The Impact of New Legislation on B2C Business Model
SME Business Strategy and Management Consulting Services
Does your business sell products or services to consumers?
If you have a B2C model, there is a new directive amending consumer legislation that it’s very important to be aware of. This legislation will impact the terms business include in consumer facing agreements like services agreements and terms and conditions.
The implication of breaching consumer rights once this legislation has been adopted includes fines up to 10% of a business’s global turnover – so it very important to be aware of what it means. Our legal due diligence advisors have looked in to the impact of new legislation in this week’s newsletter.
What’s happening?
In 2019, the Enforcement and Modernisation Directive (EU) 2019/2161 (“Directive”) was adopted by the European Parliament to bolster consumer rights as a response to the increasing number of infringements by businesses.
The Directive amended previous consumer legislation by, amongst other things:
introducing more severe penalties for breaches of consumer laws providing those fines can be issued by national authorities.
The maximum o fines must be at least 4% of the business’ turnover in the Member state concerned, or up to €2 million when information on turnover is not available.
Extending individual remedies to consumers who have suffered due to unfair commercial practices; and
Bringing in new rules which govern the transparency of online marketplaces, customer reviews, personalised pricing practices and price reduction claims.
On 28th May 2022 the new measures adopted by EU Member States to comply with the Directive will begin to apply. This means that the ability to issue fines will come into force and businesses who are in breach will face hefty penalties.
Types of infringements of consumer law which may result in a penalty include breach of Unfair Contract Terms legislation and breach of Consumer Rights legislation.
Why is this relevant to UK businesses?
Although the Directive will not become law in Non-Member States such as the UK, this doesn’t mean that UK businesses can ignore the new legislation when drafting their consumer contracts and this would be a costly mistake to make!
When determining whether the Directive applies, it is the location of the consumer rather than the business that will be relevant. This means that if you are a UK business selling to consumers in the EU then you will need to comply with the Directive.
In addition, it may well be that all UK businesses are required to comply with similar legislation if the UK chooses to align its approach to consumer protection with the EU’s.
What will the UK do?
Whilst there has been no concrete decision as yet on if and when the UK would implement any similar legislation, both the UK Government and the Competition and Markets Authority have suggested that this is likely to be the case.
In fact, in its 2018 Consumer Green Paper entitled “Modernising Consumer Markets”, the UK Government suggested that not only should civil courts have the power to impose fines for breaches of consumer law but that the cap on those fines could be as high as 10% of a business’ worldwide turnover. This is significantly higher than the minimum required under the Directive.
Given how large the financial penalties could be, it would be prudent for any UK business (trading in the EU or otherwise) to consider whether their consumer contracts would be deemed compliant. As well as keeping ahead of the potential change in UK legislation, taking some time to consider this would also help to ensure a smooth transition should the business expand into the EU in the future.
How can I prepare my business for the change?
As with most things, prevention is better than cure so businesses should be looking to undertake a consumer audit in relation to their customer facing agreements.
At Dragon Argent, the collaborative approach of our advisory, litigation and commercial teams means that we are in the unique position of being able to offer not only a view on whether your agreements are likely to be compliant, but also to provide support and advice on how to deal with and minimise the risk of any consumer claims and how best to expand your business taking account of the changing consumer regimes.
We provide a comprehensive legal audit to assess your consumer facing agreements, to identify potential risks and to provide a plan to mitigate and future-proof those agreements. Schedule a discovery call with us today to learn more.
SME Business Strategy and Management Consulting Services: We are one of the top management consulting firm advising business founders on strategy, marketing, organization, operations, IT and M&A, across all industries in the UK.