evaluation of the Consumer Protection Cooperation Regulation

(External) evaluation of the Consumer Protection Cooperation Regulation Final Report submitted by the Consumer Policy Evaluation Consortium (CPEC) 17 December 2012

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(External) evaluation of the Consumer Protection Cooperation Regulation Final Report

A report submitted by ICF in association with

GHK on behalf of CPEC

Van Dijk Management Consultants (VDMC) and Civic Consultants (CIVIC) Date: 17 December 2012 Job Number: 30259000

Disclaimer: This report contains the results of an external evaluation study requested by the European Commission. The report does not necessarily represent the opinion of the European Commission. The release of the report does not imply recognition either of its regularity or of the authenticity, completeness or correctness of the information enclosed in the report.

Mark Peacock ICF GHK Level 2 67 Clerkenwell Road London EC1R 5BL T +44 (0) 20 7611 1100 F +44 (0) 20 8368 6960 [email protected] www.ghkint.com

Document Control Document Title

(External) evaluation of the Consumer Protection Cooperation Regulation EC/2006/2004

Job number

30259000

Prepared by

Mark Peacock, Hanno von Freyhold, Emilie Balbirnie, Nihar Shembavnekar

Checked by

Nick Bozeat

Date

17 December 2012

Contents LIST OF ACRONYMS .............................................................................................................1 EXECUTIVE SUMMARY ........................................................................................................ 3 Introduction.............................................................................................................................................. 3 Aims and Approach ................................................................................................................................. 3 The scope of the CPC Regulation........................................................................................................... 4 Legal barriers to cooperation under the CPC Regulation ....................................................................... 8 Issues surrounding applicable substantive law ....................................................................................... 9 Issues surrounding procedural laws and powers .................................................................................. 10 The four cooperation mechanisms of the CPC Network ....................................................................... 12 The continuing relevance of the intervention logic of the CPC Regulation ........................................... 17

1

Introduction .........................................................................................................18

1.1 1.2 1.3 1.4

Background and intervention logic of CPC Regulation.......................................................... 18 Purpose and objectives of the study ...................................................................................... 21 Overview of approach to the evaluation................................................................................. 22 Structure of this report............................................................................................................ 22

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Assessment of the scope of the CPC Regulation ...................................................24

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10

Introduction ............................................................................................................................ 24 Public enforcement dimension of consumer legislation......................................................... 25 Collective interests of consumers .......................................................................................... 28 Cross-border relevance.......................................................................................................... 28 Consistency............................................................................................................................ 28 Assessment of the scope of the current CPC Regulation Annex .......................................... 29 Stakeholder views on the scope of CPC................................................................................ 36 Impacts of an expanded or reduced scope............................................................................ 37 Potential application of CPC Regulation to business-to-business situations......................... 38 Summary................................................................................................................................ 39

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Practical and legal barriers to effective Consumer Protection Cooperation: problems and potential solutions in substantive applicable law...........................41

3.1 3.2 3.3 3.4 3.5

Introduction ............................................................................................................................ 41 Practical and legal barriers to effective cooperation: the views of stakeholders ................... 41 Factors affecting legal barriers to cooperation....................................................................... 44 Applicable substantive law in cross border referrals.............................................................. 46 Summary................................................................................................................................ 55

4

Practical and legal barriers to effective Consumer Protection Cooperation: problems and potential solutions in procedural law and powers..........................57

4.1 4.2 4.3 4.4 4.5 4.6 4.7

Introduction ............................................................................................................................ 57 Legal background to procedural issues ................................................................................. 57 Differences in procedural rules and the effects on cooperation............................................. 59 Potential solutions to differences in procedural rules ............................................................ 59 Minimum powers for investigation and enforcement ............................................................. 61 Differing sanctions and effective cooperation ........................................................................ 67 Summary................................................................................................................................ 71

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The CPC Network and conditions influencing mutual assistance...........................73

5.1 5.2 5.3 5.4 5.5 5.6 5.7

Introduction ............................................................................................................................ 73 Strengths, weaknesses, opportunities and threats ................................................................ 74 Usefulness and performance of the CPC Network ................................................................ 78 CPC system and other information sharing tools/mechanisms ............................................. 80 Information and enforcement requests .................................................................................. 82 Alerts ...................................................................................................................................... 84 Data management issues ...................................................................................................... 88

5.8 5.9 5.10

SWEEPS ................................................................................................................................ 90 The role of the Commission ................................................................................................... 93 Summary................................................................................................................................ 96

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Strengths, weaknesses, opportunities and threats of Community (Chapter IV) provisions.............................................................................................................99

6.1 6.2 6.3 6.4 6.5

Introduction ............................................................................................................................ 99 Strengths, weaknesses, opportunities and threats of Chapter IV provisions ........................ 99 Other actions which could be funded................................................................................... 103 Barriers and incentives to the take-up of actions................................................................. 104 Summary.............................................................................................................................. 104

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Administrative costs...........................................................................................106

7.1 7.2 7.3 7.4 7.5

Introduction .......................................................................................................................... 106 Operating costs of the CPC for Member States .................................................................. 106 Potential for costs savings ................................................................................................... 110 Costs of other CPC activities ............................................................................................... 111 Summary.............................................................................................................................. 112

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Assessment of the intervention logic..................................................................114

8.1 8.2 8.3 8.4 8.5

Introduction .......................................................................................................................... 114 The validity of the rationale for intervention ......................................................................... 114 The appropriateness of existing objectives.......................................................................... 115 The performance of activities of the CPC Regulation.......................................................... 118 Summary.............................................................................................................................. 119

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Recommendations .............................................................................................120

9.1 9.2 9.3 9.4 9.5

Introduction .......................................................................................................................... 120 The scope of the CPC Regulation ....................................................................................... 120 Constraints arising due to differences in substantive law .................................................... 120 Constraints arising due to differences in procedural law and enforcement powers ............ 121 The functioning of the CPC Network and common actions, and role of the Commission and other actors ................................................................................................................... 121

LIST OF ACRONYMS AC

Autonomous Community

ADR

Alternative Dispute Resolution

APR

Air Passenger Rights

AVMS

Audiovisual Media Services Directive

B2B

Business to Business

B2C

Business to Consumer

BEIEC

Building a European Internet Enforcement Capability

CA

Competent authority

CCD

Consumer Credit Directive

CNSA

Contact Network of Spam Enforcement Authorities

CPC

Consumer Protection Cooperation

CPCS

Consumer Protection Cooperation System

CPN

Consumer Policy Network

CRD

Consumer Rights Directive

DG SANCO

Directorate General for Health & Consumers

EC

European Commission

ECCN

European Consumer Centres Network

ECC-Net

European Consumer Centres Network

ECJ

European Court of Justice

EDPS

European Data Protection Supervisor

EEA

European Economic Area

EEC

European Economic Community

EEN

European Enterprise Network

EPRA

European Platform of Regulatory Authorities

EU

European Union

FIN-NET

Financial Dispute Resolution Network

FTE

Full-time equivalent

GDP

Gross Domestic Product

HR

Human resources

ICPEN

International Consumer Protection and Enforcement Network

IMI

Internal Market Information

IT

Information technology

MS

Member State(s)

NCA

National competent authority

NEB

National Enforcement Body

ODR

Online Dispute Resolution

OECD

Organisation for Economic Co-operation and Development

OFT

Office of Fair Trading (UK)

RASFF

Rapid Alert System for Food and Feed

SCM

Standard Cost Model

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SLO

Single Liaison Officer

SWOT

Strengths, Weaknesses, Opportunities and Threats

ToR

Terms of Reference

UCPD

Unfair Commercial Practices Directive

UCT

Unfair Terms in Consumer Contracts

USD

Universal Service Directive

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EXECUTIVE SUMMARY Introduction Consumers play an important role in the EU economy and in the achievement of the political objectives of the EU, namely in: “strengthening the single market to stimulate growth, drive innovation 1 and efficiency, create jobs, enhance competition, and contribute to social change” . Consumer expenditure accounts for 56 % of EU GDP and is essential to meeting the Europe 2020 objective of smart, inclusive and sustainable growth. Stimulating this demand can play a major role in bringing the 2 EU out of the crisis . For consumers to optimise their role in Europe, they require effective protection from the many risks and threats they encounter as individuals. Consumers rely on consumer protection legislation and its enforcement to have confidence in the internal market. Effective enforcement is also a deterrent for those sellers who consider infringing those laws. The EU Consumer Protection Cooperation (CPC) Regulation was adopted in 2004 to enhance the enforcement of EU consumer protection legislation in the internal market and the European Economic Area, as part of a package of measures to support consumers’ interests. It specifically targets EU laws protecting the consumers' collective economic interests. Its features included: ■

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establishing formalised mutual assistance mechanisms between Member State competent authorities to handle cross-border infringements of certain EU consumer laws, including the development and implementation of an IT tool; giving powers to national authorities to act on behalf of consumers residing in another Member State, and providing a framework to develop common activities between enforcement authorities, towards which the EU provides co-financing support. 3

The Commission’s Consumer Programme for 2014-2020 has emphasised the need for effective consumer protection and enforcement, recognising that: “consumer empowerment is not only a question of consumer rights but also of building an overall environment that enables consumers to make use of those rights and to benefit from them”. In light of this continued need and the required review of the CPC Regulation after 5 years of operation, as stipulated in Article 21A of the Regulation, 4 this external evaluation is the first step in the review process. The evaluation intends to assess its efficiency and to identify the areas which may require improvements or modification of the legal provisions. The reference period for the evaluation is 2007-2011.

Aims and Approach The aim of the assignment was to assess the CPC Regulation based on a series of questions relating to: ■ ■ ■ ■

whether the rationale for the CPC Regulation is still relevant; the appropriateness of its scope and possible extension to Business-to-Business (B2B) legislation; whether constraints on cross border enforcement have emerged due to differences in substantive law, procedural law, and enforcement powers between Member States; the strengths and weaknesses of the four cooperation tools and common actions established by the CPC, and

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COM(2007)99 final – EU Consumer Policy strategy 2007-2013. A European Consumer Agenda - Boosting confidence and growth, COM(2012)225 final. 3 COM (2011)707 final. 4 The assignment was undertaken by ICF GHK in association with VDMC and CIVIC Consultants on behalf of DG Health and Consumers (SANCO). The evaluation consortium was supported by Mr Hanno Von Freyhold, a legal expert. 2

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what can be done to improve its implementation and use by Member State authorities to improve the effectiveness, efficiency and value added of consumer protection legislation and its enforcement.

The evaluation gathered, analysed, and triangulated evidence from desk based research using all available information. This included the Consumer scoreboard published by DG SANCO, stakeholder surveys, in-depth interviews, case studies and expert inputs. Data on the functioning of the system were extracted from the CPC IT system managed by DG SANCO. The evaluation also developed a ‘reference model’ that indicated the rationale for intervention, objectives, resources, roles of different actors and EU financing. A summary of evidence gathered from stakeholders is provided in Figure 1. Figure 1 Evidence gathered from stakeholders

The scope of the CPC Regulation Issue Defined by the annex to the Regulation, the scope of CPC Regulation currently covers 18 pieces of consumer legislation, including: provisions to protect consumers from unfair and misleading commercial communication; ensuring that consumers are adequately informed before making purchasing decisions; providing appropriate protection when entering contracts with businesses; and, establishing the rights and procedures for consumers to exercise those rights should something go wrong (i.e. complaints, redress, and access to justice). Legislative provisions and acts not covered in the current scope were included in the assessment: this is draft legislation foreseeing inclusion of some provisions in the CPC Regulation annex (i.e. Alternative Dispute Resolution) and existing legislative acts and provisions which could be considered for inclusion in the annex from various policy domains (i.e. in areas of food and drink, cosmetics, transport, telecommunications, and financial services). Most activities taking place under the CPC Regulation to date concern only a small number of the legislative acts within the CPC Regulation Annex, in particular the Directives on Unfair Commercial Practices, Distance Contracts, Unfair Terms and Electronic Commerce. The evaluation considered whether the list should be reduced or extended and, if so, to what legal texts.

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Findings 5

Mapping of the legislation in the CPC annex and a sample of other EU legislative acts was undertaken to identify common characteristics, based on: ■ ■

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the typology of consumer protection provisions (advertising, pre-contractual and contractual information; right to complain; redress and access to justice); the authorities responsible for enforcement of the legislative provisions (i.e. National Competent Authorities (NCAs) and Single Liaison Officers (SLOs) designated in relation to current list), and these included government ministries, competition authorities, sectoral regulators, consumer ombudsmen etc.; the levels of cross border infringement activity and the ‘cross-border relevance’ of business to consumer trade based on trade data, consumer indicators and market characteristics, and the presence of other cooperation mechanisms.

The outcomes of the mapping were used to inform the analysis of the most appropriate scope of the CPC Regulation based on a rating of each legislative act against the following four criteria: 1. The public enforcement dimension of the legislation: (i.e. in addition to means provided to consumers to seek and get redress through private law/identified redress mechanisms, whether public enforcement authorities have a strong role to play to ensure the protection of consumer rights through the application of the law, and sometimes bridging a gap in this respect ). 2. The collective interest of consumers: based on the extent to which the collective versus the individual consumer interest dimension is present in the legislation. 3. Cross border relevance: based on an assessment of cross-border trade statistics, number of cases under the CPC Regulation, consumer behaviour and structure of the product market. 4. Consistency: based on the commonalities in the legislative provisions and the enforcing authorities, and the need to eliminate gaps concerning the coverage of consumer protection rules on economic collective interests. The ratings derived from the assessment are provided in Table 1. Table 1: Summary of scope analysis

Legislation

Public enforcement dimension

Collective consumer interest

Cross-border Relevance

Consistency

(A) Legislative acts included in the CPC Regulation Annex Directive 2006/114/EC on misleading and comparative advertising (provisions on comparative advertising). Directive 85/577/EC on contracts negotiated away from business premises Directive 97/7/EC on distance contracts Directive 2008/48 on credit agreements for consumers Directive 2010/13/EU on audiovisual media services (Articles 9,10,11, and Articles 19 to 26) Directive 90/314/EC on package travel, package holiday and package tour Directive 93/13/EC on unfair terms in consumer contracts

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Further relevant acts may exist and merit examination (e.g. in the area of financial services).

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Legislation

Public enforcement dimension

Collective consumer interest

Cross-border Relevance

Consistency

Directive 2008/122/EC on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts Directive 98/6/EC on indication of prices Directive 1999/44/EC on sale of consumer goods and associated guarantees Directive 2000/31/EC on electronic commerce Directive 2002/65/EC on distance marketing of consumer financial services Regulation (EC) N° 261/2004 on denied boarding and cancellation or long delay of flights Directive 2005/29/EC on unfair commercial practices Directive 2002/58/EC on privacy and electronic communication (Article 13) Directive 2001/83/EC on medicinal products for human use (Articles 86 to 100) Bus, coach, sea and inland waterway passenger rights, Regulations 181/2011/EU and 1177/2010/EU (B ) Formal proposals for legislative acts and/or provision to be included in the CPC Annex Proposal for an Alternative Dispute Resolution Directive (COM(2011)793) – Art.10 (C) Legislative acts and/or provisions which may be considered for inclusion in the CPC Regulation annex Common rules for the operation of the air services (Regulation EU 1008/2008) - Art.23 Approximation of the laws of the Member States relating to cosmetic products (Cosmetics Directive) (76/768/EEC) and Cosmetic Product Regulation 1223/2009) – Art 19-21, 29 Nutrition and health claims made on foods, Regulation No. EC 1924/2006 Regulation 531/2012 (amended Roaming Regulation) Services’ Directive (Directive 2006/123/EC) The rights of disabled persons and persons with reduced mobility when travelling by air (Regulation EU 1107/2006) – Art 15 Universal Service Directive 2002/22/EC Rail passenger rights, Regulation 1371/2007

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Legislation

Public enforcement dimension

Collective consumer interest

Cross-border Relevance

Consistency

Directive 2009/138/EC (recast) on the taking up and pursuit of the business of insurance and reinsurance (‘ Solvency II’) Proposal for a Directive on mortgage credit Legend: [no mark] = no strong conclusion,

= positive for inclusion,

= very positive for inclusion

Each legal act was reviewed by legal experts to reach the above conclusions, supplementing the mapping evidence with information gathered from the questionnaires and interviews to assess whether or not their inclusion is/would be justified in the Annex.

Assessment of the current list The analysis concluded that the current scope of the CPC Regulation annex is broadly correct in terms of the sensitivity of the legislation to all 4 criteria. Some legislative provisions score clearly higher (e.g. Directive 2005/29/EC on Unfair commercial practices, Directive 97/7/EC on Distance contracts and Directive 93/13/EC on Unfair terms in consumer contracts). A large majority (88%) of the stakeholders consulted agree that the current scope of the CPC Regulation Annex is appropriate. There is a strong consistency of the legislation with the objectives the CPC Regulation (i.e. collective economic interest, public enforcement, cross border activity) and the current Annex list. Even for legislation with lower scores inclusion is recommended because the CPC Regulation was judged to be beneficial under the ‘shadow of the law’ concept: the presence of the Regulation deters rogue traders and provides a route for cooperation should authorities need one. Inclusion in the CPC Regulation also introduces a degree of flexibility for policy makers and NCAs. As legislative texts and trade patterns may change over time, the tools of the CPC Regulation can be employed to accommodate as yet unforeseen infringements to consumer protection law. Within the current scope of the CPC Regulation Annex, Table 1 shows lower scores for some acts, such as the various passenger rights regulations. These regulations appear to function differently from other acts to the extent that the enforcement of passengers' rights has a pre-eminent individual consumer interest dimension and that a number of their provisions are incident-based and related infringements are dealt with in the Member State where they take place on the basis of individual complaints. Nonetheless, the evaluation concluded that on balance this legislation should be maintained in the CPC Regulation. This conclusion is based on the strong cross-border relevance of Passenger Rights Regulations, the “shadow of the law” rationale and the fact that the public enforcement and residual collective interest dimension may not have shown yet its full potential, in particular in terms of tackling non-compliant operators' practices and information requirements relating to passengers' rights.

Additional acts considered for inclusion of all provisions or only specific ones To maintain consistency in consumer protection, equivalent levels of enforcement should be maintained regardless of the mode of transport used by the consumer, therefore a strong rationale also exists for inclusion of rail passenger rights legislation in the scope of CPC Regulation. Equally, where commonalities in consumer protection provisions exist, inclusion should also be considered (even where authorities have competencies across different areas). Other candidates which could be considered for inclusion in their entirety include: ■

Roaming Regulation 531/2012 strengthens consumer rights and protects consumers using telecommunications. Given the strong cross border and collective interest dimension, a case for inclusion can be made. The consistency in consumer protection provisions with the legal acts contained in CPC Regulation is however rated low. Account should be taken of its focus on reinforcing competition between service providers to facilitate the internal market, as opposed to a consumer protection and enforcement emphasis which empowers consumers in the internal market. In addition, the roaming rules in most cases concern contractual relationships between

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consumers and telecommunication service providers both residing in the same Member State, therefore the cross-border aspect may be reduced in these circumstances. Proposed Directive on mortgage credit has a strong competition enhancing focus at its heart; however it also contains strong consumer protection provisions to increase consumer confidence not adequately addressed by the Misleading Advertising and Unfair Commercial Practices Directives in the mortgage credit sector. The consistency rationale is consequently strong with legislation incorporated in the current scope of the CPC Regulation, although the cross-border dimension is weak as the European mortgage market is still fragmented along national lines, with low levels of cross-border lending.

The evaluation recommended that both pieces of legislation are examined further on a case-by-case basis for inclusion in the CPC Regulation.

Additional acts considered for inclusion with only some specific provisions Regarding specific provisions in other legislation, only those were considered as justified for inclusion where competent authorities concerned are already part of the CPC Network and/or where there are strong consistency grounds and there are no mechanisms to cater for the needs of cross-border enforcement cooperation like those offered by the CPC Regulation. On this basis, the price transparency provisions of the Air Services Regulation are a possible candidate for inclusion in the CPC Regulation. For other pieces of legislation examined, such as the Cosmetics Regulation and the Nutrition and Health Claims Regulation, alternative cooperation mechanisms are available and no strong case for inclusion in the CPC is apparent at this stage. Misleading claims issues can in anyway also be addressed in first instance through the Unfair Commercial Practices Directive.

Extension to B2B Consideration was also given to the potential inclusion of B2B aspects in the CPC Regulation. B2B provisions are laid down in acts like the misleading and comparative advertising, legislation, where it is acknowledged that micro and small businesses face the same difficulties as consumers when trading cross border. While this would provide a rationale for inclusion, there is little support from CPC stakeholders (33%) as B2B is not their main responsibility and its inclusion could dilute their focus on consumer issues. Changes to substantive consumer laws concerned would also be necessary to extend the protection to B2B relations and only subsequently enable responsible national competent authorities to enforce these aspects. The inclusion of B2B aspects is therefore not recommended.

Recommendations regarding the scope of the Regulation regarding legal acts to be included in the Annex ■ ■ ■

Confirm the inclusion of all the legislation in the Annex of the CPC Regulation, by reviewing the existence, role or revision process for the CPC Regulation Annex. Examine further the possible inclusion of the Rail Passengers' Rights Regulation, the Roaming Regulation and the Mortgage Credit Directive in the scope of the CPC Regulation. Examine further the possible inclusion of some specific provisions within certain legislative acts, such as the Air Services Regulation.

Legal barriers to cooperation under the CPC Regulation Legal barriers to cooperation have been examined in two parts (1) issues surrounding applicable substantive law, and (2) issues surrounding procedural laws and powers.

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Figure 2 Survey results on Legal barriers to cooperation

Issues surrounding applicable substantive law Issue The CPC Regulation does not regulate the question of which applicable substantive law applies in mutual assistance requests. This issue has been raised as a source of difficulties hindering the effectiveness of cross-border enforcement cooperation. In particular, where a mutual assistance request is motivated on the grounds of an infringement of consumer protection rules laid down in national laws transposing a directive, the authority receiving the request could be entitled to apply the substantive law of the country of the consumer or the law of the country of the trader (in other words, either the law of the applicant or the law of the requested Member State). In the CPC context mutual assistance requests are based on breaches of common rules based on transposition of EU law, the evaluation sought to determine the source of the problems raised, assess if there is an issue of conflicts of applicable rules and indicate which remedies appear suitable.

Findings Initial stakeholder responses to the consultation indicated that a number of legal barriers hindered cooperation in cross-border infringement referrals. 65 % of respondents rated the absence of an ad hoc rule on applicable substantive law to be employed in cross-border referrals to be a major barrier (see Figure 2 above on legal barriers to cooperation). The assessment of both hypothetical and concrete cases of problematic situations pointed to problems having different origins and therefore requiring them to be addressed through dedicated tools rather than through a general procedural arrangement to be included in the Regulation or in implementation guidelines. In particular, some situations pointed towards possible shortcomings in the implementation of EU law at national level (e.g. where the national law provides for the authority to act only when local consumers were affected, see also further below the discussion on national procedural laws). The situations examined would point to an incomplete or incorrect implementation of the CPC Regulation and need to be addressed through the proceedings provided for to ensure the proper application of EU law. 10

In a number of cases, difficulties reported related to minimum harmonised rules, where the national law of the applicant authority and that of the requested authority provide for a different type or level of protection. These difficulties can only be tackled effectively in the framework of the relevant substantive legislation. Furthermore, in those cases where authorities have an interest in pursuing cross-border infringement of their more protective national rules, they may consider other tools more suited to this effect (e.g. injunctive actions before another country's jurisdiction). In other instances, the problem reported concerned issues falling outside the scope of the CPC Regulation (e.g. the national law of the applicant authority provides for protection in areas not coordinated by the legal instruments of EU harmonisation which are part of the CPC Regulation Annex) or related to differences in the interpretation of harmonised rules of the legislation covered by the CPC Regulation. Finally, there may be some residual situations where the way the harmonised rules in the instruments covered by the CPC Regulation are devised (e.g. defining a blacklisted unfair commercial practice in connection with a national ban) is in fact susceptible to hinder cross-border enforcement cooperation under the CPC Regulation. However, the number of instances of such problems is small. In time the issues may become of less importance through greater harmonisation of the provisions in the legislation listed in the CPC Regulation Annex. To some extent the business location concept has been favoured to determine applicable law and this has become practice by most Member States' authorities (in keeping with the legal logic underlying the CPC Regulation and connecting jurisdiction for enforcement to the State where enforcement takes place) whilst they have maintained some scope for flexibility. Recognising this approach and providing guidance on how to address the situations of conflicts mentioned above is likely to be beneficial. Formalised guidance in the form of ad-hoc rules for authorities to follow, might also have merit if the instances of the problems increase.

Recommendations to alleviate constraints arising due to differences in substantive law ■

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■ ■

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Provide guidance on applicable law in relation to the handling of mutual assistance requests under the CPC Regulation in order to promote better awareness and compliance with EU consumer legislation. Foster a common understanding in relation to the application of EU consumer law, inter alia through guidance, on-line legal resources, and interactive forums to also facilitate greater knowledge exchange. Monitor the handling of CPC mutual assistance requests to determine the nature of legal issues; Consider formalising an approach through ad hoc rules reflecting the logic of the CPC Regulation and catering for the specific situations of real conflict between applicable rules in case the instances of such situations increase. Consideration should be given to the establishment of an ‘Outsourced legal helpdesk’.

Issues surrounding procedural laws and powers Issue Another type of legal barrier that may stand in the way of effective cross-border enforcement arises from differences in national procedural rules used to stop the infringement. In most cases they may not have been designed or applied in practice to take account of the needs for cross-border cooperation. The CPC Regulation mandates a set of minimum common investigative and enforcement powers for competent authorities but also obliges the same authorities to make use of other powers and tools granted to them by national law to stop cross-border infringements. Where powers or procedures differ significantly between countries, cooperation might not be easy (for example the quality of evidence required may be very different leading to insufficiencies in the justification for legal action). The evaluation assessed therefore the issues raised by procedural fragmentation and of the sufficiency of the current minimum powers, including the advisability of extending them.

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Finally, differences between national legal systems result in differences in sanctions (penalty fines) for the same infringement. The evaluation assessed to what extent this may have an impact on the effectiveness of cross-border cooperation.

Findings Procedural law issues 58 % of respondents rated divergence in the national rules of procedural as a major barrier to cooperation (see Figure 2 further above). Procedural fragmentation caused difficulties for cross-border cooperation, including: 1. Differences in the type of authority or proceeding (e.g. administrative, penal or civil), time frames and procedural safeguards (such as the offender's right to be heard or time limits for objections and appeals and for decisions to become final) may increase the complexities of proceedings and create misunderstandings between authorities. 2. The application of differing standards for establishing evidence may lead to variations in the quality of mutual assistance requests. This may lead to situations in which either (a) evidence provided to the requested authority is deemed to be insufficient to follow up a CPC request or (b) the requesting authority uses significant efforts in collecting evidence which the receiving authority does not require. Both disparities may cause delays in receiving relevant evidence or in evaluating its providence, and eventually in the commencement of effective enforcement. 3. National rules prevent action being taken where the infringement takes place outside the (local) territory of an authority. Lack of precedent or experience of the authority with similar types of infringements can also prevent the case being taken forward. These problems could reveal issues of implementation of EU law regardless of the fact that they may be linked or not to national statutory provisions. Potential solutions to the issues raised by procedural fragmentation include the following: ■ ■ ■

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a harmonisation of procedural rules through provisions of the CPC Regulation; a harmonisation of procedural rules through provisions in the Annex instruments; increased practical experience by Member State authorities and greater adaptation to the needs of other Member States, as well as official guidance provided by Member States authorities to one another for better cooperation, and legal guidance via a manual, or user guide published by the Commission, or a compilation of guidance papers by Member States made available by the Commission.

Upon further consideration, full harmonisation of procedural rules of either avenue appeared contrary to the logic of the CPC Regulation and of the framework of each of the Annex instruments. In addition, while there are ‘clusters’ of types of authorities responsible for the enforcement of each of the instruments, there is not one instrument where even the majority of Member States would agree on the type of public authority. Full harmonisation of any type would therefore be difficult and have farreaching impacts on national legal systems. On the other hand, a focussed/targeted form of coordination or the development of minimum procedural standards for certain types of cases (e.g. recurrent cases of limited legal complexity) are more realistic. Consideration should also be given to examining the mutual recognition of authenticity of documentation certified by authorities in one Member State across the EU. In addition, an organised exchange of information would contribute to providing a solution to at least some of the issues raised by procedural differences. This is consistent with the wishes expressed by some stakeholder NCAs. In practical terms, this could lead to Commission guidance, manuals or other forms of information for the Member States to be able to make better use of the CPC Regulation. The evaluation consequently recommends that guidance should be developed in close cooperation with the Member States NCAs.

Sufficiency of minimum powers Article 4(6) of the CPC Regulation establishes certain minimum investigative and enforcement powers on the relevant competent authorities in relation to their obligations under the Regulation. The

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evaluation considered the extent to which those powers are sufficient, and what additional powers exist at national level and could be considered for inclusion under the minimum powers. The findings point to the advisability of further exploring extending the range of these powers to some additional powers that could increase the effectiveness of implementation of the Regulation, at least in some areas like divergences in "naming and shaming" powers and investigative powers. In this regard, further ex ante assessments should be undertaken prior to mandating additional powers.

Impact of differing sanctions NCAs and SLOs from half the countries in which in-depth interviews were carried out provided examples of instances of differences in sanctions for comparable infringements across Member States. The divergence in the extent to which infringing traders may be financially penalised and the legal nature of fines that may be inflicted was large. The assessment of stakeholders' responses indicated that these differences do not affect the effectiveness of cross-border cooperation under the CPC Regulation directly, but can pose a problem where they arise from differences in powers available to authorities beyond the set of minimum powers defined by the Regulation. This may reduce the deterrent effect of the CPC. This finding reinforced the views of interviewees that, while accepting that the minimum powers currently available are useful, more effective cross-border enforcement (in terms of deterrence) would be attained if additional powers were granted to NCAs under Article 4(6).

Recommendations to alleviate constraints arising due to differences in procedural law and enforcement powers ■ ■ ■ ■

Provide guidance and foster best-practice to improve the quality of mutual assistance requests under the CPC Regulation. Investigate possible gaps in the implementation of minimum powers and assess the need for action in this respect. Examine options to revise the CPC Regulation to include minimum procedural standards. Examine options to revise the CPC Regulation to expand the minimum investigative (e.g. broader spot check powers on companies' premises) and enforcement powers (e.g. including redress powers) of national competent authorities in order to overcome certain difficulties reported for the efficiency of cooperation and to address a potential deterrent gap stemming from national fragmentation.

The four cooperation mechanisms of the CPC Network Issue The CPC Regulation establishes a number of cooperation mechanisms and common activities among Member State authorities and with the Commission: ■ ■

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mutual assistance requests (information requests, enforcement requests and alerts) which are routed among Member States authorities through a dedicated IT-tool (CPC System); coordinated surveillance activities (mutual assistance requests that concern 3 or more Member States and so-called 'sweep' actions in which Member State authorities simultaneously inspect ecommerce websites of a certain sector); common activities to foster a common approach to enforcement (they currently take the form of EU co-funded projects among Member State enforcement authorities, exchange of enforcement officials, workshops), and general reporting and Committee meetings.

The use of the mutual assistance requests varies considerably across the Member States. A strong downward trend in the number of alerts is observed. Regarding the common activities each year one or two projects have been financed involving sometimes a large number of countries, but there has only been a limited take up of co-funding for exchanges of officials. The biennial assessments of the CPC Regulation pointed further to possible barriers to cooperation due to resources constraints at the level of Member State authorities, divergence in participation to the CPC network and a possible need to review the Commission's role in the CPC framework.

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To provide answers to these issues the evaluation examined the current strengths and weaknesses of the CPC network and to what extent the roles of the actors involved are adequate. The evaluation sought to identify to what extent the cooperation mechanisms are effective, where and why problems occur and, finally, where improvements and efficiency gains can be achieved.

Findings Mutual assistance requests and the CPC System A summary of the Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis based on primary stakeholder evidence and secondary literature sources is provided in Figure 3 and detailed as follows: ■

The CPC Network - Though the CPC Network has taken some time to develop and become established it now provides an effective platform for formal cooperation. However, more could be done to promote formal and informal cooperation within the CPC Network. This was evidence by the large number of NCAs unfamiliar with the CPC Network mechanisms and the lack of follow-up cooperation following successful actions, illustrated through in-depth interviews. Further guidance to users on how best to use the CPC Network and awareness raising is therefore needed. It is anticipated that developing a more common understanding of the system and ensuring greater uniformity in approach and purpose will improve its efficiency, effectiveness and use. Weaknesses of the CPC Network that need to be addressed included concerns over the timeliness and appropriateness of traffic within the CPC System and the tendency for cases to stagnate. Common rules and understanding were proposed solutions, in addition to a greater role for SLOs and stricter obligations on authorities to respond to requests within a given time (see below on the roles of actors).

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The CPC System - There was consensus that the CPC IT System is a well-functioning tool which has improved over time following a series of updates mainly to the technical functions to allow more information to be exchanged and to increase its user-friendliness. A number of respondents to the survey did however, express the view that user friendliness could be further enhanced, learning from the experience of other EU information exchange networks such as the Internal Market Information (IMI) System, which uses predefined and translated questions and answers in alerts to make exchange quick and efficient. Data retention periods were not raised as a concern by stakeholders as many felt that the current period for maintaining records was important for ensuring effective consumer protection and appropriate given national data protection laws. Given the potential for cross-border recidivism by rogue traders and for convicted or blacklisted individuals to become directors of multiple businesses, there is however merit in extending the retention periods for certain types of infringement.

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Information and enforcement requests - The cooperation mechanisms stipulated in the Regulation to govern mutual assistance between the Member States include (Articles 6 and 8): Information exchange upon request, and Requests for enforcement measures. The benefits mentioned by stakeholders included the following: improved cooperation between Member State authorities; increased effectiveness of cross-border enforcement actions (e.g. potential for increased pressure to be imposed on companies in breach of the law across two or more Member States); exchange of learning and best practices; increased awareness among authorities about emerging unfair commercial practices; and, increase in administrative capacity of national authorities. The stakeholders consulted considered that the benefits of the information and enforcement request channels outweigh the costs. Proportional to the number of national infringements and accounting for the extent of cross-border trade relating to the relevant legislation with the scope of the CPC Regulation, the evaluation concluded that in some cases, utilisation of mutual assistance requests is sub-optimal. A much greater volume of cases are therefore needed if the full benefits of the CPC Network are to be 14

realised. Measures to encourage use, awareness, and increased common understanding contribute to this objective and are recommended. ■

Alerts - The number of alerts have reduced in recent years and doubts were raised about their usefulness especially when compared with information and enforcement requests. The feedback from stakeholders revealed differences in understanding on when alerts should be used and how follow-up should be given to them. The current alerts tool does not cater for early-warning among authorities on emerging market practices potentially affecting consumers' collective economic interests. As a result alerts are currently not meeting the objectives set out in the CPC Regulation. As part of a reform of alerts, information exchanged through alerts must be more targeted at relevant NCAs and presented in a clearer manner to ensure more rapid and effective dissemination of enforcement intelligence.

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SWEEPS - Since 2007 the Member States have organised concerted actions called ‘SWEEPS’, under Article 9 of the CPC Regulation which calls on competent authorities to coordinate their market surveillance and enforcement activities. SWEEPS have been carried out in the following areas: websites selling air tickets (2007); mobile phone contents (2008); electronic goods (2009); tickets for cultural and sports events (2010); and, consumer credits providers (2011). In each SWEEP national authorities screen in total several hundred sites relating to a particular sector or product in order to check whether the necessary consumer rights are being adhered to. The sectors proposed for the SWEEP are selected by Member States, together with the Commission. The resulting enforcement rate was high for all sectors. SWEEPS have also allowed providing visibility to CPC action and have assisted in building a common understanding on legal issues and market practices among the involved authorities. The SWEEPS have been beneficial at both EU and national levels, though their impact could potentially be increased through more publicity and follow-up actions to ensure continued compliance. More could be done with SWEEPS through the dissemination of the ‘data mining’ exercises and the follow-up actions undertaken. In addition to SWEEP data, in general collection of intelligence gathered centrally should help to improve future planning, identify common risk and develop more systematic approaches to enforcement. An information sharing function within the Commission or the establishment of an observatory to DG SANCO, which would gather information more systematically from national enforcement actors and from completed community actions under the CPC, and should ensure that such information is regularly disseminated to national competent authorities.

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Figure 3: Summary of SWOT analysis of the CPC Network

Actors Efficient and effective functioning of the CPC Network and the opportunities it provides relies to some degree on the roles, responsibilities and governance of three groups of actors, the Commission, NCAs and SLOs. Each of which was assessed in the evaluation based on stakeholder evidence, the findings of which were: ■

The role of the Commission - The role of the Commission is broadly appropriate though, in furthering enforcement cooperation some modifications may be needed. Nearly half of respondents to the survey felt that a greater role for the Commission would facilitate cooperation in the CPC Network. This could include greater powers to exert pressure on NCAs to secure compliance with the CPC Regulation, clarify Member State obligations, increase the awareness and visibility of CPC, and remove uncertainty about legal issues through the provision of guidance. Given the unique position of the Commission, it could also assist in monitoring and dissemination of information gathered by national authorities and assist in case handling where infringements are of a complex nature (i.e. where a single trader is being pursued by authorities in more than one Member State). The current provisions in the Regulation endow the Commission with a coordinating role on the request of Member States (Article 9) or an opinion formulating role in specific cases where national competent authorities have not found a satisfactory solution to certain cases (e.g. Article 15). A more pro-active role by the Commission may lead to the need to revisit the Regulation text in terms of the necessary access to case information and a more structured and prominent role to ensure the smooth flow of cases in the CPC network. In case of extensive involvement in the handling of enforcement cases, however, consideration could also be given to an EU-body separate from the Commission, in order to respect a due separation between the roles, on the one hand, of legislation formulation and, on the other, the enforcement of consumer protection rules.

