New regulation paves way for GDPR-size fines for consumer law breaches

United Kingdom

New consumer regulations come into force in the UK on 2 June 2020, implementing changes required by one of the final EU Regulations adopted prior to the UK’s departure from the EU, and paving the way for fines for consumer law breaches of at least 4% of annual turnover across the EU.

The snappily titled “Consumer Protection (Enforcement) (Amendment etc.) Regulations 2020” implement certain provisions of the new Consumer Protection Cooperation Regulation (EU 2017/2394) (the “New CPC Regulation”) which came into force on 17 January 2020, when the UK was still a member of the EU.

The Consumer Protection Cooperation Regime

The Consumer Protection Cooperation Network (“CPC Network”) was set up in 2007 with the aim of protecting consumers’ interests in EU and EEA countries. It is made up of national authorities across Member States with responsibility for enforcing EU consumer protection laws. Historically, the CPC Network provided a group for these regulators to co-operate. There was limited ability for one Member State to require another Member State to take any meaningful consumer enforcement action. The New CPC Regulation seeks to revamp the CPC Network providing wider scope and new powers, putting in place stronger coordinated mechanisms to investigate and tackle widespread infringements of consumer law across the EU.

Key Immediate Changes

The New CPC Regulation maintains the concept of mutual assistance in collating information and evidence, but now gives Member States a new power to require other Member States to take enforcement action. Such power arises where harm is caused (or likely to be caused) to consumers in the requesting Member State, where the relevant offending act or omission took place in the second Member State, or where the relevant trader is established or has relevant assets (or evidence) there.

In addition, the New CPC Regulation gives both the Commission and Member States powers to require relevant (other) Member States to take co-ordinated investigation and enforcement action at the national level where there is a “reasonable suspicion” that one of the following is taking place:

  • Widespread Infringement – infringement of EU consumer law that affects at least two Member States; or
  • Widespread Infringement with a Union Dimension - infringement that affects at least two thirds of Member States and at least two thirds of the EU population.

There will be many businesses that provide products and services to more than two Member States and there will also be many large businesses providing products and services into two thirds of the EU population. The New CPC Regulation does provide some bases upon which a Member State can refuse to take action, but these are limited. They fall into three broad categories:

  1. the relevant infringement has not occurred (or the impact is negligible) in the Member State in question, so no action is necessary;
  2. enforcement action is already being taken; or
  3. commitments to address the infringement have already been agreed and accepted.

In the UK, the approach to implementation of the New CPC Regulation reflects the UK’s withdrawal from the EU, leading to heavy reliance on existing provisions of UK consumer law, rather than introducing numerous new powers for regulators.

The one principal area of change relates to “online interfaces”, defined as: any software, including a website or part of a website or application, that is operated by or on behalf of a trader, and which serves to give consumers access to a trader’s good and services.

New provisions have been included in the Enterprise Act 2002 giving the CMA the power to apply to the court for an order (either on a final or interim basis) requiring:

  • removal or modification of content from;
  • disabling or restriction of access to; or
  • display of a warning to consumers on,

an online interface (for example, a website), or deletion of a domain name and facilitation of registration of that domain name by the CMA. The court will only grant an online interface order in circumstances where there are no other wholly effective available means to prevent the infringement and where it is necessary to make the order to avoid the risk of serious harm to the collective interests of consumers.

GDPR – style fines of at least 4% of turnover

The more radical impact of the New CPC Regulation and its implementation in the UK is that it paves the way for substantial, pan-EU fines for consumer law breaches where there is EU-wide infringement following the implementation of the so-called Omnibus Directive (EU 2019/2161).

The New CPC Regulation requires Member States to impose penalties on traders responsible for Widespread Infringement or Widespread Infringement with a Community Dimension. In the short term, the UK has sought to address this by relying on existing provisions under Part 8 the Enterprise Act 2002, entitling the CMA to apply to the court for an enforcement order, which can include an enhanced consumer measure (for example, a consumer redress scheme). To the extent any enforcement order or enhanced consumer measure is not complied with, this could result in fines. However, the Omnibus Directive then goes further in specifying that (from May 2022) such penalties must include the ability to impose fines (whether through administrative procedures or legal proceedings) which at the maximum level must be at least 4% of the trader’s annual turnover in the Member State or Member States concerned. Where information on turnover is not available, the maximum fine must be at least EUR 2 million. Member States can therefore implement a maximum fine at any level above 4% of the trader’s annual turnover in the relevant Member State or States; the new Regulation has no ceiling on the maximum level of fine.

Comment

The New CPC Regulation has the potential to significantly impact the enforcement of consumer law across the EU. The idea that one Member State can now effectively require another Member State to take enforcement action upon request is one that may not be welcomed by all as a general principle, but may be of real benefit to consumers.

Implementation of the New CPC Regulation in the UK will not bring about instant radical change, although the availability of online interface orders provides the CMA with another weapon in its arsenal if other routes for preventing breaches of consumer law are not effective.

The greatest impact of the New CPC Regulation will not immediately be felt but, having now paved the way for the introduction of fines of at least 4% of pan-EU annual turnover in instances of EU-wide infringement, the threat posed by consumer regulators across the EU is becoming increasingly serious for businesses. To the extent that compliance with consumer law was not already on the agenda of businesses across the EU, it soon will be.

The precise impact of all of this on the UK remains to be seen in light of its withdrawal from the EU. Whilst the New CPC Regulation has now been implemented into UK law, there is currently no clarity on what the position will be following the expiry of the implementation period. The New CPC Regulation does envisage cooperation with countries outside of the EU pursuant to bilateral assistance agreements, presenting the possibility of continued co-operation between the UK and the EU after the end of this year. The CMA has stated in its own guidance that it will continue to work with EU enforcers as far as possible.

The extent to which the UK will implement the provisions of the Omnibus Directive will become clearer over the coming months. In 2018, the Government put forward proposals for civil fines imposed by the courts of up to 10% of a trader’s worldwide turnover for consumer law breaches (see the 2018 Government Green Paper, Modernising Consumer Markets). These proposals are still under review, with the Explanatory Memorandum to the regulations coming into force on 2 June 2020 recording that the Government is considering responses with a view to further policy development. Whether through implementation of the Omnibus Directive or entirely separate domestic legislation, there is real scope for significant fines becoming a regular feature of consumer law enforcement in the UK. In any event, it is apparent at this stage that regardless of the position in the UK, now that the way has been paved for the introduction of GDPR-styles fines on pan-EU turn-over, any consumer facing business operating in the EU should be keeping a close watch on developments over the coming years so as to not suffer the regulator’s bite, particularly given the significant sharpening of their teeth.

For further information on this or any consumer law issue, please do not hesitate to contact one of our specialists.