16.8.2022
LEG
> Legislation

Are you ready for the new consumer protection requirements?

There is a proposal for a new Consumer Protection Act in the legislative process, which brings quite a few changes and novelties.

Consumer protection law plays an important role both at national level and at European Union (“EU“) level. Despite being regulated by EU Directives, which are binding on the Member States in terms of their objective, the EU legislator has for many years been guided by the trend towards so-called maximum harmonisation of consumer law. Thus, consumer protection law within the EU is committed not only to a high but also to a more uniform level of consumer protection within the EU Member States.

As part of the so-called New Deal for Consumers, a new Directive (EU) 2019/2161 of the European Parliament and of the Council, also referred to as the “Omnibus Directive”, was adopted at EU level in November 2019, which updates EU consumer protection rules by amending several existing Directives.  Prior to this, two other important Directives were adopted in May 2019, namely Directive (EU) 2019/770 of the European Parliament and of the Council on certain aspects of contracts for the supply of digital content and services and Directive (EU) 2019/771 of the European Parliament and of the Council on certain aspects for the sale of goods, amending Regulation (EU) 2017/2394 and Directive 2009/22/EC and repealing Directive 1999/44/EC.

All of the above-mentioned Directives will be transposed into the Slovenian legal order by the new Consumer Protection Act (“ZVPot-1“), which will fully replace the previously applicable Consumer Protection Act (“ZVPot“)[1]  and the Act on the Protection of Consumers against Unfair Commercial Practices (“ZVPNPP“)[2]. The draft ZVPot-1, which has been prepared by the Government of the Republic of Slovenia, is currently undergoing the legislative process, during which substantive changes to the text of the Act may still be made. Therefore, the following is a brief and non-exhaustive summary of only some of the main changes contained in the new ZVPot-1 proposal.

New developments in remedies for non-compliance with a contract of sale

The transposition of Directive (EU) 2019/771 brings an updated regime for the enforcement of remedies in the event of non-conformity in the sale of goods (material and/or legal defects), which is regulated in the ZVPot-1 draft in the section on specific aspects of individual contracts.[3] The Bill contains an updated definition of conformity of goods, but the most significant change compared to the current regime concerns the enforcement of remedies. If the consumer has a choice between remedies under the current ZVPot,[4] the revised regime will establish a clear hierarchy between them. Thus, in the event of non-conformity of the goods notified to the seller, the consumer will be entitled to assert remedies in order of priority, by first requesting the seller to restore the conformity of the goods free of charge, either by repairing them or by replacing them with new, fault-free goods. Only if the seller fails to bring the goods into conformity in this way will the consumer have the option of requesting a proportionate reduction of the purchase price or withdrawing from the sales contract and requesting reimbursement of the amount already paid. At this point, it is worth pointing out that the drafters of the law have made use of the possibility to opt for a specific remedy, as provided for in Article 3(7) of Directive (EU) 2019/771, for cases of non-conformity of goods which become apparent within a relatively short period of time after their delivery. Thus, Article 83(2) of the proposal provides for the introduction of a new consumer right, the right of refusal, according to which, notwithstanding the above hierarchy of remedies, the consumer will have the possibility to withdraw from the sales contract and claim a refund of the amount already paid if the non-conformity appears within less than 30 days of the delivery of the goods, without prejudice to the above-mentioned hierarchy of remedies.

Furthermore, the proposal for a ZVPot-1, like the current ZVPot, maintains a two-year guarantee period during which the seller is liable for any non-conformity of the goods existing at the time of delivery and occurring within that period. However, the proposal for a ZVPot-1 provides for an important change in the case of second-hand goods. The current ZVPot provides for a one-year warranty period in the case of the sale of second-hand goods, but in designing the new regime, the draftsman decided that the length of the warranty period could be subject to contractual agreement, in such a way that the seller and the buyer of second-hand goods could agree on a warranty period shorter than the two-year period, but not shorter than one year. Therefore, in the absence of an explicit agreement between the seller (company) and the buyer of the second-hand goods, a longer warranty period of two years will also apply to second-hand goods with the entry into force of the new ZVPot-1.

