As part of our blog series on the EU Commission’s (EC) Digital Fairness Fitness Check and a potential new EU legislative proposal, the Digital Fairness Act, we recently took a closer look at ‘Social Media Commerce and Influencer Marketing’.
Another focus area that may be the subject of future EU legislation are ‘Unfair Contract Terms’. In this blogpost, we analyse the main findings of the Digital Fitness Check and summarise the key takeaways for you.
Existing framework and what is an ‘Unfair Contract Term’?
The EU's Unfair Contract Terms Directive (Directive 93/13/EEC, as amended by Directive (EU) 2019/2161, UCTD) applies to B2C contracts for the purchase of goods and services and aims to protect consumers from unfair standard terms imposed by traders, including in digital environments.
The UCTD establishes a minimum level of consumer protection in the EU, but allows EU Member States to implement stricter rules in their national law. The UCTD prohibits certain unfair terms, in particular if they (i) are not in plain, intelligible language (transparency test) or (ii) are non-negotiable and designed to restrict the consumer's rights or impose unreasonable obligations on the consumer (unfairness test) – thus taking into account the typical (perceived) lack of bargaining power of consumers in relation to standard terms. In addition, the Annex to the UCTD contains a non-exhaustive list of terms which may be regarded as unfair. Examples of unfair terms include unilateral changes to the contract by the trader without proper justification or general exemptions from the trader's liability.
What are the main results of the Digital Fitness Check?
Survey data cited in the Fitness Check report shows that over 62% of consumers who buy digital services say they have come across terms they consider unfair. Unsurprisingly, the survey results also suggest that many consumers do not read terms and conditions carefully: Only 36% of respondents said they regularly read them, while a further 23% indicated they sometimes read terms and conditions. Based on these results, about two-thirds of consumers would often accept terms they haven’t read while around 40% do not even read terms and conditions ‘sometimes’. Young adults, particularly those aged 18-25, reported the lowest levels of engagement with terms and conditions, with only 26% saying they always read them. Across all age groups, factors such as complex language, long texts and difficult presentation of the text contributed to low levels of understanding and awareness of terms and conditions.
In addition to these qualitative datasets, the EU Commission referred to an automated assessment (using an experimental natural language processing tool) of the terms of service and privacy policies of 35 websites commonly used by EU consumers (15 e-commerce sites covering sectors such as telecoms, energy and travel, 15 online platforms, 5 micro-contract operators such as influencers/content creators) from a UCTD and GDPR perspective. The study identified several types of terms that were perceived as problematic, including unilateral terminations and amendments, jurisdiction and choice of law clauses, and limitation of liability clauses. It was also noted that website terms can change dynamically and rapidly, without direct communication to consumers.
The Fitness Check correctly notes that the UCTD and existing case law can be used to ‘… successfully … tackle the most prevalent issues related to transparency and fairness of contract terms in the digital environment.’ It further found, however, that enforcement actions have ‘… not rooted out all non-transparent and unfair terms in the digital markets …’ (p. 189). Clearly no legislation will ever ‘root out all non-transparent and unfair terms’ and hence further legislation also will need to consider whether possibly only incremental gains in consumer protection justify additional burden and risks on businesses.
Regarding more specific terms, the report notes that while the UCTD is principles-based and therefore generally applicable to the digital environment, some clarification of its applicability in digital contexts may improve its effectiveness. It was also highlighted that the ‘average consumer’ benchmark for assessing transparency may set the bar too high in online contexts. Stakeholders also noted that the national nature of the enforcement system of the UCTD (through national authorities or courts) may be a limitation given the cross-border nature of B2C transactions in the digital environment. In this context, stakeholders, including several ministries and enforcement authorities, also noted that the UCTD may only have a limited deterrent effect, especially for global digital players, despite the new provision on sanctions introduced by the EU Modernisation Directive ((EU) 2019/2161), providing for fines in cases of widespread or cross-border infringements up to at least 4% of the trader's annual turnover in the member state(s) concerned.
With respect to the new EU legislation under the EU Digital Agenda (including the Digital Services Act and the Data Act), the Fitness Check concludes that the UCTD is generally coherent with these new regulatory pieces of legislation but potential consistency issues may arise since the enforcement competence is fragmented between different authorities.
Taking action: Potential countermeasures
The Digital Fitness Check identified possible approaches to address the perceived shortcomings :
- First, stakeholders suggested updating the existing Commission guidance on the UCTD to better reflect the specific challenges of digital markets.
- Second, updates to the UCTD are being discussed in order to create a ‘blacklist’ of presumed unfair terms in the digital environment (going beyond the existing minimum annex). Such changes could also provide authorities with further enforcement options and facilitate consistent cross-border enforcement. However, the Digital Fitness Check correctly recognises that the current minimum harmonisation nature of the UCTD may even allow for more effective consumer protection: Contract law falls within the national competence of Member States and contract terms may be specific to a given Member State.
- Third, some stakeholders suggested to define additional obligations (such as the provision of a summary of key contract terms, the presentation of terms in clear language and the avoidance of excessively long documents). The Digital Fitness Check recognises certain disadvantages concerning these proposals, such as additional administrative burden for traders and the challenge of identifying key terms in a general terms and conditions document. Moreover, a potential oversimplification may lead to less legal certainty for consumers. It also does not seem entirely convincing to fight a perceived abundance of text with an obligation to produce more (shorter) text – even more so when the current legal standard provides for consumer protection irrespective of whether they read the terms or not.
- Fourth, a modification of the 'average consumer' standard (reasonably observant, attentive and circumspect) relevant for the transparency test has been discussed by certain stakeholders to take into account the vulnerability of digital consumers. This seems questionable, since the standard of a reasonably observant, attentive and circumspect consumer leaves room for a flexible application and it would seem surprising to use unreasonable behaviour as a yardstick for the assessment of unfair contract clauses.
- Fifth, in order to facilitate the enforcement of the UCTD and its deterrent effect, some stakeholders suggested higher revenue-based penalties, website blocking and voiding of contracts with unfair terms. This would follow a general tendency to include high revenue-based penalties in many pieces of new legislation (cf. DSA, DMA, AI Act, Data Act) which are often overlapping in scope. In light of the existing significant fine risk (as implemented by the Modernisation Directive) it remains, however, at least questionable whether such an approach would balance the interests between consumers and traders appropriately. It was also recommended to support ‘preventive’ enforcement, such as negotiations and dialogue with traders to address consumer and enforcement concerns.
In conclusion, there was broad consensus among stakeholders that the key principles introduced by the UCTD remain useful in a digital environment. However, there are also vocal demands for additional regulatory guidance on the specific challenges of digital B2C environments. While it remains to be seen which proposals will ultimately be considered for a potential Digital Fairness Act, businesses are well-advised to monitor both existing and potential future requirements in this area. This will equip them to stay ahead of legal developments and reduce the legal and reputational risk associated with unfair terms.
