Unfair Contract Terms in Consumers Contracts in the pCESL Ursula Pachl Deputy Director General

1. Unfair Contract Terms in Consumers Contracts in the pCESL Ursula Pachl Deputy Director General European Parliament Legal Affairs Committee (JURI) 31 May 2012

2. Background • The 1993 Unfair Contract Terms Directive provides for a binding system of control of business’ use of unfair terms in consumer contracts; • In March 2011 on the proposed Consumer Rights Directive the EP voted in favour of a mixed harmonisation system to update these rules; • The pCesl would introduce a parallel and voluntary system for business to control the fairness of their contract terms used in consumer contracts, leaving it up to them to choose between national and the optional law even if to the detriment of consumers;

3. Impact assessment • The role of contract law as a main barrier to b2c cross-border trade is being significantly exaggerated; Research into trade obstacles shows the lack of harmonisation of some parts of contract law is not a significant concern, neither to consumers nor to business; • The Commission’s impact assessment on the pCESL does not assess the impact of the Consumer Rights Directive, which fully harmonises nearly all relevant aspects of online consumer contracts, including some aspects of unfair contract terms; • The Commission’s impact assessment on the pCESL does not assess the impact of the proposed rules on unfair contract terms;

4. Consequences of an “optional” regime for consumers • 2 different EU laws on the same issue; • 2 standards of “unfairness” in the laws of Member States; • Complication of the legal environment by introducing a parallel set of rules: confusion for consumers and SMEs, legal uncertainty, incoherence of application and of the interpretation of EU law; • Less protection for European consumers against unfairness in consumer contracts offering business a means to circumvent better mandatory national standards;

5. Modus operandi of the pCESL How do the substantive rules of the pCESL function? The ‘chapeau’ rules raise fundamental questions and problems of application to consumer contracts. • Objective and subject matter: Article 1. A stand-alone, single set of rules? • The optional nature: Article 3. Can a contract of adhesion be optional? Consumer protection à la carte for business; • Agreement on the use of pCESL: Article 8 and 9. Consumer’s consent to pCESL : “informed” and “conscious”? Example Standard Notice: “Trader's standard contract terms which are unfair are not legally binding for you.”

6. EU « Tandem Law » Approach – Better Regulation ? • How will the two sets of EU rules on the same subject matter be linked and how will they be developed further? • Cost-benefit analysis of an “EU tandem law” approach? • Will we create legal certainty by developing (diverging) case law on the base of two sets of EU rules covering the sameissues? • What about legislative changes? Will they go in parallel or follow different procedures? • How will the CJEU deal with the expected tsunami of preliminary questions, in particular regarding unfair contract terms?

7. The level of consumer protection in UCT • pCESL objective: preclude the application of better protection granted by national laws to consumers; • BEUC’s preliminary analysis shows that the level of protection against unfair contract terms in the pCESL is LOW; consequently it would deprive consumers in many countries of their current rights; • "WARNING: BY USING THIS SITE YOU AGREE TO RENOUNCE YOUR BETTER RIGHTS UNDER NATIONAL LAW.” • The reference for measuring the level of protection must not be the existing EU Directives, but the national laws, which determine the currently available protection for consumers; • The pCESL does not address long identified problems in the field of unfair terms; it will lock up consumer law instead of providing necessary further development of ‘real’, binding rights and obligations;

8. Examples of the low level of protection from UCT • Article 80 - problematic exclusions from the unfairness test: e.g. main subject matter and adequacy of price ; • Article 82 - Exclusion of control of individually negotiated contract terms leaves consumers without protection; • Article 83 - Definition of ”unfairness” is too narrow: requirement of good faith, significant imbalance, application only to circumstances during the contract conclusion; • Article 84 and 85 - The lists of “always unfair” and “presumed unfair” terms is problematic due to stricter and diverging clauses in MS: example price increase clauses; • Missing elements: protection from “surprising clauses”, protection in relation to transparency/accessibility of terms; special rules for digital content.

9. pCESL impedes necessary developments in consumer law Example:Digital Content Consumer detriment is a fact – modernisation of rules is necessary. • Commission's impact assessment on pCESL: Europe Economic’s study for Commission published December 2011 estimates consumer detriment across the EU to be €64 billion. • Recital 17, pCESL: Legal uncertainty and incoherence in the EU is significant; Consumer rights weakened by legal uncertainty and outdated laws (study of the University of Amsterdam published for Commission, December 2011). Conclusion: ALL consumers need better rights, but Commission says no initiative besides CESL. European consumers left with business self regulation.

10. EU model contracts Comparison of the elements of a typical “life cycle” of a consumer contract: • Contract information • Contract formation/ordering • Delivery • Substitution • Right of withdrawal • Passing of risk • Price • Good not conforming to the contract • Remedies for non-conformity • After-sales services and Additional Guarantees • Complaint handling • Dispute Resolution

11. Key findings • pCESL would duplicate significant parts of EU law, including unfair contract terms: Making two diverging European consumer contract laws; • Optional regulation is an inappropriate solution for b2c contracts; No real “choice” for consumers; • More complexity and legal uncertainty for businesses and consumers in relation to substantive rules, but also conflict of law rules; • The low level of protection on unfair contract terms in pCESL would deprive consumers of rights applicable under their national law • pCESL blocks necessary clarification and modernisation of consumer law, including on unfair contract terms • Requesting an ex ante waiver from consumers of the better protection available under their national law = unfair business practice?

12. Suggestions for a future strategy for consumer contracts Instead of ‘optional’ regulation: • Address the key barriers to cross-border trade, i.e. those listed in the Commission's 2012 Communication on e-Commerce • Alternative tools, such as model contracts linked to ODR, should be developed; • Consumer rights need to be improved and modernised. The EU institutions should seek to improve consumer contract law for ALL consumers and all transactions in a transparent manner: • EU model contracts and toolbox approach instead of optional regulation. • “Mixed” harmonisation works - see CRD. • Limited review of 1993 Unfair Contract Terms Directive? • Limited review of 1999 Guarantee Directive? • A new Directive on digital content products

13. Thank you for your attention. Our most recent papers on European contract law available on website: : www.beuc.eu Consumer Contracts team • BEUC/X/118/2011 Analysis of the Commission’s impact assessment • BEUC/X/14/2012 Position on the pCESL • BEUC/X/23/2012 Proposal for an EU model contract

14. www.beuc.eu – consumers@beuc.eu