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National Competent Authorities – the evaluation found that NCAs require a more uniform understanding of the CPC Regulation, including guidance where appropriate in order to engage more fully with the CPC Network. As a substantial number of NCAs contacted for in-depth interviews in some Member States were unfamiliar with the CPC Regulation, awareness raising actions are recommended as a first step. 16

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Single Liaison Offices – stakeholders responded that SLOs could play a more instrumental role in the monitoring of CPC cases and the pushing through of cases to prevent stagnation in the CPC System. The evaluation also highlighted the importance of SLOs in the functioning of the CPC Network, ensuring communication between national authorities and regional authorities in the Member States.

Informal cooperation activities facilitated by the CPC Regulation Three quarters of stakeholder respondents rated the exchange of best practices, the development of standards / guidelines and the coordination of market surveillance and enforcement as either effective or very effective. Complaint classification and administrative cooperation (to provide information or statistics to consumers) were considered less effective. Cross-border enforcement actions to date have been successful, in particular the best practice sharing, the development of standards / guidelines and market surveillance and monitoring. There is room for improvement with regard to complaint classification, exchanges of officials and reporting, although none of these areas constituted major weaknesses. Stakeholders welcomed more informal cooperation actions and were keen to ensure that more was gained from these activities. There was a strong desire for guidance and information to improve mutual understanding amongst authorities and more workshops and exchange of officials to facilitate greater cooperation at an informal level between authorities. The limited capacity of national authorities to take up available funding and manage EU co-funded projects has been apparent from the low number of proposals coming forward in the yearly selection rounds. The main barriers to the take-up of common actions were shortages of human and financial resources at the Member State level. Other barriers cited included inadequate levels of IT connectivity and networking facilities and insufficient levels of expertise on specific pieces of legislation in certain Member States. Alongside resource increases, other means need to be considered to increase take up (e.g. simplification in the functioning of the grants, support to actions through common procurement, more support to manage actions and disseminate results).

Recommendations in relation to functioning of the CPC Network and common actions, and the role of actors to improve the efficiency, effectiveness and value added of consumer protection enforcement ■ ■ ■

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The Commission should continue developing guidance clarifying the functioning of the tools of the CPC Regulation and the obligations placed on Member States. The text of the CPC Regulation could be revised in order to increase the clarity of the objectives, the obligations on Member States and NCAs/SLOs, and the understanding of current provisions. Consideration should be given to whether the Commission could make greater use of its powers to introduce infringement proceedings against the Member State(s) that do not fulfil their obligations under the CPC Regulation. Where several Member States seek enforcement against the same trader, guidance should be provided to help coordinate enforcement actions. The Commission's current facilitator role under article 9 of the Regulation should be reviewed to allow a more pro-active approach whilst taking due account of NCA margin of assessment/discretion and Commission powers. Consideration should be given to providing a legal base for a European body: to arbitrate in Member State conflicts hindering enforcement, to facilitate case handling coordination and to enforce EU law in a trans-national context. Consider and develop possibilities to cooperate and learn from other systems (such as IMI, RAPEX, and RASFF). A common national reporting protocol should be adopted in terms of its format and the information to be reported so that market monitoring intelligence gathered can be used systematically and

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‘Joint’ EU level reports that both reflect on the achievements of CPC and anticipate future challenges can be produced. Consideration should be given to the establishment of an ‘Observatory’ that would use the experience and information collected under the CPC Regulation (and information from other sources) on the extent of infringements and challenges and successes of enforcement to generate material that would increase awareness amongst national authorities and consumer representative organisations, and ultimately EU citizens. Such an observatory would require both research and communication skills and resources. Given the wide variations in resources committed to CPC activities at the national level the Commission should encourage Member States committing relatively low and relatively high levels of resources to compare and to ‘peer review’ their practices with Member States committing average (pro rata) levels of resources and acting effectively under the CPC Regulation.

The continuing relevance of the intervention logic of the CPC Regulation Issue The appropriateness and relevance of the CPC Regulation was reviewed in light of subsequent behavioural and legislative developments which have occurred in the consumer area since implementation of the CPC Regulation in 2006. The following presents the conclusions in relation to its rationale for intervention, its objectives and overall performance.

Findings The rationale for intervention was first clarified in a reference framework developed in the evaluation. It enabled an assessment of how a number of developments and actual activities undertaken under the CPC Regulation could have required a modification of this rationale. The conclusion is that the rationale for intervention is as valid and appropriate today as it was when the CPC Regulation was introduced in 2004. It may even be said that the CPC Regulation framework is even more needed than before given developments in technology and consumption patterns of households (i.e. in digital and online purchasing) and the complexity of trader activity in aspects such as advertising, bundling of products and trading internationally have reinforced the need to provide tools to deter rogue traders and to enforce the law. Even though, the current objectives of the CPC Regulation are appropriate and relevant, none of the specific objectives of the CPC Regulation have been fully achieved. There also remains some ambiguity as to how these objectives are interpreted by Member States as shown by the differing views of NCAs/SLOs on their obligations. On balance, while the current objectives are not fully met and still relevant, it would seem appropriate to improve the clarity of the text within the CPC Regulation, to ensure more uniform understanding among national actors. Consistent with the evaluation of the CPC Regulation as a whole, each mechanism has been judged as delivering benefits in excess of the costs of the inputs required to implement its activities. Despite some difficulties the vast majority of stakeholders found the CPC Regulation to be beneficial to enforcement authorities and consumers in their Member States.

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1

Introduction This report has been prepared by ICF GHK in association with VDMC and CIVIC Consultants to provide the DG Health and Consumers (SANCO) with the findings of the evaluation of the Consumer Protection Cooperation (CPC) Regulation No. EC/2006/2004, including consideration of possible measures to improve cooperation in cross-border enforcement of consumer protection provisions. The report contains a summary of the information collected from literature sources and stakeholder consultations and the legal and economic analysis undertaken of the CPC Regulation in 30 countries (EU-27 and 3 EEA countries6). Primary research took place in March, April and May 2012. Further, in-depth consultations were undertaken in July, August and September 2012 to provide more detailed insights in to the issues raised in the preliminary analysis. Triangulation of the evidence obtained enabled analysis of the strengths, weaknesses, opportunities and threats associated with the various provisions of the CPC Regulation, including their relevance, appropriateness and added value.

1.1

Background and intervention logic of CPC Regulation The CPC Regulation was introduced as part of a package of measures to enhance consumer protection and to promote the internal market in Europe7. It reflected international developments to strengthen consumer protection in the context of electronic commerce8. The case for a legal instrument for consumer protection and enforcement was outlined in the Green Paper on EU Consumer Protection9 and was included as an action in the 2002-2006 Consumer Policy Strategy. A dedicated Impact Assessment for the CPC Regulation proposal was, however, not undertaken prior to the adoption of the CPC Regulation. The precise logic behind its introduction, including the problems it was intended to address, the rationale for action, the objectives pursued and actions to be taken were not explicitly articulated. Also, there is little documentary evidence concerning which other measures were considered at the time. For these reasons, a reference framework for an intervention logic was developed during the evaluation. This is illustrated in Figure 1.1. Since the implementation of the CPC Regulation, new mechanisms for the cross border exchange of information between national authorities (e.g. the Internal Market Information System –IMI) have been established at EU level. In addition, other consumer protection legislation has been enacted or is proposed to combat the often complex challenges that have arisen for consumers as a result of changes in consumer behaviour, markets and technology. One aim of the evaluation was to assess whether the CPC Regulation remains appropriate in light of these changes. The study has also assessed where its strengths and weaknesses lie and what can be done to improve its implementation and use by Member State authorities to improve the effectiveness, efficiency and value added of consumer protection and enforcement. The reference framework in Figure 1.1 recognises that in the absence of the CPC Regulation there would be a fragmented approach to enforcement across Member States despite the presence of the internal market, and a lack of tools to facilitate and to promote cooperation on the issues of enforcement which are common to all national authorities. The overarching aim of the CPC Regulation was to improve enforcement and thus contribute to the functioning of the internal market. The specific objectives were established to support this

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Iceland, Norway and Liechtenstein Explanatory memorandum Proposal for the CPC Regulation (COM (2003)443). 8 1999 OECD Recommendation "Guidelines for Consumer Protection in the context of electronic commerce", available at: http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=C(99)184/FINAL&docLanguage=Fr 9 COM (2001)531 final 7

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goal. The CPC Regulation enabled certain actions to achieve these objectives, including the creation of the CPC Network, the co-financing of common actions, and the development and implementation of the IT tool. The anticipated outputs, outcomes and impacts are indicated in Figure 1.1.

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Figure 1.1 Reference framework and intervention logic of CPC Regulation Rationale

To foster a common approach the fragmented approach to enforcement of consumer protection legislation across EEA countries Lack of tools to detect, investigate and take action against (actual or suspected) infringement s of EU consumer protection laws in crossborder cases Lack of tools at EU level to facilitate wider coordination of enforcement and market monitoring activities

Objectives

To provide for cooperation between enforcement authorities in dealing with intraCommunity infringements that disrupt the internal market To contribute to improving the quality and consistency of enforcement of consumer protection laws To monitor and enhance the protection of consumer’s economic interests To ensure the smooth functioning of the internal market

Inputs

EU funding for the maintenance of the IT tool

EU funding for common projects, join activities and exchange of officials

Administrativ e costs incurred by DG SANCO

Admin costs and other operational costs incurred by competent authorities

Activities

Creation of the CPC Network

Development of a secure IT-tool

Mutual assistance in market monitoring activities

Outputs

Mutual assistance through information and enforcement requests

Detection of infringements of consumer protection laws

Cooperation with enforcement authorities in third countries

Development and exchange of best practice on enforcement

Common projects (seminars., training, etc.), incl. exchange of officials

Development and exchange of expertise between enforcers

Cooperation in Investigative and enforcement action

Contextual Factors Social, economic, cultural & behavioural change…

Adoption of common approaches to investigation and enforcement

Building trust between enforcers

Strengthening of cooperation with enforcement bodies in third countries

Outcomes

Cessation or prohibition of commercial practices harming consumers in cross-border situations Deterrence effect on potential rogue traders Greater compliance with legislation on consumer protection Increased protection and welfare of cross-border consumers shopping within the EU and in third countries

Impacts

Increased consumer protection Increased consumer confidence in the internal market Improved functioning of the internal market

Increased competition

Increased choice and quality for the consumer

More credible enforcement environment in the EU/EEA

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1.2

Purpose and objectives of the study The Terms of Reference (ToR) indicated the scope of the study was as follows: i.

Taking account of the policy background and factors hindering cross-border cooperation, the evaluation should: – Analyse and assess the implementation arrangements and processes in order to assess how the latter affect the attainment of objectives and results as established by the CPC Regulation. The evaluation will in particular distinguish through an analysis of weaknesses between areas where the application is straightforward, difficult or not possible. The same analysis will be carried out for the broader cooperation framework established by Chapter IV of the Regulation; – Assess the activities undertaken by Member States, CPC authorities and the Commission in the context of the application of the CPC Regulation in terms of effectiveness, efficiency and economy. The impact of the CPC-Network should in particular be measured in the light of the general objective to enhance the enforcement of consumer rights in the EU as defined by the Consumer Policy Strategy (2007- 2013); – Provide a description of the administrative processes when authorities are dealing with the CPC Regulation in order to provide access to quality data thereafter that can be used to calculate the administrative burden caused by the application of the CPC cooperation mechanisms according to the standard cost model from the Commission Impact Assessment guidelines.

ii. With a view to a future review of the CPC Regulation and to the objective to further enhancing cross-border enforcement cooperation in the area of consumer policy, the assignment should: – present different options addressing the weaknesses identified by the evaluation (including the "status quo" option) – analyse their relevance and impact – assess the balance of responsibilities – deliver, in line with the options, concrete and practical recommendations as appropriate for improvements of the current cooperation framework and mechanisms, including possible improvements to its structure, working practices etc. The recommendations have to be based on findings. iii. For all recommendations, a judgment should be provided concerning the choice for a certain recommendation in comparison with other options that were perhaps rejected or given lower priority. The option analysis should be based on the: – Relevance to the CPC Regulation objectives and the problems identified; – Cost-benefit analysis of different options (as appropriate) ; – Coherence with wider economic and social objectives; – Interaction with other existing and planned EU interventions; – Relative merits of the options – Considerations related to the subsidiarity principle and the Commission's role and powers established by the Treaty. To address these objectives, the assignment was required to answer a set of evaluation questions. A summary of these questions, the evidence to use to make judgments and reference to where each question is addressed in this report is provided in Annex 1.

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1.3

Overview of approach to the evaluation The approach to this assignment was to gather, analyse, and triangulate the evidence on implementation, adoption by national authorities, use and functioning of the tools of the CPC Regulation through a combination of: ■ ■

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Desk based research (including previous evaluations, impact assessments, CPCS statistics, and case law); Stakeholder surveys (opinions were sought from national competent authorities (NCAs) and single liaison offices (SLOs) as enforcers of consumer protection legislation and users of the CPC Network and in addition, separate survey questionnaires were prepared for Consumer Policy Network (CPN) representatives and consumer associations in order to get the perspective of policy makers and beneficiaries in the Member States); In-depth interviews with Commission officials and key stakeholders; Case study analysis of the CPC Network (for each case study, interviewees were invited to select a recent case from the CPC System and guide the interviewer through the procedures undertaken and their experiences of the CPC Network, including the parties involved in a particular case, the time taken to send and receive a response to a request, any difficulties encountered and whether improvements could be made in the future and the final outcome was then discussed); and Expert inputs, particularly from Mr Hanno von Freyhold (a legal expert on consumer issues who was part of the study team).

Annex 1 provides further details of the method of approach.

1.4

Structure of this report The report is structured as follows: ■ ■ ■ ■ ■ ■ ■ ■

Section 2 assesses the extent to which the legislation listed in the Annex complete and relevant. Section 3 assesses the extent to which the fragmentation of substantive applicable law hinders effective cross border cooperation in consumer protection. Section 4 assesses the extent to which the variations between Member States in procedural law and powers hinder effective cross border cooperation in consumer protection. Section 5 assesses the CPC Network, its mutual assistance activities (including SWEEPs) undertaken by the Member States and the role of Commission. Section 6 assesses the informal cooperation activities facilitated by the CPC Regulation (including joint projects and exchange of officials). Section 7 assesses the administrative costs associated with the CPC Regulation. Section 8 provides an overall assessment of the CPC Regulation performance with respect to the intervention logic and reference framework put forward in Section 1. Section 9 provides recommendations for the improvement of the CPC.

Supporting material is given in the following annexes: ■ ■ ■ ■ ■ ■ ■ ■ ■

Annex 1 Evaluation questions, judgement criteria and evidence and analysis. Annex 2 Consumer legislation and the functioning of enforcement in Member States. Annex 3 Summary of legislation/provisions included in the CPC Regulation Annex or which could be included in a revised annex. Annex 4 Individual and collective consumer rights enforcement. Annex 5 Potential conflicts of transposition based on the Directives contained within the CPC Regulation Annex. Annex 6 Summary of actions undertaken through Chapter IV provisions. Annex 7 Summary of SWEEP joint actions carried out to date and SWOT analysis of SWEEPs. Annex 8 List of organisations consulted for in-depth interviews. Annex 9 CPC operating costs and activity specific costs. 23

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Annex 10 Mapping of investigative and enforcement powers by Member State and legislation

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2

Assessment of the scope of the CPC Regulation

2.1

Introduction The scope of the CPC Regulation is defined by the legislation contained in its Annex. The review clause in the CPC Regulation (Article 21A) asks the Commission to "thoroughly examine the possible inclusion in the Annex of additional laws that protect consumers’ interests". The Commission biennial assessments of the CPC10 show significant variation in the use of the provisions of the CPC Regulation, with some legislative acts hardly using it at all. The evaluation is therefore tasked with answering the following questions: ■ ■

To what extent is the legislation listed in the Annex complete and relevant? How would the reduction or expansion of the list of legal acts in the Annex impact on the cross-border enforcement mechanism in place, and To what extent would an extension of the CPC mechanisms to business to business situations impact on the CPC framework?

Detailed descriptions of the consumer legislation currently listed in the CPC Annex, together with some other legislation which could potentially be in scope, are given in Annex 3. Annex 2 reviews and discusses the legislation around four themes: ■

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The typology of consumer protection provisions: Nearly all legislative acts include some information provisions to consumers and complaint mechanisms, However few relate to contractual issues and consumer redress. These aspects are mapped in Annex 2 in order to inform the consistency of legislation within and outside the scope of the current CPC Regulation. The typology of the national competent authorities: the majority of the directives included in the CPC Regulation Annex are overseen by consumer protection regulators, competition authorities, sectoral agencies and ministries in the Member States, whereas trade/market inspectorates, private enforcement bodies and regional enforcers are prominent only in a few countries. Annex 2 provides a summary of responsible authorities in each Member State, again to inform an assessment of consistency in the powers and capabilities across legislative acts. Cross-border infringement activity and B2C trading: While all the directives are relevant in terms of consumer protection, some are more relevant than others in terms of intra-EU trade, cross-border B2C trade and levels of cross-border infringement. Cross border trade statistics, CPC case statistics and a summary of the cross-border characteristics of the most relevant market(s) covered by each legislative act are also provided in Annex 2. Other cooperation mechanisms: While some of the legislation covered under the CPC Regulation provide for inter-Member State cooperation mechanisms, the CPC cooperation could learn from the efficiency and effectiveness of other cooperation mechanisms such as FIN-NET, RASFF and IMI. A brief description of each is provided at the end of Annex 2 as a means of investigating what would happen to enforcement cooperation in the absence of the CPC Regulation, in addition to what might be learnt and applied to CPC in the future.

This Section builds on these annexes and assesses the evidence gathered in order to inform reasoned judgements on the most appropriate scope of the CPC Annex. As a final validation the findings, expert legal opinion was sought to refine the arguments made. Using the evidence obtained, the following four criteria have been applied: ■ ■ ■ ■

Public enforcement dimension of consumer legislation Collective interests of consumers Cross-border relevance Consistency

The narrowest and widest scope of legislative acts which could be considered relevant for inclusion in the CPC Regulation annex was defined through a systematic scoring against the 10

http://ec.europa.eu/consumers/enforcement/biennial_national_reports_en.htm#biennial

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four criteria. Each legislative act was rated between and to reflect the extent to which each criterion was satisfied. Ratings were then aggregated to make a judgement on the most suitable scope. A discussion on whether a narrower or more expansive scope of the CPC Regulation is likely to be consistent with the objectives of the Regulation set out in Article 1, account for the specific characteristics of each legislative act is then provided.

2.2

Public enforcement dimension of consumer legislation Individual consumers can be ill-equipped to enforce their own legal rights due to the inherent imbalances of the contractual situation: ■

the consumer is individually isolated against businesses, as products, services and contractual terms are often offered to consumers with limited room or leverage to negotiate contractual details; ■ businesses have an informational advantage on all technical and other product details; ■ businesses have better legal support and resources11; ■ individuals are required to enforce their rights with little if any past experience (one shot players) compared to the businesses who do have such experience (repeat players)12; ■ the costs of litigation are often disproportionate to the damage inflicted on the individual in a single event, as opposed to the repeat players for which the costs of legal disputes are part of a cost-benefit calculation13 made before deciding to trade, and ■ the rational response of many consumers is to abstain from pursuing their legal entitlements in such circumstances14. These effects are magnified in a cross-border context in which barriers of cost, information and access can be regarded as a magnitude higher than within a national legal system and market15. From a societal perspective, while the actions of an infringing ‘rogue trader’ may have a relatively inconsequential impact to the individual, this ignores the collective impact whereby the failure to pursue a ‘rogue trader’ generates substantial losses in welfare for many consumers. It may also give rise to unintended consequences if other ‘rogue traders’ emerge, partly as a result of the lack of enforcement action taken against them. Welfare losses include the direct costs incurred by the consumer from the infringement, plus the indirect costs of stress and loss of consumer confidence which are less transitory in nature. Under these conditions, markets are unlikely to function optimally as consumer confidence is damaged and behaviour is adversely affected. Added to this, the removal of a level playing field between traders from lack of enforcement is known to reduce competition. The costs of non-action by the consumer are therefore substantial and can be persistent if repeat infringements are not deterred. Consequently, if the economic interests of all consumers are taken into account, the benefits of enforcement are then likely to exceed the costs of pursing the ‘rogue trader’ through the necessary legal channels. If the individual is unable or unwilling to enforce their consumer rights, a clear rationale therefore exists in this situation for another body to act to enforce these rights (and seek redress where the national system entrusts the public authority with a competence to this effect).

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Boom, W-van. & Loos, M.(2008): Effective enforcement of consumer law in Europe – synchronising private, public and collective mechanisms, January 2008 12 Galanter, Marc (1974): Why the haves come out ahead: Speculations on the limits of legal change; Law and Society Review 9:1, 1974: 13 Galanter, ibid 14 Feldtmann, von Freyhold, Vial (eds) (1998): The Cost of Legal Obstacles for Consumers in the Single Market, A report for the European Commission DG XXIV, Bremen/Brussels; http://ec.europa.eu/dgs/health_consumer/library/pub/pub03.pdf; http://www.freyvial.de/Publications/egii-42.pdf 15 von Freyhold, Gessner, Vial, Wagner (1995) Cost of Judicial Barriers for Consumers in the Single Market, A report for the European Commission DG XXIV, Bremen/Brussels; http://www.freyvial.de/Publications/egi-2.pdf Feldtmann, von Freyhold, Vial (eds) (1998): The Cost of Legal Obstacles for Consumers in the Single Market, A report for the European Commission DG XXIV, Bremen/Brussels; http://ec.europa.eu/dgs/health_consumer/library/pub/pub03.pdf; http://www.freyvial.de/Publications/egii-42.pdf

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In response to this gap in enforcement, legal systems both world-wide and in the EU have developed mechanisms of public and collective consumer interest representation: ■ ■

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a public authority may be entrusted to pursue consumer interests and protection, and may either have the power to directly prohibit or stop certain negative behaviour; ombudsmen may be installed to investigate consumer complaints and attempt to resolve them, usually through recommendations (binding or not), mediation or, should such efforts fail, through publishing the name of companies with a poor track record ("blaming"); consumer associations may be entrusted to inform and assist consumers with their efforts to enforce individual rights; consumer associations may be entrusted to act on behalf of the collective interest of consumers by requesting the cessation of a certain practice, to be enforced in civil court if need be, and consumer associations, or individual consumers, or ad-hoc groups of consumers may be entrusted to enforce consumer rights on behalf of a larger number of consumers and seek redress, if need be, in civil court ("collective action" or "class action")16.

Finally, business rivals or trade organisations (in the interests of its members) whose ability to compete fairly is restricted by an infringement may be entrusted to request rogue traders to cease the infringement by taking private civil action through civil courts or appeals process17, thereby indirectly protecting consumer rights. These instruments are adopted in each Member State but to differing degrees. Within one Member State, more than one instrument may exist to cover the same infringement or area of consumer protection. Alternatively, Member States may use different instruments for different areas of consumer protection. Public administrations established for the protection of consumer interests is therefore one important pillar of consumer protection in the Member States. Reliance on private enforcement alone would leave gaps in consumer protection due to gaps or uneven levels of compliance with EU consumer protection rules. In the worst cases, domestic infringements would be resolved and cross border infringements left unresolved. A gap in protection could therefore emerge to the detriment of all consumers. In a cross-border situation the barriers to private enforcement are typically higher than in a domestic situation, the information deficit is higher on all levels, there are legal and language barriers and the associated costs are generally higher. Thus, mechanisms of public and collective consumer interest representation are even more justified. Public authorities notably act within an environment which is precisely legally defined: ■ ■

public authorities must uphold a (nationally) defined rule or regime, defined by (national) laws, giving the administration both mandate and power to take action, and the executive powers of public authorities are limited exclusively to the territory of that authority.

Accordingly, public authorities are usually not authorised to act on behalf of consumers in other Member States in the event of an infringement of the laws of the consumer's Member State, and public authorities are not authorised to take any actions of enforcement in another Member State. In addition, consumer associations, ombudsmen and public authorities face many of the same barriers which consumers face in a cross-border situation, namely lack of information, the language barrier and a general lack of resources. In some instances, the national cases may be prioritised over cross-border cases due to the costs and the barriers encountered. Few resources are therefore expended on cross-border infringements than might otherwise 16

For more information: Alleweldt, Frank, et al. (eds) (CIVIC-Consulting) (2008): Evaluation of the effectiveness and efficiency of collective redress mechanisms in the European Union; A Report for the European Commission – DG SANCO; http://ec.europa.eu/consumers/redress_cons/finalreportevaluationstudypart1-final2008-11-26.pdf 17 Through relevant authorities if initial requests to court fail

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be optimal. In the past, the EU has taken several steps and approaches to improve the situation. On the level of assistance and information to consumers, the EC is sponsoring the European Consumer Centres Network (ECC-Net) that offer free advice and support for consumers residing in the EU who are buying goods or services from traders based in other Member States. On the level of consumer associations acting on behalf of the collective interest of consumers in civil court, the injunctions directive18 provides that, all Member States shall provide for mechanisms of injunctive relief by courts or administrative bodies on application of consumer associations licensed to act on behalf of their constituency, and that in crossborder situations such associations shall have similar rights in the courts of the other Member States. In addition, Brussels I Regulation provides that, in most cases of traders infringing collective consumer rights in a Member State, injunctive relief may be sought by consumer associations in that Member State irrespective of the location of the trader and that the court ruling may then be enforced in another Member State.19 In some Member States, the role of consumer associations as representative of collective interests in civil or injunctive action is practiced by public authorities, or even by ombudsmen, but still largely acting as semi-private actors in the collective interest rather than as public administrations with executive powers. Finally, the CPC Regulation closes the gap on the front of public authorities and their executive powers. In some Member States, some aspects of the role of these public authorities within the CPC Regulation framework have been entrusted to consumer associations, or to ombudsmen. As the formal and informal aspects of CPC are established to facilitate cooperation between public enforcers in the Member States, the CPC framework is more naturally aligned with legislation which has a prominent public enforcement dimension. For these reasons has been used to denote legislation with both private and public enforcement dimensions, and with a principle (but not exclusive) public dimension. Within this reasoning, an additional concept may be introduced: the ‘Shadow of the Law’. This term implies that for every case decided in court, a very large number of actors will act in accordance with these cases and the presumed outcome of a dispute to their issue, should it be brought before the courts: "[i]ndividuals in a wide variety of contexts bargain in the shadow of the law".20 One of the consequences of this concept is also that, to uphold and maintain the legal order in general terms it is not necessary for every dispute to go to court, or for every breach of the law to be prosecuted. For a start, most actors will be lawabiding for the very reason of being law-abiding. For the majority of remainder, it is sufficient that legal institutions have the necessary tools and powers to react with a sufficient likelihood to pose a relevant (deterrent) threat. For the CPC Regulation, the most important point to emphasise is that the existence of the law is absolutely necessary as a means of ultimate resort. In essence, it is necessary to have the tools to react in cases of serious cross-border breaches of European consumer laws in order to stop such activities. However, what is even more important is that all actors, both potential infringers and public administrations know that, mechanisms will exist if and when needed to ensure the adequate protection of consumers In other words, the statistical usage of the CPC Regulation in the enforcement of a particular Annex instrument may not be the only and decisive factor indicating the usefulness of that instrument in the Annex. It may well be that in some cases the theoretical availability of the CPC Regulation mechanisms is more important.

18

Directive 2009/22/EC on injunctions for the protection of consumers' interests ECJ Case C-167/00, Verein für Konsumenteninformation v. Karl Heinz Henkel, Judgment of 1 October 2002 ("Henkel") 20 Robert H. Mnookin and Lewis Kornhauser: Bargaining in the Shadow of the Law: The Case of Divorce, 88 YALE L.J. 950 (1979) 19

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2.3

Collective interests of consumers Article 1 of the CPC Regulation states its objective is to protect the ‘collective’ interests of consumers, consistent with its underlying public enforcement approach. The individual consumer can still take private action to determine whether their rights have been infringed or appeal to a competent body and seek means of redress. However, in the context of collective consumer interests, the competent authority in most cases may not respond to individual claims, but rather attempt to form an evidence base of possible wrong doing by the trader in question, such that it can be satisfied that an infringement has occurred and action can be taken, either privately (collective action or injunctive relief) or through the administrative and criminal legal tools available. In this situation, the authority must consider whether other consumers have been or could be infringed in the future, regardless of if they were aware of the infringement or not. The collective public interest is therefore prominent in decision making and taken into account when sanctions are applied or compensation is awarded. Equally in the context of the EU single market, the authority is responsible for asserting the rights of its consumers in other Member States regardless of whether or not those consumers have complained. Similarly EU mechanisms must uphold the rights of all EU consumers the internal market should treat everyone equally. Consequently, legislation with a collective dimension in enforcement is much more closely associated with the CPC Regulation and more consistent with its objectives. Although the collective interest of consumers is associated with the public enforcement route, the two are not mutually exclusive. For example, private enforcers can seek (in some EU Member States) collective redress or bring a civil collective action against a rogue trader. In other cases, cross border enforcement of an individual infringement might involve a public authority or consumer representative organisation to resolve the case for the individual, but the collective aspect is absent or at least less prominent. Finally, there may be cases where the legislation directly provides for individual consumers interest (provisions granting direct legal rights like refund, repair or cancellation, or regulating statutory limitation periods). Abiding by the objectives of the CPC Regulation, legislation protecting the collective interest of consumers was denoted in the rating exercise, was used to denote legislation with both individual and collective interests.

2.4

Cross-border relevance While the previous criteria have been concerned with the ‘content-wise’ relevance of the legislation listed in the annex of the CPC Regulation, this criterion is intended to focus on the cross-border dimension or commonality of consumer/market issues among Member States as indicative of the appropriateness for their inclusion in CPC. Several indicators of cross border relevance were assessed in Table A2.4 (See Annex 2) Ratings were awarded based on this evidence, with given to denote legislation with clear and unambiguous crossborder/EU dimension supported by empirical evidence, and where the cross border dimension is identified but can be less robustly justified based on the evidence presented. Where the cross border /EU dimension was not identified, no rating was provided. The ratings (See Table 2.1) must also account for forward looking flexibility, as although the CPC Regulation may not be relevant to the legislation in the current scope due to the lack of a cross-border or EU dimension, this does not preclude its relevance sometime in the future. For example, the volume of financial products traded cross-border may have been insignificant only 5-10 years ago. However, with the advent of the internet, the increased mobility of consumers (e.g. tourism and second home owners), and the entrance of new providers cross-border, the cross border dimension is now much more prominent. Consideration has therefore been given to market trends and trade patterns in consumer issues which might be anticipated.

2.5

Consistency Consistency relates to commonalities in the legislative provisions within the scope of CPC. Ensuring a high degree of consistency should prevent gaps emerging in cross border 29

enforcement. Regardless of which legislative act is concerned, all the applicable provisions are relevant for assessing an infringement. Therefore authorities should be able to rely on the same full spectrum when applying the cross-border mechanism. On this basis, it might be possible for all legislation in the consumer acquis to be within the scope of CPC Regulation (if there are gaps in the present scope). Alternatively, it might be possible to segment legislation by their provisions, either by types of rights protected or tailored to the specifics of individual sector legislation. Based on Table 2.1 depicting the typology of consumer protection provisions in the legislation, a rating of indicates legislation within a high degree of consistency with the other consumer legislation and less consistency. The mapping exercise (Annex 2) demonstrated the broad consistency of legislation contained in the current CPC Regulation as in general legislation included corresponds to the typology of provisions identified earlier (informational, contractual, complaint, and redress), which are aimed at protecting consumer’s economic interests. Consistency could be considered as lesser in relation to transport rights, medicinal products, audiovisual media and alternative dispute resolution mostly because of the very sectoral focus on specific trader obligations or consumer rights not shared by other instruments or because of their highly technical nature. However, through closer inspection, some of the legislative provisions (e.g. advertising regimes for medicinal products or for audiovisual media services) can be equated with the typology of provisions identified as relevant in the current scope of the CPC Annex. As regards consistency in the Common Activities (provided for by Chapter IV of the CPC Regulation) a certain commonality of consumer and market issues is also needed among Member States in order to make the common activities worthwhile. Similarly SWEEP exercises can only be implemented when a market and a set of consumer issues can be defined, in order to know what to look for and limit the search to the feasible set of businesses. In essence, in moving from a national to an EU scope of market surveillance and enforcement, the EU dimension must be clearly defined, rather than just cross border issues which Member States may wish to address informally on a bilateral basis. Consistency in this context can apply to consumer sectors covered by a legislative act or to those sectors affected by a common market/consumer issues. For example, internet retail for travel, consumer and financial products would be a common sales channel where an EU approach would add value.

2.6

Assessment of the scope of the current CPC Regulation Annex Table 2.1 summarises the assessment of the legislation under the CPC Regulation against the criteria defined above, summing up the relevant ratings to reach a score on which to base the scope of Regulation on.

Table 2.1 Assessment of the scope of the current CPC Regulation as indicated in the Annex

Legislation

Public enforcement dimension

Collective consumer interest

Cross-border Relevance

Consistency

(A) Legislative acts included in the CPC Regulation Annex Directive 2006/114/EC on misleading and comparative advertising (provisions on comparative advertising). Directive 85/577/EC on contracts negotiated away from business premises

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Legislation

Public enforcement dimension

Collective consumer interest

Cross-border Relevance

Consistency

Directive 97/7/EC on distance contracts Directive 2008/48 on credit agreements for consumers

21

Directive 2010/13/EU on audiovisual media services Directive 90/314/EC on package travel, package holiday and package tour

22

Directive 93/13/EC on unfair terms in consumer contracts Directive 2008/122/EC on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts Directive 98/6/EC on indication of prices Directive 1999/44/EC on sale of consumer goods and associated guarantees Directive 2000/31/EC on electronic commerce Directive 2002/65/EC on distance marketing of consumer financial services Regulation (EC) N° 261/2004 on denied boarding and cancellation or long delay of flights

23

24

Directive 2005/29/EC on unfair commercial practices Directive 2002/58/EC on privacy and electronic communication Directive 2001/83/EC on medicinal products for human use Bus, coach, sea and inland waterway passenger rights,

21

Despite a very relevant factor of private individual enforcement of this instrument, the public enforcement aspect is so strong, that this rating seems appropriate 22 Public enforcement aspect is of a very limited relevance 23 Despite a very relevant factor of private individual enforcement of this instrument, the public enforcement aspect is so strong, that this rating seems appropriate 24 In first instance the aspect of protection of the individual passenger stands out in importance (be it possibly as a collective group of passengers in the same delayed, cancelled, etc., flight).

