EUROPEAN COMMISSION Brussels, 25.5.2016 SWD(2016) 164 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on cooperation between national authorities responsible for the enforcement of consumer protection laws

{COM(2016) 283 final}

{SWD(2016) 165 final}



Table of Contents 1.What is the problem and why is it a problem? 1.1.Introduction – non-compliance with EU consumer acquis and consumer detriment 1.2.Policy context 1.3.Drivers of the inefficient cross-border enforcement cooperation 1.4.Problems 1.5.Consequences 1.6.Baseline scenario: how would the problem evolve? 2.Why should the EU act? 3.What should be achieved? 4.What are the various options to achieve the objectives? 5.What are the impacts of the different policy options and who will be affected? 5.1.Option 1: Baseline scenario: no policy change 5.2.Option 2: Implementing legislation and non-legislative ("soft law") measures to improve and clarify CPC cooperation, combined with self-regulation to increase business compliance 5.3.Option 3: Revision of the CPC Regulation to extend its scope and strengthen its efficiency 5.4.Option 4: Revision of the CPC Regulation: Policy Option 3 + additional elements regarding minimum powers and monitoring of Member States' enforcement efforts 5.5.Option 5: New Regulation providing the European Commission with direct powers to address widespread infringements meeting the threshold described in option 3, combined either with option 3 or with option 4 as regards the existing CPC cooperation 6.How do the options compare?

6.1.Comparison of options 7.The preferred option 7.1.Legal basis 7.2.Consistency of the preferred option with other EU policies 7.3.Impact of the preferred option on national enforcement systems and laws 7.4.How would the option 3 solve the underlying problems mentioned in the section 1? Examples in Boxes 8-9: widespread infringements 8.Monitoring and evaluation 9.Annex I: Procedural information 9.1.Article 21a of the CPC Regulation ("review clause") 9.2.External evaluation of the CPC Regulation 9.3.Commission report of 2014 on the functioning of the CPC Regulation 9.4.Inter-Service Steering Group 9.5.Consultation of the Regulatory Scrutiny Board 9.6.Studies to support the impact assessment 10.Annex II: Stakeholder consultation 10.1.Regular consultations of our consumer organisations, networks and high level officials of national enforcers 10.2.European Consumer Summit dedicated to enforcement in March 2013 10.3.Public consultation in winter 2013-2014 10.4.Stakeholders' support regarding the key elements of the option 3

10.5.More detailed public consultation results 10.6.Conference dedicated to enforcement cooperation and Competitiveness Council in 2014 10.7.Workshops 11.Annex III: Who is affected by the initiative and how 12.Annex IV: Data and case studies supporting this impact assessment 12.1.Non-compliance rate and consumer detriment 12.2.Method used to estimate key positive impacts of the preferred option 12.3.Estimated average costs of the enforcement case 12.4.Additional calculations of consumer detriment 12.5.Additional case examples to support this impact assessment 13.Annex V: Legal framework 13.1.Existing EU instruments to improve enforcement of consumer laws across borders 13.2.Impact of the current CPC Regulation on national enforcement systems 13.3.Investigation and enforcement powers of CPC authorities 13.4.Impact of the preferred option on national enforcement systems and laws 14.Annex VI: Current and future cost and saving (covering option 3) of the CPC cooperation 15.Annex VII: Technical changes to the CPC Regulation (including updating of its annex and of its database) 15.1.Clarifying existing provisions 15.2.Changes to the CPC database 15.3.Update and consolidation of the Annex of the CPC Regulation





