The Omnibus Directive (Directive (EU) 2019/2161), or the “Enforcement and Modernization Directive” is a new consumer protection directive in the European Union (EU) that came into effect on January 7th, 2020.
The Directive contains new requirements for the discounted pricing of products and follows the “New Deal of Consumers” initiative concerned with bolstering and growing EU consumer laws.
The Directive aims to protect ecommerce consumers and update the current digital content regulations. It also strives to update EU consumer protection laws for new market developments.
The EU member states must have implemented the new Directive into their national laws by November 28th, 2021, and bring it into effect in national legislation by May 28th, 2022.
The Directive applies to all B2C ecommerce companies in the EU as well as to companies that provide digital services, goods, or content to consumers in the EU. This means that B2C stores in the EU must comply with the Directive’s requirements by the due date of May 28, 2022.
In this post, we discuss the new Directive, its requirements, and how it affects ecommerce merchants and consumers. We also highlight how you can ensure your business complies with the new Directive on time.
What is the Omnibus Directive?
The EU Omnibus Directive brings changes to four consumer protection directives:
- The Unfair Commercial Practices Directive (2005/29/EC)
- The Unfair Contract Terms Directive (93/13/EEC)
- The Consumer Rights Directive (2011/83/EU)
- The Price Indications Directive (98/6/EC)
The Omnibus Directive widens the scope of the current consumer rights framework that covers physical goods and services to also apply to digital goods, content, and services.
What is the New Deal for Consumers Initiative?
The new Directive is part of the EU’s New Deal for Consumers initiative which aims to expand consumer protection laws in the EU and ensure legislation keeps up with changes in the market.
The New Deal went into effect on April 11, 2018, and is composed of the following elements:
The New Deal was followed by the Omnibus Directive and Directive (EU) 2020/1828.
How does the Directive change consumer rights?
The Directive extends traditional consumer rights to include all digital transactions. This includes the right to withdraw from the transaction within 14 days, and the right to receive vital pre-contractual information. This also means that modern digital issues such as fake online reviews fall under consumer protection regulations.
An exception to this rule is a consumer that offers personal data that is provided because of a legal obligation, or only processed to produce the digital content in question.
Overall, the increase in transparency in digital marketplaces aims to help consumers make better and more well-informed purchasing decisions.
How does the Directive change the obligations of businesses?
The Directive stipulates the following requirements for businesses.
The requirement for transparent pricing
This is perhaps the most talked-about element of the new Directive. If a discount or sale price is announced, the original price of the product must have been made public at least 30 days beforehand. Please note that this requirement only applies to goods, not content or digital services.
This means that an online store must display the price history of the last 30 days of a discounted product.
This requirement strives to prevent price manipulation, wherein shops will falsely advertize sales prices.
This includes the following exceptions:
- The requirement does not apply to discounts targeted at a limited number of consumers, such as loyalty offers
- For promotions up to 60 days in length, there is no need to update the lowest past price during the campaign, even if the price is lowered further
- Goods with a short shelf such as groceries are an exception to this rule
The requirement for digital marketplace transparency
All digital marketplaces must give consumers notification of their rights and contact details to turn to if they believe those rights have been denied.
This means that online marketplaces must determine:
- What consumer protection elements apply to any transaction
- If a seller is a private person or representing a business entity—this will determine if they must abide by consumer protection laws
- How the burden of compliance will be split between the digital marketplace and the seller
- How they will rank search results, such as price, rating, purchase history or a combination of different criteria. If the ranking of search results is based on payments received from traders or suppliers, consumers must be clearly informed.
Consumers use a wide range of free services provided by traders in return for their personal information—in which case the services are not actually free. Current EU consumer protection law only applies to paid services, not to free services.
With the new Directive, EU consumer protection rights will also apply to these free services, and consumers will have the right to terminate their contract within 14 days without cause. Providers of “free” services must provide clear information on the main features of the service, the duration of the contract, and the conditions for termination.
The Directive also stipulates that online stores must publicize when the price of a product or service changes due to automatic price alterations. This includes price alternations due to seasonal periods, and price alterations resulting from personal consumer data.
Ecommerce companies often use algorithms to identify if a consumer is particularly interested in their goods or services. Businesses also increase the prices of goods or services based on a consumer’s purchase history or the websites they visit. Now, merchants must inform consumers if the price of a product has been determined individually on the basis of automatic decision-making. This will ensure that consumers are aware of the risk that the price has been raised specifically for them.
