577, 93/13, 97/7 and 1999/44 in one directive on consumer rights (COM(2008) 614 final). It is doubtful whether the desired change from minimum to full harmonization is generally the right approach. It is true that the directives on distance selling of financial services, unfair commercial practices and the new directive on consumer credit have already deviated from the principle of minimum harmonization. However, Chapters IV (consumer sales and guarantees) and V (unfair contract terms) of the proposal COM(2008) 614 final would have led to a reduction of the level of protection and a petrification of consumer law. The legislator has therefore excluded these topics and changed the title to ‘Directive on consumer rights in distance and off premises contracts’.
Another need for regulation lies in the areas of legal consequences and (transnational) law enforcement. Especially in the case of ‘scattered’ damage, there is not enough of an incentive for the individual consumer to bring an action. The European Commission therefore plans to enable class-actions for violations of EU consumer protection and antitrust rules (collective litigation).
4. Uniform law
Beyond the EU, there are no serious international rules regarding consumer protection, only recommendations and reports—as is the case with the OECD. The resolution on guidelines for consumer protection of the General Assembly of the United Nations from 9 April 1985 deals with the advancement and protection of economic consumer interests. However, they contain only general, non-binding objectives. According to Art 2(a), the CISG does not include contracts that apply to the purchase of goods ‘bought for personal, family or household use’ (sale of goods, international (uniform law)). This positive definition is narrower than the one established by EU law (see above).
However, this exclusion does not apply if the seller, at any time before or at the conclusion of the contract, had neither known nor ought to have known that the goods were bought for such use. This element of knowledge is not contained in EU law due to its different approach. The EU law, with its personal-protective purpose, is supposed to compensate inequalities and—in contrast to commercial law requirements—does not demand publicity or protection of legitimate expectations (regarding the question of collision with the CISG and the sale of consumer goods). A subjective protective clause in favour of professionals (as included in COM(2005) 650 final) could therefore not be implemented in Art 6 Rome I. The UNIDROIT PICC indirectly exclude consumer contracts by only encompassing international ‘commercial contracts’. The Principles of European Contract Law (PECL) almost completely disregard consumer protection, which is now remedied by the DCFR, considering the corresponding acquis communautaire.
Literature
Hannes Rösler, Europäisches Konsumentenvertragsrecht—Grundkonzeption, Prinzipien und Fortentwicklung (2004); Stephen Weatherill, EU Consumer Law and Policy (2nd edn, 2005); Geraint G Howells and Stephen Weatherill, Consumer Protection Law (2nd edn, 2005); Jean Calais-Auloy and Frank Steinmetz, Droit de la consommation (7th edn, 2006); Hans Schulte-Nölke, Christian Twigg-Flesner and Martin Ebers (eds), EC Consumer Law Compendium (2008); Hans-W Micklitz, Norbert Reich and Peter Rott, Understanding EU Consumer Law (2009); Hans-W Micklitz and Norbert Reich, ‘Crónica de una muerte anunciada: The Commission Proposal for a “Directive on Consumer Rights”’ (2009) 46 CMLR 471; Geraint Howells and Reiner Schulze (eds), Modernising and Harmonising Consumer Contract Law (2009); Hans-W Micklitz, Jules Stuyck and Evelyne Terryn (eds), Consumer Law—Ius Commune Casebooks for a Common Law of Europe (2010); Hannes Rösler, ‘Protection of the Weaker Party in European Contract Law—Standardised and Individual Inferiority in Multi-Level Private Law’ (2010) 18 ERPL 729.