1.What is the problem and why is it a problem? 1.1.Introduction – non-compliance with EU consumer acquis and consumer detriment National consumer protection authorities strive to ensure compliance of traders' practices with EU consumer acquis including for cross-border transactions which are boosted by digital means. The coordinated screenings of online e-commerce websites ("sweeps" ) carried out by enforcement authorities under the Regulation on Consumer Protection Cooperation 2006/2004 ("CPC Regulation") demonstrate that the recent development of online trade requires further and deeper cooperation of national enforcement authorities. Since 2007, the results of websites' screening systematically show high rates of non-compliance, between 32% and 69%, with basic consumer rules in the checked markets, as illustrated in Box 1: Box 1 Online markets swept since 2007 Number of Websites investigated Non-compliance rate Airline tickets (2007) 447 51% Apps for Mobile phones (2008) 554 54% Electronic goods (2009) 369 55% Entertainment tickets (2010) 414 59% Consumer Credit (2011) 565 69% Digital content downloads (2012) 330 52% Travel services (2013) 552 69% Guarantees in the electronic goods sector (2014) 437 54% The malpractices identified in the screening of websites were mostly unfair practices, unfair contract terms, non-transparent price displays, lack of information on the trader's identity and, in the recent screening in 2014, lack of information on the legal guarantees in the consumer electronics sector . These results are confirmed by the data from the European Consumer Centres: two thirds of the 37,000 individual complaints they received in 2014 concern cross-border purchases online. This data points to a wide range of issues that consumers face: the top five grounds of complaints are: non-delivery (15% of all cases), defective products (11%), problems with contracts (10%), product or service not in conformity with the order (9%) and unfair practices (6%). The top five sectors for complaints are air passenger transport (18% of all cases), furniture and household equipment (14%), timeshare and package travel (6%), telecommunications and internet services (6%) and clothing (5%) . Further, the information on consumer conditions published in the European Consumer Scoreboards highlights that the incidence of unfair practices is high: for example, 42% of consumers say they were pressured to buy through persistent sales calls or messages . Moreover, these malpractices lead consumers to purchasing decisions that they would not have made otherwise, such as purchasing products or services for an overall higher price or being trapped in unwanted subscriptions . The scale of financial detriment for individual consumers caused by the non-compliance with basic consumer rules, in a sample of five cross-border online markets, was estimated to EUR 770 million per year. This low level of compliance is one of the indicators for poorly functioning consumer markets, such as the EU online cross-border retail market where trade is lagging behind . Part of this malfunctioning can be attributed to a lack of efficient public enforcement of EU consumer legislation in the cross-border context (other factors include lack of traders' awareness or understanding of key consumer rules, insufficient market transparency, impact of dominant traders, etc.). Stepping-up cross-border enforcement to improve compliance with EU consumer law can therefore contribute to a better functioning and more dynamic Single Market both for consumers and traders (e.g. costs associated with resolving complaints and disputes across borders were found to be among the most important barriers to the expansion of the Digital Single Market in particular to small firms ). This is why enforcement has been a constant priority of EU consumer policy . Equal and efficient enforcement across the EU is geared to boost legal certainty, and thus, consumer and entrepreneurship confidence . The latter would increase consumption and, thus, foster growth and job creation within the Single Market. Enforcement is all the more important for EU growth as the Digital Single Market has been identified with a significant untapped potential. The European Commission has set the completion of the Digital Single Market (DSM) as one of its key priorities to sustain growth in the EU, and identified in particular in its DSM Strategy the importance of better access for consumers and businesses to online goods and services across Europe. It pledges to provide “more rapid, agile and consistent enforcement of consumer rules for online and digital purchases" and notably to "clarify and develop the powers of enforcement authorities and improve the coordination of their market monitoring activities and alert mechanisms to detect infringements faster" thanks to the review of the CPC Regulation. Stronger enforcement of consumer legislation at the EU level was also called for by the European Parliament , as well as by all categories of stakeholders (and especially by trade and consumer associations), who responded to the public consultation on the CPC Regulation review carried out over the winter of 2013-2014 , or who participated in various events such as the EU consumer Summits in 2013, 2014 and 2015. Furthermore, in September 2015, in their contributions to the debate on the completion of the Internal Market, Business Europe and a group of 17 Ministers of Economy from different Member States stressed the importance of coordinated and stepped-up enforcement across the EU . 1.2.Policy context The CPC Regulation provides a cooperation framework between national authorities of the EU so that their action can overcome national jurisdictional boundaries to incorporate the full dimension of the Single Market . The primary aim of the CPC Regulation is to ensure legal certainty within the Single Market via strong and equal enforcement of key EU consumer acquis (listed in its Annex ). National enforcement arrangements for the consumer laws are not sufficient in a cross-border context. In particular, in the absence of an EU framework to approximate cooperation powers and procedures, Member States would need to rely on a large number of bilateral agreements among themselves (for example to recognise evidence) or on long cumbersome judicial procedures against traders established in different Member States. Such cross-border enforcement cooperation is therefore key to preventing non-compliant traders from exploiting gaps and limitations in the enforcement capacity of each Member State. This is done through a structured mechanism of alerts and bilateral mutual assistance, based on a set of minimum powers that national authorities need for an efficient and legally sound cooperation. There is also a mechanism to tackle malpractices concerning more than two countries, where Member States coordinate their actions to jointly address issues of common interest, possibly at the EU level, as well as provisions for developing exchange of best practices. The results of the evaluation of the CPC Regulation carried out in 2012, public consultation and other support studies undertaken for this impact assessment show that enforcement cooperation is indispensable to address efficiently breaches of consumer legislation spreading across the Single Market and especially across the Digital Single Market. However, the evaluation has also pointed out that the effect of the CPC Regulation is incomplete and that none of the specific objectives of the CPC Regulation have been fully achieved. On 1 July 2014, the Commission adopted a report on the functioning of the CPC Regulation. It presented the activities carried out under the CPC framework, as well as a number of flaws and gaps identified in the evaluation and public consultation which do not allow maximising potential benefits of this enforcement cooperation in the future . On the basis of the conclusions drawn by the evaluation and problems detected, this impact assessment serves to scrutinise certain potential amendments to the CPC Regulation, which the Commission is reviewing as part of the DSM Strategy and in line with the review requirement under Article 21a of the Regulation. This impact assessment report is limited to the issues concerning the public enforcement cooperation (in the collective interest of consumers and in the realm of the CPC Regulation) and does not address individual enforcement matters (where an individual consumer aims to enforce his/her rights before courts or alternative dispute resolution entities).

