EU Consumer law 1 Flashcards
What is the basis of EU consumer law
Basic tenet of the EU: liberal market economy = competition is the major idea - that is why EU was founded - EEC signed in the 1950s.
The closer the countries approach economically, the more you are depended on each other and try to live peacefully together.
• Supply side: profit maximising producers
• Demand side: Homo economicus (rational market players, utility maximising consumers)
• Perfectly competitive market
• Medium of exchange: contract freedom of contract
• Result: best possible equilibrium price social welfare
what is a market failure what does it have to do with a state
The market is also a best way to distribute the needs to get the goods or services, so as a state you can step aside and let the market be. Liberal market economy is a means of having an order on the market with a very limited interference of the state - a political decision for a state to step back. It is only there if the state is needed in case the market is not functioning (=market failures). Then the state has a reason to intervene.
But when is the market not functioning?
▪ Market can show a failure if you do not have competition. Already in the beginning there were rules on protecting competition:
On the one (supply) side of the market there is an offer of goods and services and other side the consumers concluding the contracts.
There is a problem that competition cannot function:
o Major problems bypassing competition: E.g. Cartel increases prices and stops innovation; Monopoly cartel situation where you are acting together is dangerous. On the supply side, it is correct that we have to intervene to fulfil competition.
• On the demand side, if you look at the 1950s there is no interest. There is a homo economicus who knows everything and has all access to information and can make decision based on that information and is always rational. Maximization of interest is the best for the competition.
Major motivation for establishing a common market for goods and services in the EU of 27
- more choice = more competition
- lower prices
- higher quality products and services
Prohibition of quantitative restrictions between Member States
TFEU Article 34
Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States
TFEU Article 35
Quantitative restrictions on exports, and all measures having equivalent effect, shall be prohibited between Member States.
TFEU Article 36
The provisions of Articles 34 and 35 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.
Remember: ECJ Case 120/78 of 20 February 1978, «Cassis de Dijon» - limitations introduced as if protecting the health or the German buyer who wants to have more alcohol - is a disguised restriction which is not allowed. So, this case strictly limited Art. 36
what are the market failures on supply side
On supply side:
• Anticompetitive agreements / abuse of
dominant position
• Distortion of competition
• Protecting competition: TFEU Art.101-
109what are the market failures on demand side
• Information asymmetries: information is limited and distributed unequally, and acquisition of information is costly. The idea of needing information on the side of the buyer - the more services and goods getting sophisticated, there is a need of information from supply to demand side - and that should be enough to protect demand side
Remedy: give information –> perfectly rational consumer will act accordingly
▪ We have realized in psychological research, that people are not that rational as thought so.
Issues of consumers rationality and how does it affect state intervention
Bounded rationality problem: unrealistic optimistm myopia and self-control problem cumulative cost neglect status quo bias
Behavioral economics theory shows the limits of efficiency-based theories. Here, the market failure is very much visible and regulatory techniques are needed.
• This serves also the supply side and they are using the methods to lure you into contracts - to buy more, to invest more and to stay with that. They are misguiding you - or manipulating or deceiving you - and in the demand side, there are people not being aware of it or if they are aware, the same psychological weaknesses cannot be overcome
▪ Is this the market failure where the state has to intervene? Yes. It is not about the weak consumer - it is also about the perfectly well-knowledge consumer who has the same problems that supply side is taking advantage of.
Regulatory techniques to protect consumers
- Pre-contractual phase: Information disclosure = idea of controlling information flow and excessive information
- After contract conclusion: right to withdraw
- Corrective intervention into contract terms
- Strengthening enforcement:
Regulatory techniques to protect consumers on Pre-contractual phase:
Pre-contractual phase: Information disclosure = idea of controlling information flow and excessive information
• Compensating information asymmetry
▪ Need of information to make a correct decision
▪ In many areas, there are duties to give information
Controlling information: advertisement / commercial practices
▪ We can control the information we are getting by advertisement rules and unfair commercial practices
▪ Wrong advertisement = unfair competition: wrongful information is deceiving the consumer and thus takes away the consumer away from the other competitor
▪ EU: unfair commercial practices directive
Regulatory techniques to protect consumers after pre-contractual phase
After contract conclusion: right to withdraw – compensating:
• Information asymmetries (e.g. distance contracts)
• Exogenously distorted preferences (e.g. doorstep contracts)
• Endogenously distorted preferences (e.g. credit contracts) = having all the time the input of having to buy as a consumer - if I don’t consume, I am not there.
▪ Problem of being lured into this contract
▪ Withdrawal period 14 days in EU
Regulatory techniques to protect consumers - corrective intervention into contract terms
• Mandatory rules for contracts –> no freedom of contract (e.g. unfair contract terms)
Judge has discretion to annul provisions in contracts.
Unfair contract terms Directive: all those long contract terms which nobody reads, information given to you not read, because you are acting economically - do I have time for that? it is an investment of time and bargaining to read those contract terms - cost transactions that are a problem in Switzerland.
Regulatory techniques to protect consumers in enforcement
In Germany, standard contract terms are controlled by judges in both B2C and B2B. the problem in B2C contracts, do you have money and resources to sue the seller? And even if you sue the seller, they keep continue doing the same conditions on other consumers.
Therefore, there is a need of Representative actions to protect collective interests.
Only purpose to go to the court again and again until e.g. bank will change their standard contract terms
e.g. NGOs that are willing to sue the party on behalf of the consumer
o if German sellers are using standards against consumer, they are being sued straight away.
▪ Effective, dissuasive penalties and redress possibilities
Problem with distance contracts
Problem with distance contracts: there is a picture of the goods but it is necessary to see the product physically
▪ Cooling off period helps here. What we see on the market is that many supply side offers are giving the right of withdrawal (in EU, there is an obligation but not in Switzerland). Why?
• Many supply side are already giving this offer: To promote sales, making sales attractive (consumer inertia - when the consumer already has the product they won’t return it. Although this might change through generations who are making better use of right). Also, to give security for the consumer
The problem in Switzerland with unfair terms
The only problem in Switzerland is in the unfair commercial practice. Even when the practice is established, the high court is monitoring it for the sake of preserving market economy and not consumers. This is the wrong attitude that has to change.
In swiss federal tribunal you can see in the judgment that even though this is a market failure, the courts are emphasizing liberal market economy and non-intervention. But no control of standard terms in Switzerland - this is the major difference with the protection in other European countries.
Development of EU consumer protection
At the very beginning, there were no special provisions: the idea was about the unifying trading space - no borders in the market. EU could only intervene in the impediments of the market.
Harmonization of national consumer laws has been conducted in the name of promoting the establishment and functioning of a EU unified trading space.
Justification: Variation between national laws was presented as an impediment to market integration, prompting a need for harmonization at Community level – common rules for a common market
In 1992 the Maastricht Treaty introduced a separate chapter on consumer protection (Art 153, today Art. 169 TFEU).
• Consumer protection became an explicit EU competence.
• ‘In order to promote the interests of consumers and to ensure a high level of consumer protection, the Union shall contribute to protecting the health, safety and economic interests of consumers, as well as to promoting their right to information, education and to organise themselves in order to safeguard their interests.’
However, the competence to legislate remained Art. 114 TFEU - But the competence to legislate is still based on creating an internal market and its functioning.
• So Art. 114 is the way of implementing consumer legislation that it still must be linked with the internal market
• ‘The European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market.’
