Europe tries New Deal for Consumers but faces industry worries

The European Commission has unveiled a new proposal, the New Deal for Consumers, which will aim to increase consumer protections and hold offending companies more accountable.

The move comes after months of the bureaucrats battling various different companies, most notably those in the tech and automotive space, who are bending (if not trampling on) rules in the bloc. Fines will be increased up to 4% of annual turnover for the guilty parties, while there will also be more room for collective action against the rulebreakers.

“Today’s New Deal is about delivering a fairer Single Market that benefits consumers and businesses,” said First Vice-President Franz Timmermans. “We introduce a European collective redress right for when groups of consumers have suffered harm, like we have seen in the recent past, with proper safeguards so there can be no misuse.

“Consumers will know who they are buying from online, and when sellers have paid to appear in search results. The majority of traders who play fair will see burdens lifted. The handful of traders who deliberately abuse European consumers’ trust will be sanctioned with tougher fines.”

“With stronger sanctions linked to the annual turnover of a company, consumer authorities will finally get teeth to punish the cheaters,” said Věra Jourová, Commissioner for Justice, Consumers and Gender Equality. “It cannot be cheap to cheat.”

This is one of the big issues for the European Commission and also the national regulatory watchdogs; the majority of fines which these monstrous companies are facing are barely making a dent in the spreadsheets. There have been some big fines recently, Google got slapped with a €2.42 billion bill last June, but you have to wonder how much money these companies are making before getting caught. Unless penalties are increased, there isn’t much discouragement to swindle when it can still be profitable.

One of the areas which the proposal will look to tackle is transparency in the digital economy. Online market places will have to inform the user whether they are buying products or services from a trader or from a private person, so they know whether they are protected by consumer rights, while there will also be greater transparency on search results on online platforms. Consumers will have to be clearly informed when a search result is being paid for by a trader, and the platforms will have to explain the main parameters determining the ranking of the results.

Another interesting development is the big data machine powering the digital economy. When paying for a digital service, consumers currently have 14 days to cancel their contract. This idea will now be extended to ‘free’ services, which see the user ‘pay’ for the services through personal information. This value exchange is common in the growing digital marketplace, however consumer protections are woeful. Companies who offer free digital services in exchange for personal information, such as Google for its email or cloud storage services, will have to offer the right to exit the contract, without their personal information being retained.

A very useful development out of this area in the proposal is the recognition of the new value exchange which has emerged in the digital economy. To date, there hasn’t really been any official or legislative recognition of data as a currency, but this sets the idea in stone, providing a more stable foundation for regulation, control and accountability.

And for those individuals who have been wronged by the multinational powerhouses, Europe is paving the way for collective, representative action. The proposal presents the idea of consumer groups seeking compensation, replacement or repair, on behalf of a group of consumers. This type of class action is not new in the US, though due to the complications in legal action across different jurisdictions is not as common in Europe.

It should be worth noting that only consumer groups, not law firms, would be responsible for these representative actions. In the US, a sub-sector has developed with law firms chasing wronged consumers to build cases against large organizations. The European Commission seems to want to prevent the emergence of such practices on the bloc.

Europe already has some of the strongest protections for consumers worldwide, though such proposals from the European Commission should only be viewed as a positive step forward. Some aspects of the digital economy are mournfully underregulated at the moment. The GSMA and ETNO have warned the bureaucrats of ensuring consistency across verticals, while also making sure penalties are proportionate, but these worries should be addressed over the coming months.

The proposal will now be discussed by the European Parliament and the Council, where we hope the details will be refined, but strengthening protections in the wild-west internet can only be a good thing.