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Legislation

Public enforcement dimension

Collective consumer interest

Cross-border Relevance

Consistency

Regulations 181/2011/EU and 1177/2010/EU (B ) Formal proposals for legislative acts and/or provision to be included in the CPC Annex Proposal for an Alternative Dispute Resolution Directive (COM(2011)793) – Art.10 (C) Legislative acts and/or provisions which may be considered for inclusion in the CPC Regulation annex Common rules for the operation of the air services (Regulation EU 1008/2008) - Art.23 Approximation of the laws of the Member States relating to cosmetic products (Cosmetics Directive) (76/768/EEC) and Cosmetic Product Regulation 1223/2009) – Art 19-21, 29 Nutrition and health claims made on foods, Regulation No. EC 1924/2006 Regulation 531/2012 (amended Roaming Regulation) Services’ Directive (Directive 2006/123/EC) The rights of disabled persons and persons with reduced mobility when travelling by air (Regulation EU 1107/2006) – Art 15 Universal Service Directive 2002/22/EC Rail passenger rights, Regulation 1371/2007 Directive 2009/138/EC (recast) on the taking up and pursuit of the business of insurance and reinsurance (‘ Solvency II’) Proposal for a Directive on mortgage credit Legend: [no mark] = no strong conclusion,

2.6.2

= positive for inclusion,

= very positive for inclusion

Legislative acts and provisions: currently included in the CPC Regulation Annex; provisions soon entering into force, and acts at formal proposal stage A casual look at Table 2.1 shows that legislative acts with high consistency of consumer protection provisions and a high public enforcement dimension and are the most suited for inclusion in the CPC Regulation (i.e. consumer credit, consumer guarantee and price indication and unfair commercial practices legislation). Conversely, legislation with limited consistency and which does not strongly protect the collective interests of consumers can 32

regarded as less well suited (i.e. legislation on passenger rights in transport, privacy in electronic communication and alternative dispute resolution). Recognising that some legislation is better suited to the CPC Regulation than others, it is nevertheless concluded that the current scope of the Regulation is broadly appropriate and can be justified accordingly, and supported by 88 % of stakeholders consulted on this issue in the NCA/SLO survey. The inclusion of some legislative acts does however require some further clarification. Concern was raised by some stakeholders regarding the inclusion of the audiovisual media and medicinal products for human use directives as enforcement is largely domestic in nature; legislation is rather sector specific and consequently does not score highly when assessing the cross-border/EU dimension. Also, there is a proximity of the legislation on medicinal products to the legislation on cosmetics, and possibly even to food and general product safety. It is unclear why one should be governed by CPC, and not the others in this respect. A high level of consistency with advertising and commercial communication provisions in other EU legislation (i.e. misleading comparative advertising, and unfair commercial practices) does however justify inclusion. A rationale to include legislation on cosmetics in the CPC Regulation also exists in this respect in the future, should such legislation contain enforceable rules on advertising. Concern was also shown in relation to sector legislation where alterative cooperation networks are established, often reflected in the limited use of the CPC Network. While many infringements can be resolved through established lines of communication (i.e. by personal contact or informal cooperation at sectoral events), it was found that applying the ‘shadow of the law’ principle, it is better that legislation is contained within the scope of the Regulation than outside of it, in the event that informal networks fail to lead to the successful resolution of a case. The counterfactual, in other words what would happen to cooperation and consumer protection enforcement in the absence of CPC is therefore important to consider in justifying inclusion. Transport passenger rights regulations are a remaining concern, largely due to the significant individual interest and national enforcement elements. In addition to individual air passenger enforcement (e.g. claims for compensation made directly and brought to court if necessary), public enforcement of air passenger rights regulation also functions differently to other legislation under the CPC Regulation, specifically in relation to the operation of national enforcement bodies (NEBs). The collective interest is dealt with mainly through public sanctions based on individual or collective infringements. Consumers make complaints directly to the NEB in the Member State where the infringement took place, which is dealt with on a case by case basis by the NEB. While air travel itself is often a cross-border phenomenon, the treatment of individual complaints is mostly dealt with on a national level depending on where the incident took place. In parallel to receiving individual claims, NEBs can carry out enforcement tasks which consist of imposing sanctions to air carriers infringing Regulation 261/2004, on the basis of an individual claim or a pattern of cases showing a lack of compliance, or following inspections at airports, etc. Resort to cross-border formal cooperation mechanisms appeared to have been limited. However, as the assessment of Regulation 261/2004 in 201125 pointed out, there are weaknesses both in the treatment of individual complaints as in the enforcement action towards carriers. The inclusion in the CPC Regulation provides a tool to ensure consistency when addressing non-compliant practices of air carriers with a bearing on the rights of passengers, possibly also reflected in standard contract terms and/or pre-contractual information and commercial communication provisions. Moreover there is one requirement in the Passenger Rights Regulation, which has the strongest "horizontal" aspect (with airlines infringing practices regularly covering more than one Member State), and the weakest private enforcement and private complaint factor: the obligation under Art.14 to inform passengers of their rights. Clearly, when consumers (passengers) are not informed, they cannot make claims or complain to their NEB. The Commission and the Member States have taken initiative: by organising an abundance of 25

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52011DC0174:EN:NOT

33

information on EU and NEB web-sites; by promotional and press campaigns; and, by signposts at various places on air-ports that ensure, in addition to the compulsory information provided at check-in counters, passengers are informed about their rights. Notwithstanding the sanctions that may be imposed by NEBs for infringements to Article 14 by specific carriers,, when check-in counters are no longer used by passengers especially with ononline check-in, enforcement activities, including coordinated actions such as SWEEPs comparable to other areas of consumer protection might become necessary, and the use of the CPC Network as a cooperation tool may be helpful in this area. Cross-border public cooperation might also increase if other instruments related to air passenger rights, such as Regulation 1107/2006/EC concerning the rights of disabled persons and persons with reduced mobility when travelling by air, were to be included in the CPC Regulation, especially with regard to the information requirements contained in this instrument. The justification for maintaining the air passenger rights rules in the CPC Regulation, would mutatis mutandis account for the listing of other transport passenger rights regimes such as the bus, coach, sea and inland waterway passenger rights Regulations 181/2011/EU and 1177/2010/EU which have already been included in the scope of the CPC Regulation. Equally, inclusion of the rail passenger rights Regulation 1371/2007 should be considered for inclusion on the same basis. In relation to ADR/ODR legislation, the strong cross-border dimension is what essentially justifies inclusion in scope and the general issue that it imposes information requirements on businesses. Otherwise, consistency with other legislation is low as its provisions primarily focus on obligations of the Member States (to introduce and maintain adequate ADR and ODR mechanisms). With respect to the business information requirements, it remains to be seen if in practice actions of Member State authorities will really be necessary to ensure that information requirements are fulfilled. From 13 June 2014, the Consumer Rights Directive 2011/83/EU (to be transposed by 13 December 2013) will replace the current Directive 97/7/EC and Directive 85/577/EEC. The new Directive: ■ ■ ■

specifies core information to be provided by traders prior to the conclusion of all consumer contracts; provides for specific information requirements and regulates the right of withdrawal (length of the withdrawal period, procedure and effects of the withdrawal) to distance and off-premises contracts, and specifies rules on delivery and passing of risk applicable to contracts for the sale of goods as well as certain rules applicable to all types of consumer contracts. These include rules on the costs for the use of means of payment (e.g. credit or debit cards); on telephone hotlines operated by traders as well as on additional payments and pre-ticked boxes.

Within the scope of the CPC Regulation the new Directive should simply replace the reference to the current directives in the Annex as the rationale for inclusion has not changed and if anything is strengthened. The majority of provisions in the Consumer Rights Directive are ‘maximum harmonisation’ measures with little or no scope for variance in implementation among the Member States; hence the EU dimension and consistency of provisions across the Member States should be enhanced by its introduction.

2.6.3

Assessment of additional legislative acts and provisions that could be considered for inclusion in the CPC Regulation Annex The following acts/provisions have been assessed in terms of their potential for inclusion in the CPC Regulation Annex. Overall only Regulation 531/2012 (the Roaming Regulation), Regulation 1371/2007 (on rail passengers’ rights), and the proposed Mortgage Credit Directive are strong candidates for inclusion in the CPC Regulation Annex in their entirety. However, as elaborated below, specific provisions of a range of acts may be considered for such inclusion, namely Regulation 1008/2008 on Air Services.

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Services Directive (Directive 2006/123/EC) The Services' Directive (Directive 2006/123/EC) guarantees certain rights to recipients of services such as non-discrimination, information rights, professional liability insurance, and commercial communication. The cross-border relevance and consistency criteria are significant in this respect. However, as with the proposed ADR/ODR legislation, the Services Directive has a strong focus on Member States’ obligations rather than on the activities of individual service providers, and secondly, the Directive also covers B2B aspects (i.e. the concept of "recipients of services" is not limited to consumers) inconsistent with the consumer focus of the CPC objectives. . On this basis, the Services Directive is not recommended for inclusion in the Annex.

Regulation 1924/2006 on nutrition and health claims made on foods This Regulation has a strong consumer protection rationale; however, it does not expressly aim to promote consumers’ economic interests given its consumer health and safety focus. As outlined in Annex A3.24 nutrition and health claims are already harmonised at EU level to guarantee internal market operation, so that there is unlikely to be a case for inclusion of this in the CPC Regulation Annex. The only provisions which could find useful mention in the Annex are those emphasising against the provision of false or misleading information to consumers. Alterative cooperation mechanisms are also established in this area (i.e. the Rapid Alert System for Food and Feed (RASFF), therefore no strong case for inclusion in the CPC Annex is apparent at this stage.

Regulation 1223/2009 on cosmetics products A clear consumer protection element is present in this Regulation, namely in relation consumer information requirements. However, as with Regulation 1924/2006 on nutritional and health claims, the focus is not solely on protecting consumers’ economic interests, but is more akin to human health and safety protection . Further, the typology of authorities involved in enforcing the Regulation suggests that an alternative to the CPC Network is already in place and utilised by Member States. The regulatory framework is also highly centralised at EU level (i.e. through the Scientific Committee on Consumer Product (SCCP)), in which case the added value of a mechanism between Member States (noting that this is Regulation) may be limited. Finally, should an infringement occur in relation to marketing practices, legal experts highlighted that the Unfair Commercial Practices Directive provides also a basis for enforcing consumer protection . In summary, the added value of including the consumer protection provisions of the Cosmetics Regulation in the CPC Annex was deemed insufficient to recommend inclusion at this stage.

Regulation 1107/2006 on the rights of disabled persons and persons with reduced mobility when travelling by air This Regulation relates primarily to consumer rights but has a strong private enforcement dimension. It focuses on protecting the public interest by promoting anti-discrimination against disabled persons and those with reduced mobility (in the domain of air travel). While there is potential for increased scope for collective action (and, ultimately, coverage under the CPC framework) in the future, given that the current focus is not on consumers’ collective economic interest and the relatively weak public enforcement dimension it is suggested that this Regulation should remain outside the CPC Regulation Annex at present.

Common rules for the operation of the air services (Regulation EU 1008/2008) This regulation has a clear consumer protection rationale. However, its aims are largely focussed on facilitating market competition through increased price transparency, guarantees and consumer information rules (see Annex A3.21). In other words, the Regulation facilitates smooth functioning of the internal market primarily on the supplier side (rather than the consumer side). As regards the typology of authorities, national enforcement is emphasised given that flight licenses for Europe are already centrally regulated at the EU level. As a result, in spite of achieving a high score in terms of cross-border relevance, this 35

Regulation is not suited to being covered in its entirety in the CPC Regulation Annex. However, the price transparency provisions (Article 23) of Regulation 1008/2008/EC on common rules for the operation of air services may be appropriate for inclusion in the CPC Regulation as they apply as specific rules in relation to the general regime on unfair commercial practices. It is recommended that these provisions are examined further for inclusion in the future.

Universal Service Directive 2002/22/EC The dispute resolution aspect of this Directive set out in Annex A3.25 is consistent with the CPC system. However, the thrust of the provisions appears to be more on promoting supplier-side competition as opposed to strengthening consumer rights. Enforcement activity is likely to be predominantly driven by the private sector. As a result, on balance, the Directive is not a strong candidate for inclusion in the CPC Annex.

Regulation 531/2012 (amended Roaming Regulation) The amended Roaming Regulation should be considered for inclusion in the CPC Regulation Annex given its ‘purer’ consumer protection credentials and the institutions responsible in the Member States (telecommunication regulators, consistent with the audiovisual directive in many cases). As specified in Annex A3.26, this Regulation aims to strengthen consumer protection in the EU while promoting consumers’ economic interests. The typology of authorities involved works in favour of inclusion in the CPC Regulation Annex given the high priority accorded to public enforcement activity and the relevance in terms of cross-border enforcement. However, account should be taken of the strong focus on reinforcing competition between service providers and that in most cases the roaming rules concern contractual relationships between consumers and telecommunication service providers residing in the same Member State, therefore the cross-border aspect may be diminished in some circumstances. It is recommended that inclusion in the CPC Annex is further investigated in this respect.

Regulation 1371/2007 on Rail Passengers’ Rights To ensure consistency, given that the corresponding pieces of legislation on the rights of passengers travelling by bus/ coach and sea/ inland waterways (Regulations 181/2011 and 1177/2010) are already covered under the CPC Regulation, and given the focus on public enforcement and consumer protection (including, importantly, the economic interests of rail passengers), this Regulation should be considered for inclusion in the CPC Regulation Annex.

Directive 2009/138/EC (recast) on the taking-up and pursuit of the business of Insurance and Reinsurance (‘Solvency II’) The recast Directive incorporating fourteen previous individual pieces of legislation includes in its objectives: the elimination of differences in national rules that apply to insurance companies; the improved operation of the single market, and the protection of creditors. Provisions to protect insured persons and policyholders, plus provisions to bring clarity about what information must be provided to policy holders before entering into a contract/ through the duration of the contract gives some aspects of the legislation a consumer protection focus. As a harmonising Directive, the EU dimension is also prominent. However this is limited by the fact that while insurance cover may be provided cross border and be traded between providers, the insurance is sold to the consumer through a national intermediary or provider. Supervisory authorities established to enforce the Directive are also more focussed on facilitating the internal market through competition (supplier) means rather than through the consumer route. With the presence of FIN-NET network to assist in effective dispute resolution and the fact that coordination rules of supervisory authorities are included in the Directive, it is consequently difficult to understand where the additional value added which would come from inclusion in CPC (See Annex A3.28). Added to that the private enforcement route open to consumers in the Directive, it is not recommended that Directive 2009/138/EC is considered for inclusion in the CPC annex. 36

Proposal for a Directive on mortgage credit A strong case may be made for including the proposed Directive on mortgage credit in the CPC Regulation Annex. As discussed in Annex A3.29, this Directive will have a strong public enforcement dimension. The underlying aim being enhanced consumer protection by way of promoting consumers’ economic interests in the pan-EU residential mortgage market, there is a clear cross-border cooperation aspect which sits well with the CPC framework. The provision for effective and collaborative dispute resolution across the EU (Article 25) also means the proposed Directive is consistent with the CPC framework. It is recommended that this Directive is further examined for inclusion in the future.

2.7

Stakeholder views on the scope of CPC The majority (88%) of the NCAs and SLOs responding to the survey thought that the current scope was appropriate. This finding is consistent with the analysis and assessment above. The 11 responses which stated that the scope was inappropriate were from Austrian, German (5 responses), Latvian, Lithuanian and Norwegian NCAs responsible for a wide array of legislation. Many of the German responses indicating the scope was inappropriate came from private enforcement bodies. No other patterns in responses were observed. Box 2.1 below provides some stakeholder views.

Box 2.1 Stakeholder comments on the appropriateness of the inclusion of some of the legislation within the scope of the Regulation Directive 2001/83/EC on Medicinal products for human use The appropriateness of its inclusion has been questioned by stakeholders on the grounds that the common understanding on the classification of medicinal products (those falling under the Directive and those that do not) is lacking, making a cross-border control of advertising useless. Other issues of the directive are covered by different communication systems. Directive 2010/13/EU on Audiovisual media services The appropriateness of its inclusion has been questioned by stakeholders on the grounds of extremely limited relevance do to the fact that, actors are generally national. TV-viewers rights are closely related to / can be compared with consumer’s rights. The provisions cover the area where [respondent] has direct responsibilities in the communications sector as far as consumers are concerned. The increasing prevalence of cross-border provision of relevant services means the CPC is relevant and valuable (and likely increasingly to be so) even though we have made limited use of its provisions so far. Directive 2002/58/EC on Privacy and electronic communications The appropriateness of the inclusion of this Directive has been questioned by stakeholders on the grounds that, its protection applies both to businesses and consumers. The problem of unsolicited electronic communications is inherently a cross-border problem, where international cooperation is essential. Regulation 261/2004 on denied boarding and cancellation or long delay of flights In our view, provisions related to passengers rights belong to the consumer protection domain, and thus to the CPC remit. 'Passenger' is a larger notation than 'consumer' but it would be beneficial for more effective enforcement, and for the protection of all passengers, to state that all passengers are to be seen as consumers, regardless the reason for their travel. Some provisions of CPC Regulation are too complicated in case of Regulation (EC) 261/2004 and no one use it. NEBs communicate by e-mails directly.

37

The low response rates to the relevant questions in the survey, specifically giving reasons for the reduction or maintenance of the current scope, may indicate that, generally, the stakeholders are content with the current scope. Furthermore, certain reservations were largely directed at possible inadequacies of the underlying instrument itself (e.g. criticism on the Directive on medicinal products for human use) or the potential of the CPC in the future (e.g. possible increase of actor's cross-border activities in the case of the Directive on Audiovisual media services).

2.8

Impacts of an expanded or reduced scope The assessment is that the current scope is appropriate expansion of the scope would only be justified in the case of new legislation of sufficient consistency and relevance. Overall only Regulation 531/2012 (the Roaming Regulation), Regulation 1371/2007 (on rail passengers’ rights) and the proposed Mortgage Credit Directive are strong candidates for inclusion in the CPC Regulation Annex in their entirety. There is also scope for possible limited fine-tuning by including specific provisions of certain acts (e.g. Article 23 price transparency in air services). Thus maintaining or slightly increasing the scope of the CPC Regulation is appropriate. The need for a reduced scope is apparent from the analysis or from stakeholder feedback. In accordance with the terms of reference for this evaluation this section looks at factors and impacts that might arise if a change in scope of the CPC Regulation is proposed. The potential impacts of a reduction of scope of the CPC Regulation would include a reduction in the resources required to implement and operate the present CPC framework at national level. However, given that in many Member States an individual official is responsible for multiple pieces of legislation under the CPC Regulation or has other duties alongside those related to CPC, it is plausible to assume that any cost saving would be less than proportionate to the reduction in the legislation covered. Furthermore, if a reduction of scope is considered, this would be justified only for those instruments which have been used the least in the past. Thus the potential cost reductions would be very low. Another potential positive impact may lie in the added consistency of the remaining legislation thus removing certain frictions and stakeholder frustrations and improving overall efficiency. Yet again, since a reduction would affect the least used instruments; positive effects would be very limited. A reduction of scope can be most easily justified for those instruments least used to date. Immediate negative impacts would thus be limited. However, in the same way as a reduction may lead to added consistency, it may also lead to a reduction of consistency of the remaining legislation. This implies a risk of increased legislative friction and stakeholder misunderstanding that would reduce overall efficiency. Also, the reason for current limited relevance of a certain instrument may change in the future. Thus, a reduction of scope bears the risk of being ineffective. At the same time, if an instrument which is added to CPC Regulation proves to be largely irrelevant, then such expansion is unlikely to lead to proportionate increases in the resources required to implement and operate the legislation in CPC at national level. However, if the inclusion of the instrument leads to significant increase in the resources required for operation of the CPC, then it can safely be assumed that it was important that such an instrument was included. The inclusion of an instrument may be justified for reasons of consistency. The legal justifications for requests under the CPC framework will in general benefit from a wider range of Directives/Regulations which the cooperating authorities can invoke. A request may be more successfully handled if a full picture is given regarding all the provisions a particular practice is suspected to infringe. Added consistency could remove certain frictions and stakeholder frustrations and improve overall efficiency. For example, if general information and transparency requirements by air carriers are covered as a result of the general regime on unfair commercial practices, why not the provisions on price transparency in the Air Services Regulation? If air passengers rights (and soon bus passengers rights) are covered, 38

why not other transport passenger rights? For consistency reasons some (limited) provisions could be considered for addition to the CPC Regulation, in which case the impacts on organisations and costs are unlikely to be high. However, in the case of completely new areas and legislation, the impacts may be more significant, especially if other types and groups of NCAs become involved. Accordingly, consistency between provisions in different legislation which might be inside or outside scope is a very important and decisive factor. Another important factor in the consideration of the impacts of an expanded or reduced scope is whether such a change is desired by stakeholders. When asked in the survey whether additional legislation or legislative provisions protecting consumers’ interests could be covered under the scope of the CPC Regulation, 89% indicated that it should not be extended. Some authorities were of the opinion that a higher priority should be placed on the efficiency of the existing CPC network within the current scope, before including further legislation. The Consumer Rights Directive (CRD) will anyway be included by means of the legal continuity ensured through the cross-references to the Directives currently in the CPC Annex to be replaced by the CRD. The ADR proposal foresees its inclusion in the CPC Annex in relation to pre-contractual information requirements imposed upon traders under that proposal. The results of the in-depth interviews support the view that the scope should not increase in the short term but there should be potential for expansion in the future, once functioning has improved. In terms of the effectiveness and/or efficiency of the CPC, it is possible to hypothesise that with fewer NCAs, communication and cooperation is easier and more efficient. However the CPC Network may require that a critical mass of authorities use the system, or a certain number of mutual assistance requests are processed in order for mutual understanding and greater informal cooperation to develop between national authorities. For example, a successful SWEEP exercise of a market requires the participation of many authorities, in which case more is likely to be better. However in other situations involving informal cooperation, smaller networks might be more beneficial. It should be recognised that the formal inclusion of a wider range of legislation in the CPC Regulation Annex does not prevent or hinder actual cooperation actions to take place on the basis of a reduced number of authorities, Member States or a selection of legal provisions.

2.9

Potential application of CPC Regulation to business-to-business situations In some instances businesses, specifically small and micro enterprises may be in a situation similar to that of individual consumers when acting as private enforcers, consequently the public enforcement rationale could equally apply in business to business transactions. As an example, consultation with Commission officials highlighted that with respect to businesses, the misleading and comparative advertising directive is based on a private enforcement philosophy, yet small businesses often do not have the tools for private enforcement and even less so in a cross-border environment. This is even more so as organisations representing the collective interest of business do not necessarily take too much interest in the needs of small businesses, or do not have the resources or modes of operation for cross-border enforcement activities. The case for public enforcement in crossborder cases is therefore present. It was argued that CPC would be a useful tool to bring about enforcement of this legislation where infringing practices affect small businesses. Other legislation where this approach could be applicable if its scope were to be extended to business to business relations, includes Directive 2005/29/EC on unfair commercial practices and Directive 2000/31/EC on electronic commerce, where businesses can be involved in private enforcement. While many stakeholders accept the rationale that small businesses are vulnerable and have consumer-like characteristics, CPN representatives and competent authorities were largely sceptical. They pointed out that, under its current legislative text, the CPC should only “enforce the laws that protect consumer’s interests… to enhance the protection of the consumer’s economic interests”. This view was shared by 49 % of respondents, with a 39

further 33 % stating that this did not apply to them and only 18 % expressing the view that there was scope for such expansion. Box 3.2 presents some of the comments received in relation to this question. Box 3.2 Stakeholder comments on expanding CPC Regulation to cover business to business cross-border issues? Yes, [respondent’s] experience is that small business users of services often share with consumers the same characteristics and vulnerabilities to unscrupulous traders. The [MS] Government does not support the extension of the CPC regulation to business-to-business transactions. The CPC regulation is a consumer protection regulation and should therefore only cover consumer protection issues. Any extension would also have significant resource implications and any increase on activity and resulting resource pressures would not be a viable option in the current economic climate No we have to focus with a high priority on the efficiency of the CPC network within the current scope of Regulation 2006/2004

An expansion in scope to cover small business' interest might require changes to the legislative text of the CPC Regulation itself as well as to the Annex, making more complex revision and amendment necessary. Since this aspect should be of no real concern to the stakeholders but rather to the legislators, there is a presumption that the strong objections raised might have an entirely different background: in many Member States the NCAs currently involved in the CPC network have a strong focus on consumer interests, are even dedicated consumer bureaus. A valid presumption is that for these stakeholders businesses are perceived to generally stand on the other side of the fence whose interests they can hardly imagine to protect. If business interests were to be included in the CPC, there is a perceived potential for a conflict of interest, or at least some confusion of roles. In addition, the expansion of the CPC to include business interests is likely to involve entirely different NCAs as there are now, with a different constituent background, again with a potential for conflict among the stakeholders. In this context, one cannot overlook the fact that such potential "conflicts of interest" or "confusion of roles" stem from the very design of the consumer legislation. The latter has been building over time upon the notion of the consumer as the weaker party than the other party in the relation, i.e. the trader, who is by definition engaged in a trade, craft or professional activity. In summary, extending the scope of the CPC Regulation to cover business-to-business cross-border concerns is unlikely to be supported by the relevant stakeholders and any such extension of the CPC regulation would need to be carefully assessed.

2.10

Summary

Key findings: Scope of the CPC Regulation ■ ■

■ ■

■

Individual consumers are ill-equipped to enforce their own legal rights due to the inherent imbalances of the contractual situation. These effects are magnified in cross-border B2C trading. To assess the most appropriate and complete scope of the CPC Regulation, judgements have been made based on degree to which the following criteria have been satisfied: the public enforcement dimension of enforcement; the strength of collective consumer interest; crossborder/EU relevance; and, consistency of legislative provisions and responsible authorities. The current scope of the Regulation is judged to be broadly correct, recognising that some legislation is better suited than others. A view supported by 88% of stakeholders surveyed. Legislation that does not protect the collective interests of consumers and with limited consistency with the typology of consumer protection provisions is least suitable for inclusion in the scope of the CPC Regulation. Legislation which includes a significant public dimension and has a high degree of consistency is the most suited to be in scope of the CPC Regulation in general (See Table 2.1) Even where relevance questioned, the ‘shadow of the law’, the deterrent effect of the law, the need for consistency (i.e. across transport modes) and potential future need for such a

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■

■

■

mechanism justifies inclusion. On the whole, among laws that are not currently covered in the CPC Regulation Annex, only Regulation 531/2012 (the Roaming Regulation), Regulation 1371/2007 (on rail passengers’ rights) and the proposed Mortgage Credit Directive are strong candidates for inclusion in the CPC Annex in their entirety. Consumer protection provisions in the Air Services Directive should also be considered on the same basis. There is an acknowledged rationale for B2B inclusion. For example, micro and small businesses may be in the same position as individual consumers, especially in cross border trading situations. However, there is little support from CPC stakeholders for B2B inclusion as it is not the main mission of many authorities and may dilute their focus. Substantial changes to substantive law are also foreseen. Overall, maintaining or slightly increasing the scope of the CPC Regulation was considered to be appropriate. The need for a reduction in scope was not apparent from the analysis or from stakeholder feedback. Extending the scope of the CPC Regulation to cover B2B cross-border concerns is unlikely to be supported by the relevant stakeholders and any such extension would need to be carefully assessed useful for cross-border enforcement challenges in this area.

Recommendations ■ ■

Recommend inclusion of rail passenger legislation. Other candidates for inclusion which should be considered and further examined: – Roaming Regulation 531/2012) – Proposed Directive on mortgage credit – Air Services Regulation (price transparency provisions)

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3

Practical and legal barriers to effective Consumer Protection Cooperation: problems and potential solutions in substantive applicable law

3.1

Introduction The CPC Regulation establishes a framework for cooperation but does not define a common procedure for cases arising between Member States. Authorities exert their powers under the CPC Regulation according to national laws and differing procedural rules. This section and the next one assess the extent to which legal and procedural fragmentation hinder effective cooperation and lead to problems. The question addressed in this section focuses on issues related to substantive law fragmentation and is as follows: ■

To what extent does the lack of an ad hoc rule on the Regulation on the applicable substantive law in cross border referrals hinder effective cooperation between competent authorities?

3.2

Practical and legal barriers to effective cooperation: the views of stakeholders

3.2.1

Practical barriers Before discussing the differences in national legal systems and procedures which might hinder cooperation, it is useful to first provide a summary of the perceived barriers to cooperation based on stakeholder responses. This provides a view of the extent to which issues of substantive and procedural applicable law may hinder cooperation relative to other factors covered in this study such as the powers and sanctions of authorities and resourcing issues (Section 4). Member State authorities (NCAs and SLOs) were asked in the online survey to rate the significance of a range of proposed practical and legal barriers to effective cooperation between Member State authorities through the CPC Network. The most commonly highlighted practical barriers were: variations in the levels of NCA capability across countries (66% rating it to be extremely or highly important); slow response times to information / enforcement requests (61%); and, a lack of flexibility in terms of responding swiftly to shortterm needs (56%). Language barriers were the least significant barrier perceived by respondents. Figure 3.1 illustrates the results.

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Figure 3.2 Perceived practical barriers to effective cooperation between Member State authorities (1 = extremely important, 5 = not important)

Lack of uniform understanding of cooperation tools

45%

Variation in levels of national CA capability

20%

Lack of common approach to enforcement priorities

Practical barrier

Lack of a "corporate identity"

16%

31%

46%

11%

21%

44%

5%

11%

Language barriers

38%

Lack of flexibility to swiftly respond to short-term needs

38%

18%

Organisational set-up of the Network

39%

15%

36% 0%

20%

26%

7% 16%

25%

40%

8% 8%

26%

17% 24%

9%

4%

11% 4%

19%

14% 9%

18% 34%

10%

47%

Other

11%

31%

41%

Slow response to information/enforcement requests

9%

27%

38%

Resource constraints

5% 3%

1% 4%

12% 3%

45% 60%

80%

100%

% of responses Extremely important

Highly important

Important

Not so important

Not important

Source: Survey of NCAs and SLOs (77 responses)

3.2.2

Legal barriers When asked about legal barriers the absence of an ad hoc rule on the applicable substantive law to be employed in cross-border referrals was rated to be extremely or highly important by 65% of respondents. Three-quarters of respondents took the view that differences in the ways in which Member State authorities applied or complied with the rules established for cooperation posed a significant barrier to cooperation. The responses received suggested that the least significant legal barriers were diverging sanctions for comparable infringements (50%) and poor Member State track records in terms of closing cases (55 %), operational issues which are discussed later in this report. The responses are summarised in Figure 3.2.

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Figure 3.3 Perceived legal barriers to effective cooperation between Member State authorities (1 = extremely important, 5 = not important) Lack of an ad hoc rule on the applicable substantive law to be used in cross-border referrals

42%

Divergence in the national rules of procedural law

42%

Legal barrier

Divergence in sanctions in relation to supposedly comparable infringements Member State compliance with the CPC provisions Member States have a poor track in closing cases

Differences in the way Member State authorities apply/comply with the rules established for the cooperation Differences in national consumer legislation across EU MS

14%

48%

Other 0%

20%

15% 1%

22%

23%

8%

69% 40%

60%

10% 1%

14%

24%

51%

3%

21%

21%

17%

38%

11% 3%

23%

16%

47%

4%

4%

25%

20%

41%

9%

14%

24%

16%

4%

19%

12%

23%

80%

100%

% of responses 1 (Extremely important)

2 (Highly important)

3 (Important)

4 (Not so important)

5 (Not important)

Source: Survey of NCAs and SLOs (76 responses)

Comparing responses to both questions, legal barriers appear to be rated slightly higher by respondents than practical barriers. Taking in to account respondents rating barriers as important, highly important and extremely important, over 70% of respondents identified all the legal barriers mentioned as being impediments to cooperation. Results from in-depth interviews and case-studies also provide evidence that a number of NCAs and SLOs consider differences in national legislation and divergences in the way cooperation rules tend to be enforced across Member States as being major legal barriers. Some instances are presented in Box 3.1.

Box 3.1 Views on the issue of substantive and procedural applicable law in the framework of CPC cooperation “[We] provide [below] an example where a cross-border case could not be resolved due to the way different NCAs operate: Fraudulent activities were discovered on a trader’s website which [we] reported to the relevant MS NCA. However, as the applicant authority, [we] had to provide information found on the infringing trader’s website to the recipient authority. This information was removed by the trader which greatly jeopardised the outcome of the case. The recipient NCA wanted written proof of the act of infringement which could not be provided. As a result, the requested authority did not want to pursue an inquiry into the activities of the accused trader. Under [our country’s] laws, if such a case had been brought forward by a MS NCA, [we] would have carried out investigations and if necessary, initiated court proceedings against the infringing trader as any testimony from a NCA would have been taken into account whether or not there would be some form of evidence to back the claims. Based on this experience, [we] believe that rules should be harmonized to ensure that cross-border issues are resolved in a timely and professional manner.” [NCA/ SLO] “The inability of the competent authority to obtain information [on] some traders/ companies from other authorities – e.g. the police, is a significant obstacle both [at the] national and Community level.” [NCA/ SLO] “[We] believe that what really is a [problem is that there is no] common understanding of what the different national laws stipulate across the different MS. [We] have previously experienced some difficulties with the German NCA on a particular court proceeding. By law, German authorities require

44

statements from consumers who have been misled by a trader to prove an act of infringement. This is not a requirement in [our country] which led to confusion among MS authorities in cross-border cases. Hence, [we] are of the opinion that the EC should provide a manual to CPC members on MS consumer laws as well as the requirements that are likely to be followed if court proceedings are initiated.” [NCA] “In a recent incoming information request where [we] sent a written request to the trader in order to obtain the requested information, the trader claimed the right according to [a specific piece of legislation] not to make any statement on questions, the answer to which would entail the risk of the liable party or certain relatives being prosecuted for a criminal offence or an administrative offence.” [NCA/ SLO] “The main problem is the issue of the applicable law. [We] think that international private law should be applied. This may be done differently across the MS. It would therefore be good if the Regulation specified the law which is applicable as this would make things easier. Problems that occur for [us] relate to language issues. For example, the word “Impressum” is used in Germany, but the Dutch authority said that a Dutch consumer does not understand this and that the word “Contact” should be used instead. It is difficult for [us] to identify what consumers in other countries understand.” [NCA] “Regarding the right [to] material compensation we currently need to apply the legislation of the MS in which the trader that has infringed the law is registered. In the particular other MS there may also be previous case law on how to interpret a particular breach. In terms of procedural rights [we] must apply the civil process foreseen in [our country’s] legislation ([we] cannot apply processes of other countries). It would be a great benefit if all these arrangements would be provided by the Regulation. Currently there is a situation when [some] MS are interpreting the Regulation in a different way from others.” [NCA/ SLO] “It is an obligation to comply with the provisions of the Directive, but individual countries act to protect consumers in a rather separate ways. There are too many regulatory differences between countries, so the system is currently unable to function well. In the first instance there should be informal cooperation that could be later used as the basis for more formally regulated actions.” [Other authority] “We have not met such situations but we believe that MS operate within different legal frameworks and this can be an issue. The same consumers may have different experiences across different MS because of different laws that apply – in some instances there may be court proceedings, in others not.” [NCA] “It is important not to overlook the impact [that] data protection laws may have. For instance, we believe that we should be able to share complaints data with any other authority – not only in Europe but also in other countries. We have a common complaints database with the US and we feel it is important we can share such data with them for investigatory purposes. However, when we did, the Commission stipulated that this was an infringement to the data protection directive. This sharing of data is also an “inside” problem within the EU community. We cannot always share data and therefore miss [out] on big cases, which is a shame! To us, the extent of our ability to share information among EU MS CAs/ NCAs is a very important legal barrier” [NCA/ SLO] “With regards to the applicable law, problems may arise when Directives are not transposed on time [by Member States]. [We recall] a case where the Czech Republic had issued a request [regarding a] breach of the E-Commerce Directive when the desisting period was 14 days whereas in [our country] it is 7 days.” [NCA]

3.3

Factors affecting legal barriers to cooperation Having identified the presence of possible obstacles to cooperation, it is necessary to consider what lies behind the perceived legal barriers in order to identify appropriate solutions. To summarise, the rights of consumers in Member State A may have been infringed by the unlawful practice of a trader in Member State B under the legislation covered within the CPC 45

Regulation Annex. Hence under CPC, NCA may request the assistance of their counterpart in another Member State to enforce Union law. Cross-border enforcement is important in this regard to ensure a well-functioning internal market by upholding the rights of all consumers, preventing enforcement gaps emerging, and exerting a deterrent effect on potential ‘rogue traders’. To achieve these objectives, the CPC Regulation establishes a formal network for cooperation between Member State authorities to cooperate when suspected infringements of consumer legislation have been identified cross-border within the EU. In the event that a NCA in Member State A suspects that a trader in Member State B is engaging in practices infringing EU legislation listed in the CPC Regulation and harming the collective interests of its consumers, the (applicant) authority can request that more information be provided to resolve the issue or that steps should be taken to enforce EU law in Member State B by the relevant (requested) authority. Upon receiving an enforcement request from the applicant authority, according to Article 8 of the CPC Regulation, the requested NCA (or Article 4(2) authority) shall “take all necessary enforcement measures to bring about the cessation or prohibition of the intra-Community infringement, without delay”, further in order to fulfil these obligations, it must “exercise the powers set out under Article 4(6) [minimum powers] and any additional powers granted to it under national law. The requested authority shall determine, if necessary with the assistance of the other public authorities, the enforcement measures to be taken to bring about cessation or prohibition of the intra-Community infringement in a proportionate, efficient and effective way.” In a situation, where the enforcement request is motivated on the grounds of an infringement of consumer protection rules laid down in a national law transposing a directive, the requested authority could theoretically apply the substantive law of the country of the consumer or the law of the country of the trader (i.e. the substantive law of the applicant or requested Member State). However, this is contingent on national law. Firstly, under national law it may not be possible for the requested authority to apply the law of the applicant, especially where consumer protection provisions are greater or different. Secondly, where both the laws of the requested and applicant authority are applicable, a decision must be made on which law to apply. However, in the CPC context, the enforcement request is based on the infringement of a common rule which is supposed to have been mandatorily laid down in all Member States under EU law. The first issue which needs to be examined is whether and in which cases an issue of applicable law may arise in this context. ■

Applicable substantive law. In those cases, where there could be an issue of applicable law, the inability to reach agreement on whether the substantive law of the applicant or requested Member State applies can create undue burdens on authorities and therefore a potential gap in enforcement cooperation. The fact that a public authority must always act upon on a concrete legal basis and justify measures taken, means that in those cases where the issue can be found it is important to find a remedy if mutual assistance is to be effective.

Another type of legal barrier may also stand in the way of cross-border effective enforcement: differences in national procedural rules. ■

Divergence in national rules on procedural law. This divergence is because competent authorities exercise their enforcement powers to follow on CPC cross-border referrals in conformity with national law (Article 4.3 CPC Regulation). However, national procedural rules may not have been designed or may not be applied in practice to cater for the needs for cross-border cooperation. There may therefore be cases where procedural fragmentation may make it difficult or even impossible for the requested authority to comply with the applicant’s request due to a difference in national procedural law. A gap in enforcement cooperation may be the result. For example, if an authority has to go to court in order to exercise its powers, then enforcement might need a different level of prior information available to the authority than if such authority may directly issue a desist order which may then be subject to challenge by the business. 46

Assuming it is possible to enforce request of the applicant authority, the CPC Regulation confers on Member State competent authorities minimum common investigation and enforcement powers, but also obliges competent authorities to make use of “other powers and tools granted to them by national law in order to bring about the cessation or prohibition of intra-Community infringements without delay”, Article 8(3). Whilst the choice of penalties remains within the discretion of Member States, they must ensure that infringements of Union law are investigated and pursued under conditions, both procedural and substantive, which are comparable to those applicable to infringements of national law of a similar nature and importance and which, in any event, make the penalty effective, proportionate and dissuasive. In this context, the requested authority would benefit from the same investigative and enforcement powers (if necessary above the minimum stipulated in the CPC) that would allow comparable penalties to be applied. However, this is not always the case, in which case two further barriers to effective cooperation can be identified: ■

■

Differences in investigative and enforcement powers of the relevant national authorities can hinder investigation efforts in relation to the information requests and enforcement of comparable penalties. . Equally, where powers differ significantly, comparable action may not be possible leading to unequal treatment for consumers in different Member States. For example, in one Member State it may be possible to name the trader involved, informing other consumers of the infringement, whereas in others this information must not be provided, putting authorities at risk of damages when doing so. Differences in penalties (fines) occur precisely because national legal systems differ in each Member State. Although in principle the level of a penalty fine is equivalent in each Member States own national law, in practice, one fine could be €1,000 and the other €100. Hence the deterrent effects and potential effectiveness of the penalty could differ substantially, with a possible impact on the effectiveness of cross-border enforcement.

The problems on applicable substantive law are assessed Sections 3.4. The issues around procedural law, powers and sanctions are discussed in Section 4.