The new regime also introduces a longer period during which the non-conformity of the goods is deemed to have existed at the time of delivery. The current ZVPot establishes a presumption that a defect already existed at the time of delivery if it occurs within six months of delivery, whereas the new ZVPot-1 extends this period to one year from the delivery of the goods. The Bill provides for the introduction of a reversal of the burden of proof for this period, according to which it is for the seller (the company) to prove that the lack of conformity did not exist at that time.

However, companies or sellers should not overlook the new provisions on the seller’s right of recourse (Article 88 of the draft ZVPot-1), which set out the conditions under which the seller will be entitled to pursue warranty claims for non-conformity of the goods against a predecessor in the downstream chain.  Directive (EU) 2019/771 leaves Member States free to decide on the procedures and conditions for such claims. The proposed ZVPot-1 provides that where a seller is liable to a consumer for non-compliance resulting from an act or omission, including a failure to provide updates for goods with digital elements, by a person upstream in the contractual chain, the seller will be entitled to pursue a right of recourse against the upstream company in the contractual chain (e.g. However, this will only be the case if the prerequisites for liability for material defects as set out in the Civil Code are met and if two years have not yet elapsed since the transfer of risk between the upstream party and the direct seller.

New developments for guarantees

The draft ZVPot-1 maintains two types of guarantees – a voluntary (commercial) guarantee and a mandatory guarantee of perfect functioning,[5] although the latter is not a consequence of the transposition of the European Directives. However, it is clear from the proposal that the mandatory 1-month guarantee in the case of second-hand goods is being abolished.[6] The revised regime will also bring changes to the enforcement of claims under the statutory warranty – the beneficiary of a statutory warranty will only be able to enforce his/her claims under the warranty for faultless operation against the manufacturer as the grantor of the warranty and not also against the seller, as is possible under the current ZVPot.

Supply of digital content and services

As a result of the transposition of Directive (EU) 2019/770, the new ZVPot-1 will include a chapter on the contract for the supply of digital content and services.[7] Digital content is defined as data created and supplied in digital form, and a digital service is defined as a service that enables a consumer to create, process, store or access data in digital form, or a service that enables the exchange of data in digital form or any other form of interaction with that data, uploaded or created by the consumer or other users of that service.[8] In other words, the new regime will apply to computer programs, applications, video files, audio files, music files, digital games, electronic books or other electronic publications, as well as digital services that allow the creation, processing or storage of, or access to, data in digital form, including software as a service, such as video and audio content sharing and other data hosting, text editing or gaming services provided in a cloud computing environment and on social media. The new rules will apply regardless of the medium used to transmit or make available the digital content or service. Thus, the new rules will also apply to digital content delivered on a tangible medium (e.g. DVDs, CDs, USB sticks and memory sticks) and, at the same time, to the tangible medium itself if it acts solely as a medium for the digital content.

On the other hand, the rules of the sales contract chapter (i.e. the provisions of the new ZVPot-1, which transposes the above-mentioned Directive (EU) 2019/771) will apply to so-called goods with digital elements. Goods with digital elements are goods that include or are interconnected with digital content or a digital service in such a way that the absence of that digital content or digital service would prevent the goods from performing their function – regardless of whether such digital content or digital service is supplied by the seller or by a third party. This is the case in particular for smart TVs, smart phones, smart watches, etc., which already contain certain (pre-installed) applications in order to be able to perform their functions under the sales contract in the first place. However, in order to leave no doubt for consumers and also for companies (sellers) whether the supply of digital content or digital services is part of the sales contract (the regime of Directive (EU) 2019/771) or not, in case of doubt, it will always be deemed to be part of the sales contract.

The new rules on the supply of digital content or a digital service largely follow the rules on the sale of goods. There is a new mandatory guarantee of conformity of the digital content and an obligation for providers to provide the necessary updates to the digital content and digital service, including security updates. Similarly to the sale of goods, a system of remedies is foreseen for the supply of digital content or digital services in order to restore compliance, to reduce the purchase price proportionally or to withdraw from the contract for the supply of digital content or digital services. It also provides for the introduction of a right of recourse for suppliers against the upstream supplier.