Appearance and packaging
Finally, products that have the same packaging or which are very similar in appearance—and thus appear to be similar—may not be sold or marketed in different countries as the same product if, in reality, the products differ significantly.
The restriction on fake reviews
The Directive bans fake reviews with the goal of creating transparency in digital marketplaces.
It prohibits the following activity around fake reviews:
- The deletion of negative reviews
- The creation of fake reviews
- False claims of verified consumer reviews
- The transference of reviews from one good to another
- The nondisclosure of paid search rankings
The requirements for communication between merchants and consumers
The Directive outlines the following conditions for online interactions between consumers and merchants:
- The chosen method of communication must be reliable and efficient
- Customers maintain the right to preserve a copy of the entirety of the correspondence
The Directive recommends methods of interaction such as speech-based assistants, chatbots and conversational AI.
What steps can digital vendors take to comply with the new Directive?
The new Directive brings strict requirements and businesses must do their homework to ensure they meet the new standards in the EU.
Take a look at the following areas of practice to determine whether your business complies with the Omnibus Directive.
Review your current pricing practices and make sure the prices of goods have been publicly available for a minimum of 30 days. Remember, you must acknowledge if you use any kind of personalized or automated pricing.
The Directive mandates that businesses must assess and update processes for verifying online reviews to ensure their authenticity. If an online store provides access to product reviews made by consumers, the company must take reasonable steps to ensure that these reviews are genuine.
For example, verification should be carried out to ensure that only consumers who have genuinely purchased or used goods or services can leave an assessment. Merchants must also provide customers with an explanation of how they ensure that reviews come from genuine customers.
Audit your online reviews with the following:
- How a reviewer’s identity is verified
- Where you share the verification process with the public
- How influencers can demonstrate they are not being paid to review your products
- Where you host your reviews
- How you manage your reviews
- What software or tools you use to process your reviews
Update your Terms and Conditions
Assess and update your Terms and Conditions for all digitally sold goods or services that are available to EU consumers. You must include traditional consumer rights in these terms, and include information about how consumers can apply those rights.
How will the new Directive be enforced?
The Directive requires each EU member state to enforce the new requirements individually.
What fines or penalties can companies expect if the Directive is not followed?
Upon violation, the Directive carries severe fines comparable to those of the EU’s General Data Protection Regulation (GDPR).
The Directive levies the following fines upon violation of the first three directives that compose the current consumer rights legislation:
A fine of up to 4% of the offender’s annual turnover in the EU member state in which the goods and services are sold. If the turnover cannot be calculated, the offender may face fines up to 2 million euros. Each member state will determine the penalty based on a number of elements, including
- The severity of the offense
- The type of offense
- The monetary ramifications of the offense for the business
- The presence of mitigating or aggravating elements
- Any previous offenses
If the fourth directive is violated, the company will receive a similar fine as mentioned above. But in this case, the EU member state in question will apply the fine in correspondence to the use of a contractual term that either defies the member state’s national law or is found unfair by a court of the member state.
As per the new Directive, the actual fines that will be levied will largely depend on the member state in question.
The new EU Omnibus Directive brings major changes to the existing consumer protection laws and regulations in the EU. It widens the reach of the current regulations by providing consumers with the power to use traditional consumer rights when purchasing goods, services, and content online from B2C companies.
B2C businesses that sell online in the EU now must adhere to the new rules, as violations will culminate in considerable fines. While changes in legislation drive corporate responsibility, customers are increasingly interested in the ethics of corporate operations and they demand transparency.
Indeed, many online stores have seized this opportunity to better serve their customers. For example, the product pages of some ecommerce sites have introduced functionality from price comparison sites that show the full price history of the product. Customers receive a chance to follow the price development and assess whether the purchase is a smart choice.
If your ecommerce strategy is to compete on price, you can also create a comprehensive price comparison tool from price history data by offering the product’s market price as a benchmark. This way, you can not only comply with the new Omnibus Directive but also show customers that you are eager to be more transparent and open about your business practices with them.
Time is running out, but Vaimo is ready to help! With over 14 years of experience and more than 400 ecommerce projects launched, we’ve encountered our fair share of changes in regulations and rules. Interested in talking about your ecommerce strategy, or implementing new functionality onto your digital commerce store? Talk to us today!