3.4

Applicable substantive law in cross border referrals

3.4.1

Background on applicable substantive law under the CPC Regulation Various circumstances may account for the need perceived by authorities to have a rule on which substantive law (of the applicant or requested authority) should apply in certain circumstances. For example, EU legislation may give consumers the right to withdraw from a contract, establishing a minimum withdrawal period of 8 days. However, while the requested authority may enforce the minimum, the national law of the applicant authority may provide for a 12 day withdrawal period. In other cases, certain terms referenced in a Directive may be interpreted differently in national law, in which case the applicant and requested authority must determine which interpretation should apply in enforcing the infringement. A lack of ad hoc rules or guidance in this situation can therefore be regarded as a deterring factor for authorities to ask for cross-border assistance and possibly generate a gap in cross-border enforcement of the legislation. Where private action by individuals, or collectively through collective redress, or injunctive relief by a qualified consumer organisation is taken to enforce the rights of the consumer, the consumer or organisation representing consumer interests can usually choose to seek redress in either courts of their own Member State or those where the trader is located subject to the rules of Regulation 44/2001 and the Injunctions Directive 2009/22/EC. In terms of applicable law in the context of such private law actions, where a conflict of law exist such as in the above examples, the Rome I Regulation (Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations) and Rome II Regulation (Regulation (EC) no 864/2007 of the European Parliament and of the Council of 17 July 2007 on the law applicable to non-contractual obligations), a harmonised set of rules have been created within the EU to govern the choice 47

of law in civil and commercial matters, which govern most consumer-trader relations. These rules stipulate that in general the law of the place where the consumer resides should apply; regardless of the fact the provisions of the legislation exceed the minimum standards awarded in the legislation. A more detailed analysis of the legal background relating to individual consumer right enforcement and collective consumer protection is provided in Annex 4. The situation is rather different regarding public authorities and public enforcement of consumer legislation, as the actions of each national authority must be justified and established on a solid legal basis, which includes the jurisdiction of the authority’s enforcement powers. Public authorities have the obligation to protect consumer’s collective interests where they are subject to harmful practices by trader in another Member State, but do not have the power to take action in another Member State. Other than instituting an action for injunction under the situations discussed above (i.e. civil action), taking action in another Member State would be deemed a serious infringement of national sovereignty and is therefore not permitted26. In a cross-border situation, rather than acting directly, a public authority must therefore ask for assistance from another authority with jurisdiction in the Member State of the trader. If not, a gap in the enforcement of administrative law is likely to occur. However, the requested authority where the business resides may not be inclined to assist cross-border consumers, may not have the powers under their laws to do so, or may not even exist where such enforcement is organised by private associations' court applications in Member States. The CPC Regulation seeks to resolve these difficulties in keeping with the protection of sovereignty rule, assuming that jurisdiction for direct enforcement lies with the authorities of the place where the enforcement takes place, namely the location of the business. The CPC Regulation therefore provides for a mechanism by which a public authority with the obligation to protect consumer’s collective interests where they are subject to harmful practices by trader in another Member State (applicant authority) may ask a public authorities in the Member State where the business is located (requested authority), for assistance. The CPC regulation then obliges the requested authority to take the appropriate action (Article 8). The Regulation also provides for the possibility of enforcement authorities instructing bodies with a legitimate interest in the cessation or prohibition of an infringement to take the necessary enforcement measures under national law (Article 8(3)). Reasons for the requested authority not enforcing the request of the applicant authority must be provided in writing, setting out the grounds for its opinion. If agreement cannot be reached, the requested authority may then refer the matter to the Commission (Article 8(5)). Under the provisions outlined above, the CPC Regulation should be sufficient to ensure that cross-border infringements are effectively stopped and thus legislation enforced. However, as discussed in the following sub-section, there may be legal situations where jurisdictional rules may not be sufficient and cooperation may be hindered.

3.4.2

Defining the issue of applicable substantive law Hypothetically, the requested authority may be unable fulfil a request under the following circumstances: ■

The national law of the requested authority setting up such authority provides for the authority to act only when and if the trader has infringed laws protecting consumers in that Member State, but no local consumers were affected. Such situations may come inadvertently, as an example, the authorities' competency to act may have been divided locally or regionally and as a result no individual local authority has competency to act to protect consumers abroad.

26 This was the legal problem behind LTU v. Euro control, and Netherlands v. Reinhold Ruffer. The ECJ held that, where the authority for consumer protection was established under national administrative law, such action would not be deemed a civil action and this would fall within the application of the Brussels Convention.

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■

The national law of the requested authority provides for authority to act when and if the trader has infringed laws protecting consumers irrespective of their place of residence, but the national law of the applicant authority provides for protection in areas not coordinated by the EU harmonisation legal instruments which are part of the Annex of the CPC Regulation, and the request is based on such issues. Examples are provided in the Box 3.2.

Box 3.2 Differences in scope of legislation Example 1 Under the Unit Pricing Directive, the requested authority received a request sent by applicant authority in a Member State where the national law applied the directive to both products and services, whereas the requested authority only applied the directive to products, as established by the directive. Example 2 Estonian law prohibits offering (and contracting for) alcoholic beverages on the Internet, but there is no such a prohibition according to law of Latvia. If there are unfair commercial practices qualified according to Estonian law, then liability according to Estonian law (in Estonia jurisdiction) might be applied, but authorities of Latvia referencing to Estonian law violation just may help to “stop the infringement”.

■

The national law of the applicant authority or the practice for applying its national law results into interpreting the terms/provisions of the legislation covered by the CPC Regulation differently from the requested authority. In such cases the definition of the terms in question can differ between requested and applicant authority such that what is considered an infringement in one Member State is not an infringement in another Member State. Examples provided by stakeholders are presented in Box 3.3.

Box 3.3 Differences in interpretation Specifically in relation to the Unfair Commercial Practices (UCP) Directive in both CPC workshops and in responses to the survey, authorities highlighted existing differences in the interpretation of certain Directive terms, such as the reference “for free”, “branding” or “price”. In other cases, respondents noted that for the same infringement, authorities applied different provisions within the annex of the directive, such that two different enforcement requests have been received, but the requested authority is unsure which to apply.

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The national law of the requested authority at the trader's place of business provides for authority to act when and if the trader has infringed laws protecting consumers irrespective of their place of residence, but: – the national law of the applicant has transposed a directive which is covered by the CPC Regulation differently from the receiving Member State, the former providing for a lower level of protection, – the national law of the applicant has transposed a directive which is covered by the CPC Regulation differently from the receiving Member State, the former providing for a higher level of protection, or – the national law of the applicant has transposed a directive which is covered by the CPC Regulation differently from the receiving Member State, both providing for a different type or level of protection

Examples of each case provided in consultation with NCAs/SLOs and CPN representatives are given in Box 3.4. Annex 5 provides an outline of potential conflicts of transposition which may create difficulties for enforcement, based on the Directives listed in the annex to the CPC Regulation.

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Box 3.4 Differences in implementation between requested and applicant authorities. Example 1 – Right to withdrawal Under doorstep and distance selling directives, the right to withdrawal is a key feature of the legislation, with the directive setting a minimum withdrawal period for all EU consumers. However there are differences in implemented national laws of the applicant and requesting authority with regard to the number of days or the procedure to exercise the right of withdrawal. Consequently, the applicant may request the enforcement of higher number days than is provided for under the national law of the requested authority. An actual example provided in consultation is as follows: “A business entity with a registered office in Hungary has a web shop. This web shop has a Czech version. The terms and conditions contains that consumers have a period of 8 working days in which to withdraw from the contract without penalty and without giving any reason. The Czech law (Czech Civil Code) is more favourable than the Hungarian law [Government Decree No. 17/1999. (II.5) on distance contracts] since the Czech Civil Code provides 14 days instead of 8 working days to withdraw from the contract. Article 6 (1) of Directive 97/7/EC on the protection of consumers in respect of distance contracts lays down the minimum period of 7 days”. Example 2 – Guarantee periods The Czech law implementing Directive 1999/44/EC provides consumers with an obligatory guarantee of 2 years for all the products. We dealt with a polish company which provided a guarantee of 12 months only and was breaking the directive as transposed into the Czech law in our point of view. However, the polish NCA refused to deal with this case claiming that the company is breaking only the Czech law. Example 3 – Jurisdiction The presumption of one respondent to the survey was that problems could emerge when the applicant’s authority lacked jurisdiction over the infringement and the requested authority also lacked the same jurisdiction (i.e. with the explanation that it lacks powers under the national law or that AVMS Directive has not yet been transposed into national law). These issues are important in regard to the cases regarding delocalised programmes when one Member state (A) lacks jurisdiction over the provider of AVMS with legal premises in other country (Member state B), who is targeting on the market in the country of Member state A. Similar problems might occur in cases dealing with spam. Example 4 – Derogations Legislation listed in the Annex of Regulation 2006/2004/EC might allow for explicit derogation to the general obligations [e.g. Art. 3 (2) 98/6/EC] can lead to a minimum standards issue, but also to differences in interpretation (e.g. what constitutes an auction under Art. 3 (2) 98/6/EC?).

In each situation the examples show that there may be obstacles to cooperation, however it is unclear whether each is due to shortcomings of Member States in the implementation of EU law, to procedural issues, or really to a problem of applicable law arising between applicant and requested authorities, and whether it could be resolved by the provisions of CPC. Establishing which cases are unresolved will then help define the problem, before investigating potential solutions.

3.4.3

(1) Powers with respect to consumers in other Member States Recitals 5, 7, 7 and 8 in the preamble to the CPC Regulation provide that … The effectiveness with which infringements at national level are pursued should ensure that there is no discrimination between national and intra-Community transactions. … The protection of consumers from intra-Community infringements requires … the … public enforcement authorities … a minimum of common investigation and enforcement powers to apply this Regulation effectively and to deter sellers or suppliers from committing intraCommunity infringements. … The ability of competent authorities to cooperate freely on a reciprocal basis in exchanging information, detecting and investigating intra-Community infringements and taking action to bring about their cessation or prohibition is essential to guaranteeing the smooth functioning of the internal market and the protection of consumers. … Competent authorities should also make use of other powers or measures granted to them at national level, including the power to initiate or refer matters for criminal prosecution, 50

in order to bring about the cessation or prohibition of intra-Community infringements without delay as a result of a request for mutual assistance, where this is appropriate. Accordingly, Article 4 (3) and (6) of the CPC Regulation, provide that Each competent authority shall … have the investigation and enforcement powers necessary for the application of this Regulation and shall exercise them in conformity with national law. … and shall include, at least, the right … to require the cessation or prohibition of any intraCommunity infringement. Member States must therefore provide their authorities with the necessary powers to take necessary acts of enforcement, or to make court applications for such purpose, to ensure the protection of consumers in other Member States. An authority having the powers to protect consumers in the receiving Member State alone would not be in line with the requirement of the CPC Regulation. The issue is therefore not a problem of applicable law. Rather, this issue would point to a problem of non-compliance of a Member State’s laws and/or practice with EU law and would have to be addressed through the mechanisms provided for under the EU treaty to this effect.

3.4.4

(2) Issue outside of the scope of the CPC Regulation According to Articles 3 b) and 3 a) of the CPC Regulation, the mutual assistance mechanisms of the Regulation apply only to 'intra-Community infringements' meaning any act or omission contrary to the laws that protect consumers' interests as defined in the Regulation: i.e. the Directives as transposed into national law and the Regulations listed in the Annex. The Annex to the CPC Regulation was clearly made to establish a particular scope of areas to which it should apply, excluding all others. Accordingly, when there is no infringement of such instrument, or of the laws transposing such instruments, the Regulation does not apply, and neither do the authorities in other Member States have the obligation to act in any way. In this case, the issue relates to the delimitation of the scope of the Regulation’s mechanisms and bears no relation with applicable law.

3.4.5

(3) Different Interpretation of a Directive In European Union law, in case of different interpretation of any primary or secondary legal instrument, the Court of Justice has the ultimate jurisdiction to provide for a harmonised interpretation of the Treaties and any secondary legislation. Differences in interpretation of any rule laid down in the instruments listed in the CPC Regulation’s Annex therefore cannot be resolved easily and may lead to difficulties in this regard. However, this is a type of issue which arise in general when it comes to the need to ensure a converging interpretation of EU harmonisation instruments across all member countries. Even higher level harmonisation instruments like the UCP Directive may give rise to differences emerging between the interpretation of the Directive in national law, especially when they rely on new and general concepts. The main avenue to address such difficulties are initiatives aiming at promoting common understanding of principles and terms contained within directives, for example through the provision of guidance, based where appropriate on the outcomes of cases brought to the European Court of Justice. Future amending legislation should also help to improve interpretation and understanding when a legislative intervention is recognised needed to this effect. These issues are therefore not a question of applicable substantive law, in nature nor could they be resolved formally in the frame of a procedural instrument like the CPC Regulation. They rather point to factors which prevent a converging interpretation and understanding of an otherwise common applicable rule laid down in Union law and which require appropriate dedicated cooperation tools to address the problem identified.

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3.4.6

(4) Issue falls within the scope of the CPC Regulation, but the transposition differs Three different configurations deserve to be analysed with respect to cross border public enforcement action to determine whether a problem exists:

▪ the minimum standard concept; ▪ the residence of the consumer, and ▪ the location of the trader. Minimum Standard Concept According to the minimum standard concept an "intra community infringement" as defined by the CPC Regulation occurs only in respect to practices infringing the harmonised rules set in the minimum harmonisation Directives listed in the Annex of the Regulation, but not with respect to any more protective rules that may be provided for by some Member States at national level. This concept is based on the provisions of Article 3 of the CPC Regulation. According to Article 3 b), the Regulation shall apply to 'intra-Community infringement' meaning any act or omission contrary to the laws that protect consumers' interests, as defined in Article 3 a). Article 3 b) refers notably to the Directives contained in the Annex "as transposed into national law". Since a transposition limited to the minimum harmonised requirements is a valid transposition, only an infringement of the minimum level of consumer protection required by the relevant directive would fall within the application of the Regulation. In addition, the first sentence of recital 5 in the preamble states that the scope of the provisions on mutual assistance in the Regulation should be limited to intra-Community infringements of Community legislation that protects consumers' interest. This means that one of the mandatory provisions of the listed Union legislation must have been infringed, i.e. either a consumer protection rule of Regulations listed in the Annex of the CPC Regulation or a consumer protection rule which all Member States must mandatorily lay down in their national laws by virtue of a directive listed in the said Annex. In the case of a minimum harmonisation directive this means that the CPC Regulation’s mutual assistance mechanisms are not applicable to infringements of national laws providing a higher level of consumer protection than required by the directive, as they would not constitute an infringement of the directive. As a result, none of the authorities have the obligation to cooperate to stop such infringements and the CPC Regulation's mutual assistance mechanisms are not applicable, and indeed must not be used. From a practical perspective, the minimum standards concept has the major advantage that it does not imply the need for resolving conflicts relating to the governing law. As the CPC Regulation itself only applies to infringement of the minimum standards in the case of minimum harmonisation instruments, and only mutual assistance requests which relate to the infringement of such minimum standards need to be followed on, when the requesting authority finds such infringement, the receiving authority is almost invariably also going to find an infringement of the national law transposing the directive. Cooperation and action should therefore follow. Directives applying a minimum standard do so by setting a minimum EU level of protection which is supposed to correspond to a high level of consumer protection, even if Member States choose to provide an even higher level of protection. This approach is inherent in the EU harmonisation process which together with a procedural framework to facilitate cooperation (like the CPC Regulation) can over time lead to convergence around a single standard. The minimum standard concept may however lead to a number of practical concerns such as follows: ■

The main example used for explaining the situation is Article 6 of Directive 97/7/EC on the protection of consumers in respect of long distance contracts and the withdrawal 52

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period provided therein. The Directive calls for a minimum withdrawal period of seven days, but some Member States are providing for up to 30 days withdrawal period. Under the minimum standards concept, only the 7 days period would have to apply even when both Member States concerned have a higher level of protection than the minimum standard, e.g. both have a 30 days withdrawal period. The requested authority would be under no obligation to enforce the (mutual) higher level of protection thus creating a situation of possible discrimination against consumers in other Member States targeted on a cross-border basis by a trader. Another example is contained in Article 14 of the Directive 97/7/EC. Under this provision, Member States have the right to introduce a ban on the marketing of certain products within their territory. Under the minimum standards concept, such ban would be in line with the Directive but possibly unenforceable against traders located in another Member State than the one in which the consumer resides. This would be the case even if both had imposed a ban on the marketing of certain products. This may lead to abusive behaviours aimed at circumventing such bans, which only apply on a national territory to the clear detriment of consumers. The clear intention of the European legislator to make bans of products or other more stringent provisions possible could be defeated. In the legislative procedure of Directive 97/7/EC, the minimum harmonisation was conditioned on the possibility for Member States to allow for more stringent consumer protection (subject to non-discrimination principles, Cassis-doctrine etc.). A number of Directives provide for the option that Member States may require that information shall be provided in a specific language or languages (i.e. Directive 2008/122/EC on timeshare, long-term holiday product, resale and exchange contract, and Directive 2002/65/EC concerning the distance marketing of consumer financial services). Indeed, the language requirements of two Member States may possibly even contradict each other. The ensuing lack of enforcement may be to the detriment of consumers, who might conclude contracts without fully understanding its provisions and risks, and to the detriment of national policies protecting language and culture, or protecting equal opportunities for different parts of the population who may be speaking different languages. Without full harmonisation on language in contracts, this issue appears implausible to resolve. Unsolicited cross-border communications, as regulated by Article 13 (3) of the Directive on privacy and electronic communications 2002/58/EC are very difficult to stop when one of the two Member States concerned has opted for "do not wish", and neither Member State (the one of the Consumer (subscriber) and the one of the Trader provides for a possibility to voice the wish not to receive such communications. None of the Member States who maintain such a Robinson list for their own territory has made such list available for subscribers in other Member States, and none of the Member States who do not maintain such list for their own territory will create a special list exclusively for unsolicited cross-border communications. In both cases, the matter simply does not seem to fall within any one Member State's jurisdiction, again clarification in panEuropean sectors might be beneficial

Most of the examples outlined show therefore a risk of abuse by traders of the minimum standard concept in cross-border trade. This risk has been explicitly recognised in certain sectors like the audiovisual regulation, where the Audiovisual Media Services Directive provides for an EU procedure to address abusive usage of the country of origin principle by service providers. On the one hand, this serves as an example that solutions to the problem due to such situations that may arise from minimum harmonisation or language requirements are better addressed through the individual sector legislation concerned. They flow in fact from the political choices made by the legislator in relation to the substantive law concerned and, again, it seems not plausible to tackle the issue through an "applicable law" arrangement within a procedural framework like the CPC, whose remit is to facilitate the cross-border enforcement of the common rules agreed at Union level.

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Thus, even if a solution on the level of the CPC Regulation might be more practical, it is only likely to partially address the problems. Therefore the remaining gaps might still have to be addressed on the sectoral level, revising the substantive legislation concerned. In the longer term, as CPC and other initiatives facilitate cooperation (formal and informal) convergence around a harmonised approach should be anticipated in a significant number of areas. The question of" applicable law "may therefore become less relevant as understanding and convergence of positions between Member States develops over time.

Applying the applicable law of the consumer Another approach to looking at the issue of "applicable law" is to apply the consumer’s residence concept. As in the case of private law enforcement by consumers or organisations of collective consumer interests summarised in Annex 1, on this level effectively the substantive law of the consumer usually applies. One could argue that for reasons of consistency with the results under private law enforcement, as the trader has no obligation to trade in a Member State other than its own, and in order to create a level playing with national traders, the substantive law of the consumer should also apply when public enforcement is used. However, this concept can create other difficulties. Authorities in the requested (the traders') Member State are forced to apply standards and provisions which are foreign and which are not contained in their laws. Even "worse", Member States' authorities would be forced to enforce levels of consumer protection which their legislator has specifically rejected. It should be noted that, this obligation only applies with respect to business activities directed towards consumers in other Member States in order to provide those consumer with the level of protection they are used to, and to provide a level playing field for all business actors operating in a particular market. The difficulty is that such an approach would penalise the requested Member State for just complying with the minimum standards of the legislation, because the applicant Member State provides a higher level of protection. The CPC Regulation in Article 4 (3) provides that: Each competent authority shall … have the investigation and enforcement powers necessary for the application of this Regulation and shall exercise them in conformity with national law. Accordingly, the Member States are called upon to provide their authorities with those powers as necessary to enforce the protection of consumers as defined by the common EU rules laid down in the listed legislation in other Member States, while such enforcement shall take place using the procedures and methods of the Member State of the authority. Again, if one uses the main example for explaining the situation under Article 6 of Directive 97/7/EC on the protection of consumers in respect of long distance contracts and the withdrawal period provided therein, the Directive calls for a minimum withdrawal period of seven days, but some Member States are providing for up to 30 days withdrawal period. Under the consumer residence concept, the protection levels at the consumers' place of residence would govern. When the level of protection is the same in both Member States (e.g. either 7 or 30 days), this level would apply. When the level of protection is lower in the consumers' Member State, the applicant authority will complain only upon infringement of such level, which would necessarily also constitute an infringement in the requested Member State, thus causing no imminent conflict for the requested authority. In those cases of disparity of protection levels where a trader specifically directs commercial activities at the country of the consumers, authorities in that country may have a legitimate interest in seeking to stop such an abusive practice through the mutual assistance of the authority of the country of the trader. However, this would imply extending the provisions of the CPC Regulation beyond the remit of the enforcement of the common rules applicable in all Member States. In this regard, it must be conceded that, even on the assumption that this option was retained, such demand may be difficult for an authority to fulfil when the laws, under which the authority is constituted, and which the authority is bound to follow, provide for different levels and results from the higher levels which may be maintained in another country. In addition, the 54

requested authority will have to take a judgment on the legality of a trader's practice in another Member State. The proper facts of commercial activities in another Member State are difficult enough to ascertain, even with the assistance of the requesting authority. But even more difficult are judgments to be taken on such facts under foreign and unknown laws, even if such laws are closely related to provisions transposing a Union directive. The requested authority may even be put at a risk of costs or damages should its execution orders be challenged in court and the court finds that, the business' conduct did not really constitute an infringement of the other Member State's laws. Furthermore, under the CPC Regulation, within its scope, action by the requested authority is compulsory, thus putting the requested authority in a very difficult situation. A court is much better equipped, and has much better (adversarial) procedures in place to determine foreign law. Thus the two legal situations of a court enforcing legislation within a procedure of private law enforcement and an authority enforcing foreign consumer protection laws, which may at first appear comparable, are not. If a qualified entity in the trader's Member State takes preventive court action on behalf of an entity in the consumers' Member State, such activity would be voluntary. In a court proceeding, the foreign qualified entity applying for an injunction should know which legal risks it is taking, and will have to stand in for any costs or damages. Indeed, the injunctions directive (2009/22/EC) offers to those authorities who deem so appropriate an alternative route to pursue the case before a court of another Member State in such cases. Thus, in the end it is up to the authorities to assess if in terms of their policies and priorities they want to pursue an action to secure a higher level of protection through a civil proceeding action in another MS.

Applying the law applicable at the business location Finally, one should examine the business location concept. Under this concept, each Member State's authority will apply its own laws and rules. While the business location concept is not clearly founded in the CPC Regulation's text, it has several advantages:

▪ it appears simple to apply as each authority needs to apply its own laws, only; ▪ it does not create any apparent conflicts with national public policies of the acting authorities, and

▪ it requires only a cooperation based on minimum harmonisation level. In addition, the business location concept provides for an overall higher level of consumer protection than the minimum standard concept provides. Again, using the main example for explaining the situation under Article 6 of Directive 97/7/EC on the protection of consumers in respect of long distance contracts and the withdrawal period provided therein. The Directive calls for a minimum withdrawal period of seven days, but some Member States are providing for up to 30 days withdrawal period. Under the business location concept, the common protection level of the two Member States concerned would apply. When the level of protection is the same in both Member States (e.g. either 7 or 30 days), this level would apply. When the level of protection is lower in the consumers' Member State, the applicant authority will complain only upon infringement of such a level, which would necessarily also constitute an infringement in the requested Member State, thus causing no imminent conflict for the requesting authority. However, the requesting authority, even with respect to cross-border activities, should then even impose stricter levels than the applicant authority had asked for. Only if the level at the place of the consumer is higher than at the place of the trader (e.g., 30 days as opposed to 7), the requested authority will only enforce the common standard, if need be, and otherwise deny the application. The legal rationale of this solution is as follows. When a Member State has decided that, traders in their MS should act according to certain standards; such standards should be upheld irrespective of the consumer’s place of residence. It runs contrary to the spirit of the 55

Internal Market when consumers abroad receive a different, less protective treatment than consumers in the same Member State, just because they reside abroad and are foreign citizens. Further, the Treaty is clear on the general principle of free movement and marketability: if a product is allowed in the Member State of origin, it should be marketable in all other Member States. While this principle in its strict sense is limited to goods and services, as a principle it also provides guidance to the understanding of those activities which are ancillary to the actual good, namely the commercial practice. Finally, the Treaty is also clear on the principle of non-discrimination of EU citizens by nationality or origin. While this principle does not exactly apply, it provides guidance again for the understanding of the scope of protective laws and measures in a cross-border situation. It may be argued that, such approach might create a distortion of competition as enterprises from Member States with more protective rules may have a competitive disadvantage when doing cross-border business vis-à-vis business of MS. It has been standard practice in EU legislation to provide, in some instances, for minimum standards allowing for higher standards. The potential for a distortion of competition is seen, but readily accepted for its other benefits. Thus, nothing is different when this approach is extended to cross-border activities towards consumers. Finally, the whole issue might be complicated as while lower standards of consumer protection may reduce costs and thus could provide a competitive advantage, in the long run, businesses from Member States with a high level of protection may receive a good reputation on that basis and thus have a different competitive advantage (the "country-oforigin effect"). In addition to the practical advantages mentioned, this approach does have a legal basis and its principles are well established in the Treaty itself. One of the practical advantages of this concept is that it requires only cooperation based on a common minimum level and understanding of the other Member State laws and practices. This also leads to the main practical disadvantage, namely that, due to lack of knowledge and understanding of the scope of protection in other Member States it might create a high number of requests denied and consequently a high level of frustration among the participating (applicant) authorities. Irrespective of these disadvantages, due to its practical advantages especially for public administrations, the business location concept has apparently become the actual practice as operated by most Member States' authorities.

3.5

Summary

Key findings: Issues of applicable substantive law ■

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There may be particular situations where problems arising in the CPC context could be partly attributed to an issue of applicable law, in many other circumstances the problems stem from factors which need to be addressed through dedicated tools. In particular, in a number of cases the issue perceived as applicable law is another issue even if this does not diminish the importance of the concerns raised in terms of consumer protection policy. Some situations are linked to possible failures in the implementation of Union law, which needs addressing through the appropriate proceedings available to this effect under the Treaty. Others are caused by the diversity of applicable interpretation of harmonised consumer protection rules and require initiatives geared at ensuring a coherent and uniform application of such rules. In a number of cases, difficulties point to possible abuses in the context of the minimum harmonisation approach, this can be effectively tackled only by addressing the issue in the framework of the relevant substantive legislation. The analysis has also shown that where authorities have an interest in pursuing cross-border infringements of more protective national standards, they may consider other tools more suited and valuable to this effect (e.g. injunctions before another' Member State's jurisdiction) That said there may be some residual situations where the manner the harmonised regime is devised (e.g. different options taken by Member States on spam regime or defining a blacklisted unfair practice in connection with a national ban) may hinder cross-border enforcement

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cooperation due to the uncertainty as to which substantive law is applicable in a cross-border referral. For example, the CPC workshop of 2010 on the issue of applicable law, reported that authorities would be reluctant to enter a case into the CPCS if they were aware that complex issues of applicable law could emerge. The business location concept has apparently been favoured and has become the actual practice as operated by most Member States' authorities, with some potential for flexibility. The most sensible approach therefore could be to recognise this approach and possibly to provide guidance on the above-mentioned situations. In a more formalised form, guidance could exist as ad-hoc rules for authorities to follow, agreed with and communicated by the Commission. While the concerns underlying the issue are indeed important, and while the current ambiguity and certain shortcomings of the business location concept in terms of consistency may lead to frictions in some cases, the number of cases remains relatively small and through greater harmonisation of the provisions in the legislation listed in the annex to the CPC Regulation, overtime the issue may gain less importance.

Recommendations ■ ■ ■

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Monitor the handling of CPC mutual assistance requests to determine the nature of factors affecting legal barriers to cooperation; Provide guidance on substantive law aspects in relation to the handling of mutual assistance requests under the CPC Regulation; Foster a common understanding in relation to the application of EU consumer law, inter alia through guidance, on-line legal resources and giving due consideration to the establishment of an ‘Outsourced legal helpdesk’; Consider formalising an approach through ad hoc rules reflecting the logic of the CPC Regulation and catering for the specific situations of real conflict between applicable rules in case the instances of such situations increase.

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4

Practical and legal barriers to effective Consumer Protection Cooperation: problems and potential solutions in procedural law and powers

4.1

Introduction Other legal barriers to effective cooperation under the CPC Regulation may stem from the procedural rules of the applicable law in a given Member State. This Section considers the legal problem, how these difficulties occur under CPC, before proposing and assessing possible solutions. In this context, this Section also assesses the extent to which differences in powers, beyond the minimum requirements of the Regulation, may cause a gap. Finally this section looks into the impact of sanctions regimes across countries for the CPC cooperation. The questions addressed are: ■

4.2

How far does the divergence in the national rules of procedural law hinder the effective cooperation between competent authorities, and To what extent do the differences of sanctions in relation to supposedly comparable infringements hinder the effective cooperation between competent authorities?

Legal background to procedural issues Revisiting the chronology of enforcement under CPC, following the determination of applicable substantive law to enforce a request made by the applicant authority in CPC, it is then up to the requested authority to apply its national law to stop the infringement. However, possible difficulties may arise from the application of such national procedural rules. The following procedural difficulties may occur: ■

Differences in type of proceedings. Differences in proceedings may lead to delays or to differences in the investigative powers of each authority, the type of evidence needed, or how such evidence needs to be presented. Examples are given in Box 4.1.

Box 4.1 Examples of issues related to differences in proceedings In a recent incoming information request where [we] sent a written request to the trader in order to obtain the requested information, the trader claimed the right according to [a specific piece of legislation] to remain silent and not to make any statement on questions, the answer to which would entail the risk of the liable party or relatives being prosecuted for a criminal offence. [We] have previously experienced some difficulties with another MS. By law, the authorities from the other MS require statements from consumers who have been misled by a trader to prove an act of infringement. This is not a requirement in [our country] (where the abstract possibility of consumers being misled is sufficient). In other MSs, in order to prove in court that some action is misleading, it may be required to conduct a consumer survey to determine if, the standard consumer is misled by a certain statement. Fraudulent activities were discovered on a trader's website which [we] reported to the relevant MS NCA. However, as the applicant authority, [we] had to provide information found on the infringing trader's website to the recipient authority. This information was removed by the trader which greatly jeopardised the outcome of the case. The recipient NCA [considered our findings as "hearsay" and] wanted written proof of the act of infringement which could not be provided. As a result, the requested authority did not want to pursue an inquiry into the activities of the accused trader. Under [our country's] laws, if such a case had been brought forward by a MS NCA, [we] would have carried out investigations and if necessary, initiated court proceedings against the infringing trader as any testimony from a NCA would have been taken into account whether or not there would be some other form of evidence to back the claims. In one MS, the consumer ombudsman names traders breaching or suspected to breach the law after

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giving companies the right to be heard. It was proposed to take this procedural step into account in the publicity about the EU sweeps, i.e. to foresee a 2-3 months gap between the actual sweep week and the first presentation of results and names. This is an instance of naming being used as a measure of sanction to ‘shame’ and thereby deter infringing traders. For other Member States, such a prolonged waiting period may have negative impacts on statutory limitation periods requiring the imposition of sanctions within a short period after the infringement, or after the authority receiving notice of the infringement. In a similar vein, in MS A, the authority will undertake thorough investigations into the infringement to provide full and sufficient evidence to the authorities of MS B presumably needed for proper action before requesting assistance. In the meantime the statutory limitation periods of MS B to impose sanctions may have run out. When MS B issues an enforcement request to MS A and it is agreed that the law of MS A is applicable. Typically this is an e-commerce case (harm in B, website established in other MS), and then MS A will demand that the infringement is proved according to its standards. These standards (e.g. way to conduct an onsite inspection) cannot be applied in B, as procedures are different. e.g.: a de visu constitution of an officer in B has the value of proof until the contrary is/would be demonstrated. Although the CPC-regulation provides for the maintenance of the value of such documents, it travels badly. MS A will not (be able to) accept that proof is delivered in this way.

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Variation of the quality of mutual assistance requests. Closely linked to the issue of different characters of proceedings are potential differences in the quality of requests which can also be ascribed to the application of differing standards to establishing evidence. This may lead to situations in which evidence provided to the requested authority is deemed to be insufficient to follow on a CPC enforcement request. Examples are provided in the Box 4.2.

Box 4.2 Examples for quality of requests and powers to investigate The inability of the competent authority to obtain information [on] some traders/ companies from other authorities - e.g. police is a significant obstacle both [at the] national and Community level. In terms of procedural rights [we] must apply the civil process foreseen in [our country's] legislation ([we] cannot apply processes of other countries.

The problem can be seen from both sides: the originating authority may be frustrated by insufficient action by the requested authority, whereas the requested authority may be unable to respond when the quality of the request, and the documentation and evidence provided is insufficient, or comes at the wrong time or in a wrong format. What is clear from the comments received is that delays in receiving relevant evidence or in evaluating its providence and reliability leads to less effective enforcement. A good example might be a screen shot of a website taken by the applicant authority and requesting enforcement by the requested authority, however, by the time the screen shot is received or the case in processed through CPC, the website could have changed in which case insufficient evidence can be gathered by the request authority. ■

National rules may prevent action being taken where the infringement takes place outside the territory of the authority, or a lack of precedent prevents the case being taken forward. For example, questions over which authority in a Member State has jurisdiction in a complex infringement case, or the lack legal precedence on which to make a judgement might be considered a barrier to effective enforcement. A review of in-depth interview responses found no real world examples of where this might be the case. Other national rules might include the need for certified translation of case documents in to the official language of the Member State before proceedings can be pursued by the requested authority. The costs and resource implications of doing so would in this case be the obstacle to enforcement, yet the problem is caused by national rules. 59

4.3

Differences in procedural rules and the effects on cooperation The empirical evidence gathered for this study does not seem to point to major gaps in Member States who would have significantly failed to properly implement the CPC Regulation in relation to minimum powers (see further information in Section 4.5). Regardless of whether Member States have properly vested their authorities with appropriate powers as is envisaged by the Regulation, implementation will differ across the Member States as it will be undertaken in the context of divergences in national legal frameworks. In some Member States and for some areas, procedural rules are more akin to those in criminal proceedings, while in others, they are strict administrative proceedings or action may be sought in civil proceedings. The nature of the proceeding has inherent consequences, relating to the investigative powers of the authority, the type of evidence allowed as well as the weight of evidence needed, procedural safeguards and the rights of the (possible) infringer, timeliness and statutory limitations, and the type of executor powers. In a purely criminal proceeding, on the one hand the state generally has strong investigative and executor powers, but on the other hand the state has a full and very high burden of proof and procedural safeguards of the "accused" are high. A court eventually decides on sanctions against upon request of the prosecution, with potentially severe sanctions. In a purely administrative proceeding, the state has medium investigative and executor powers, but the authority will eventually decide on its own weighing the available evidence against potential risk for the society and the levels of evidence needed may be low. Sanctions are often less severe, and burden of proof upon challenge of such sanction may even be on the offender. Obviously, requests from a MS from one of these two systems will meet with obstacles by the requested authority of a MS with the other type of system. Some of the Stakeholders have therefore raised the question, as to the procedural laws which should apply, although there is only one possible legal answer. It is a principle of private international law, of international procedural law, and of executive sovereignty that, procedural matters are always governed by lex fori, the law which applies at the place of jurisdiction, of the court27 or of the acting executive authority. In this context, it is not coincidental that, unless matters are regulated by the regulation itself, under the CPC Regulation the procedural rules of the national law of the Member State of the requested authority apply with respect to the consequences of such request. Specifically, Art. 4 (3) of the Regulation provides that, "Each competent authority shall, … have the investigation and enforcement powers necessary for the application of this Regulation and shall exercise them in conformity with national law." With the application of the procedural rules of lex fori being compulsory, and with inherently different systems being in place among the Member States, issues as the ones described above are not surprising.

4.4

Potential solutions to differences in procedural rules Potential solutions to the issues raised by different procedural laws are the following: ■ ■ ■ ■

27

a harmonisation of procedural rules through provisions of the CPC Regulation a harmonisation of procedural rules through provisions in the Annex instruments more practical experience by MS authorities and practical adaptation to the needs of other MS, as well as official guidance provided by MS authorities to one another for better cooperation; legal guidance by a manual, or user guide published by the Commission, or, a compilation of guidance papers by MS made available by the Commission.

ECJ of 07.06.1984, C-129/83, (Zelger)

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As indicated in Box 4.3 several stakeholders have called for specific solutions in this area, consistent with the above. Box 4.3 Various requests by NCAs Based on this experience, [we] believe that rules should be harmonized to ensure that cross-border issues are resolved in a timely and professional manner. Hence, [we] are of the opinion that the EC should provide a manual to CPC members on MS consumer laws as well as the requirements that are likely to be followed if court proceedings are initiated. It would be a great benefit if all these arrangements would be provided by the Regulation. Currently there is a situation when [some] MS are interpreting the Regulation in a different way from others. There are too many regulatory differences between countries, so the system is currently unable to function well. In the first instance there should be informal cooperation that could be later used as the basis for more formally regulated actions. [W]e believe that MS operate within different legal frameworks and this can be an issue. The same consumers may have different experiences across different MS because of different laws that apply in some instances there may be court proceedings, in others not.

