The Omnibus Directive: A New Deal for EU Consumers – Part 1 – Background, key features and next steps

On 7 January 2020 the European Commission’s Enforcement and Modernisation Directive (EU) 2019/2161 (informally referred to as the Omnibus Directive) came into force and must be implemented in Member States by 28 November 2021. This is the first of three blogs exploring the Omnibus Directive and what it means for stakeholders at all levels. In this Part 1 we look at the background to the directive, its key features and the next steps in its implementation. In Part 2 we will look in more detail at the objectives and specific provisions of the directive and in Part 3 we will look at the potential implications of the directive for traders and also the decisions that Member States will need to take in implementing the directive.

How we got here

The Omnibus Directive is the result of an initiative originally adopted by the European Commission in early 2018 called the ‘New Deal for Consumers’, which aimed to modernise EU consumer law and strengthen its enforcement in light of an increasingly-globalised consumer marketplace and, in particular, the rise of e-commerce. The initiative included proposals for two new directives:

• the first would contain measures aimed at enabling consumers across the EU to seek collective redress in respect of the same infringement by a trader; and
• the second would contain measures designed to reinforce and modernise existing consumer legislation.

The second proposal forms the basis of the Omnibus Directive. The first proposal (known as the ‘Representative Actions’ proposal) is still making its way through the EU legislative process.

The New Deal for Consumers initiative was conceived as a solution to two interrelated policy issues. The first concerned the growing trend of large-scale abusive practices affecting consumers across the EU, which the European Commission considered was undermining consumer trust in the Single Market (two prominent examples were the ‘Dieselgate’ scandal and the inclusion of unfair terms in mortgage contracts). The second stemmed from a 2017 Commission evaluation of consumer protection laws and regulations known as the REFIT ‘Fitness Check’. Following consultations at various levels of the value chain, the Commission concluded that, whilst the consumer protection framework broadly remained fit for purpose, it was nevertheless in need of updating and better application and enforcement.

What is the Omnibus Directive

As part of the REFIT ‘Fitness Check’, four pieces of existing EU legislation were identified as needing some form of update, enhancement or reinforcement:

• the Unfair Commercial Practices Directive (2005/29/EC);
• the Consumer Rights Directive (2011/83/EU);
• the Unfair Contract Terms Directive (93/13/EEC); and
• the Price Indications Directive (98/6/EU).

The Omnibus Directive is a piece of amending legislation that amends each of these four directives. The amendments focus on various consumer issues, including penalties for infringements, transparency in online marketplaces, protection for consumers of ‘free’ digital services, the right of withdrawal and dual quality of products. In particular, the Omnibus Directive introduces five significant changes to existing consumer protection legislation:

1. expansion of the definition of goods and services to include digital content and services;
2. harmonisation of the rules applying to the sale of: (i) physical goods and services; (ii) digital goods, services or content; and (iii) physical goods and services which are made available or sold online;
3. the treatment of services provided in exchange for customer data on the same footing as paid-for services under a contract;
4. the building-out of existing, and introduction of new, obligations on traders and online platforms designed to give further protection to consumers; and
5. introduction of GDPR-style penalties for breach of the rules. The minimum penalty under the Omnibus Directive is 4% of the trader’s annual turnover in the Member State(s) where the breach occurred, or €2m where such figures cannot be calculated. Member States are also able to introduce higher fines if they see fit during the implementation period.

In making these changes, the Omnibus Directive seeks to ensure that all consumers, regardless of the method of sale or type of product or service, benefit from a harmonised approach to consumer rights. In particular, the new penalties offer consistency for consumers across the trading bloc by ensuring that their enhanced rights can be enforced fairly and proportionately.

It is worth noting that in an attempt to future-proof the Omnibus Directive and ensure long-lasting benefit to consumers, the legislation has been drafted in a technology-neutral way to ensure that it is not rendered obsolete by technological developments.

Part 2 of our blog on the Omnibus Directive will look in more detail at the key provisions contained in the Omnibus Directive and their likely impact on stakeholders.

Next steps

Though not technically part of the European Commissions’ separate Digital Single Market strategy (which was primarily aimed at facilitating cross-border trade and access to goods and services as well as combating anti-competitive practices) the Omnibus Directive (and EU consumer protection law more generally) is seen as a fundamental piece of the Digital Single Market puzzle going forward, particularly when it comes to the supply of digital content, e-commerce, and associated enforcement measures. This is reflected in the Commission’s new ‘Shaping Europe’s digital future’ strategy, one of whose central pillars is to create a fair and competitive digital economy (which encompasses ongoing activity falling under the New Deal for Consumers initiative as well as new proposals such as the Digital Services Act which is expected to focus on upgrading safety and liability rules for digital platforms – more on this in a future blog).

The Omnibus Directive has already entered into force. However, Member States have until 28 November 2021 to implement the directive into national law and can use this time to carry out internal consultations concerning potential derogations (including as to the level of penalties that can be imposed for breach – see above). Member States’ implementing legislation must enter into force by 28 May 2022.

In light of Brexit, the UK will not be obliged to implement the Omnibus Directive (particularly since, subject to any COVID19-related delay, the Brexit transition period is due to expire prior to the Omnibus Directive’s implementation deadline). However, even before the Omnibus Directive came into force, the UK Department for Business, Energy and Industrial Strategy (BEIS) had already published (in April 2018) a Green Paper entitled ‘Modernising Consumer Markets’ which has a very similar remit to the Omnibus Directive. Interestingly, the Green Paper includes a proposal for a cap on financial penalties of 10% of a firm’s worldwide turnover – this is substantially higher than the fines contemplated by the Omnibus Directive. The Green Paper also clarifies that, Brexit notwithstanding, BEIS is committed to preserving ‘an open, liberal, modern economy, built on the core principles of competition, free trade and high regulatory standards’. The UK government ran a consultation on the Green Paper from April 2018 to July 2018 and is currently analysing responses.

It should be noted that, even if the UK eventually adopts measures which are less stringent than those set out in the Omnibus Directive, UK-based companies that wish to continue to trade in the EU will need to be compliant with the Omnibus Directive (and the local implementing legislation applicable in the relevant EU Member State(s)).