However, the supply of digital content or a digital service is not always followed by the payment of the purchase price as a counter-performance, but rather by the consumer providing personal data ‘in exchange’ for payment (e.g. the consumer creates an account on a social networking site and provides a personal name and an email address, which are then used for purposes other than the supply of the digital content or digital service itself). The new regime for the contract for the supply of digital content and digital services will also apply to such cases where the consumer provides or undertakes to provide personal data, unless the processing of the personal data provided is for the sole purpose of supplying the digital content or digital service itself or for the undertaking to comply with any legal requirements imposed on it by law and the processing of the data is not for any other purpose.

Some more new developments

The whole package of innovations is driven by the transposition of the Omnibus Directive (Directive (EU) 2019/2161), introducing changes in several key areas of consumer law: unfair contract terms, price labelling, general consumer rights and unfair commercial practices, with transparency at the heart of all the changes.

For example, the obligations of so-called online marketplaces, which are services using software, including a website, part of a website or an application, operated by or on behalf of a business and which allow consumers to contract remotely with other businesses or consumers, will be newly regulated.  Special emphasis is added to the provision of prior information in order to remove confusion as to who the contractual partners of a consumer purchasing through an online marketplace are. Thus, before the consumer is bound by the contract, the business will have to provide the consumer with information in a clear and understandable way about whether he is entering into a contract with the business or with another person (e.g. another consumer) and how this affects his rights and obligations. In particular, if the other party to the contract is also a person who is not bound by the provisions of consumer protection or the ZVPot-1, this means that the consumer will not have the rights arising from this law. To this end, the online marketplace provider will have to obtain a declaration from the third-party offering goods, services or digital content as to whether or not it is an undertaking within the meaning of the ZVPot-1, as the online marketplace provider will not be required to verify the status of this third party itself. However, if the third party offering the goods, services or digital content does not have the status of an undertaking, the online marketplace provider will be required to provide a brief statement that the contract concluded is not subject to consumer rights under ZVPot-1 or consumer protection law. It is envisaged that the online marketplace provider will not be required to state specific consumer rights, but a brief statement will suffice. However, it should be noted that as online marketplaces are under an obligation to provide this information in a clear and comprehensible manner, it will not be sufficient for the information to be provided only in standard terms and conditions or other similar contractual documents.

In addition to the above, the online marketplace provider is also required to provide the consumer, before being bound by the contract, with general information on the main parameters determining the ranking of offers presented to the consumer as a result of a search query and on the relative importance of those parameters in relation to other parameters. The latter does not imply for undertakings a requirement to disclose in detail the ranking mechanisms and algorithms, but rather a more general description of the main parameters determining the ranking of offers. However, companies will be explicitly required to disclose any paid advertising or explicit remuneration for achieving a higher ranking of products in search results.[9] Conduct contrary to this will be considered unfair commercial practices and will expose the company to fines and/or direct consumer claims.

Another important innovation, which will apply to distance or off-premises contracts, obliges the business to provide the consumer with information before the contract binds him if the price has been adjusted on the basis of automated decision-making.[10] The consumer will therefore need to be clearly informed whether the price has been adjusted in any way to his purchasing power, his profile in relation to past purchases, etc., in order to be able to make an informed decision on whether to accept the risk of a possible higher price.

Since, particularly in online shopping, where goods cannot be evaluated by direct perception, and even otherwise, we all rely on the reviews and recommendations of other customers, the aim of maximising transparency also introduces an obligation for businesses to take reasonable steps to verify that product reviews are given by consumers who have actually used or bought the product. In addition, it will be prohibited to give or solicit false ratings and recommendations or to misrepresent such ratings and recommendations in order to promote products. Indeed, such business practices will also be considered unfair in all circumstances.