The CPC Regulation and many of the instruments that are part of the Annex are inherently built on the differences in the way consumer protection is organised among the Member States. Recital 8 and Article 8 (2) are specifically building on these differences by emphasising that, where other powers and mechanisms exist under national law in addition to those provided for by the Regulation, these should also be used. A full harmonisation of the procedural rules of enforcement under the CPC Regulation would currently be contrary to the logic of the CPC Regulation and would require a revision of the Regulation which appears difficult to undertake with such a wide-ranging scope. In some areas the Annex instruments could provide for authorities which are quite similar in nature and structure and operate on a similar procedural basis. However, the mapping of authorities responsible for the enforcement of each instrument shows that while there may be clusters of authorities, there is not one instrument where even the majority of Member States would agree on the type of public authority which should be responsible for its enforcement. Accordingly, full harmonisation of the procedural rules of enforcement under the many Annex instruments and across a variety of authorities would be a complex matter. A full harmonisation at the level of the CPC Regulation would be even more complex and would require anyhow quite an extensive cost-benefit analysis in light of its far-reaching implications on national enforcement systems. Therefore at the level of a (revised) CPC Regulation a more focussed/targeted form of coordination may be more realistic or the development of minimum procedural standards for certain types of cases (e.g. recurrent cases of limited legal complexity). One could also examine mutual recognition of authenticity of documentation certified by authorities in one Member State across the EU. These considerations therefore lead to the conclusion that in any case an organised exchange of information would greatly help address some of the issues raised by procedural differences within a reasonable time frame. In this context, Article 16 of the CPC Regulation provides a basis to engage into common projects in this area (see notably let. "(e) the development of standards, methodologies and guidelines for consumer protection enforcement officials"). This is also what some of the stakeholder NCAs have requested in submissions. Accordingly, an available solution to the issue of procedural differences is to foster activities with the aim to provide for manuals or other forms of organised information for the Member States to be able to make better use of the CPC Regulation. Guidance should be developed in close cooperation with the Member States NCAs. The procedural issues discussed above could be addressed by increased harmonisation of the legislation. On the other hand, 61

harmonisation by itself will not resolve the issue of differences in enforcement of the Regulation across Member States. The remainder of this section therefore considers the investigation and enforcement powers at the disposal of Member State authorities and reviews the evidence available on the extent to which divergences in these powers at the national level is an impediment to effective pan-EU implementation of the Regulation. In effect, this constitutes an attempt to assess whether there is a case for extending the minimum list of powers and sanctions available to Member State authorities under Article 4 of the Regulation.

4.5

Minimum powers for investigation and enforcement Article 4(6) of the Regulation establishes certain minimum investigative and enforcement powers on the relevant competent authorities in relation to their obligations under CPC. These powers are listed in Box 4.4. This sub-section investigates the extent to which those powers are sufficient, what additional powers may be found at national level and could be considered for inclusion under the minimum powers. The findings of this section are based on survey responses, stakeholder interviews and desk research. Survey questions focused not only on the minimum powers that respondents’ authorities were authorised to apply (from among the powers set out in Article 4(6)) but also on some additional powers that could increase the effectiveness of implementation of the Regulation. A complete list of powers covered in the survey is provided in Box 4.4. Box 4.4 Investigative/ enforcement powers covered in survey of NCAs and SLOs Minimum investigative powers specified in Article 4(6) of the CPC Regulation: ■ ■ ■

Requesting access to relevant documentation (in any form); Requiring supply of relevant information by any person; Carrying out necessary on-site inspections

Additional investigative power covered in survey: ■

Mystery shopping

Minimum enforcement powers specified in Article 4(6) of the CPC Regulation: ■ ■

Requesting in writing that seller/ supplier in question cease infringement*; Obtaining and, where necessary, publishing an undertaking from seller/ supplier to cease infringement**; ■ Requiring, following non-compliance with decisions, that penalty payments (fines) be made (paid) by infringing trader (i.e. losing defendant) to the state or any beneficiary listed in or under national legislation Additional enforcement powers covered in survey: ■ ■ ■ ■ ■

Requiring, following non-compliance with decisions, that gains obtained through infringement be recovered from infringing trader by way of penalty payments; Closing website(s) of infringing trader; Withdrawing operating license of infringing trader and suspension from trade register; Undertaking of actions for damages/ collective redress; Any other actions (not covered by the above list)

*This includes one or more of the following initial ‘warning’ measures against infringing trader(s): negotiation, guidelines/ guidance, advisory/ warning letters **In some Member States, this encompasses the authority to name infringing traders (upon suspicion of infringement/ initiation of enforcement action/ conclusion of enforcement procedure)

A key finding was that NCAs are considerably more likely to be authorised to proceed as regards the minimum investigative or enforcement powers laid down by Article 4(6) of the Regulation relative to additional actions. This is illustrated in Figure 4.1. Further, Figure 4.2 shows that in most cases, the minimum powers may be implemented by authorities directly on their own authority (62% or more of respondents), with the exception 62

of the imposition of penalty payments on infringing traders, for which indirect applicability tends to be relatively more common (with 31% of respondents indicating that such payments could be imposed either indirectly by applying to a court or via a regime of domestic proceedings). Very few respondents to the survey of NCAs and SLOs said that they could not apply the minimum powers; this was most commonly reported in the case of obtainment of an undertaking to cease infringement (30% of respondents). Figure 4.4 Minimum and proposed additional investigative/ enforcement powers applicable in dealing with CPC cases 100% 11% 90%

% of total for category

33%

14%

80%

4% 3%

70%

Cannot be applied

60%

11%

50%

5% 2%

Regime of domestic proceedings Indirectly by application to a court

40% 68%

30%

Directly, under supervision of judicial authority

50% 20%

Directly on own authority

10% 0% Minimum powers: Art 6(4) (investigative/ enforcement)

Additional proposed powers (investigative/ enforcement)

Broad category of power

Source: Survey of NCAs and SLOs (96 responses)

Figure 4.5 Minimum investigative/ enforcement powers applicable in dealing with CPC cases (as specified in Article 4(6) of the CPC Regulation)

% of total for category (investigative power)

100% 90% 80%

2% 17%

3% 21%

2% 3%

7%

13%

11%

30%

3%

19%

3% 2%

70%

3% 4%

60%

11%

50% 40%

12%

77%

79% 70%

45%

20%

Regime of domestic proceedings Indirectly by application to a court

62%

30%

Cannot be applied

10%

Directly, under supervision of judicial authority Directly on own authority

0% Request access to and supply of information

On-site inspection

Mandatory letters requesting the cessation of infringement

Obtainment of Penalty payment an undertaking in case of failure to comply with request for cessation of infringement

Type of investigative/ enforcement power

Source: Survey of NCAs and SLOs (96 responses)

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Investigative powers of national authorities The survey asked NCAs which investigative powers could be applied by their authority when dealing with CPC cases. Figure 4.3 shows that 70-77% of respondents stated that in terms of requesting access to and supply of information and carrying out on-site inspections, their organisations were authorised to proceed directly. Further, the proportion of respondents stating that these powers could not be applied was very small (2-3%). However, 31% of respondents indicated that their authority could not apply additional investigative powers by way of mystery shopping. Requests for access to and supply of information, plus on-site inspections are minimum powers defined by the CPC Regulation; therefore it is not surprising that the majority of authorities stated they had such powers. It would be anyhow appropriate to enquire about the reasons for the minority's lack of confirmation in this respect. Figure 4.6 Investigative powers applicable in dealing with CPC cases

% of total for category (investigative power)

4.5.2

100%

2%

90%

17%

80%

2% 3%

3% 21%

31%

3% 2%

70%

Cannot be applied 15%

60%

Regime of domestic proceedings 50% 40%

Indirectly by application to a court 77%

70%

30%

54%

20%

Directly, under supervision of judicial authority Directly on own authority

10% 0% Request access to and supply of information

On-site inspection

Mystery shopping

Type of investigative power

Source: Survey of NCAs and SLOs (96 responses)

Although, mystery shopping is not included in the required minimum powers, given the success of SWEEP and other coordinated actions reported by stakeholders, the fact that it is not a minimum could hinder the effectiveness of such actions (i.e. Mystery shopping can be used as an additional tool for follow-up investigations in the context of SWEEPs). Mystery shopping can also provide useful surveillance information and market data, the absence of which could hinder more effective enforcement at the priorities which matter. Mapping of investigative powers by Member State and legislation where direct action can be taken (Figure A10.1 in Annex 10) reveals that powers across different legislation are fairly consistent as expected due to minimum powers requested. For the minimum powers specified in Article 4(6) of the Regulation, Figure A10.2 (Annex 10) goes further, indicating where these powers may be directly or indirectly applied. This shows that in the great majority of instances, these powers are directly or indirectly applicable (for a few Directives, primarily Directive 2010/13/EC and Directive 2002/58/EC, the data available for a number of Member States is inconclusive). For example, based on the survey responses Lithuanian, Slovakian and Swedish authorities have fewer powers than the majority of other Member States. However, no examples were provided in consultation suggesting that any difficulties have emerged from divergences in investigative powers; therefore missing data is more likely responsible. On the other hand, it 64

could be indicative of a situation where authorities have successfully cooperated when difficulties have emerged.

4.5.3

Enforcement powers: negotiation, guidance and advisory letters With regards "soft enforcement powers such as negotiation, guidance and advisory letters, two thirds (66%) or more of authorities were found to apply such enforcement powers on their own authority. For a small number of respondents, their powers were only possible at national level. In the case of negotiation, 31% of respondents stated that this tool could not be applied. The mapping of responses alongside the results of the literature review is shown in Figure A10.3 (Annex 10). Again, Figure A10.3 (Annex 10) confirms the consistency of powers across Member State legislation, with a few exceptions such as Hungary, where authorities have much greater powers in dealing with consumer credit and unfair commercial practices infringements than in other areas. Audiovisual media and medicinal products legislations are areas where the use of informal tools differs widely between Member States, with some having the power to use all powers, whereas in others no such powers appear to be available. Some differences also exist in relation to misleading and comparative advertising directive enforcement. Interestingly, many German authorities appear to have limited powers in terms of negotiation, guidance or advisory letters when compared to other Member States, this is believed to be due in part to the decentralised structure of enforcement, with many private enforcers responsible and potentially unable to take actions directly.

4.5.4

Enforcement powers and sanctions As in the case of investigative powers, certain minimum powers of enforcement are required of the national authorities directly/indirectly, including sanctions. These minimum enforcement powers are mandatory letters requesting cessation of the infringement, obtainment to require the cessation or prohibition of an undertaking and penalty payments. These powers are mapped by Member State and consumer legislation in Figure A10.4 and Figure A10.5 (Annex 10), relating to those requiring application to a court and those which can be applied directly by the authority respectively. What is immediately clear is that there is a much greater divergence between Member States in terms of the indirect enforcement powers available to authorities relative to the direct enforcement, sanctioning and investigative powers when it comes to additional powers.. For example, removal of a website or obtaining compensation for losses are both only viable in a handful of Member States (and not among required minimum powers in CPC Regulation), whereas minimum powers are much more uniformly applied as may be anticipated. This difference is illustrated in Figure 4.4, showing that 79% of authorities surveyed can issue letters requesting cessation, while over 76% cannot issue penalty payments to recover gains obtained by the trader. Figure A10.6 (Annex 10) goes further by revealing where these minimum enforcement powers may be directly or indirectly applied. This shows that, as in the case of the minimum investigative powers, the minimum enforcement powers are directly or indirectly applicable in most Member States (for a few Directives including 2010/13/EC, 2001/83/EC and 2002/58/EC, the data available is inconclusive).

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Figure 4.7 Selected enforcement powers (sanctions) applicable in dealing with CPC cases

% of total for category (enforcement power)

100% 90% 80%

7% 11%

13% 30%

3%

70%

19% 3% 4%

60%

30% 20%

Regime of domestic proceedings

76%

12% 11%

50% 40%

Cannot be applied 62%

Indirectly by application to a court

79% 62%

16% 45%

5% 8%

11%

11%

11%

Directly, under supervision of judicial authority Directly on own authority

10% 0% Mandatory letters Obtainment of an Penalty payment requesting the undertaking in case of failure cessation of to comply with infringement request for cessation of infringement

Penalty payments Closure of webrecovering gains site obtained by the trader due to the infringement

Type of enforcement power

Source: Survey of NCAs and SLOs (97 responses)

Finally, national authorities in the survey were also asked what other powers could be applied, with over 80% indicating that actions such as collection of damages or collective redress could not be applied by their authority. Given the clear divergence in additional powers highlighted in the mapping exercise and how powers differ by legislation, it might be difficult to increase the minimum powers without undue disruption, unless it can be proven that certain powers are especially effective in bringing about cessation of infringements or that the actions of NCAs have been adversely restricted by lack of powers. There is no conclusive evidence as such in this context, but the in-depth interviews and case studies conducted as part of the study offer some insights. NCAs interviewed in seven (of a total of nine) Member States were in favour of their enforcement powers being extended. In other words, only in two out of nine Member States were the enforcement powers available viewed to be satisfactory by NCAs. The views of the (former) majority on how and to what extent extensions might be made varied considerably. Suggestions received include the following: ■ ■ ■ ■ ■ ■

More stringent sanctions in cases where infringements have already occurred, including ‘naming and shaming’ powers; Obliging investigative authorities (i.e. police forces) to cooperate with NCAs to a greater extent and share all available information in cases involving cross-border infringements of consumer laws; Empowerment to conduct ‘spot checks’ of traders’ premises at any time (i.e. not only following suspicion of infringement); Imposition of collective redress; Closure of websites of infringing traders, and Obliging SLOs and NCAs in Member States to which information/ enforcement requests are placed to process the requests within a specified deadline (this bears a relation to efficiency aspects discussed in the next section).

This constitutes indicative evidence that extending the list of minimum powers available to NCAs for enforcing the CPC Regulation (as per Article 4(6)) may be justified, at least in some instances. In the interests of harmonised enforcement across the Member States, it

66

may be desirable to proceed on a gradual basis, with more rigorous ex ante assessments potentially being undertaken prior to mandating additional powers for NCAs.

4.5.5

Naming An additional tool authorities could potentially employ in enforcement is the ability to name traders and thus deter infringement and/or generate a reputation for the trader which acts as a deterrent against future infringement or an incentive to go beyond minimum requirements of the legislation. Naming can therefore be a powerful tool depending on where in the enforcement process it is used and the responsiveness of consumers to this information. Naming is possible: ■ ■ ■

for traders suspected to being in breach of the law; when enforcement action is initiated against the trader, and on conclusion of the enforcement procedure.

National authorities were asked in the survey to indicate if and where they are permitted to name traders. The most common response was that infringing traders could be named following conclusion of the enforcement procedure (45 responses, or 82% of respondents). Naming traders upon initiation of enforcement action was less common (26 responses, or 47%) and very few respondents stated that traders could be named merely because they were suspected of being in breach of the legislation (13 responses, or 24%). The CPC Regulation, Article 4.6 (e) and (f) refers to naming only as a minimum power "where appropriate" in publishing an undertaking and a decision to prohibit or cease an infringement respectively. One of the issues related to naming in the cross-border context may be that, when an infringing trader is located in a different Member State than its targeted consumers, naming by the authority in the trader's Member State is not necessarily going to be too effective. Consideration could be given to a more common approach on naming in CPC related matters, together with increased visibility at EU level of the results achieved by the CPC. On the other hand, practices of infringement made public may be of disadvantage to the standing of the trader at the trader's location, for example when other traders and the politics of that MS make an attempt at generating high standards for the country-of-origin effect. In effect, in 23 of the 27 EU Member States, naming of infringing traders was possible following conclusion of the enforcement procedure, In 14 Member States, naming was possible once enforcement action had been initiated and only in 8 Member States could naming be undertaken merely on suspicion of infringement. Details provided by a selection of respondents are presented in Box 4.5. These findings were in line with the Commission’s research on naming practices prevalent in 2009, which indicated that naming was significantly more common once enforcement proceedings had been initiated as opposed to when infringement was suspected (in the latter instance, naming was found to be an option in only four Member States)28. In general, therefore, naming was most commonly reported to be an alternative after enforcement procedures had been applied; in 2009, some Member States (e.g. Belgium) reported that naming to ‘praise’ traders who complied with penalties was also undertaken at times. The 2009 research also revealed that while authorities in general favoured the use of naming as a tool to ensure compliance, it was not perceived to be an effective response to every infringement situation. For instance, naming was not considered to be optimal in infringement cases involving rogue traders (who by definition care less about reputation) or dominant market operators (where brand effects/perception may be more important, or where the alternatives available to the consumer are limited). Naming however assists consumer awareness. Importantly, variation between national legal requirements was specified to be a hurdle in the efficiency of this approach.

28

European Commission (2009): CPC Enforcement Action Plan – Questionnaire on Naming

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Box 4.5 Examples of whether and how infringing traders may be named “We usually do not name the traders. However, we provide the identity of an infringer in case when someone (anyone, either natural person or legal entity) officially asks for this kind of information and the administrative decision of the case is already final and conclusive.” [NCA] “Information can be disclosed after completion of the procedure.” [NCA] “Under current legislation, no public disclosure of the companies that have violated the [CPC] Regulation [is permitted].” [SLO] “[Naming is possible:] when enforcement action is initiated against trader (warnings are issued in case of suspension from trade register or unauthorised financial intermediation) and on conclusion of the enforcement procedure (we must comply with a secrecy duty and can only disclose a decision that convicts the agent for carrying out one or more serious or very serious administrative infractions upon expiry of the judicial review period)” [NCA] “When issuing a decision regarding a spam-related case the trader's name will be published in our site (in the decision's text) provided the trader is a legal entity. If the spammer is a physical entity the decision will be anonymised.” [SLO] “Official documents are in principle public upon conclusion of proceedings. In addition, the Financial Supervisory Authority may issue a public warning or notification.” [NCA] “In the cases that pose a risk for the public health, the traders suspected of being in breach of the law can be named.” [NCA] “No authority has a dedicated power to name infringing traders, but since enforcement proceedings are exclusively public, when such proceedings are taken, the name of the subject is necessarily made public.” [NCA/ SLO]

4.6

Differing sanctions and effective cooperation From a legal standpoint, different sanctions applied to the same offence in different Member States are equivalent. However in practical terms, they are clearly not the same, raising the question of whether difference in sanctions has an impact on the CPC. Enforcement cooperation might be hindered if the deterrent effect is reduced, notably if Member States do not feel the sanctions applied in another Member State are sufficient or are an effective deterrent. Workshops held by the Commission have highlighted the wide variety of tools and powers authorities have at their disposal in this area. Examples of this divergence are given in the Box 4.6. Box 4.6 Examples national sanction toolboxes Denmark - Consumer Ombudsman names traders breaching or suspected to breach the law after giving companies the right to be heard. It was proposed to take this procedural step into account in the publicity about the EU sweeps, i.e. to foresee a 2-3 months gap between the actual sweep week and the first presentation of results and names. This is an instance of naming being used as a measure of sanction to ‘shame’ and thereby deter infringing traders. For other Member States, such a prolonged waiting period may have negative impacts on statutory limitation periods requiring the imposition of sanctions within a short period after the infringement, or after the authority receiving notice of the infringement. Naming following the imposition of a sanction can therefore be used to reinforce initial sanction by making trader and consumers aware of the infringement and hopefully deterring repeat offences occurring.

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Hungary - authorities are working on a new legislative proposal which aims at reinforcing the preventive work: a new country-wide training system of traders is to be established to educate traders and so prevent unlawful practices. This training would replace as a first step at least, the old system of fining. The development of a consumer protection "trust mark" and positive list of traders should also be part of this new system. However the operational details (e.g. definition of the criteria to be part of the "positive list") were still under discussion. While the unauthorised use of a trust mark would be an issue under the CPC Regulation, trust marks themselves are not, and in addition there is the risk of the creation of a measure having equivalent effect to a barrier to cross-border community trade. United Kingdom – is running a pilot project on new administrative sanctions. The following powers will be at the disposal of OFT and Trading Standards Departments in case of unfair commercial practices and product safety offences: fixed penalties, discretionary requirements, stop notices and enforcement undertakings.

An indicator of the divergences between Member States are the fines (if any) imposed on traders for similar infringements. Survey responses suggested that ‘large’ fines (amounts typically exceeding €1,000) may be applied in 17 Member States (out of 27), whereas smaller fines (of less than €1,000) applied 15 Member States. The amounts that may be levied on infringing traders vary considerably across Member States, with ‘small’ fines averaging approximately €270 (between €20 and €650) and large fines tending to amount to about €26,500 (ranging from €1,500 to €120,000). This survey evidence is in accordance with findings of the workshops organised by the Commission in 2009 presented in Table 4.1. The findings illustrate the divergence in terms of other (non-monetary) sanctions that may be imposed across the Member States. Table 4.2 Penalties prescribed in national legislation for traders found to be in breach of EU consumer law (selected Member States, 2009) Country

Fines

Other types of penalties

Austria

Austrian Communications Authority and Federal Communications Board can impose penalties themselves: an administrative penalty of up to €8,000 per case can be imposed on private broadcasters and of up to € 36,000 per case on public broadcasters

The court can order coercive measures (coercive penalty or imprisonment for contempt). The relevant provisions comprise criteria relating to the [magnitude] of the penalty (in order to ensure the efficiency of the penalty), but the provisions do not constitute a particular [ceiling]

Belgium

€143 - €110,000 (in boarding denial cases this can rise to €1m)

Imprisonment from 1 month to 5 years

France

Maximum fine of €150,000

Criminal proceedings – up to 5 years imprisonment

Germany

- Administrative fine up to €10,000 if a trader contravenes an executable order of the competent authority

- In case where private enforcement bodies obtain an undertaking with a penalty clause, they can claim this penalty for each further breach

- Penalty payment up to €250,000 to enforce the order with sanction Greece

Italy

€500 - €1m (double maximum fine if more than 3 decisions imposing a fine had been issued)

- Recommendation for compliance - Warning for fine

€500 - €3,000 per passenger in case of Regulation (EC) No 261/2004

- Temporary interruption of the operation of traders' business or part of it from three months to one year.

€5,000 - €500,000 for infringement of UCP Directive

- Prohibit the dissemination of commercial practices deemed unfair

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Country

Netherlands

Fines

Other types of penalties

With regard to practice concerning products that are considered dangerous for health and safety of consumers or that are likely to affect children or adolescent, the minimum fine is €50,000

- Order the trader to publish its resolutions

In general, the maximum fine per infringement is €74,000

The Netherlands Consumer Authority can impose the following sanctions: - administrative fine or a penalty on daily basis; - ask an injunction before civil court; - publish undertaking; - publish the decision - publish a press release

For breach of UCP the penalty is €450,000 per infringement

- In case of repeated non-compliance the Authority may order the trader to suspend trading for maximum of thirty days.

Source: EC workshops (2009)

Responses from the survey indicating the degree to which cooperation is affected by differing sanctions are given in Box 4.7. While respondents tended to agree that there were significant variations in the powers of sanction at the disposal of authorities in different Member States the prevailing view was that this not a problem for enforcement cooperation as such but other aspects and implications should be considered. Some expressed the opinion that the key issue was the lack of applicability of legislation in place in specific countries to deal with cross-border infringements. Box 4.7 Comments from consultations identifying sanctions as a hindrance to cooperation and suggested improvements which could be made remove such barriers “The enforcement regimes for EC Regulation 261 of 2004 vary substantially between the Member States.” [NCA] “The companies know [very well] that enforcement is more difficult in a cross border case. That could also be a kind of reason for acting cross-border.” [NCA] “Sanctions in the sense of punishment (fines, imprisonment) are out of the CPC-scope. For sanctions in the sense of e.g. a prohibition order, divergence seems not very great, but the limited applicability to a certain territory is a barrier. Therefore, decisions applicable in the whole of Europe would be preferable.” [NCA/ SLO] “In Latvia maximum administrative fine which can be imposed for infringements of legislation mentioned in the annex of Regulation 2006/2004 is 10 000 LVL (14 000 EUR), at the same time there are Member States across EU where fines up to 100 000 EUR (e.g. Italy) might be applied. The problem is not as much as value of fine or sanction type, but inability to apply sanctions in cross border cases.” [NCA/ SLO] “This issue is important but not extremely [so]. Each MS should have rules regarding sanctions for infringements but these sanctions (especially the height of fees, the scope of measures etc.) should to some extent be adjusted to other factors in this Member State (such as GDP, purchasing power, culture etc.). On this basis it has to be taken into account, that the reasons why Member states do not have the same criminal codes stipulated in their national legislations could be fully justified and/or these differences might even be necessary.” [NCA]

One NCA stated that: “Administrative sanction application difference between local and foreign traders cause imbalance in favour or foreign traders and lower effectiveness of enforcement over EU IM in general. There should be some legal tools developed and or specified, allowing not only termination of infringements, but providing legal instruments to apply sanctions as well.”

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This example refers to an additional aspect, different from the one being discussed here about diverging sanctions. Here in fact the authorities have raised the question of extending the scope of the CPC mutual assistance provisions to cover situations beyond the termination of an infringement (i.e. to apply a sanction even when the infringement has ceased). This would enable the seeking of assistance from another Member State to impose a sanction as a preventive tool in a cross-border context. On the other hand, the quotation seems to confirm that differences in sanctions applying to the same infringements, even where they are notable, do not pose severe problems to cross-border cooperation. NCAs and SLOs from half the countries in which in-depth interviews were carried out provided examples of instances of divergences in sanctions for comparable infringements across Member States. The divergences applied to a range of areas, including: ‘naming and shaming’ powers; investigative powers; and, differences in the extent to which infringing traders may be financially penalised. While in some cases, these divergences are reported not to have had relevant impact on CPC cooperation, there was a recognition that there can be an impact in terms of deterrence and trader's taking advantage of differences between national systems, with one considering it ‘the biggest barrier to the effective functioning of the Regulation’. Specific responses on this issue are given in Box 4.8. Box 4.8 Examples of divergences in national sanctions for comparable infringements Bulgaria – “Naturally, there are differences in financial sanctions among the Member States. There could be other non-financial sanctions such as termination of activity for the infringing party. Possibly, differences in sanctions can negatively impact on the effectiveness and efficiency of the Network and the infringing companies can benefit from these differences.” Germany – “Some MS have a name-and-shame policy while others have not. This means that in a mutual assistance request between authorities of two Member States it can happen that one authority names a company while the other authority would not do so. In view of [our experience], however, this has not had a relevant impact on the effectiveness of the CPC Network.” Latvia – “Divergences in sanctions [are] a known problem. For example Latvia has relatively small fines and uses the civil process in administering these fines – in other countries, criminal sanctions are used. Perhaps in Latvia traders are less motivated to comply with the legislation than in France, where there are stricter sanctions.”

What emerges from these findings is that differences in national sanctions is no so much a problem per se for the effectiveness of enforcement cooperation as rather a problem to the extent that it links back to gaps (highlighted earlier in this section) arising from differences in powers available to authorities beyond minimum powers. These gaps result into a reduced deterrent of the CPC. One stakeholder highlighted that in extreme cases, the divergence may be so wide as to lead to a Member State offering protection to a trader alleged to have infringed the law by authorities in another Member State. A possible way forward would be to extend the minimum enforcement powers currently at the disposal of competent authorities as suggested earlier in the assessment of the sufficiency of minimum powers. While accepting that the powers currently available are useful, some authorities contended that more effective cross-border enforcement (in terms of deterrence) could be attained if additional powers were granted to NCAs under Article 4(6). The suggestions made in this context included the following: ■ ■ ■ ■ ■

Powers of collective redress, Imposition of sanctions and compensation claims, Empowerment to conduct ‘spot checks’ of traders’ premises at any time (i.e. not only upon suspicion of malpractice), Obliging national investigative authorities (e.g. police forces) to share information on infringing traders/ companies with NCAs, and Closure of websites of all infringing traders/ enterprises.

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4.7

Summary

Key findings: Issues of procedural laws and powers Fragmentation of national procedural rules. ■

■

■

■

Procedural fragmentation was found to cause difficulties for cross-border cooperation. These include: – Differences in proceedings that may lead to delays or differences in the type of evidence needed, or how such evidence needs to be presented that may cause delays and/or disagreements between authorities. – The application of differing standards for establishing evidence may account for variations in the quality of mutual assistance requests. This may lead to situations in which evidence provided to the requested authority is deemed to be insufficient to follow up a CPC enforcement request. Delays in receiving relevant evidence or in evaluating its providence and reliability lead to less effective enforcement. – National rules prevent action being taken where the infringement takes place outside the territory of the authority, or a lack of precedent prevents the case being taken forward. Potential solutions to the issues raised by different procedural laws include the following: – a harmonisation of procedural rules through provisions of the CPC Regulation; – a harmonisation of procedural rules through provisions in the Annex instruments; – practical experience by Member State authorities and greater adaptation to the needs of other Member States, as well as official guidance provided by Member States authorities to one another for better cooperation, and – legal guidance via a manual, or user guide published by the Commission, or, a compilation of guidance papers by Member States made available by the Commission. A full harmonisation of the procedural rules of enforcement under the CPC Regulation would be contrary to the logic of the CPC Regulation and would in any case require a revision of the Regulation which seems particularly difficult to achieve also taking into account the following: – In some areas the legislative instruments in the CPC Regulation Annex instruments could provide for authorities which are quite similar in nature and structure and operate on a similar procedural basis. However, while there are ‘clusters’ of authorities, there is not one instrument where even the majority of Member States would agree on the type of public authority which should be responsible for its enforcement. Thus full harmonisation of the procedural rules of enforcement under the Annex instruments and across a variety of authorities would be very difficult. – A full harmonisation through a revision of the CPC Regulation would appear as a result even less plausible and would anyway require a very extensive cost/benefit assessment in light of its far-reaching impact on national legal systems. – On the other hand, a focussed/targeted form of coordination or the development of minimum procedural standards for certain types of cases (e.g. recurrent cases of limited legal complexity) are more realistic. Consideration should also be given to examining the mutual recognition of authenticity of documentation certified by authorities in one Member State across the EU. In addition, an organised exchange of information is necessary in order to provide for a solution to at least some of the issues raised by procedural differences. This is consistent with the wishes gathered from some stakeholder NCAs. This should inform Commission guidance, manuals or other forms of information for the Member States to be able to make better use of the CPC Regulation. Guidance should be developed in close cooperation with the Member States NCAs.

Sufficiency of minimum powers ■

■

■

Article 4(6) of the CPC Regulation establishes certain minimum investigative and enforcement powers on the relevant competent authorities in relation to their obligations under the Regulation. The evaluation considered the extent to which those powers are sufficient, and what additional powers exist at national level and could be considered for inclusion under the minimum powers. The findings point to the advisability of further exploring extending the range of these powers to some additional powers that could increase the effectiveness of implementation of the Regulation, at least in some instances like divergences in "naming and shaming" powers and investigative powers. In this regard, further ex ante assessments should be undertaken prior to mandating additional powers. The data gathered on existing minimum powers reveal also some possible gaps, where the Commission should consider further investigation and assess the need for appropriate action.

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Impact of differing sanctions ■

NCAs and SLOs from half the countries in which in-depth interviews were carried out provided examples of instances of divergences in sanctions for comparable infringements across Member States. The divergences were particularly relevant in relation to the extent to which infringing traders may be financially penalised and the legal nature of fines that may be inflicted. The assessment of stakeholders' responses would indicate that these divergences would not affect the effectiveness of cross-border cooperation under the CPC per se, but can pose a problem to the extent that they link back to gaps arising from differences in powers available to authorities beyond the set of minimum powers defined by the Regulation. This may in particular have an impact in terms of reduced deterrent of the CPC. This finding would therefore reinforce the indication coming from responses to interviews that, while accepting that the minimum powers currently available are useful, more effective cross-border enforcement (in terms of deterrence) would be attained if additional powers were granted to NCAs under Article 4(6).

Recommendations ■ ■ ■ ■

Provide guidance and foster best-practice to improve the quality of mutual assistance requests under the CPC Regulation; Investigate as appropriate on possible gaps in the implementation of minimum powers and assess the need for action in this respect; Examine options to revise the CPC Regulation to include minimum procedural standards; Examine options to revise the CPC Regulation to expand the minimum investigative (e.g. broader spot check powers on companies' premises) and enforcement powers (e.g. including redress powers) of national competent authorities in order to overcome certain difficulties reported for the efficiency of cooperation and to address a potential deterrent gap stemming from national fragmentation.

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5

The CPC Network and conditions influencing mutual assistance

5.1

Introduction This section concerns the evaluation of the broad formal components of the CPC framework, including the CPC System, provisions governing mutual assistance between competent authorities and joint actions to coordinate enforcement and monitoring activities between Member States. Specifically, the following questions are addressed: ■

■ ■

■ ■

■

What are the strengths, weaknesses, opportunities and threats of the organisational arrangements, the procedures and processes established by the CPC Regulation and related reference documents to facilitate cross-border enforcement cooperation in order to ensure that authorities succeed in stopping deceptive practices when trader and consumer are established in different countries (the CPC Network)? To what extent is the effectiveness of the CPC provisions affected by the way authorities apply/comply to the rules established for the cooperation? The number of alerts has drastically gone down from an average of 100 a year at the beginning to roughly 40 in the past two years. What is a possible reason for this? To what extent are the alerts meeting their objectives? How could they be used more effectively? How are the processes organised? The Regulation establishes that enforcement data is stored in the common database for 5 years maximum after the case closure and a system of systematic notification of actions taken pursuant to article 8(6) in order to contribute to sharing knowledge on enforcement and helping identify enforcement issues at an EU level. To what extent are these provisions relevant to meet these objectives and contributing to increasing the efficiency and effectiveness of the Network’s operation? and What is the role of the Commission in the CPC Regulation; could others be better placed to undertake (in part) the responsibilities of the Commission?

The CPC Regulation defines two actors relevant for its implementation and functioning of the ‘CPC Network’, they are: ■ ■

Competent authorities: public bodies established at national, regional or local levels with specific responsibilities to enforce consumer protection laws, and Single Liaison Offices: a single public authority in each Member State designated as responsible for coordinating the application of the Regulation.

The roles and responsibilities of each are detailed in Articles 3 and 4 of the Regulation, and detailed in the inception report. National Competent Authorities (NCAs) are enforcers of each consumer protection law specified in the Annex and Single Liaison Offices (SLOs) are responsible for coordinating mutual assistance requests on behalf of all NCAs in a given Member State. The EC publishes and updates the list of SLOs and competent authorities in the EU Official Journal (Article 5). The third actor involved in the functioning of the CPC framework is the Commission. The CPC Regulation establishes two key roles for the Commission: ■ ■

Developing and maintaining the common IT-tool used by the Network (the CPC System) to exchange information that is relevant for the cooperation; Establishing a common framework of rules that implement the mutual assistance provisions of the CPC Regulation ('implementing measures').

Regarding more informal cooperation, the role of the Commission is significant as a facilitator of events to bring competent authorities together (i.e. in workshops) in addition to co-financing cooperation activities such as the common actions and other projects that aim 74

at developing common guidance documents for enforcers or promoting mutual understanding. Further, a leading role for the Commission is in the initiation and coordination of joint actions and SWEEP exercises to monitor and improve enforcement of consumer laws in markets across the EU. The components of the Regulation evaluated in this section are summarised in Figure 5.1. Figure 5.8 Organisational setup of the CPC Network Mutual Assistance (intra-EU infringements)

Single Liaison Office (Art.3) Competent Authorities (Art.4)

Minimum enforcement powers (Art.4)

Requests for mutual assistance (Chapter II)

Exchange of information Art.6-7 Request for enforcement (Art. 8) Coordination of market surveillance and enforcement (Art. 9) e.g. SWEEPS, shared case with multiple NCAs Database (Art.10)

Conditions governing mutual assistance (Chapters III)

General responsibilities and conditions (Art.11 & 12) Privacy and confidentiality (Art.13) Bilateral assistance agreements with 3rd countries (Art.14) Refusal of requests (Art.15)

5.2

Strengths, weaknesses, opportunities and threats

5.2.1

Overview

Reporting (Art. 21) e.g. tools for collective learning, sharing of information

The strengths and weaknesses of the CPC framework have been informed by the surveys of NCA, consumer policy network representatives and consumer associations. These findings were then assessed through in-depth interviews and a review of the relevant literature (i.e. Member State biennial reports and CPC workshop proceedings). Authorities were asked to identify any practical and/or legal barriers to effective cooperation between competent authorities by rating each barrier between 1 (extremely important) and 5 (not important). The results presented earlier in Figure 3.1 and Figure 3.2 indicated that on the practical side (reproduced in Figure 5.2), the organisational set-up of the CPC Network was deemed an extremely or highly important barrier by 54% of respondents, with other factors such as slow response times to information/enforcement requests and a lack of flexibility in terms of responding swiftly to short-term needs rated higher (61% and 56% respectively).

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Figure 5.9 Perceived practical barriers to effective cooperation between Member State authorities (1 = extremely important, 5 = not important)

Lack of uniform understanding of cooperation tools

45%

Variation in levels of national CA capability

20%

Lack of common approach to enforcement priorities

Practical barrier

Lack of a "corporate identity"

16%

31%

46%

11%

21%

44%

5%

11%

Language barriers

38%

Lack of flexibility to swiftly respond to short-term needs

38%

18%

Organisational set-up of the Network

39%

15%

36% 0%

20%

26%

7% 16%

25%

40%

8% 8%

26%

17% 24%

9%

4%

11% 4%

19%

14% 9%

18% 34%

10%

47%

Other

11%

31%

41%

Slow response to information/enforcement requests

9%

27%

38%

Resource constraints

5% 3%

1% 4%

12% 3%

45% 60%

80%

100%

% of responses Extremely important

Highly important

Important

Not so important

Not important

Source: Survey of NCAs and SLOs (77 responses)

The survey results also indicate that language was not a significant barrier for many competent authorities29. The lack of corporate identity was not rated as a highly significant factor. Differences in competent authority capability and slow response times to information /enforcement requests were both rated highly and to some degree reflect the resource constraints in Member State authorities, which were often rated as important. These constraints are influenced by organisational arrangements and the prioritisation of domestic over cross-border cases. The results do suggest that a lack of uniformity in the capability of authorities, in the understanding of the CPC and the tools available are the most significant barrier to cooperation. This was confirmed in interviews with Commission officials who suggested that in some Member States resources were prioritised to resolving domestic cases. If a few authorities are then slow to respond to requests then confidence in CPC is undermined, resulting in fewer cases being put through the CPC Network. Also due to national issues not all NCAs were technically connected in a manner satisfactory to these NCAs. The CPC System is only accessible via a secure TESTA connection.

