Unfair business practices face ban under EU Directive

"Unfair business practices are recognised as a problem in all EU countries and harm consumers as well as respected companies with established business practices. They also affect confidence in markets. This proposal seeks to stamp them out in a simpler and more effective way," said Health and Consumer Protection Commissioner David Byrne.

According to the Commission, consumers' rights will be clearer and cross-border trade made simpler under the Directive, which establishes a single, common, general prohibition of unfair commercial practices distorting consumers' economic behaviour.

This single set of common rules will replace the existing multiple volumes of national rules and court rulings on commercial practices, which make it difficult and confusing for businesses. The Commission hopes that it will also boost consumer confidence and consequently, cross-border trade.

The Directive lays down rules for determining whether a commercial practice is unfair. Its aim is to define a limited range of "sharp practices" which are prohibited EU-wide. This leaves room for business to innovate in developing new fair commercial practices.

Because the Directive ensures EU-wide standards of protection, businesses will only have to comply with the requirements of their country of origin when selling to consumers around the EU. The Directive prevents Member States from imposing additional requirements.

Member States will have a duty to ensure that the rules on unfair commercial practices are enforced and that traders in their jurisdiction who break them are punished. The duty to pursue "rogue traders" applies equally whether the consumers targeted live in the Member State or another part of the EU.

The draft Directive states that a commercial practice shall be regarded as unfair if:

"it is contrary to the requirements of professional diligence, and

it materially distorts or is likely to materially distort the economic behaviour with regard to the product of the average consumer whom it reaches or to whom it is addressed, or of the average member of the group when a commercial practice is specifically directed to a particular group of consumers."

The proposal defines two specific types of unfair commercial practice in more detail - "misleading" and "aggressive" practices.

A commercial practice may mislead either through action or omission. The Directive does not attempt to define a comprehensive list of information to be positively disclosed in all circumstances. Rather, the duty imposed on businesses is not to omit "material" information – for example, the price, taxes charged, and product characteristics - that the average consumer needs to make an informed transactional decision where this information would not be apparent from the context.

The Directive describes three ways in which a commercial practice can be aggressive, namely harassment, coercion and undue influence. Criteria are set out to be applied in differentiating between aggressive practices on the one hand and legitimate marketing on the other.

The Directive also contains a list of some specific types of unfair commercial practice that are banned in all circumstances. These include, in respect of misleading practices:

Claiming to be a signatory to a code of conduct when the trader is not.

Claiming that a code of conduct has an endorsement from a public body when it does not.

"Bait advertising" scams (advertising a product as a special offer without actually having it in stock, or having only a token stock of the product).

Using the expression "liquidation sale" or equivalent when the trader is not about to cease trading.

Stating that a product can legally be sold when it cannot.

Using "advertorials" to promote a product (paid for media coverage), without making clear the "advertorial" is an advertisement.

Falsely arguing that the personal security of the consumer or his family is at risk if the consumer does not purchase the product.

Establishing, operating, or promoting a pyramid scheme.

The types of aggressive practice banned in all circumstances are:

Creating the impression that the consumer cannot leave the premises until the contract is signed or the payment made.

Conducting prolonged and/or repeated personal visits to the consumer's home ignoring the consumer's request to leave.

Making persistent and unwanted solicitations by telephone, fax, e-mail or other remote media.

Targeting consumers who have recently suffered a bereavement or serious illness in their family in order to sell a product that bears a direct relationship with the misfortune.

Advertising to children in a way that implies that their acceptance by their peers is dependent on their parents buying them a particular product.

Demanding payment for products supplied by the trader, but which were not solicited by the consumer (inertia selling).

The proposed Directive will now be sent to the European Parliament and to the Council of Ministers for approval. However, it has already attracted criticism.

Phil Murphy, European Public Affairs Manager at the Advertising Association warned:

"In its current form, the Directive may seriously hamper the UK advertising industry in carrying out its business. There are potentially open-ended opportunities for prohibitions in certain advertising sectors and for restrictions on the creativity of commercial communications"

Murphy added:

"Even after the Directive gets final appoval by the EP and Council (which is some time away yet) the implementation by each individual Member State is impossible to predict. This in itself will cause further legal uncertainty for the advertising industry."

The full text of the proposed Directive is available as a 40-page PDF at this page of the Commission's web site.

A Question and Answer Document on the proposals, prepared by the Commission, is available here