With regard to unfair commercial practices, it is worth pointing out that consumer claims are explicitly introduced where an unfair commercial practice is used by an undertaking before, during or after the conclusion of a transaction relating to the purchase of a product, to the detriment of the consumer. The ZVPot-1 draft provides that in such cases, the consumer will be able to either claim a reduction in the purchase price or withdraw from the contract and claim a refund of the amount paid, and will also be able to claim compensation for damages under the general rules on liability for damages.[11]

There are also changes to price reductions,[12] which will apply to businesses in any distribution channel (physical shops, online sales, etc.). When reducing the price of goods, it will also be necessary to indicate the previous price, which is redefined as the lowest price applied by the business for at least 30 days prior to the price reduction, exceptionally less if the product has not been offered on the market in the last 30 days. However, care should be taken in applying this exception and in considering whether the goods are indeed new goods that have not been offered on the market. It seems that if the goods were only temporarily out of stock or in the case of seasonal goods, the application of the exception will not (always) be justified. The ZVPot-1 also provides that if there are cases of continuous gradual price reductions, the undertaking will also be able to take the lowest price from at least 30 days prior to the first price reduction as the previous price and will not have to update it again and again in the meantime.

Last but not least, the new regime also brings changes in the area of sanctions for breaches of consumer law. Harmonised criteria for the assessment of fines in the form of “mitigating and aggravating” circumstances (e.g. repeated offences, actions by the undertaking to remedy the damage, etc.) are introduced to make sanctions more effective, proportionate and dissuasive. For undertakings operating in several EU Member States, however, for certain cross-border infringements, the possibility is foreseen to set the fine at a percentage of the annual turnover of the undertaking, which, in the case of widespread infringements with a Union dimension (as defined in Regulation (EU) 2017/2394), may reach as high as 5% of the annual turnover of the undertaking concerned in the EU Member State(s) concerned. In the event that information on annual turnover is unavailable, for certain widespread infringements, a range of fines of between EUR 5,000 and EUR 2,000,000 is foreseen.

Conclusion

The ZVPot-1 proposal is being considered in an urgent procedure, so it is expected that the legislative process will unfold more quickly, and in the currently published draft law it is envisaged that the law will come into force within three months of its enactment. Therefore, companies operating in Slovenia and the EU market in particular need to be aware of the key upcoming changes and adapt their business in time. Businesses should check and update their general terms and conditions and other documents, as well as the range of information available on their online shops, as new legislation is on the horizon, which brings with it a number of obligations and severe sanctions.

However, with the transposition of the above Directives and the adoption of the ZVPot-1, the circle of the New Deal’s innovations for consumers will not yet be fully complete. EU Member States – including Slovenia – still have to transpose Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions for the protection of consumers’ collective interests and repealing Directive 2009/22/EC. Member States have to transpose this Directive into national law by 25 December 2022.

 

[1]  Consumer Protection Act, Slo. Zakon o varstvu potrošnikov (Official Gazette of the Republic of Slovenia, no. 98/04 as amended, »ZVPot«).
[2] Consumer Protection against Unfair Commercial Practices Act, Slo. Zakon o varstvu potrošnikov pred nepoštenimi poslovnimi praksami (Official Gazette of the Republic of Slovenia, no. 53/07, »ZVPNPP«).
[3]  See Articles 71 to 88 of the ZVPot-1 draft.
[4] Cf. Article 37.c of the ZVPot that was modelled on the remedies for material defects in the Code of Obligations and did not consistently transpose the provisions of Article 3 of Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees.
[5] Mandatory for the so-called technical goods included in the list of goods set out in each Goods Regulation adopted by the competent Ministry of Economic Development and Technology.
[6] Cf. second indent of Article 19(1) of the ZVPot.  
[7] Articles 103 to 127 of the ZVPot-1 draft.
[8] Cf. points 3 and 4 of Article 4(1) of the ZVPot-1 draft.
[9] However, the obligation to disclose this information will not only apply to online marketplaces, but to all providers of online search services (cf. point 12 of Article 51(1) of the ZVPot-1 draft).
[10] Cf. point 5 of Article 130(5) of the ZVPot-1 draft.
[11] Cf. Article 55 of the ZVPot-1 draft.
[12] Cf. Article 15 of the ZVPot-1 draft.