5.2.2

Organisational issues While it was acknowledged by the majority of authorities interviewed that SLOs have an important role to play in increasing operational efficiency of cross-border enforcement and have facilitated best practice sharing, networking and increased cooperation overall, it was also argued that SLOs could do more and that the organisational set up could be improved. Firstly, delayed responses to information and enforcement requests were reported by interviewees in four out of nine countries. Two NCAs considered that the relatively greater degree of ‘fragmentation’ of authorities in countries where regional authorities had been assigned CA powers resulted in delays in responses to requests. The concern was that when a case is referred to a regional authority, the lines of communication become extended and sometimes broken, making it difficult to follow up on case progress or to ensure that the

29

Results from in-depth interviews suggests that language barriers may play a role in the amount and quality of information provided with CPC cases.

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enforcement takes place. This led some authorities to suggest that the role of SLOs should be expanded to chase up and follow through requests until the conclusion of each case, thus helping to facilitate continuing communication between applicant and requested authority. One other authority, an SLO, asserted that it had not received adequate support and cooperation from NCAs in the Member State in question. In one of the Member States where powers had been devolved to regional authorities, the SLO took the view that making it obligatory for NCAs to respond to information or enforcement requests within a specified period of time would be helpful to achieve better response rates and to reduce delays in enforcement. In contrast, an NCA based in a region stated that the lack of a mechanism for following up on the transfer of cases from authorities in one Member State to those elsewhere was a problem in which SLOs could play a greater role. Comments made in interviews included: “The length of the whole procedure takes too long. It would be useful if the whole procedure would be quicker, less formal, and more informative, for instance a kind of forum where the States are able to share information of any kind of problems they are faced with.” [NCA] “One of the main weaknesses is the systematic delay in the procedure. Most of the time, actions are taken with such delay that the effectiveness of the process is lost. Member States should respect the deadlines established in the CPC Regulation.” [SLO] “CPC System operates relatively slowly; often leads to termination, the username and password have to be entered twice. The slowness lies in the regime of domestic proceedings.” [NCA] In summary, there is general consensus that although the current CPC Network and associated provisions governing mutual assistance have gone a long way towards improving cooperation, it still takes too long for authorities to respond to requests or for communication to breakdown in many cases. Consequently, confidence in the use of the CPC Network and volume of use is low. It suggests that the CPC Network could be enhanced or more prescriptive in certain areas, for example by establishing response deadlines, a maximum time period for enforcement, and rules to follow when action is not possible by the requested authority. In addition, obligating SLOs to play a greater role in Network, to push through cases and to track and trace progress would help speed up cooperation and enforcement. Given current delays, it is questionable whether the alternative of a more informal network would be as effective. A second issue raised was the lack of feedback on implementation. Two NCAs took the view that the lack of feedback on enforcement actions taken following requests placed with other Member States is a barrier to the Network’s effectiveness. In other words, the authorities concerned were of the opinion that sharing ‘success stories’ with SLOs and NCAs elsewhere would encourage future cooperation and would help promote the use of CPC with their and other authorities when cross-border cases arise. A key benefit highlighted was the increased incorporation of best practice methods into more toolkits. In essence, the lack of feedback reported in the case study on enforcement action taken (See Box 5.2), resulted in authorities being less aware and less confident in CPC, resulting in a lower likelihood of the applicant authority submitting similar requests in future. Similarly it was highlighted that information gathered through other cases should be available to other authorities, particularly where several Member States are seeking information on the same trader, increasing the usefulness of the CPC Network in complex cases and encouraging its use. Comments received in this regard included: “We feel there is a need to improve the CPCS and the CPC Network to make it easier for NCAs to coordinate proceedings when cases are brought by several Member States against the same trader. At the moment, it is only possible to see cases involving your own country. Better mechanisms should be developed to obtain information about cases brought against the same trader from other countries. Consideration should also be given by the Commission to help facilitate "case handling meetings" where countries requesting enforcement efforts may meet with the NCA in the receiving country. This could be done in connection with the CPC meetings or stand-alone meetings.” [NCA/ SLO] 77

“Outcomes of requests/ the use of request outcomes to inform domestic enforcement effort are the most useful. It is important for all the members of the CPC network to know the outcomes of the requests. These outcomes allow to assess if the CPC network is efficient and consequently if the core goal of regulation 2006-2004 (-make cease cross-border infringements) is reached. After 5 years of existing, it is essential that the CPC network gives every guarantee of its usefulness. In this respect, this network must give internal and external visibility to its enforcement results. Each time that the CPC network has the possibility to communicate on its results, it must do it.” [NCA] “There is [insufficient] feedback on success stories, on the way Member States concretely cease cross border unfair commercial practices. The improvement of the visibility of the activity of the CPC network on this point is a key issue.” [NCA/ SLO] What is apparent in the above examples, is the potential for a much greater role for the Commission in the organisational set-up of CPC, firstly to facilitate coordination of transnational proceedings in which the trader is active in more than one Member State, and/or in generating greater visibility/awareness of CPC cases and the benefits accrued through such actions. These points are developed further in Section 5.9. On issues of resources and differences in the national legal systems hindering cooperation, one NCA stated that only nine Member States tended to actively use the tools made available by the Network, with a potential reason for this being a lack of resources across several Member States preventing them from participating to their full potential. These comments included: “At the moment, I get the impression that only 9 MS actively participate in debates or are [consistently] present across the different networks but CPC cannot work with only 9 MS – there should be greater motivation, maybe more funding, as I tend to hear that there are resource implications for being part of the CPC framework. So the main weakness would be a lack of participation across the board.” [NCA] “There are still MSs which are inactive. There are others which refuse to comply with the requests regularly.” [NCA] In a network such as CPC it is important that participation is high enough that cooperation generates benefits that justify the costs of involvement. In view of the CPC objective to enhance enforcement in the EU, a critical mass of participants or volume of activity may have to be reached to achieve the most effective and efficient cooperation. However, in terms of practical cooperation activities, a maximum threshold may also exist which once exceeded may show a decline in the efficiency and effectiveness of the action. The comments of stakeholders suggest that the CPC Network is more likely to be in the ‘first phase’, with 9 Member States actively participating; in which case measures to ensure the other 18 Member States participate are important if the benefits of collaboration and cooperation in enforcement are to be realised. One NCA also suggested that a more informal forum in which specific issues can be addressed between Member States might be more effective in cases where the number of participants is very high. Many of these points have been raised by the Commission in a recent biennial assessment report30. Acknowledging that the CPC Network has been going through a ‘familiarisation’ phase (during the first five years of Network operation) emphasis should now focus on the ‘optimisation’ phase, where the focus will be on ‘taking full advantage of the opportunities offered by the Network’31. Already underway, it is anticipated that such a shift will result in increased efficiency and effectiveness of Network operation and participation by national

30 COM(2012) 100 final: Report from the Commission to the European Parliament and the Council on the application of Regulation (EC) 2006/2004 of the European Parliament and of the Council of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws (the Regulation on consumer protection cooperation), Brussels, 12.3.2012 31 Ibid.

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authorities. However, it will be left to future assessments to monitor whether such changes actually occur, as this study has focussed on the first 5 years of operation.

Usefulness and performance of the CPC Network Authorities were asked to indicate the usefulness or not of the various provisions of the CPC Network (Figure 5.3) and to rate its performance (Figure 5.4). The majority of respondents expressed the view that all the provisions of the CPC were useful or better, with the formalised system for exchange identified as the most useful, alongside enforcement requests, with 59% and 64% of respondents respectively rating these features extremely or highly useful. Only 15-22% of respondents indicated that the Network’s provisions were ‘not so useful’. The formalised aspects are the most utilised by the national authorities and are at the heart of the CPC Regulation. However, it is understandable in light of evaluation of alerts that many stakeholders may found them less useful and even an inconvenience in some cases, particularly in the formative years of the Network before a good level of understanding had been developed. Responses also indicated that common actions are frequently not taken-up by many authorities; therefore overall, their usefulness may be undervalued. Additionally, the full impact of the common actions may not have been taken into account or realised by respondents. For example, while the direct impact of the common action is known in bringing authorities together; follow-up informal contact between authorities resulting from the initial activity often goes unattributed. Figure 5.10 Usefulness of different provisions of the CPC Network (1 = extremely useful, 5 = not so useful)

Informing domestic enforcement using outcomes

14%

Outcome of requests

38%

26%

38%

Formal system to route requests CPC Network provision

5.3

9%

Single EU CPCS to route requests

17%

Sweeps

18%

Common actions

17%

Alerts

6% 7%

Enforcement requests

19%

Information requests

12% 0%

28%

50% 43% 37% 42%

16%

13%

10% 6%

20%

9%

20%

11%

9%

26%

12%

7%

26%

13%

6%

65% 45% 24% 20%

19% 49%

40%

60%

6%

11%

14%

7%

9%

9%

7% 8% 80%

100%

% of responses 1 (Extremely useful)

2 (Highly useful)

3 (Useful)

4 (Neither useful nor not useful)

5 (Not so useful)

Source: Survey of NCAs and SLOs (91 responses)

Regarding SWEEPs, one of the coordination mechanism conducted through the network, interviewees were of the opinion that in the sectors they focussed on, they proved highly beneficial and useful to national authorities. However, as Figure 5.3 provides an aggregation of survey results and includes responses from many stakeholders who would have not participated or directly benefited from SWEEPs, they are likely to have been undervalued. An evaluation of SWEEPs is provided in the Section 5.8. 79

Those surveyed were asked to rate the performance of the CPC Network on a scale of 1 (‘performs very well’) to 5 (‘performs not so well’), based on their own experience. Over 50% of respondents expressed the view that the performance of the network was at least ‘average’ (Figure 5.4). However, over 40% of respondents indicated that in terms of the effectiveness of feedback after information delivery, the relevance of alerts and the userfriendliness of the system, the Network’s functioning could be rated at 4 (‘neither well nor not well’) or 5 (‘not so well’). The highest degree of respondent satisfaction was registered vis-avis the integration of the Network into national frameworks and in terms of the accuracy of responses to information requests. As far as the views expressed were critical of the current CPC Network, Commission officials pointed out in interviews that during the first years of implementation of the CPC Regulation, efforts have been primarily focussed on the technical aspects of the network, ensuring the functioning of the IT system, and ensuring authorities were trained and equipped to use the system. Authorities have also taken time to adapt to CPC and to build an understanding around how best to use the tools available and when they might be most appropriate to use. Given this evolution, Commission interviewees were of the view that the true value of CPC is only now being realised as the network reaches maturity. Since 2009, Commission efforts have shifted to providing more guidance to enforcers and to create opportunities for exchanges of best practice and practical experience both with regards to the actual functioning of the network and the enforcement of the consumer legislation to which the CPC cooperation applies. In line with this approach dedicated workshops have been organised and various guidance documents had been drafted (e.g. manual on how to carry out an internet investigation, the SWEEP Kit, CPC operating guidelines, etc.). The workshops have typically focussed on discussing either concrete issues related to the enforcement of the consumer legislation or on the functioning of the CPC cooperation. It was nevertheless highlighted that more could be done to promote informal cooperation within the Network and that further efforts were needed in terms of guidance and guidelines to users on how best to use the CPC Network. It is anticipated that by developing a more common understanding of the system, ensuring greater uniformity in approach and purpose will improve its efficiency and effectiveness. Equally, it would encourage greater utilisation by authorities.

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Figure 5.11 Level of performance of the CPC Network under different criteria (1 = very well, 5 = not so well)

Level of intra-Network cooperation 4%

Performance criterion

Effectiveness of feedback after information delivery 2% 12%

Accuracy of information request responses 1% Level and quality of alert information

Relevance of alerts 1% 9%

Relevance vis-a-vis national markets

4%

Integration into national frameworks

51%

19%

0%

20%

6%

11%

10%

41%

25% 20%

20%

23%

41%

13%

9%

33%

47%

15%

12%

26%

19%

39%

7%

13%

64%

15%

User friendliness of system 1%

12%

20%

55%

4%

14%

27%

45%

Flexibility of formal request process 2% 11%

15%

19%

45%

19%

12%

13%

58%

13%

Accuracy and speed of enforcement request 1% responses

40%

60%

80%

100%

% of responses 1 (Very well)

2 (Well)

3 (Average)

4 (Neither well nor not well)

5 (Not so well)

Source: Survey of NCAs and SLOs (83 responses)

Other weaknesses of the CPC Network to be addressed included concerns over the traffic within the CPC System in terms of its timeliness, appropriateness and what actions are taken to ensure that cases do not stagnate, in essence the system should remain as fluid as possible. Again common rules and understanding were proposed solutions, in addition to greater role for SLOs and stricter obligations on authorities to respond to requests within a set period of time. Other suggestions on how the tools of the Network could be more useful or the network could be enhanced are provided in Box 5.1, Box 5.2 and Box 5.3 (focusing on information and enforcement requests and alerts respectively).

5.4

CPC system and other information sharing tools/mechanisms Interviewees were unanimous that the CPC System (CPCS) is a well-functioning tool which has improved over time following a series of updates mainly to the technical functions to allow more information to be exchanged and improvements to its user-friendliness. A number of respondents to the survey did however express the view that user friendliness could be enhanced further. One respondent recommended, “Making the tool more userfriendly and operational, building on experience collected from other networks (like RAPEX and RASFF)”. These have already been discussed in Annex 2 in relation to the current functioning of enforcement in the Member States; however the degree to which they might be complementary to the CPC System needs to be considered. In addition to the four cooperation mechanisms under the framework of the CPC Network, stakeholders were asked about any informal cooperation mechanisms they employed that, while being outside the CPC Network, might yield relevant insights for the operation and functioning of the Network. The advantages emphasised by stakeholders included increased ease of information and best practice sharing, the provision of more rapid responses to queries and the potential for such arrangements to allow for enhanced communication with authorities in third countries (in addition to intra-EU stakeholders). From a broader perspective, communication through networking and development of guidance was seen as highly beneficial, particularly where participants were able to exchange experience, participate in common investigations and 81

define common priorities. On the whole, informal mechanisms were believed to be complementary to the CPCS (as opposed to alternatives): ■

Two SLOs interviewed mentioned that bilateral arrangements were in place between their authority and authorities in other Member States. These mechanisms tended to assume the form of informal discussions, meetings or email exchanges and were more commonly in place between authorities based in neighbouring countries in the EU. Interviewees suggested that bilateral arrangements sometimes facilitated greater informal interaction and discussion leading to more fruitful collaboration outcomes than the CPC Network. “Yes, [we have] bilateral agreements with some other MS. We think that informal cooperation is also very important for the CPC network to function properly. Informal liaison seems to work much better than CPC committee meetings where there is less interaction and discussions.” [NCA/ SLO] “There is a cooperation agreement between the Baltic countries, mutual exchange of information, yearly meetings and e-mail exchange.” [NCA/ SLO] “Informal cooperation is the easiest and most effective means of communication to us – we have informal contact with most NEBs across MS. As such, we’re also constantly trying to improve contact – for instance, we have upcoming meetings with NEBs in Ireland [and] the Netherlands. These meetings enable us to know how they work under extraordinary circumstances so in some way they get to share their best practices with us and we do the same.” [NCA]

■

A few NCAs/ SLOs also emphasised the relevance of the International Consumer Protection and Enforcement Network (ICPEN) Framework, OECD collaboration and the RAPEX system. As highlighted in the discussion on alerts below, the RAPEX initiative appears to be significantly more prolific than the CPCS in terms of the amounts of data exchange it facilitates. “[We are] member of the International Consumer Protection and Enforcement Network (ICPEN). Within this informal network, regular conferences, working groups and telephone conferences allow an intensive exchange of experience between the participating authorities.” [NCA/ SLO] “[We are] part of different cooperation networks (ICPEN, FINNET, RAPEX etc.). All those networks have different tasks and purposes but those networks can´t substitute [for] the CPC.” [NCA/ SLO] “This provides a framework for developing contacts with enforcement counterparts outside the EU. ICPEN is an informal network and therefore there are no obligations or participation requirements. Wider non EU work can also benefit the CPC by learning from others e.g. intelligence, prioritisation, evaluation, enforcement techniques etc. CPC work/initiatives/activities should routinely be considered in the wider international context. It might also be useful to have a ‘Other international issues’ type standing item on CPC Committee agendas, which could be used as a way of keeping up to date with other work e.g. in ICPEN and OECD.” [NCA/ SLO]

■

Informal cooperation with the European Consumer Centres Network (ECC-Net) and consumer organisations were mentioned by consultees as bearing potential for contributing to additional efficacy as regards infringements addressed. Stakeholder views emphasised that inputs of consumer organisations, being focused on consumer perspectives, could provide useful insights and context to infringement resolution. “From [our] point of view, there are informal agreements. For example, cooperation between the ECC and [our organisation] is good and in [our] opinion there is no need to build some formal solutions as both institutions can come to an agreement in the framework of the existing relationship.” [NCA/ SLO]

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“There must be created a chance of, as well as more stress should be put on building a greater cooperation network involving consumer organizations. [we] think that this is essential, as this cooperation is dying out at the moment, as it is not supported, nor taken into account in developing the agenda of creating policy of consumer protection.” [NCA] At the inception of CPC, many authorities were quick to use the CPC Network as shown in Table 5.1 (overleaf); however its use has declined in the last three years for many authorities. Commission officials suggested this was because at the outset authorities were keen to use the system perhaps misunderstanding its purpose and how it should be used or its benefit in a given situation. Unfamiliarity with the procedures and processes may have also deterred some from continuing to use the Network. These and related issues are discussed in greater detail in the sections focusing on requests and alerts (Sections 5.5 and 5.6). It is anticipated that technical refinements to the software interface and the production of guidance documents will encourage greater use in the future.

5.5

Information and enforcement requests The cooperation mechanisms stipulated under Articles 6-9 of the Regulation to govern mutual assistance between the Member States include (Articles 6 and 8): ■ ■

Information exchange upon request, and Requests for enforcement measures.

Stakeholders consulted took the view that the benefits of the information and enforcement request channels outweigh the costs. The benefits mentioned by stakeholders included the following: ■ ■ ■ ■ ■

Improved cooperation between Member State authorities; Increased effectiveness of cross-border enforcement actions (e.g. potential for increased pressure to be imposed on companies in breach of the law across two or more Member States); Exchange of learning and best practices; Increased awareness among authorities as regards emerging unfair commercial practices, and Increase in administrative capacity of national authorities.

In terms of costs, authorities often highlighted the administrative costs incurred in using the system owing to slow processing speeds of requests and the lack of ‘search filters’ on the system. One stakeholder emphasised that these issues often led to a consideration of the opportunity cost, so that more ‘worthwhile’ cases tended to be prioritised whereas lower impact cases, primarily those involving small traders, were delegated to local authorities. Other costs mentioned included costs of delays in receipt of responses to requests and suboptimal usage of the system. Further, the lack of cooperation with between NCAs and the European Consumer Centres Network (ECC-Net) was mentioned as being a hurdle in the path of effective mutual assistance by at least one NCA. It was often felt that these costs could not be estimated, with one stakeholder explaining that they differed in line with the complexity of requests received and the amount of time required to address them. Another stated that individuals with CPC related responsibilities also worked on other areas and that any estimates of CPC specific costs could therefore only be approximations. It is common in such cases that ‘administrative costs’ do not exist for authorities in the pure sense of the term, but rather in undertaking CPC related duties the individual official is taken away from other enforcement related duties which may be more beneficial or less costly to resolve. For this reason where resources are constrained, individual resources are focussed on national enforcement cases and not on more complex cross-border requests. However, this lessens the benefit to all consumers from enforcing a request on a rogue trader in one Member State who is active in many other countries. Suggestions to set maximum response times and to give a greater role for SLOs in pushing through cases more quickly are relevant in this context. However, it also requires authorities to realise the EU added value that their actions can bring, which is more challenging given 83

the limited number of cross-border issues they may deal with, the complexity and associated time needed to process each request and the fact that authorities by their nature have market intelligence, know-how, contacts, and a legal remit which is domestically focussed. Additional resources or obligations may therefore not be sufficient without a carrot and/or a stick. The summary of mutual assistance requests over time in Table 5.1 and the comparison of EU cases against national enforcement cases in Annex 3 by legislation covered in the CPC annex provide an indication of the scale of the issues to be addressed. As noted in Annex 3 in sectors such as audiovisual media, informal collaboration between Member States is relatively well established and the need for rapid enforcement responses renders the CPC Network a ‘slow’ option (given that media content tends to undergo rapid transformation). In such industries, therefore, low usage figures for the CPC System are understandable. Boxes 5.1 and 5.2 summarise illustrative cases studies on specific information requests and enforcement respectively. Box 5.1: Case study of a specific information request One case study was undertaken focusing on an information request as part of the evaluation. The applicant authority was an NCA in the Member State in question. The request had been placed by this authority to a neighbouring Member State in 2011. The applicant authority had, upon receipt of a formal complaint from a consumer, investigated the website of an online games service provider. The authority had perceived specific clauses of the terms and conditions prescribed by the operator in question as being unfair under the provisions of the Directive on Unfair Terms in Consumer Contracts (Directive 93/13/EEC). In particular, the terms highlighted provided the company in question the scope to make arbitrary changes to the character of the gaming services offered. The applicant authority therefore requested the contacted SLO to visit the company and ensure the deletion of these (unfair) contractual provisions. The interviewee did not get feedback on whether this information request had been complied with. As a result, no conclusions could be reached regarding the efficacy of implementation actions taken (if any) and on whether the infringing company had been penalised.

This first case study highlights a point raised earlier that follow-up is often not reported and that feedback is inadequate. This has implications for the longer term effectiveness and perceptions regarding reliability of information requests in terms of their leading to effective enforcement action on the part of requested authorities. There may also be scope for the Commission to play a monitoring role in such cases to keep track of instances where applicant authorities receive no response within a specific time period (of, for instance, one year). This supplements the discussion in Section 5.9 on the role of the Commission in the CPC framework.

Box 5.2: Case study of a specific enforcement request The authority interviewed in this case was the SLO as well as an NCA in the Member State in question. The request had been received by this authority from an NCA based in another Member State following the 2008 ‘sweep’ focusing on mobile ringtones. The applicant authority had detected a number of infringements in attempting to purchase ringtones online from the trader in question. Perhaps the most serious issue was that consumers who registered for what was ostensibly a ‘free’ service were subsequently charged for the same, in violation of Directive 97/7/EC on distance contracts. It was estimated that 300,000 consumers were affected, with the total detriment estimated to amount to €3m (i.e. an average detriment of €10 per consumer affected). The interviewees stated that prompt action had been taken to address the infringement, with directions having been given to the relevant NCA to take action against the infringing enterprise through an 8.3 authorisation (already provided in the enforcement request). The NCA concerned dispatched a written warning to the infringing trader to cease its infringements and to issue relevant undertakings to this effect. While the trader took action to this effect on most counts, the NCA filed an injunction to the competent court on all remaining grounds (on which the trader had not ceased infringements). Following extensive discussions and an unsuccessful court appeal made by the

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trader, the NCA obtained an out-of-court settlement in which the trader committed to cease all remaining infringements. The trader subsequently complied with the settlement by setting up an information transmission system relying on a permanent data storage medium (with no scope for the trader to modify any information stored in the same). The requested authority expressed the view that the case had been handled satisfactorily, with the applicant authority having been kept informed throughout the process. The authority interviewed suggested that while it was fair that the applicant authority was provided the opportunity to provide its opinions on the negotiations involved, this added to the time and complexity entailed in resolving the case. On the whole, however, the resolution process was deemed to have been efficient and effective in terms of addressing the issues raised.

The above case study highlights the potential significance of action taken following enforcement requests, with the request in question alone having the potential to yield benefits for as many as 300,000 consumers. The added value of the Network is evidenced by the fact that with average detriment per consumer amounting to €10, it is unlikely that individual consumers would have taken the infringing trader to court in the absence of this request having been placed. Moreover, the fact that the consumers whose rights were infringed were located in a Member State distinct from that in which the trader was based emphasises the importance of effective cross-border cooperation in addressing the issue. The case also raises the potential for competent authorities in a given Member State to be unaware of unscrupulous traders operating out of their jurisdiction in the absence of effective cross-border communication mechanisms (as facilitated through the CPC Network). In effect, ensuring that summaries of such cases are regularly prepared and filed may be helpful in terms of fostering increased awareness among consumers as well as public authorities and developing best practices for tackling infringements across a range of sectors.

5.6

Alerts Table 5.1 reveals that the use of alerts by Member State authorities has been on the decline since 2008. The downward trend can be partially explained by the fact that in the beginning the 8.6 notification had not been implemented in the IT tool (CPC System) and that some authorities therefore used the CPC alert to inform other authorities about actions taken in a given enforcement case. This temporary technical shortcoming of the CPC-System is not sufficient to account for the continued decline of alerts over the years. This is further supported by the survey findings indicating that nearly 90% of Member State authorities surveyed (NCAs and SLOs) rated the relevance of alerts to be ‘average’ or ‘not so good’ (see Figure 5.4). Relative to enforcement and information requests, alerts were reported to be significantly less useful by survey respondents (Figure 5.3). The in-depth interviews focused case study provided further insights. In the in-depth interviews, the issues many authorities highlighted related not to alerts themselves but to the information transmitted via alerts. Firstly, it was unclear when an alert should be sent and whether due consideration was given to who would receive it. A common approach to alerts was therefore welcomed. Equally when receiving an alert the actions to be taken should be made clear. In this regard, one consumer agency made a useful comment in a recent presentation: “It might not be the system as such which is the problem, but perhaps that there is no one answering on the other end”. Resources were also a major concern amongst many NCAs consulted. Further, one stakeholder mentioned that it was often not clear whether to deploy an alert or information request and that this lack of clarity was a barrier to the effectiveness of the system. A point raised was that limitations posed by language barriers (e.g. lack of significant details due to a lack of translation for major documents or attachments) impeded the efficiency of Network responses to alerts as well as information and enforcement requests. Another NCA indicated that alerts were sometimes viewed as being merely of an ‘indicative’ character, so that Member State authorities did not always act on the information they provided.

85

In terms of costs involved in using alerts, stakeholders’ views largely corresponded with those outlined for information and enforcement requests above. While administrative costs continued to be the major cost component, one stakeholder recommended that alerts should be better targeted so that authorities in Member States where they were most relevant could take more concerted action in the area(s) in question. Box 5.3 provides additional insights into issues associated with alerts made by one Member State authority with which a case study was conducted focusing on a specific alert. An important point for potential improvement is the provision of feedback on any action taken against infringing traders following an alert being placed. As part of the enforcement request case study discussed above, it was learnt that feedback was provided to the applicant authority on a regular basis, which may in general be considered to result in a higher likelihood of such requests being placed in the future. On the other hand, in the example below, no such feedback on progress made following the alert was received by the applicant authority. This lack of feedback is likely to be a key factor underlying the progressive decline in the number of alerts placed using the CPC system, as noted in the terms of reference for this study32. If there is no way to know whether the information registered in an alert is being acted upon and if, on the other hand, placing information or enforcement requests is more likely to yield regular updates from the recipient authority (as was highlighted in the enforcement request case study discussed above), authorities are likely, over time, to prefer placing requests to issuing alerts. In tandem with the points noted above, this may well have contributed to the observed downward trend in the number of alerts placed using the system following inception. The figures for requests issued appear to support this logic (the number of information requests issued using the CPCS declined initially from 160 in 2007 to 118 in 2008 but increased to 150 in 2009 and the number of enforcement requests placed rose sharply from 86 in 2007 to roughly 165 in the period 2008-2009)33. A small number of ‘sectors’ have a high proportion of alerts. Over 80% of alerts issued in 2008 were focused on five Directives which predominantly covered ‘consumer’ centric legislation (primary unfair commercial practices, distance contracts and electronic commerce), as opposed to more ‘industry-specific’ Directives such as those focusing on the television broadcasting and medicinal products sectors.

Box 5.3: Case study of a specific alert The authority interviewed for this case study was the SLO as well as an NCA in the Member State in question. The alert had been placed by this authority in the context of online holiday packages being offered by a provider based in another Member State, under the Unfair Commercial Practices Directive (Directive 2005/29/EC). The authority’s complaint centred around the fact that while consumers were being offered discounts or special rates following payment of an initial charge, the terms in question were misleading and consumers ultimately paid amounts different from those that were advertised. While this alert was mentioned to have been placed to protect consumers’ economic interest, the authorities did not perceive that the detriment involved was necessarily substantial. It was felt by the interviewees that the actions taken by the notified authority (in the other Member State) to deal with the infringement highlighted through the alert were timely. However, while a response was received fairly rapidly, the interviewees emphasised that there was no feedback on the enforcement action taken (e.g. in terms of whether any sanctions were levied on the infringing enterprise). It was suggested that the Commission may have a role to play in raising the profile of alerts among Member State authorities and facilitating greater coordinating in terms of information sharing on outcomes.

32

The average number of alerts placed annually through the CPCS has declined from about 100 in 2008 to roughly 40 in the period 2009-2010. 33 COM(2012) 100 final: Report from the Commission to the European Parliament and the Council on the application of Regulation (EC) 2006/2004 of the European Parliament and of the Council of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws (the Regulation on consumer protection cooperation), Brussels, 12.3.2012

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Another recommendation made by those consulted as part of this case study was that the obligation to issue an alert within seven days was impractical and could result in certain authorities, especially smaller organisations, not being able to undertake sufficient background research prior to issuing an alert. It was suggested that this restriction should be lifted, in particular for relatively less resourced organisations. Further, the authority interviewed mentioned that alerts tend to be treated with varying levels of seriousness across Member States, which results in diverging levels of response efficiency – increased consistency on this count might be helpful.

One NCA interviewed suggested that CPC alerts could be improved along the lines of alerts placed through the RAPEX network. The interviewee mentioned that RAPEX allowed for over 1,000 alerts and requests to be dealt with on an annual basis, which is considerably higher than the corresponding figures for the CPC Network (as shown in Table 5.1). As discussed in Annex 2, RAPEX also lists Member States who take action after having received a specific alert, thereby notifying the ‘applicant’ Member State about the alert having been dealt with. Similar provisions would help enhance the effectiveness of CPC alerts by providing authorities with reliable feedback on enforcement action taken following an alert having been placed. Other longer term recommendations for the CPC alert mechanism would be the initiation of a distinct CPCS capability for transmission of simple and easily comprehensible alerts on an initial ‘hit/ no-hit’ basis that could then be followed up for further details by authorities based in Member States where further action is perceived to be of interest. Comments made by interviewees included: “Members of the CPC network have to think how to improve this tool; currently, alerts are sent to all CPC members; it is difficult to take time to read them all. Alerts must be presented in a way member states could immediately know if they are likely to be interesting for them. Recently, DG SANCO took the initiative to organize a workshop on the mutual assistance requests, in order notably to complete the manual dedicated to mutual requests. It was a useful initiative. For [the respondent] and concerning alerts, it would be practical that they can be presented in such a way that the name of the company appears immediately to allow the Member States to know if this alert is likely to concern the cases they are involved in. An exchange of best practices on this point with the ICPEN network could be useful.” [NCA/SLO] “Due to the language barrier, in a large amount of cases (irrespective of whether it comes to an alert, request for information or a request for enforcement action) no additional documents are attached in the system and most probably, this is due to the fact that those documents have to be translated at least in English first before uploading them on the system. Also due to the language barrier, some alerts, requests for information and requests for enforcement actions are entered into the system with minimum details and sometimes this information is insufficient to understand the nature of the infringement. It would be helpful if the system provides to opportunity to include court decisions related to judgements on breaches of legislation which would be beneficial for all experts in the Member States.” [SLO] “Improvements in some areas would allow the CPC network to function better. This includes a common understanding of the meaning of alerts. The Authorities may be unsure about when to use alerts or information requests. According to [NCA], alerts should probably be used if the number of MS affected is potentially large, but there is no common understanding about this.”

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Table 5.3 Mutual assistance requests by legislation infringed (2007-2010) Mutual assistance requests by legislation infringed (2007-2010)

Art. 6 Information

Art. 7 Alerts

Art. 8 Enforcement

2007

2008

2009

2010

2007

2008

2009

2010

2007

2008

2009

2010

Directive 2006/114/EC on misleading advertising

48

0

0

0

34

0

0

0

35

0

0

0

Directive 97/55/EC on misleading advertising so as to include comparative advertising

40

0

0

0

4

0

0

0

3

0

0

0

Directive 85/577/EC on contracts negotiated away from business premises

1

10

2

3

0

6

0

1

1

0

7

5

Directive 97/7/EC on distance contracts

11

4

18

22

4

11

2

4

9

22

35

19

Directive 2008/48/EC on consumer credit agreements

1

0

1

1

0

1

1

0

0

0

0

0

Directive 2010/13/EU on audiovisual media services

0

0

0

0

1

1

0

0

0

0

0

0

Directive 90/314/EC on package travel, package holiday and package tour

2

1

1

1

0

2

1

2

1

0

0

5

Directive 93/13/EC on unfair terms in consumer contracts

21

10

30

6

15

7

6

1

10

14

14

37

Directive 2008/122/EC on timesharing

27

0

0

0

1

1

0

0

0

0

0

1

Directive 98/6/EC on indication of prices

0

0

1

2

0

1

0

0

2

3

5

1

Directive 1999/44/EC on sale of consumer goods and associated guarantees

2

1

2

1

1

3

4

2

3

4

8

8

Directive 2000/31/EC on electronic commerce

3

9

13

16

7

20

14

8

15

48

54

40

Directive 2002/65/EC on distance marketing of consumer financial services

0

0

1

0

1

3

0

0

1

0

2

1

Regulation (EC) N° 261/2004 on denied boarding and cancellation or long delay of flights

1

1

0

0

1

2

0

0

3

4

7

1

Directive 2005/29/EC on unfair commercial practices

1

86

125

68

0

40

30

29

4

73

112

86

Directive 2001/83/EC on medicinal products for human use

2

0

3

0

3

2

0

0

6

2

4

7

88

5.7

Data management issues The efficiency of the CPCS is dependent on the efficiency of the processes set up to enable Member State authorities to deal with information and enforcement requests and alerts. There is the perception that the CPCS process is slow and complex and that this limits the effectiveness of the system. A number of issues were highlighted on the functioning of the system in case studies and in-depth interviews: ■

■ ■

■

■

The data forms required to be filled in were felt to be excessively lengthy and time consuming. In one instance, an SLO specified that the data required to be entered into the system was sufficiently complicated that a preliminary file was prepared in Microsoft Word format to facilitate the process of data entry. (“Entering info in the CPC Web page is very complicated and usually before entering information [our] staff prepare it in a Word document.”) The CPC servers are often extremely slow (this was highlighted by interviewees in four out of the nine countries where detailed interviews were undertaken) and liable to frequent crashes. A specialist from one NCA mentioned that the storage capacity of the CPC system is low in that attachments exceeding a size of 2MB cannot be transferred. This resulted in difficulties in attaching and sending evidence of infringements, particularly in instances where infringing websites had been photographed and the evidencing attachment was required to be sent to other Member States (given the obligation of the Regulation for evidence of infringement to be provided wherever possible). The system is not user-friendly and it is difficult to gain a comprehensible overview of information obtained, even in PDF format. One recommendation relating to increasing user-friendliness concerned bringing the ‘TESTA’ tool in line with alternative secured Internet addresses: “According to the national competent authorities' feedback, the TESTA IT-tool is not user-friendly and therefore not very operational. Some national authorities are not yet connected to the CPC Network, because the system obliges dedicated lines and a specific contract with a telecommunications provider involving secured lines and additional features that imply high costs for those authorities. In the future, maybe the TESTA IT-tool could be further developed under the same model of other secured Internet addresses (normal https:// addresses like the ones used by banks) that could work in a less costly and friendly way.” [SLO] Files provided through the system do not always bear an official seal of approval (from the Commission), which often renders them unusable in a court of law. (“There is still a lot to do in terms of improving the quality of documents/data available for court proceedings – for instance, we have often had difficulties in proving an infringing trader wrong in court simply because of a lack of authentication of documents provided by requested MS. At the moment we are only able to use “print-screen” documents of the information provided which unfortunately do not contain the Commission’s official seal – authenticity of documents is therefore very much questioned in court proceedings. The Commission should review how best to present data information.”)

Stakeholders consulted indicated that a range of alternatives were in place at the national level in selected Member States that were helpful overcome the shortcomings of the CPCS. These could potentially serve as models for Member States which do not have parallel setups in place. In addition to the CPCS, information stored on centralised national databases is often referred to in order to double-check against available data on infringing traders. Examples of such databases are as follows:

▪ ▪ ▪ ▪ 34 35

The “Baromêtre des réclamations”34 (FR); Central Database to monitor complaints and reports (BE); ‘Consumer regulation’ website (UK)35; Internal databases (EE, not publicly accessible).

http://www.economie.gouv.fr/dgccrf/Barometre-des-reclamations-des-consommateurs See for instance http://www.oft.gov.uk/OFTwork/consumer-enforcement/undertakings-court-action/

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In one instance, a national database was specified to have been tailored such that professional sectors where the likelihood of infringements occurring was higher were rapidly identified to encourage more effective enforcement actions. Another NCA stated that an alternative website was employed for transferring data files exceeding 2MB in size. The CIRCA platform was mentioned as a potential alternative to CPCS in some circumstances (e.g. for scheduling meetings). Recommendations made by those consulted to increase the effectiveness of CPCS processes included: ■ ■ ■ ■

■ ■

Increased user-friendliness of processes by means of shorter data entry forms, increased storage capacity, simplified information display formats and reduced access restrictions for authorised national agencies; Ensuring the provision of more rapid and better targeted search results; Potential for a greater role played by the European Commission in ensuring that information available on CPCS is up to date and in setting up automated reminders for timely responses to data requests; Ensuring that all documents stored on the system have an official CPC seal of authentication (and can therefore be presented in a court of law), as there is currently no provision for the Commission to certify that appropriate documentation or evidence has been attached to CPC forms even as the format of print-outs of these forms has been improved; Establishment of a communication infrastructure between Member State authorities and provision of contact details of NEBs in other Member States; and Enhanced ease of access to information on case laws and upcoming cases.

In its latest biennial progress report36, the Commission indicated that measures have been initiated to address several of the issues highlighted above. In particular, new IT functionalities are due to be launched in 2012 to better coordinate enforcement activity and to allow for more effective searches. Further, the tool is in the process of being made multilingual and operational speeds are likely to increase in the near future. The nature of data protection under the system, while fairly satisfactory, is being further refined in consultation with the European Data Protection Supervisor (EDPS).

Period of enforcement data retention on the common database Under the provisions of the CPC Regulation, enforcement data is to be retained in the common CPC database for a period of 5 years. The purpose of this provision is to facilitate effective enforcement of the Regulation by ensuring that Member State authorities are able to track infringements and, in particular, traders who persistently violate consumer law provisions. In the in-depth interviews undertaken as part of the study, stakeholders were asked to comment on whether this data retention period was adequate in terms of promoting effective enforcement. All the authorities interviewed expressed satisfaction that 5 years was an appropriate duration for data retention, in particular given that this duration is calculated beginning from the closing date of each case, as was specified by one SLO. In addition, an SLO interviewee suggested that while retention for 5 years was crucial, further retention might provide additional benefits in cases of recidivism over periods exceeding 5 years. Another SLO emphasised the significance of deleting data on traders who had fully complied with the law after having been identified and named in the database after 5 years, as not doing so would result in ‘reformed’ traders being unfairly penalised. One other SLO suggested that while 5 years served as an adequate retention period on the whole, a separate database could be envisaged to focus on the most commonly occurring types of infringement, data on which could potentially be retained for a longer period.

36

COM(2012) 100 final: Report from the Commission to the European Parliament and the Council on the application of Regulation (EC) 2006/2004 of the European Parliament and of the Council of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws (the Regulation on consumer protection cooperation), Brussels, 12.3.2012

90

5.8

SWEEPS Since 2007 the Member States have organised concerted actions called ‘SWEEPS’, under Article 9 of the CPC Regulation which calls on competent authorities to coordinate their market surveillance and enforcement activities when the interests of consumers in more than two Member States are potentially harmed by an infringement. SWEEPS are a means to foster a common approach and enhance enforcement in the EU. Together with alerts, information requests and enforcement requests, common surveillance activities constituent one of the coordination mechanisms of the CPC Network. SWEEPS are amongst the most visible of these activities. Participation in a SWEEP is undertaken on a voluntary basis. The objective of SWEEPS is to investigate whether online businesses comply with EU and national consumer protection laws, and to improve the compliance with such laws across the EU. Coordination on a simultaneous basis and seeking enforcement along the same lines should improve the effectiveness of the action and contribute to a new "European dimension" to enforcement. Such EU wide actions have a clear facilitation effect on the single market and because SWEEPS fight non- compliant online traders at both national and cross-border level, there is often a strong domestic benefit from being involved. In exchanging information to achieve coordination there is also added benefits in terms of the opportunity for authorities in the same area to establish contacts, share experience and discuss best practices and develop a common understanding of legal issues. In each SWEEP action, national authorities check hundreds of sites relating to a particular sector or product in order to check whether the necessary consumer rights are being adhered to. The sectors proposed for the SWEEP are selected by Member States with the Commission based on a list of proposed themes that combines evidence on current consumer issues available to national authorities and the Commission (e.g. data from the ECC-Net database37).. A SWEEP action comprises two steps. In the first phase the initial checks are undertaken where national authorities decide whether a particular website should be recommended for further investigation. The websites are checked against a checklist agreed on by the participating NCAs before the SWEEP, and is used by all participating Member States. In the second phase the authorities investigate suspected websites further and take appropriate follow-up actions, if necessary through the CPC Network. They contact the traders responsible for the websites under investigation asking for clarification and correction of the irregularities. So far SWEEPS have been carried out in the following areas: websites selling air tickets (2007); mobile phone contents (2008); electronic goods (2009); tickets for cultural and sports events (2010); and, consumer credits providers (2011). Table 5.2 indicates the final results of each SWEEP action (apart from the Consumer Credit Sweep which is still on-going).38 The largest investigation undertaken so far was the Consumer Credit investigation with 562 websites checked. This sector also had the largest ratio of reported to investigated websites at 70%. The sector most compliant with consumer regulation was the airline sector even though 50% of the websites were suspected to be in breach of EU consumer laws. The enforcement rate (which is the ratio of the number of websites corrected to that reported) was high for all sectors (above 70%), and especially high in the airline action at 81%. This suggests that enforcement is not only effective but also consistent across different sectors.

37

The ECC Network is made up of 29 centres (one in each EU country plus Iceland and Norway) which are responsible for providing advice to consumers who engage in cross-border online shopping.

38

Final results are results of the second phase of investigation.

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Table 5.4 Number of websites investigated, reported and corrected under EC Sweep actions Sweep Action

Airline (2007)*** Mobile Phone Content (2008) Electronic Goods (2009) Online Tickets Sales (2010) Consume r Credit (2011)

Countries which participated

Number of websites

Ratios

Investigated

Reported with confirmed irregularities

Corrected

15 MS + Norway

447

145

118

32%

81%

27 MS + Norway, Iceland

554

301

213*

54%

71%

26 MS + Norway, Iceland

369

206

147

56%

71%

27 MS + Norway, Iceland

414

247

196

60%

79%

27 MS + Norway, Iceland

562

393

Ongoing**

70%

NA

Reported/ Investigated

Enforcement Rate

Note:* Includes websites closed. **Results are to be reported in Autumn 2012.***Results confirmed in 2009 Source.EC MEMO/09/505, MEMO/08/287, MEMO /12/2, MEMO/11/644, MEMO/10/417.

The nature of SWEEPS ensures a strong cross-border dimension; a SWEEP is also highly beneficial at national level. As one stakeholder described it: ‘[…] it is difficult to find a legal basis that would give […] the power to do an Internet Sweep. But thanks to the Commission, […] was able to do this and detect infringements.’ In addition, the evidence from the SWEEP actions suggests that the number of national websites subject to investigation greatly exceeded cross-border cases. Figure 5.5 shows the increasing difference between cross-border and national websites which the authorities confirmed had breached EU consumer laws. This reflects different characteristics of consumer credit and airline markets, the former being highly domestic and the latter highly cross-border. The cross-border dimension does not prevent authorities focussing on national cases, as when dealing with other enforcement issues described earlier. Indeed, the EC noted that in the Airline SWEEP, Finland did not follow five cross border cases because they ‘decided to concentrate their effort in correcting national cases’.39 If this was the case, it is important that the reasons behind authorities’ behaviour are understood. Indeed, stakeholders’ interviews showed that there are resource issues with regards to SWEEPS with the majority expressing the need for improvements in cross-border cooperation.

39

EC MEMO/08/287.

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Figure 5.12 Numbers of websites with confirmed breaches of EU consumer law 400 350

Number of websites

300 250 200

380

150 243 100 50

90 42

58 13

0 Airline (2007)

Mobile Phone Content (2008)

Cross-border

Consumer Credit (2011)

National

Source: EC MEMO/09/505, MEMO/08/287, MEMO /12/2 Note: In Airline (2007) five CPC websites were not followed because Finland dropped them in favour of national websites.

Investigating the SWEEP data further, the figures show that in the airline SWEEP only 12% of total reported cross-border cases were corrected through enforcement action compared with 56% of national cases. If the same is the case for other SWEEPs (for which data are not available), this suggests that there is significant scope for improvement in cross-border enforcement. Also SWEEP results indicate high infringement levels in national contexts. SWEEP action helps to identify and trigger follow-up to such domestic cases and thus raises the overall level of consumer protection. These points are further discussed in Annex 7, which includes a detailed ‘SWOT’ analysis of SWEEPs.

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Figure 5.13 Percentage of corrected websites with confirmed breaches of consumer law in Airline Sweep 60%

Percentage of corrected websites

50%

40%

30% 56% 20%

10% 12% 0% Cross-border

National

Source: EC MEMO/08/287

5.9

The role of the Commission The Commission is uniquely positioned within the CPC Regulation to observe and fund many of the provisions, but has minimal input in mutual assistance mechanisms. Whilst it establishes the common rules for the implementation of the CPC Regulation and issues guidance in the form of manuals that apply to the cooperation (e.g. CPC operating guidelines, Sweep kit, manual on how to carry out an online investigation), it has limited means to exert pressure on NCA to secure compliance. This is having a negative impact on the governance of the CPC Network at present. This sub-section reviews the role of the Commission assessing whether it should do more or whether other organisations might be better placed to undertake some its responsibilities Respondents to the NCA/SLO survey were asked for their views on the role of the Commission in promoting cooperation within the CPC Network. Responses indicated varying views, with 47%of respondents stating that a greater role for the Commission would facilitate more effective cooperation, another 30% suggesting that the Commission’s role was ‘about right and important for cooperation’ and a further 22% expressing uncertainty. On the whole, open survey responses and in-depth interviewees were of the opinion that, there is room for further action from the Commission to help achieve the objectives of the CPC Regulation. Areas where the Commission could play a role include: ■

■

Making clarifications: the Commission through the publication of advisory guidance documents could contribute to overcome the uncertainties that arise from the implementation of EU consumer legislation (including the CPC Regulation) and to promote the emergence of a common approach in the CPC Network. In this way the Commission would play a greater role in the governance and operation of CPC. Case handling: Building on the role outlined above, some stakeholders indicated that the Commission could be more involved in complex CPC cases at the request of Member State authorities. The Commission could usefully also take the initiative, when 94

■

■

■

■

monitoring shows that case(s) are not progressing or when similar cases emerge requiring stepped up coordination efforts. Specifically, this role would involve acting as facilitator of case handling meetings to coordinate the investigative and enforcement action of authorities from different Member States when pursuing the same trader. This would contribute to ensure the effectiveness and efficiency of the actions taken, also the Commission could act as independent arbiter where differences between Member State authorities cannot be resolved through dialogue, in order to ensure that cases do not stagnate in the CPC Network and that enforcement is achieved. However, the Commission currently has very limited access to case-level information, which will need to be changed in a revision of the CPC Regulation for the Commission to be able to play a meaningful facilitator and monitoring role. Common awareness raising and visibility of CPC: The position and resources of the Commission mean it is well placed to initiate a common awareness campaign(s) across all Member States and to promote the successes of the CPC Regulation to competent authorities, traders and consumers. The consultation exercises in this study identified a lack of knowledge amongst national authorities in relation to CPC, which to some degree could be resolved by such action. However, if the CPC is to be more successful, competent authorities must also be motivated and incentivised to use CPC Regulation and this is likely to require more than just information to change behaviour. To relay awareness raising action effectively from the EU to all levels and actors in the Member States, a reinforced role of the SLO should be considered. Monitoring, recording and dissemination of market surveillance and mutual assistance information: the various monitoring and enforcement actions undertaken through CPC Regulation generate a substantial volume of information on rogue traders, market developments and changing consumption patterns. Also, Member States collect intelligence on their own domestic markets which might be of relevance to other national authorities when identifying serial rogue traders or unlawful business practices which may extend across borders. The identification of threats and common issues among Member States also requires information exchange on issues and compliance gaps from the national perspective. The Commission could therefore support the collection, reporting and storage of this information on a database and report statistics on a regular basis to help improve the consistency and quality of enforcement, and increase compliance with EU consumer law. The usefulness of such an information system would hinges on sufficient data collection across the EU and the quality of the data. Resource constraints: Greater involvement of the Commission in the operation of the CPC is likely to result in increased efficiency in the use of the resources available. The benefits of information sharing and collaboration in implementation of the CPC Regulation will be realised if the Commission continues its current efforts and initiatives in this regard. Given its overarching jurisdiction and political acceptability vis-a-vis Member State authorities, the Commission would be best placed to streamline implementation decisions in technical areas (such as increased and more systematic training) as well as in less formal areas. The Commission’s role is particularly beneficial in the organisation of the ‘informal’ elements of implementation, such as guideline setting and workshop organisation so as to capitalise on the concrete experiences of national enforcers. There are also economies of scale through the organisation of such activities at the EU level. . Coordination of joint actions: The Commission is also best placed to coordinate the enforcement of joint actions, as it does for the SWEEPS. Stakeholder interviews highlighted that it was unrealistic to expect individual Member States to act proactively in coordinating joint actions, presumably owing to issues such as a lack of authority and the potential for other Member States to enjoy ‘free-rider’ benefits. In terms of co-financing decisions in particular, a greater role for Commission action was emphasised. Further, as highlighted in survey respondents’ comments, increased Commission action is most likely to be effective in terms of ensuring adequate follow-ups of joint actions and related cases. Given the cross-border nature of transactions and infringements, there remains scope for the Commission to better organise and implement follow-ups of individual cases in this context. Moreover, as one NCA pointed out, in cases involving disputes or

95

■

disagreements between Member States, the Commission would be best placed to attain harmony in terms of perspectives. EU level enforcement: It follows that EU level enforcement of the CPC Regulation would be best dealt with by organisation with a correspondingly high level of authority and jurisdiction. Establishing a new organisation for this purpose would necessitate new legislation. This would entail complications in terms of overlapping responsibilities (of the new body with the Commission or with specialised EU agencies) and related inefficiencies. On the other hand, as one key stakeholder pointed out, the Commission could be well placed to take up this role. The existing remit of the Commission could be enhanced to better cover the need for more effective communication between national authorities and agencies and for improvements in the collation of evidence and the coordination of enforcement actions. One CPN representative suggested that the CPC Regulation allowed for a considerably greater degree of Commission action than was evident in practice. Bringing in such changes in the role taken up by the Commission might require amendments to Chapter IV of the Regulation (as opposed to a complete overhaul of the Regulation). Another stakeholder also stated that the Commission was in the advantageous position of having a better perspective of prevailing trends given the range of inputs gleaned through public consultations and evidence drawn from complaints it receives from citizens. Therefore the Commission could better steer enforcement activity. Another NCA/ SLO stakeholder was more emphatic, stating that while the Commission itself functioned efficiently, there was a case for imposing sanctions on Member States which acted ‘sluggishly’ through not implementing the CPC Regulation actively.

Box 5.4 captures comments made in interviews that supplement the points made above. Box 5.4 Stakeholder views on the role of the Commission Resource Constraints “It´s important to continue of funding of joint actions and exchange of officials. But we have to admit that if there are a lot of joint projects then small authorities’ can´t participate in all of them because of the lack of human resources. The communication of results is quite good [at] Commission level but all Member States should think how to make communication of results in a more attractive and efficient way.” [NCA/ SLO] “There is a pressing need for the Commission to find ways to alleviate administrative work for NCAs/SLOs/CAs especially with regards to any financial work.” [NCA] “We also believe that the Commission should probably review the budget and provide more funding with regards to common activities.” [NCA] “The Commission should definitely review the procedures that need to be followed when Member States decide to organise joint actions. At the moment, there is way too many forms to be completed, especially forms for claiming expenses. We think that the Commission should aim to reduce bureaucracy and find ways to enhance governance and accountability.” [NCA/ SLO]

Coordination of joint actions “[We] believe that Member States may lack funding to participate in coordinated activities. Increased financial incentives for participating Member States could be provided. In that respect, [we] believes that the EC should alleviate the administrative and financial burden imposed on Member States as a result of taking part in coordinated actions. The Commission should also encourage greater coherence in coordinated projects especially where Member States disagree or where there is a lack of a common approach being used.” [NCA] “[We have] taken up the responsibility to lead one project. This requires a lot of work. Maybe the EC could help with the organisation of working groups. The Member States that has agreed to lead a project currently needs to coordinate the participation of all other Member States – and currently is alone, without support, on this task.” [NCA/ SLO]

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EU level enforcement “The objectives of the CPC Regulation are not necessarily met. It is almost useless, if there is no enforcement mechanism on requested CA's. There is no penalty in the system. The point is that to make the procedures effective, there must be a penalty. So far, cooperation in the field of consumer protection is based only on the good will of cooperating institutions”. “Some improvement in terms of agility would be needed. We believe it is a question of practice and adjustment to the system, but perhaps it would be helpful to establish a common working methodology to improve the efficiency of case-handling.” [NCA/ SLO]

In addition, it was suggested that where a trader operating from multiple locations (transnational) threats the economic interests of all EU consumers, a greater role in enforcement could be considered, whereby the EU or any agency of the EU could act on behalf of all Member States to stop infringing activities. This would require new legislation establishing the circumstance and how the Commission would act without impeding the national laws of Member States as they relate to consumers. The resources and expertise in consumer enforcement this would entail would also be a concern. Given the growth in trans-national organisations, this is a role that should be considered in any debate. As an example of how the Commission could request other agencies to undertake its role within CPC Regulation, an executive agency of DG SANCO could be considered for undertaking many of the above potential roles, in collecting, disseminating and reporting on the activities of the CPC and of national enforcers40. Awareness raising could also be undertaken by outside agencies by expanding its role beyond managing the current community actions under Chapter IV of the CPC Regulation. However, legislative powers are likely to be necessary for the Commission to undertake EU level enforcement. This responsibility could not easily be devolved to other organisations. In specific cases where the independence of the Commission could be questioned (i.e. in case handling, coordination roles), a case for setting up an independent EU-level body might be made. The proposed EU public prosecutor is intended to fulfil a parallel role in the area of justice; an analogous arrangement could be envisaged in the consumer protection field. Overall, the role of the Commission is broadly appropriate, though in furthering recommendations some modifications may be needed.

5.10

Summary

Key findings: CPC Network and conditions influencing mutual assistance The CPC Network ■

■

Though the CPC Network has taken some time to develop and become effective it now provides a platform for formal cooperation. However, more could be done to promote informal cooperation within the CPC Network and further guidance to users on how best to use the CPC Network is needed. It is anticipated that developing a more common understanding of the system and ensuring greater uniformity in approach and purpose will improve its efficiency, effectiveness and use. Weaknesses of the CPC Network that need to be addressed included concerns over the timeliness and appropriateness of traffic within the CPC System and the tendency for cases to stagnate. Common rules and understanding were proposed solutions, in addition to a greater role for SLOs and stricter obligations on authorities to respond to requests within a given time (see below on the roles of actors)..

40

The Consumer Programme 2007-2014, which provides the financial support to some common actions of the CPC network, is managed by the executive agency EACH, Luxemburg.

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The CPC System ■

■

There was consensus that the CPC System is a well-functioning tool which has improved over time following a series of updates mainly to the technical functions to allow more information to be exchanged and to increase its user-friendliness. A number of respondents to the survey did however, express the view that user friendliness could be further enhanced. Data retention periods were not raised as a concern by stakeholders as many felt that the current period for maintaining records was important for ensuring effective consumer protection and appropriate given national data protection laws. Given the potential for cross-border recidivism by rogue traders and for convicted or blacklisted individuals to become directors of multiple businesses, there is however merit in extending the retention periods for certain types of infringement.

Information and enforcement requests ■

■

■

The cooperation mechanisms stipulated under Articles 6-9 of the Regulation to govern mutual assistance between the Member States include (Articles 6 and 8): – Information exchange upon request, and – Requests for enforcement measures. The benefits mentioned by stakeholders included the following: improved cooperation between Member State authorities; increased effectiveness of cross-border enforcement actions (e.g. potential for increased pressure to be imposed on companies in breach of the law across two or more Member States); exchange of learning and best practices; increased awareness among authorities about emerging unfair commercial practices; and, increase in administrative capacity of national authorities. The stakeholders consulted considered that the benefits of the information and enforcement request channels outweigh the costs. Proportional to the number of national infringements and accounting for the extent of crossborder trade relating to the relevant legislation with the scope of the CPC Regulation, the evaluation concluded that in some cases, utilisation of mutual assistance requests is suboptimal. A much greater volume of cases are therefore needed if the full benefits of the CPC Network are to be realised. Measures to encourage use, awareness, and increased common understanding contribute to this objective and are recommended.

Alerts ■

The numbers of alerts have reduced in recent years and doubts were raised about their usefulness especially when compared with information and enforcement requests. The feedback from stakeholders revealed differences in understanding on when alerts should be used and how follow-up should be given to them. The current alerts tool does not cater for early-warning among authorities on emerging market practices potentially affecting consumers' collective economic interests. As a result alerts are currently not meeting the objectives set out in the CPC Regulation. As part of a reform of alerts, information exchanged through alerts must be more targeted at relevant NCAs and presented in a clearer manner to ensure more rapid and effective dissemination of enforcement intelligence.

SWEEPS ■

■

■

■

Since 2007 the Member States have organised concerted actions called ‘SWEEPS’, under Article 9 of the CPC Regulation which calls on competent authorities to coordinate their market surveillance and enforcement activities. SWEEPS have been carried out in the following areas: websites selling air tickets (2007); mobile phone contents (2008); electronic goods (2009); tickets for cultural and sports events (2010); and, consumer credits providers (2011). In each SWEEP national authorities screen in total several hundred sites relating to a particular sector or product in order to check whether the necessary consumer rights are being adhered to. The sectors proposed for the SWEEP are selected by Member States, together with the Commission. The resulting enforcement rate was high for all sectors. SWEEPS have also allowed providing visibility to CPC action and have assisted in building a common understanding on legal issues and market practices among the involved authorities. The SWEEPS have been beneficial at both EU and national levels, though their impact could potentially be increased through more publicity and follow-up actions to ensure continued compliance. More could be done with SWEEPS through the dissemination of the ‘data mining’ exercises and the follow-up actions undertaken. In addition to SWEEP data, in general collection of intelligence gathered centrally should help to improve future planning, identify common risk and develop more systematic approaches to enforcement. An information sharing function within the Commission or the establishment of an observatory to DG SANCO, which would gather information more systematically from national enforcement actors and from completed

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community actions under the CPC, and should ensure that such information is regularly disseminated to national competent authorities.

Actors ■

■

■

Efficient and effective functioning of the CPC Network and the opportunities it provides relies to some degree on the roles, responsibilities and governance of three groups of actors, the Commission, NCAs and SLOs. It was broadly concluded that each actor could do more with the CPC framework to promote cooperation. Specifically the role of the Commission could be enhanced (supported by nearly half of respondents to the survey) to facilitate cooperation, in addition to doing more with its current powers (i.e. in relation to Articles 9 and 15) Both SLOs and NCAs must also do more to support cooperation by ensuring compliance with their obligations under the Regulation and assisting the Commission where necessary to promote awareness and information and knowledge sharing.

Recommendations ■ ■ ■

■

■

■ ■

■

The Commission should continue developing guidance clarifying the functioning of the tools of the CPC Regulation and the obligations placed on Member States. The text of the CPC Regulation could be revised in order to increase the clarity of the objectives, the obligations on Member States and NCAs/SLOs, and the understanding of current provisions. Consideration should be given to whether the Commission could make greater use of its powers to introduce infringement proceedings against the Member State(s) that do not fulfil their obligations under the CPC Regulation. Where several Member States seek enforcement against the same trader, guidance should be provided to help coordinate enforcement actions. The Commission's current facilitator role under article 9 of the Regulation should be reviewed to allow a more pro-active approach whilst taking due account of NCA margin of assessment/discretion and Commission powers. Consideration should be given to providing a legal base for a European body: to arbitrate in Member State conflicts hindering enforcement, to facilitate case handling coordination and to enforce EU law in a trans-national context. Consider and develop possibilities to cooperate and learn from other systems (such as IMI, RAPEX, and RASFF). A common national reporting protocol should be adopted in terms of its format and the information to be reported so that market monitoring intelligence gathered can be used systematically and ‘Joint’ EU level reports that both reflect on the achievements of CPC and anticipate future challenges can be produced. Consideration should be given to the establishment of an ‘Observatory’ that would use the experience and information collected under the CPC Regulation (and information from other sources) on the extent of infringements and challenges and successes of enforcement to generate material that would increase awareness amongst national authorities and consumer representative organisations, and ultimately EU citizens. Such an observatory would require both research and communication skills and resources.

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6

Strengths, weaknesses, opportunities and threats of Community (Chapter IV) provisions

6.1

Introduction This section assesses the wider cooperation actions facilitated through the framework of community activities established by Chapter IV of the CPC Regulation. Specifically, the following questions are addressed:

▪ What are the Strengths Weaknesses Opportunities and Threats (SWOT) of the procedures and processes established by the CPC Regulation, Chapter IV actions and related reference documents to encourage the sharing of know-how and experience and the development of common enforcement techniques and standards of enforcement? ▪ How effective is the cooperation and communication between competent authorities beyond the mandatory investigation and enforcement collaboration? ▪ To what extent do the common activities and exchange of officials contribute to the development of a common approach to enforcement within the Network, and ▪ Is EU funding of common activities and exchange of officials considered justified? What impact has been achieved that would not have happened without EU spending?

6.2

Strengths, weaknesses, opportunities and threats of Chapter IV provisions The fourth cooperation mechanism established by the Regulation (in addition to information requests, enforcement requests and alerts) concerns common activities driven by enforcement and administrative collaboration between Member States and the Commission (Chapter IV, Articles 16, 17 and 18). Figure 6.1 illustrates the overarching structure that is in place. A summary of actions undertaken through Chapter IV provisions is provided in Annex 6, providing a brief description of the action (type, number, funding, year, Member State, etc.) to inform the SWOT analysis. Interviews with Commission officials underlined the importance of informal cooperation between Member States as effective and efficient instruments, particularly as Member State budgets are under pressure and the need to generate added value is increasing. For example, informal networks can evolve and develop after initial funding as relationships between authorities are built and cooperation intensifies through increasing contact.

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Figure 6.14 Community activities (Chapter IV of the CPC Regulation)

Community Activities (Chapter IV)

Enforcement coordination (Art. 16)

Administrative Cooperation (Art.17)

International Agreements (Art.18)

Common Activities (e.g. Exchange of officials, common consumer information, activities (e.g. development of statistics) standards/guidelines), complaints Framework for statistics and classification consumer relevant information

Reporting (Art. 21) e.g. tools for collective learning, sharing of information

The following coordinated or common actions have been considered:

▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪

Exchange of officials; Joint actions (common projects); Development of standards/guidelines; Complaints classification; Administrative cooperation (consumer information, statistics); Exchange of best practice Reporting (i.e. tools for collective learning); Coordination of market surveillance and enforcement (SWEEPS41), and Other actions as identified by stakeholders.

As with the SWOT analysis in Section 6, the starting point was the responses to the survey questionnaire which were validated and triangulated with evidence obtained through the indepth interviews and other relevant sources. National authorities surveyed were asked to indicate their appreciation of the coordinated or common actions in enhancing cross-border cooperation in consumer policy enforcement. The responses, illustrated in Figure 6.2, indicate that 75% of respondents rated the exchange of best practices, the development of standards / guidelines and the coordination of market surveillance and enforcement (‘SWEEPS’) as effective or very effective. Responses reflected marginally lower levels of satisfaction vis-a-vis the effectiveness of complaint classification, and administrative cooperation (to provide information or statistics to consumers).

41

SWEEPS are discussed only briefly in this section as they have been covered in section 6.

101

Figure 6.15 Perceived effectiveness or coordinated or common actions in enhancing cross-border cooperation in consumer policy enforcement

Exchange of officials 2%

Coordinated or common action

Development of standards/guidelines

Complaints classification

Administrative cooperation (consumer information, statistics)

Exchange of best practice

20%

17%

29%

51% 40%

60%

80%

6%

6%

23%

35%

36%

0%

8%

31%

55%

Coordination of market surveillance and enforcement (SWEEPS)

6%

33%

57%

5%

5%

38%

51%

5%

Reporting (i.e. tools for collective learning)

12%

43%

41%

7%

10%

22%

66%

4% 100%

% of responses Very effective

Effective

Neutral

Not effective

Source: Survey of NCAs and SLOs (86 responses)

▪ Exchange of officials: Two-thirds of survey respondents were of the view that exchanges of officials tended to be ‘effective’; however, another 22% stated that they were ‘neutral’ on this count and 10% rated this activity as being ‘Not effective’. A few respondents elaborated by explaining that while exchange of officials was an area of particular value for CPC, the time and initial planning devoted to it needed to be increased for greater effectiveness. Many responded that this was an area of opportunity to launch common surveillance actions and even share equipment between authorities to carry out SWEEP type exercises. In-depth interviews indicated that NCAs and SLOs generally view exchanges of officials favourably given the potential for knowledge exchange and learning from the experiences of other countries in tackling cross-border infringements. One consumer protection authority (functioning as both SLO and NCA) mentioned exchanges of officials as of ‘the best examples of well working activities and/ or processes’.

▪ Development of standards/guidelines: This was perceived to be an area of strength, with 41% of survey respondents rating it to be ‘very effective’ and a further 43% stating that it was ‘effective’. Many respondents called for greater guidance in developing a common understanding the CPC Regulation and a more harmonised approach to implementation. Continued efforts in this area are therefore welcomed by NCAs and CPN representatives. In the in-depth interviews, the benefits of developing standards or guidelines tended to be implied as opposed to explicitly stated, with most NCAs highlighting the potential for learning from best practices in place in other Member States. In one Member State, however, an NCA specified that the emergence of harmonised standards had benefited the hospitality industry by fostering increased awareness of quality ratings among consumers and operators (‘In various countries, consumers and hoteliers understand in different ways the meaning of ‘stars’; the effect of the intervention was to harmonize these standards’).

▪ Complaints classification: Survey responses indicated that relative to other areas, there was considerable room for improvement in terms of classifying complaints, with close to a half of respondents expressing either of the views ‘Neutral’ (38%) and ‘Not effective’ (5%). Similarly, in the in-depth interviews, this Community activity was not mentioned to be an area of strength by any stakeholder consulted. One input obtained suggested that in 102

countries where implementation of common activities was undertaken at a regional level, additional operational costs had to be borne by ‘third party’ authorities who could only contact foreign stakeholders through their NCA. The Commission is already responding in this area by working on harmonised consumer complaints classification and database to gather data from consumer organisation.

▪ Administrative cooperation: A small majority of survey respondents (62%) rated administrative cooperation (in terms of provision of information or statistics to consumers) in the status quo as ‘Effective’ or ‘Very effective’. However, a further 33% expressed neutrality, which suggests that there is potential for further gains in this area. This is in line with stakeholder views to the effect that the Commission may be best placed to steer procedures in this domain by means of inputs gained through public consultations and/or evidence relating to complaints. In-depth interview findings indicated that administrative costs continue to feature among the most significant costs of Community activities (mentioned by NCAs in six out of nine countries). One SLO (also an NCA) commented that the leading Member State on a given project often faces coordination issues in terms of ensuring the participation of other Member States. Another NCA/ SLO highlighted the high costs of accounting and reporting borne by coordinating Member States as being impediments to fostering administrative cooperation. Further, a lack of flexibility was highlighted by one stakeholder (representing an NCA as well as SLO organisation) as being an issue, in the sense that allowing more short-term projects (with a duration as short as 10-20 days) to be initiated and decreasing the minimum number of Member States that are required to be involved to undertake common activities (currently five) would go a long way in increasing the potential of common activities to deliver positive results.

▪ Exchange of best practice: A large majority of survey respondents expressed satisfaction on this count, with 55% rating this area to be ‘very effective’ and another 31% rating it to be ‘effective’. A few respondents indicated that best practice exchange might represent an area where Member State authorities could take the lead in organising more events, planned well in advance, involving authorities from other Member States to mutual benefit. One respondent suggested that the Commission was well placed to incentivise such coordination. These results are in line with insights obtained through in-depth interviews. NCA and SLO representatives from five Member States asserted that best practice exchanges constituted a key benefit of joint activities. This conclusion applied to authorities operating across a range of sectors as well as sector specific authorities. Some of the comments received were: “The project allowed experts in Member States to share experiences, practices and methodologies related to (infringing) trading practices.” [NCA/ SLO] “[Common] activities help us to improve our enforcement skills, to learn from other authorities’ practices and to focus more to the cross-border surveillance.” [NCA/ SLO] “We believe that this was a great experience – it is indeed a positive way to instil cooperation within the CPC framework. It also gave us better insight into how CAs in other MS are working and how they conduct investigations. It was a good learning experience to our view.” [NCA, financial sector]

▪ Reporting: There is room for improvement on this front, with 23% of survey respondents expressing neutrality and another 6% stating that reporting (in terms of collective learning tools) was ‘not effective’. This is an area where the Commission could play a more significant role than it does at present, given the potential for resource optimisation and economies of scale. As mentioned in discussing the point on administrative cooperation above, interview findings also indicated that there may be scope for improvement on this front by way of reduction in reporting driven administrative costs. One NCA (also an SLO) even mentioned that reporting of expenses had been outsourced owing to the time-consuming 103

nature of the work and that this represented an addition to costs. (“The administrative burden imposed on NCAs as a result of joint actions contributes largely to their reluctance to be more engaging. For instance, “expenses reporting” needs to be ensured by the NCA. This is a particularly tedious and time-consuming exercise. [We have] delegated this work to a separate entity thereby representing extra costs to the organisation.”)

▪ Coordination of market surveillance and enforcement (SWEEPS): While 80% of survey responses were marked ‘Effective’ or ‘Very effective’ on this activity, 17% expressed neutrality. A key stakeholder recommended greater Commission involvement in this domain given the potential for increased jurisdiction via Chapter IV (as might be required) because this would be more feasible than an overhaul of the legal basis underlying the CPC. These results complemented the inputs obtained through in-depth interviews (discussed in detail in Section 5.8). In summary, therefore, the consultations carried out suggest that cross-border enforcement actions to date are regarded as a success, in particular the best practice sharing, the development of standards / guidelines and market surveillance and monitoring. There may be room for improvement vis-a-vis complaint classification, exchanges of officials and reporting, although none of these areas constituted major weaknesses. What was demanded by stakeholders was more informal cooperation actions and to ensure that more is gained from these activities. In this regard, Commission officials highlighted what more could be done with SWEEPS as a data mining exercise and the follow-up actions which could be undertaken so that added value is increased.

6.3

Other actions which could be funded Stakeholders were asked about what other collective actions could by supported by the CPC framework which would increase cooperation between authorities. Responses are provided in Box 6.1 indicating a strong desire for guidance and information to improve the mutual understanding between authorities and more workshops and exchange of officials to facilitate greater cooperation at an informal level between authorities.

Box 6.1 What other common actions could be funded which would enhance cooperation between Member State competent authorities? “Seminar and guidance.” [NCA] “The CPC meetings could be organized on the basis of one day and a half: a morning or an afternoon could be dedicated to the exchange of best practices. It would be also a way to give members of the CPC meetings to have more time to discuss; it could be also a way to create a corporate identity.” [CPN] “Exchange of officials limited in time just to continue/assist the work on a file that has been transferred to an authority in another MS”. [CPN] “The common information campaigns could be useful.” [CPN] [Respondent] sees particular value in the exchange of officials and CPC workshops which facilitate coordinated, focussed discussion on common priority areas and the exchange of best practice. These could be further enhanced with more advanced planning to ensure the most value is gained. The [respondent] has always played an active part in the network’s common activities and we would support the Commission in encouraging more Member States to participate and take a leading role in coordinating these.” [CPN] “More funded Sweeps and Workshops so authorities can share their knowledge on a regular basis, as well as technical training on online investigations.” [NCA]

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6.4

Barriers and incentives to the take-up of actions An overwhelming majority of responses received to the question on barriers to the take-up of common actions highlighted shortages of human and financial resources at the Member State level. Other barriers cited included inadequate levels of IT connectivity and networking facilities and insufficient levels of expertise on specific pieces of legislation in certain Member States. Several respondents were of the view that the Commission should consider allocating increased resources (in financial as well as HR terms) to the CPC Network to incentivise enhanced cooperation and enforcement. The limited capacity of national authorities to take up available funding and manage EU co-funded projects has been apparent from the low number of proposals coming forward in the yearly selection rounds. Alongside resources increases therefore, other means need to be considered (e.g. simplification in the functioning of the grants, support to actions through common procurement, more support to manage actions and disseminate results). Other comments are provided in Box 6.2. Box 6.2 What, if any, barriers exist to your authority undertaking or participating in more common actions? “Staff shortages”. [NCA] “Limited staff resources”. [NCA] “The IT system used”. [NCA] “Lack of staff”. [NCA] “No human and financial capacities”.[NCA]

What measures would encourage your organisation to increase the number of common actions undertaken? “Appropriate financial means” [CPN] “In case there is a potential demand by the Commission” .[NCA] “More networking events between NEBs. Organograms of NEBs. More expert groups”.[ NCA] “To lighten the administrative tasks”. [NCA] “Increasing the staff working in CPC Resolution”. [NCA/ SLO]

6.5

Summary

Key findings: Strengths, weaknesses, opportunities and threats of Community (Chapter IV) provisions ■

■

■

Three quarters of stakeholder respondents rated the exchange of best practices, the development of standards / guidelines and the coordination of market surveillance and enforcement (‘SWEEPS’) as either effective or very effective. Complaint classification and administrative cooperation (to provide information or statistics to consumers) were considered less effective. Cross-border enforcement actions to date have been successful, in particular the best practice sharing, the development of standards / guidelines and market surveillance and monitoring. There is room for improvement vis-a-vis complaint classification, exchanges of officials and reporting, although none of these areas constituted major weaknesses. Stakeholders welcomed more informal cooperation actions and were keen to ensure that more was gained from these activities. More could be done with SWEEPS through the dissemination of the ‘data mining’ exercises and the follow-up actions undertaken.

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■

■

■

There was a strong desire for guidance and information to improve mutual understanding amongst authorities and more workshops and exchange of officials to facilitate greater cooperation at an informal level between authorities The limited capacity of national authorities to take up available funding and manage EU cofunded projects has been apparent from the low number of proposals coming forward in the yearly selection rounds. The main barriers to the take-up of common actions were shortages of human and financial resources at the Member State level. Other barriers cited included inadequate levels of IT connectivity and networking facilities and insufficient levels of expertise on specific pieces of legislation in certain Member States.

Recommendations ■

Alongside resource increases, other means need to be considered to increase take up (e.g. simplification in the functioning of the grants, support to actions through common procurement, more support to manage actions and disseminate results).

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7

Administrative costs

7.1

Introduction In this section the following questions are considered:

▪ What administrative costs and other operational costs do competent authorities and Commission incur to meet the legal obligations of the CPC Regulation? Are there opportunities to reduce these costs, and ▪ How many resources are Member States mobilising in order to ensure that authorities can meet their obligations under the CPC Regulation? To answer these questions, the resources employed by Member State authorities in completing individual tasks relevant to the CPC Network and the overall resourcing needs of the competent authorities and the Commission have been estimated using the Commission’s Standard Cost Model (SCM). In order to apply the SCM, data are required on the time taken to complete specific tasks or the number of persons employed to carry out the described responsibilities. Full-time equivalent (FTE) measures have been used in this case. Also, information on the grade of person undertaking the role and their earnings are required, inclusive of overhead costs. Primary evidence was collected from stakeholders in the NCA/SLO survey. The assumptions made in the analysis are given below.

7.2

Operating costs of the CPC for Member States This sub section provides estimates of the human resources required in each Member State to establish and operate systems for the CPC Network and for Member States to contribute to common activities. The CPC Regulation stipulates that minimum resources should be deployed by each organisation designated by the Member State as a competent authority but the Regulation does not prescribe the minimum level. The minimum has been estimated for Member States and based on comments received in survey responses and in-depth interviews an assessment has been made as to whether these resources are adequate. The number of FTE for many MS (SLO and NCA) can however not be reconciled with relatively low numbers of CPC cases. It is likely that some MS have provided overall FTE generally available in services dealing with CPC issues, however not more precisely actual FTE devoted to CPC cases and cooperation activities. The results gathered through the survey, in particular on FTE, are therefore to be interpreted with caution. Survey respondents were asked to indicate in FTE how many staff are involved in the operation and maintenance of the CPC Network by grade of staff. The grades (and earnings) were categorised into management, analysts/network operators, administrators, enforcement inspectors/investigators and IT support staff. Due to differences in institutional set-up, Member State authorities (both SLO and NCA) employ different categories to undertake specific tasks. For example in a small Member State a single person might be an SLO and NCA, dividing time between management, enforcement and administration activities. In other Member States a team might be involved incorporating a range of skills. Noting the different roles of the SLOs and NCAs, the modal average FTEs of staff involved in operating CPC by Member State are provided in Tables 7.1 and 7.2.

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Table 7.5 FTE equivalent of staff employed in SLOs by Member State

Member State

Management

Analysts/ Network operator

Administrator

Austria

Enforcement inspectors/ investigators

IT support

1

Belgium

0.5

Bulgaria

1

Cyprus

0.5

Czech Republic

0.5

Estonia

0.5

2

1.0

0.5

6

0.5

7.5

3

6

2

14.0

1 1 0.5

Finland

Total

1.5 0.5

2.0

0.5

1.5

0.5

0.5

Germany

0.5

0.5

0.5

0.5

0.5

2.5

Greece

0.5

0.5

0.5

0.5

0.5

2.5

Hungary

1

Iceland

1

0.5

1

Italy

1

0.5

1

Latvia

0.5

0.5

0.5

Lithuania*

0.5

0.5

0.5

Luxembourg

0.5 0.5

0.5

0.5

1.0 0.5

3.5

0.5

3.0

2

0.5

4.0

2

0.5

4.0

0.5

4

5.0

0.5

0.5

2.5

Malta

0.5

Netherlands

0.5

2

Norway

0.5

1

0.5

2.0

Poland

2

2

2

6.0

2.5

Portugal Romania

1

0.5

0.5

0.5

0.5

3.0

Spain

0.4

0.5

0.5

0.5

0.5

2.4

United Kingdom

0.5

Total

12.4

7.0

13.5

27.0

14.5

74.4

Average

0.7

0.6

0.9

1.6

0.9

3.4

2

2.5

Note: While calculating averages only Member States with responses were taken into account. *Latvia's FTE figures have been assumed Source: ICF-GHK Survey (responses from 22 MS)

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The number of staff employed by SLOs differed not only between Member States but also in terms of categories. Out of 22 SLOs the SLO in Bulgaria employed the highest number of staff (14 members), and the SLO in Finland the lowest (0.5 members). The average number of FTE employed was 3.4 staff members per SLO. The type of position with the highest number of staff employed was investigators, 27 FTE in total. SLOs employed more enforcement inspectors than any other category of staff (1.6 per SLO in comparison to 0.7 in management, 0.6 in analysts, 0.9 in administration and 0.9 in IT support). Table 7.6 FTE equivalent of staff employed in NCAs by Member State

Member State

Management

Analysts/ Network operator

Administrator

Austria

IT support

1

Belgium

0.5

Bulgaria

1

Cyprus

0.5

Czech Republic

0.5

0.5

0.5

Denmark

0.5

0.5

0.5

Estonia

0.75

2

1

Total 1.0

5.5

6

0.5

12.5

3

6

2

14.0

1

Finland France

Enforcement inspectors/ investigators

0.5

1.5 0.5

2.5 1.5

1

0.5

0.5

0.5

0.5

1.0

3

1

5.0

0.5

0.5

Germany

0.5

0.5

Greece

0.5

0.5

Hungary

4

2.5

6

4

2.5

19.0

Iceland

0.75

0.5

0.75

0.5

0.5

3.0

Ireland

0.5

Italy

0.5

2.5 1.5

0.5

1

0.5

1

Latvia

0.5

0.5

0.5

Lithuania

0.5

0.5

0.5

Luxembourg

0.5

2.8

0.5 0.5

0.5

0.5

3.0

1.5

0.5

3.5

1.5

0.5

3.5

0.5

4

5.0

0.5

0.5

2.5

Malta

0.5

Netherlands

0.5

1.5

Norway

0.5

1

0.5

2.0

Poland

2

2

2

6.0

2.0

Portugal

0.5

0.5

0.5

4

0.5

6.0

Romania

1

0.5

0.5

0.5

0.5

3.0

Slovakia

0.5

0.5

0.5

0.5

0.5

2.5

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Member State

Administrator

Enforcement inspectors/ investigators

IT support

Total

2

2

5.5

2

13.5

0.5

0.5

0.5

0.5

2.4

Management

Analysts/ Network operator

2 0.4

Slovenia Spain Sweden

0.5

0.5 3.5

United Kingdom

0.5

0.5

2

0.5

Total

21.4

14.0

29.8

42.5

19.5

127.2

Average

0.9

0.8

1.5

1.6

1.0

4.4

Note: While calculating averages only Member States with responses were taken into account. *Latvia's FTE used. Source: ICF-GHK Survey (responses from 29 MS)

Out of 29 countries that responded, NCA in Hungary employed the highest number of staff with 19 members, and NCA in Ireland and Sweden the lowest (0.5). The average number of FTE was 4.4 per NCA. The staff category with the highest numbers was investigators which amounted to 42.5 in total. On average NCA employed more enforcement inspectors than any other staff (1.6 members), followed by administration (1.5 members). As stated above, these survey results are to be taken with caution, given that many MS seem to have indicated overall FTE available, rather than actual FTE specifically devoted to CPC case handling and other CPC coordination action. Average FTE earnings by grade of staff were obtained from stakeholders in the survey. Modal responses were then used to estimate the costs of operating and maintaining CPC based on the estimated of FTE by grade. In addition, estimates of overheads including office rental, travel, training, pension, and recruitment costs were estimated at circa €15,000 per FTE. Adjusting for purchasing power parities in the Member States Table A9.1and Table A9.2 (in Annex 9) provide estimates of the costs by Member State, for SLOs and NCAs. The estimates indicate that SLOs’ annual operating costs varied markedly between Member States, ranging from €26,000 in Hungary to €466,000 in Belgium. Differences in costs can be partly attributed to the volume of consumers and the levels of cross border trading. The average operating cost per SLO is estimated at €123,000. As regards NCA costs, it is important to consider the number of NCAs present in each Member State. The numbers of designated NCAs by Member State are provided in Table A9.2 Annex 9). Multiplying these by the costs per NCA leads to the total cost estimates per Member State which are also provided in Table A9.2. Perhaps unsurprisingly, the annual operating costs of NCAs with responsibility for a higher number of CPC laws tend to be higher (as their remits are more resource intensive), relative to NCAs which have responsibility for only one or two pieces of legislation. The figures show that NCAs’ operating costs varied substantially across Member States, ranging from about €110,000 per NCA in Sweden to nearly €6.4 million per NCA in Hungary. The average operating cost per NCA across the Member States is estimated to be about €134,000 (Table 7.3). The cost estimates are based on average earnings figures and FTE estimates reported by NCAs and SLOs that responded to the survey. Given the variation in FTE responses by MS and their probably weak reliability as explained above, also these calculated cost estimates need to be taken with caution. Key figures are summarised in Table 7.3. While respondents were asked to report on FTE estimates specific to the organisation and maintenance of the CPC Network, there is some room for overestimation in that the use of average earnings as 110

a proxy for costs (in the absence of an alternative measure) may account for earnings relevant to the Network as well as other earnings (relating for instance to national consumer protection activity that is outside the scope of the CPC framework). Table 7.7 Annual operating costs of NCAs and SLOs: Key statistics

7.3

Costs in €m

Total

Average

Maximum

Minimum

SLOs (22)

2.7

0.12

0.03 (HU)

0.47 (BE)

NCAs (229)

31

0.13

0.11 (SE)

6.4 (HU)

Potential for costs savings Total and per case costs have been estimated for SLOs and NCAs based on the estimates of number of cases recorded in each Member State in the following categories: number of information requests created/closed; creation of an enforcement request on the CPC system; case handling on receipt of an information request; case handling on receipt of an enforcement request entailing sending a written request to stop infringement; and, case handling on receiving enforcement request entailing a court proceeding. Costs were estimated by multiplying average time in hours required to complete single task cases by total hourly costs and by number of cases. The results are presented in Table 7.4 and Tables A9.6- A9.7in Annex 9. The costs vary significantly by Member State and by type of case. The average time spent on a task by SLOs range from 0.75 hours to 15 hours for creation of an information request, 0.75-35 hours for creation of an enforcement request, 0.75-75 hours for case handling upon a receipt of information or enforcement request, and 0.75-150 hours for case handling involving court proceedings. Similar ranges were observed for NCAs (See detailed Tables in Annex 9). In order to estimate what potential savings could be achieved by decreasing the time spent on a case (i.e. making CPC more efficient) total and per case costs have been estimated using the average time spent on a case across Member States, rather than Member State specific averages.42 The estimates are presented in Table A9.8 and Table A9.9 (Annex 9). Table 7.4 indicates that the potential annual savings from efficiency amount to approximately €26,000 for SLOs and €46,000 for NCAs, and €72,000 in combination. Of all activities, the largest savings which could be achieved amount to €29,000 for case handling (which involves a written request to stop infringement). This is because this task requires more hours to complete than other tasks and many NCAs and SLOs take 150 hours on average. Therefore decreasing the time to 93 hours (the average across all Member States) results in high potential savings.

42

Changing hourly costs would not make sense given different characteristics of each Member State.

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Table 7.8 Potential savings for 2011 cases by activity

7.4

Case handling on receipt of an Creation of Creation of Case enforcement an an handling on request entailing information enforcement receipt of sending a written request request on request on an the CPC the CPC information to stop system system request infringement

Case handling on receiving enforcement request entailing a court proceeding

Total

SLOs

2,500

1,300

153

18,800

3,600

26,000

NCAs

3,800

161

12,300

10,100

19,400

46,000

Total

6,300

1,400

12,400

28,900

23,000

72,000

Costs of other CPC activities Other CPC activities (i.e. activities not relating to the handling of mutual assistance request in the CPC Network) consist of SWEEP actions, other common activities such as joint action projects, exchange of officials, attending meetings with other SLOs and/or NCAs (e.g. workshops), and EU CPC meetings (e.g. Committee). Table A9.3 in Annex 9 shows the costs of such actions per Member State estimated by multiplying the average time required to complete tasks on each year by total hourly cost.43 The estimated figures indicate that SWEEP actions amounted to €33,000 or 46% of total money spent on other CPC activities (See Figure 7.1). This is followed by meetings with other NCAs/SLOs (23%), common activities (22%), and attending EU CPC/ Committee meetings (9%). Figure 7.2 indicates that on average Member State spends the most on SWEEPs (€1,500), followed by attending CPC meetings (€1,121), meetings with other authorities (€1,000) and finally common activities such as exchange of officials (€670). Figure 7.16 Percentage of total costs of other CPC activities by type

22% 46% 23% 9%

SWEEPS Common activity (exchange of officials, best practice etc) Meetings with other NCAs/ SLOs Attending EU CPC Committee meetings Source: ICF-GHK estimated based on survey responses 43

Based on a 7 hour working day and 240 working days per year.

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Figure 7.17 Average estimated costs by Member State of CPC activity.

Average Member State costs (€)

1600 1400 1200 1000 800

1,490

600 1,023 400

1,121

670

200 0 SWEEPS

Common activity (exchange of officials, best practice etc)

Meetings with Attending EU CPC other NCAs/ SLOs Committee meetings

Source: ICF-GHK estimated based on survey responses

These estimates are based on average earnings estimates as reported by NCAs/ SLOs through the survey (and may therefore inflate the actual costs of participation in CPC common activities). However, the fact that reported estimates of the average amount of time (in hours) spent on each activity type were also accounted for in the estimates suggests that the figures may be regarded as fairly robust, albeit not completely conclusive with respect to estimates of the differences in costs borne across Member States. These costs incurred in and by Member States can be compared with the costs incurred directly by the Commission in supporting the CPC operations (in particular the hosting, development and maintenance of the CPC database). The estimates available suggest that on an annual basis the IT expenditure of the Commission on the CPC Network amounts to €300,000 for maintenance and enhancement, hosting the system online, operating the helpdesk and other general costs (security, licences etc.). Further, the Commission incurs other direct costs in the form of the co-financing of joint actions (as reported in Annex 6), reimbursing the Member States for workshops and other CPC related training events and for preparatory activities for the common actions (e.g. SWEEPs). In light of the above discussion, this is indicative of the Commission bearing a considerably larger share of overall CPC costs relative to the Member States, which is in line with the potential for significant EU added value in this regard.

7.5

Summary

Key findings: Administrative costs ■

■

Survey respondents were asked to indicate in FTE how many staff are involved in the operation and maintenance of the CPC Network by grade of staff. The number of staff employed by SLOs and NCAs differed not only between Member States but also in terms of categories. NCAs employed more staff on average relative to SLOs (4.4 as opposed to 3.4). Average annual operating cost estimates were similar for NCAs and SLOs at around €130,000. However, these averages masked significant degrees of variation across Member State operating costs. Total and per case costs were also estimated for SLOs and NCAs based on the estimates of number of cases (relating to information and enforcement requests and alerts created and handled) recorded in each Member State. Again, there was considerable variation by Member

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■

State and by case type. Further, the potential efficiency savings that could be achieved by reducing the amount of time spent on different types of cases were estimated. On average such savings amounted to €26,000 for SLOs and €46,000 for NCAs on an annual basis. Analysis was also carried out on the costs of other (non-case handling related) CPC activities; SWEEPs were estimated to account for about a third of such costs. The Commission’s annual IT expenditure on the CPC Network amounts to €300,000 for maintenance and enhancement, hosting the system online, operating the helpdesk and other general costs (i.e. security, licences, etc.). Together with other direct costs, this suggests that the Commission shoulders a considerably larger share of overall CPC costs relative to the Member States, which is in line with the potential for significant EU added value in this regard.

Recommendations ■

Given the wide variations in resources committed to CPC activities at the national level the Commission should encourage Member States committing relatively low and relatively high levels of resources to compare and to ‘peer review’ their practices with Member States committing average (pro rata) levels of resources and acting effectively under the CPC Regulation.

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8

Assessment of the intervention logic

8.1

Introduction This section brings together the evidence presented in the preceding sections to revisit the initial intervention logic reference framework illustrated in Figure 1.1. This Section assesses the rationale for intervention, the appropriateness of the objectives and the relevance of the activities conducted through the CPC Regulation. In so doing, this section addresses the following questions:

▪ To what extent are the objectives as specified in Article 1 of the CPC Regulation met, are they (still) appropriate and should they be extended, and

▪ To what extent do the four cooperation mechanisms provide effective, efficient and economic tools to stop cross-border infringements as defined in the CPC Regulation?

8.2

The validity of the rationale for intervention It was apparent from interviews with Commission officials responsible for the legislation covered in the annex to the Regulation that CPC is an important tool to both foster greater cooperation and to help in laying the foundations of subsequent measures in existing and potentially other policy areas. The CPC Regulation was judged in these interviews to have broken new ground since its inception in 2004, establishing a new level of ambition amongst policy makers and practitioners at EU and Member State level to improve cooperation and the enforcement of consumer rights where the trader and consumer are located in different Member States. In so doing, it was anticipated that this would empower consumers through them having greater confidence in making purchases from traders located in another Member State and through facilitating the internal market for traders. However, the CPC Regulation also brought many challenges, specifically in the development and functioning of the CPC System and CPC Network more generally. These have required modifications to improve their effectiveness and efficiency. In addition there has been a need to build awareness and understanding of the various provisions amongst national competent authorities. While significant progress has been made in this area, the comments received in consultation and reviewed in the earlier sections on the CPC Network (Section 5) and Community actions (Section 6) suggest that further progress is needed to optimise the use of the CPC Regulation. Feedback from consultations suggested that, in the absence of the CPC Regulation, a greater degree of fragmentation of consumer protection enforcement across the Member States would exist and that gaps in consumer protection would most likely emerge crossborder. This is a real concern in many sectors where the volume of cross-border activity is increasing (i.e. in e-commerce, distance selling, financial services, and travel industries). In the absence of the CPC Regulation, it is was also considered by consultees that the harmonisation of legislation in the consumer field would be less effective as in cross-border cases differences in legal systems, approaches to resolving infringements, and lines of communication would offset the benefits of harmonisation. Bilateral and ad hoc cooperation prior to the CPC Regulation was deemed insufficient and only functioned effectively where networks had been operational for a number of years (e.g. as between Nordic countries). As the breadth of consumer legislation has increased, the internal market has evolved and markets have become more complex, bilateral and ad hoc cooperation were judged to be inadequate. The overarching view of stakeholders was that the CPC Regulation and the tools it established have had a broadly positive impact on consumer protection and enforcement. The rationale for intervention is therefore judged to be as valid and appropriate today as it was when the CPC Regulation was introduced in 2004. Developments in technology and consumption patterns of households (i.e. in digital and online purchasing) and the complexity 115

of trader activity in aspects such as advertising, bundling of products and trading internationally have simply reinforced the need for legislation with the aims of the CPC Regulation to provide the tools needed to deter rogue traders and to enforce the law.

8.3

The appropriateness of existing objectives Article 1 of the Regulation establishes the objectives of the Regulation as to outline: “the conditions under which the competent authorities in the Member States designated as responsible for the enforcement of laws that protect consumer interests shall cooperate with each other and with the Commission in order to ensure compliance with those laws and the smooth functioning of the internal market and in order to enhance the protection of consumers’ economic interests”. While the ultimate aim is to ensure the smooth functioning of the internal market from the establishment of these conditions, the Reference Framework developed for this evaluation provides specific objectives which are intended to ensure that this overarching aim is achieved, namely:

▪ to provide for cooperation between enforcement authorities in dealing with intracommunity infringements that disrupt the internal market

▪ to contribute to improving the quality and consistency of enforcement of consumer protection laws, and

▪ to monitor and enhance the protection of consumer’s economic interests. The degrees to which each of these objectives have been met, and whether each remains appropriate was the subject of questioning in the in-depth interviews with Member States. While the majority of consultees have acknowledged the successes of the CPC Regulation, there was a divergence of views as to whether it has achieved its objectives and whether the objectives should be revised. The following sub-sections summarise the debates on each specific objective.

8.3.1

Objective: to provide for cooperation between enforcement authorities Considering what might have happened in the absence of the CPC Regulation and in the light of the mutual assistance requests completed, the usefulness of SWEEP exercises, and the positive feedback received on the common activities of the CPC Regulation, it is clear that this objective has been at least partially met. The following responses received support this view: “The objectives have been well-thought through and designed. I guess that, just like [our Member State], other Member States do now have authorities in place to oversee several areas of the economy where previously there were none. Also thanks to these authorities (NCAs/SLOs/CAs), there is now greater communication among Member States”. [NCA/ SLO] “The objectives of the CPC Regulation have been fulfilled, in the sense that it provides consumers with a number of protection mechanisms that were not there before.” [NCA] “The objective of the CPC Regulation, namely cooperation between national authorities responsible for the enforcement of consumer protection law, is met and is still relevant. Results of mutual assistance requests show that the cooperation contributes to ensure compliance with the laws that protect consumers’ interests and to enhance the protection of consumers’ economic interests. According to [us] there is no need to introduce new objectives.” [NCA/ SLO] “[We] believe that the objectives of Article 1 of the CPC regulation are met. The objectives of the CPC Regulation are still relevant and it is not needed to introduce new objectives. The statistics show that cross-border commerce is still low but as this will be increased the CPC Regulation will become more relevant in the future. Altogether, competent authorities cooperate well. There are some technical aspects to improve, but the overall evaluation is positive.” [NCA]

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However, concerns as to the degree to which this objective has been met were highlighted in follow-up comments: “…However, while cooperation is key in the application of the CPC Regulation, it is not always working as it should – we need a more dynamic approach especially with regards to the application of the CPC Regulation itself. Some Member States have their own way of interpreting what is required from the CPC Regulation so it makes cooperation difficult on certain points. So I would say that the objectives are good but not sufficient – maybe having more details could help or guide Member States to increase their understanding of what is expected of them in relation to the application of the CPC Regulation in their Member State.” [NCA/ SLO] “The main objective of the CPC Regulation is to tackle cross border infringements in the field of consumer protection; this objective is still relevant and is at the heart of the CPC activity. Currently, this objective is not entirely met because we don’t know if the CPC Network is efficient in this field; there is not sufficient feedback on success stories on the way Member States concretely stop cross border unfair commercial practices. The improvement of the visibility of the activity of the CPC Network on this point is a key issue.” [NCA] The comments reinforce the view that as Member States interpret their obligations under the CPC Regulation differently, and resource authorities differently, cooperation is not as fluid as is could or should be. Additionally, the lack of feedback on successful cooperation and general monitoring of mutual assistance requests limits the extent to which firm conclusions can be drawn on the achievements of the CPC Regulation. For example, it is not clear whether cases that were closed in the CPC System were successfully resolved, were disregarded or whether no enforcement decision was achieved and the reasons for this. Visibility is therefore missing not only for the Commission evaluating the CPC Regulation, but also for national authorities wishing to learn from each other, traders who should be deterred from infringing and consumers who want to be confident that their rights are protected. Another factor highlighted as contributing to a lack of cooperation was the lack of enforcement pressure on CAs to comply with their obligations under the CPC Regulation and the flexibility afforded to Member States in the implementation of EU consumer laws, which underlies part of the issues of perceived barriers to enforcement cooperation discussed in Section 3 (specifically in Figures 3.1 and 3.2). The following comment reflected this point: “if there is no enforcement mechanism on requested CAs there is no penalty in the system. To make sure the procedures are effective, there must be a penalty. So far, cooperation in the field of consumer protection is based on the good will of cooperating institutions. The EC does not have the means to influence the states that operate sluggishly or do not work at all within the scope of the [Regulation]. The EC generally works well and is trying to facilitate the activities within the [Regulation], but cannot impose sanctions. Too much was left to the discretion of individual [Member States].” [NCA/ SLO] Whilst the CPC Regulation has gone a long way to improving cooperation between enforcement authorities, by introducing the tools and conditions which make cooperation happen, the level of cooperation is less than ideal as evidence by the low number of mutual assistance requests made by competent authorities in recent years (see Table 5.1) and the relatively low enforcement rates in cross-border infringements as opposed to domestic infringements resulting from SWEEP exercises (Figure 5.6). Limited participation in community actions such as exchange of officials and joint actions to develop best practice are also examples of cooperation taking place, but at a less than ideal level of activity.

8.3.2

Objective: to improve the quality and consistency of enforcement High quality and consist enforcement requires that designated authorities have a common understanding of their obligations to each other in handling a case. These include: knowledge of the enforcement action which should take place and the communication of the eventual outcome. This should ensure that the rogue trader is deterred from committing the infringement in the future and that other stakeholders are be aware of the action taken. For

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consumers, this provides reassurance and confidence, and informs traders that consumer rights will be protected. While common understanding and enforcement has improved, the visibility of the enforcement actions and agreement on what action to take in particular circumstances (i.e. in relation to procedural and substantive law issues) has a long way to go before the objective of improving consistency and quality of enforcement will be fully achieved. Scope for improvement exists. To improve the quality and particularly consistency of enforcement it is important that factors which hinder cooperation and effective enforcement between Member States are mitigated, especially issues of procedural law and powers exercised on rogue traders. Also, where the CPC Regulation leaves certain obligations open to the interpretation of Member States (e.g. resourcing of NCAs in Article 4 (7), Article 6 to supply a response to a request ‘without delay’, or Article 9 to coordinate market surveillance), the quality and consistency of enforcement could be further improved, in particular in light of the fact that the Commission decision implementing the Regulation is specific on interpretation issues (e.g. regarding response deadlines). Action is therefore required to either revise the text of the CPC Regulation (e.g. the inclusion of ad-hoc rules for applicable law, formalising the obligations of Member States, establishing maximum response times, etc.) or to provide guidance to Member States in writing or through workshops, meetings and informal dialogue to improve the quality and consistency of enforcement. Section 3 on applicable law, Section 4 on procedural law and sanctions and the approaches taken to mutual assistance have illustrated the need for more guidance and common understanding and awareness amongst NCAs.

8.3.3

Objective: to monitor and enhance the protection of consumer’s economic interests Up to now, the expansion of the scope of the CPC Annex since its inception has ensured that the Regulation has enhanced the protection of consumer’s economic interests. Cross border trade is increasing (although from a small base) in areas such as electronic commerce and financial services which suggests that consumers are now more confident to trade. It is reasonable to attribute this in part to the improved protection of their interests. However the activities undertaken under the CPC Regulation have not yet attained sufficient critical mass to significantly increase protection levels across the EU. The degree to which the CPC Regulation has fulfilled its objective in monitoring that protection is also limited. Despite the usefulness of SWEEPs in monitoring traders, a lack of recording of the information obtained, of follow-up checks, of a common approach to such activities and feedback once a mutual assistance request is launched, indicate that there is significant scope for improving monitoring.

8.3.4

Review of current objectives Given that the rationale remains but none of the specific objectives has been fully achieved, the current objectives of the CPC Regulation are judged to be appropriate and relevant. They contribute to the overarching aim of the legislation, to improve the functioning of the internal market. This judgement is consistent with the view expressed by the majority of consultees. However, some stakeholders indicated that greater clarity is needed in the specification of objectives and therefore the obligations on Member State to achieve them. For other stakeholders, the widening of the objectives should be considered: ■

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The obligation to fight infringements and exchange information. At present, the CPC Regulation provides the conditions, rules and tools for cooperation. This revision would place additional obligations on Member State authorities to share information and to respond to requests in a more formalised manner. Recording and notification of information gained from SWEEPs and other national activities would thus be available to all, helping to prevent repeat infringements, speeding up enforcement actions and helping to development more consistent enforcement. As regards the operational scope, as discussed in Section 2, it is felt that the annex roughly reflects the areas which fit the CPC Network's competence: protecting the 118

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economic interests of consumers. Some minor adjustments may be required to ensure full consistency and to achieve efficiency improvements. Otherwise, as stressed by a number of stakeholders, the CPC activities should focus on improving mutual assistance and cooperation within the current scope, before considering the expansion of scope and new objectives. Increasing harmonisation of legal provision, systems and approaches to consumer protection and enforcement was also considered as an objective. However, as the CPC Regulation is not a harmonising Regulation but rather a piece of legislation to establish conditions for cooperation and to provide the tools to cooperate it is more appropriate that individual pieces of legislation covered in the Annex adopted more harmonised approaches (i.e. as is the case of the Consumer Rights Directive). This would allow authorities to use the provisions of CPC Regulation more efficiently and effectively.

On balance, while the current objectives are not fully met and still relevant, it would be premature to widen the objectives of the CPC Regulation. A considerable widening of the scope may have a negative impact on the effectiveness and efficacy of cooperation. The greater harmonisation of consumer protection legislation could be achieved by other means.

8.4

The performance of activities of the CPC Regulation The inputs to enable the achievement of the CPC Regulation objectives are human and financial resources that support the cooperation activities undertaken and the operation and maintenance of the CPC System. Additional administrative resources are also provided by the Commission (DG SANCO) and competent authorities to meet their obligations under the CPC Regulation and to utilise the tools that it provides. Here the question of to what extent the four cooperation mechanisms provide effective, efficient and economic tools to stop cross border infringements as defined in the CPC Regulation is considered, and what other activities could be undertaken. The findings of the evaluation the four cooperation mechanisms: alerts; information requests; enforcement requests; and, coordination of market surveillance and enforcement; were that while effective at stopping cross border infringements, they are not as effective and efficient as they could be. The key reasons given by stakeholders for these shortcomings were as follows: ■ ■ ■

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Delays in responses to information and enforcement requests hindered effective cessation of infringements; A breakdown in communication when a regional CA is involved prevents enforcement; A lack of feedback and follow-up to enforcement requests hinders effectiveness of all mechanisms, by limiting the deterrent effect on traders, of intelligence gathering through monitoring and the ability to learn from the experience of others. Also the lack of exchange and recording of information generally makes each mechanism less efficient in the longer term as some duplication of effort occurs; Case handling is less efficient when more than one Member State brings a case against a single trader, as resources and efforts are duplicated; Lack of awareness amongst authorities affects the volume of use and therefore the effectiveness and efficiency of each mechanism; Limited motivation to participate in CPC and limited enforcement pressure on Member States to respond when requested under mutual assistance reduce confidence in the mechanisms, negatively impacting on effectiveness and efficiency; Constraints on national enforcement resources limits the efficiency of some actions, which can affect participation and effectiveness; Other formal and informal cooperation mechanisms can offer more efficient alternatives to the four cooperation mechanisms, but are limited in scope; Lack of clarity and understanding of how and when best use each mechanism is detrimental to their effectiveness and efficiency, specifically in relation to the use of alerts, which have consequently declined is use;

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Language barriers and differences in legal systems (regarding procedural and substantive law) between Member States contribute to the complexity of information and enforcement requests, reducing effectiveness and efficiency, and Communication infrastructure supporting the four mechanisms is slower, less user friendly and limited in capacity compared to what is required, although substantial improvements have been made.

Consistent with the evaluation of the CPC Regulation as a whole, each mechanism has been judged as delivering benefits in excess of the costs of the inputs required to implement its activities. Despite some difficulties the vast majority of stakeholders found the CPC Regulation to be beneficial to enforcement authorities and consumers in their Member States. However, in the light of the above problems there is scope for improvement.

8.5

Summary The rationale for intervention is as valid and appropriate today as it was when the CPC Regulation was introduced in 2004. Developments in technology and consumption patterns of households (i.e. in digital and online purchasing) and the complexity of trader activity in aspects such as advertising, bundling of products and trading internationally have reinforced the need for legislation with the aims of the CPC Regulation to provide the tools needed to deter rogue traders and to enforce the law. None of the specific objectives of the CPC Regulation has been fully achieved. However, the current objectives of the CPC Regulation are appropriate and relevant. They contribute to the overarching aim of the legislation, to improve the functioning of the internal market. On balance, while the current objectives are not fully met and still relevant, it would be premature to widen the objectives of the CPC Regulation. A considerable widening of the scope may have a negative impact on the effectiveness and efficacy of cooperation. The greater harmonisation of consumer protection legislation could be achieved by other means. Consistent with the evaluation of the CPC Regulation as a whole, each mechanism has been judged as delivering benefits in excess of the costs of the inputs required to implement its activities. Despite some difficulties the vast majority of stakeholders found the CPC Regulation to be beneficial to enforcement authorities and consumers in their Member States. However, in the light of remaining problems there is scope for improvement.

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9

Recommendations

9.1

Introduction The evaluation has not identified major problems with the objectives or the rationale of the CPC Regulation. The rationale for the legislation remains and will continue to exist until such time as there is considerably greater harmonisation between Member States in national consumer law and more even enforcement across the EU, and thus consumers would be similarly protected irrespective on the location of the trader within the internal market. Within the current objectives of the CPC Regulation and despite an overall positive appraisal of its cooperation mechanisms and activities, the evaluation concludes that there is scope raise the level of activity and to improve its performance, pointing in some instances to a potential need to adjust the CPC Regulation. The main recommendations that emerge from this evaluation concern: ■ ■ ■ ■ ■

The scope of the CPC Regulation; Constraints arising due to differences in substantive law; Constraints arising due to differences in procedural law and enforcement powers; The functioning of the CPC Network and common actions, and The role of the Commission and other actors.

These recommendations are proposed with a view to improving the efficiency, effectiveness and value added of cross-border cooperation between national consumer enforcement authorities and enhancing the protection of the economic interests of consumers in the EU. The recommendations have been expressed as individual measures which could be implemented individually or in combination. Many of the measures are mutually reinforcing and additive in nature.

9.2

The scope of the CPC Regulation Recommendation 1 Confirm the inclusion of all the legislation in the Annex of the CPC Regulation, by reviewing the existence, role or revision process for the CPC Regulation Annex. Recommendation 2 Examine further the possible inclusion of the Rail Passengers' Rights Regulation, the Roaming Regulation and the Mortgage Credit Directive in the scope of the CPC Regulation. Recommendation 3 Examine further the possible inclusion of some specific provisions within certain legislative acts, such as the Air Services Regulation.

9.3

Constraints arising due to differences in substantive law Recommendation 4 Provide guidance on applicable law in relation to the handling of mutual assistance requests under the CPC Regulation in order to promote better awareness and compliance with EU consumer legislation. Recommendation 5 Foster a common understanding in relation to the application of EU consumer law, inter alia through guidance, on-line legal resources, and interactive forums to also facilitate greater knowledge exchange. Recommendation 6 Monitor the handling of CPC mutual assistance requests to determine the nature of legal issues; Recommendation 7 Consider formalising an approach through ad hoc rules reflecting the logic of the CPC Regulation and catering for the specific situations of real conflict between applicable rules in case the instances of such situations increase. Recommendation 8 Consideration should be given to the establishment of an ‘Outsourced legal helpdesk’.

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9.4

Constraints arising due to differences in procedural law and enforcement powers Recommendation 9 Provide guidance and foster best-practice to improve the quality of mutual assistance requests under the CPC Regulation. Recommendation 10 Investigate possible gaps in the implementation of minimum powers and assess the need for action in this respect. Recommendation 11 Examine options to revise the CPC Regulation to include minimum procedural standards. Recommendation 12 Examine options to revise the CPC Regulation to expand the minimum investigative (e.g. broader spot check powers on companies' premises) and enforcement powers (e.g. including redress powers) of national competent authorities in order to overcome certain difficulties reported for the efficiency of cooperation and to address a potential deterrent gap stemming from national fragmentation.

9.5

The functioning of the CPC Network and common actions, and role of the Commission and other actors Recommendation 13 The Commission should continue developing guidance clarifying the functioning of the tools of the CPC Regulation and the obligations placed on Member States. Recommendation 14 The text of the CPC Regulation could be revised in order to increase the clarity of the objectives, the obligations on Member States and NCAs/SLOs, and the understanding of current provisions. Recommendation 15 Consideration should be given to whether the Commission could make greater use of its powers to introduce infringement proceedings against the Member State(s) that do not fulfil their obligations under the CPC Regulation. Recommendation 16 Where several Member States seek enforcement against the same trader, guidance should be provided to help coordinate enforcement actions. The Commission's current facilitator role under article 9 of the Regulation should be reviewed to allow a more pro-active approach whilst taking due account of NCA margin of assessment/discretion and Commission powers. Recommendation 17 Consideration should be given to providing a legal base for a European body: to arbitrate in Member State conflicts hindering enforcement, to facilitate case handling coordination and to enforce EU law in a trans-national context. Recommendation 18 Consider and develop possibilities to cooperate and learn from other systems (such as IMI, RAPEX, and RASFF). Recommendation 19 A common national reporting protocol should be adopted in terms of its format and the information to be reported so that market monitoring intelligence gathered can be used systematically and ‘Joint’ EU level reports that both reflect on the achievements of CPC and anticipate future challenges can be produced. Recommendation 20 Consideration should be given to the establishment of an ‘Observatory’ that would use the experience and information collected under the CPC Regulation (and information from other sources) on the extent of infringements and challenges and successes of enforcement to generate material that would increase awareness amongst national authorities and consumer representative organisations, and ultimately EU citizens. Such an observatory would require both research and communication skills and resources. Recommendation 21Given the wide variations in resources committed to CPC activities at the national level the Commission should encourage Member States committing relatively low and relatively high levels of resources to compare and to ‘peer review’ their practices 122

with Member States committing average (pro rata) levels of resources and acting effectively under the CPC Regulation.

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