1.3.Drivers of the inefficient cross-border enforcement cooperation The evaluation report and other support studies have identified the following issues which mostly concern limitation of the current CPC legal framework available for consumer protection authorities to cooperate on a sound and formal legal ground that is necessary for them to act beyond their national jurisdiction boundaries (e.g. for the interest of consumers based in another EU country). These flaws are particularly apparent in a context of rapid changes of consumer markets and the digital economy, a growing presence of operators acting on the whole EU market and a downward pressure on resources available to enforcers. 1.3.1.Limited scope: certain important infringements to consumer legislation with a strong cross-border dimension are not or are not explicitly included in the scope of the CPC Regulation Short-lived infringements The digital environment allows traders to target massive numbers of consumers rapidly and makes it possible for rogue traders to discontinue or restart a detrimental practice quickly. For example, just prior to the initiation of an enforcement action against a website, deemed non-compliant with consumer rules, the trader can easily close it down escaping the legal consequences of his actions. Consequently, this trader can endlessly repeat the operation later on. Common examples of such practices are misleading advertising of "free" or "limited in time" promotional offers which then turn out to be unwanted long-term subscriptions , or "super cheap" offers whose availability is very limited. Such practices produce a detriment to consumers which only becomes evident later as explained in Box 2. Box 2: A deceptive air carrier advertisement campaign that lasted 4 days but resulted in flight cancellations for months An air company, registered in country A, carried out an "instant" marketing campaign in country B from 10-14 September 2010. It was considered by the CPC authority in country B to be unfair as some of the cheap airline tickets sold were later on cancelled by the carrier due to insufficient seat availability. The CPC authority of the country B passed the case to the CPC authority of the country A to prevent repetition of such an infringement in the future. The requested authority in the country A responded that under Article 8(1) of the CPC Regulation it could only act to cease or prohibit an infringement. As the campaign in question had ended, it could no longer take an action. (Explanation of how the preferred option could address this shortcoming and the ones in other boxes below is to be found at section 7.4.) The CPC authorities' responses to the public consultation indicated that short-lived infringements represent a significant and growing share of cross-border infringements. For example, competent authorities in CZ, LV and HU indicated that ca. 62-89% of cross-border infringements were short-lived. In addition, a study procured by the Commission in 2015 found that 100 out of 320 websites selected for a mystery shopping about free trials traps were no longer accessible or the initial offer was no longer available two months later . The CPC Regulation, however, can only be invoked to take an action to cease or prohibit "on-going" infringements . If a malpractice takes place for only a few days, it will not be covered by the current CPC cooperation mechanisms, despite its possible lasting impact on consumers. Widespread infringements made simultaneously by multi-national companies in several Member States Infringements committed simultaneously in several countries by subsidiaries of the same multinational company, or via a network of agents or franchisees are currently not explicitly regulated by the CPC Regulation and are not systematically examined and tackled by the CPC network. In most cases, malpractices perpetrated by these traders are treated as "parallel" domestic infringements and are addressed independently by national enforcement authorities. In doing so, authorities fail to take into account the EU dimension of malpractices and the need for a coordinated EU-level action to offer a consistent approach across borders. This issue may currently be underestimated by consumers and authorities as many e-commerce transactions have a transnational component that is not apparent as such . At the CPC workshop of 24 June 2014, the representatives from 19 Member States confirmed that they were increasingly facing infringements by traders operating through subsidiaries or other forms of local presence. Online trade, in particular, is dominated by a few companies given that the top 100 companies at the EU level represent more than half of this trade . The problem of widespread infringements also concerns certain economic sectors with a high concentration of multinational operators, such as international passenger transport or telecommunications, which act both offline and online. Infringements concerning unjustified geographical discrimination The Commission's DSM Strategy of May 2015 identified unjustified discrimination regarding access or price of a service/good based on criteria linked to the nationality or residence of consumers as a practice hindering the development of the DSM. The overall issue (often referred to as "geo-blocking") needs further consideration and therefore the Commission launched a public consultation. In its Strategy for Upgrading the Single Market adopted on 28 October 2015, the Commission announced that the outcome of this consultation will provide important insights for the Commission’s forthcoming legislative action in the domain which “must go hand in hand with strengthened enforcement in each Member State, which, as announced in the Digital Single Market Strategy, must be further enhanced through the reform of the Consumer Protection Cooperation Regulation”. In fact, improving the implementation of Article 20 of the Services Directive has been a political priority for many years . One of the issues identified was an insufficient enforcement of this provision as it requires a well-functioning mechanism in a cross-border context. Not a single company in any of 28 Member States has ever been fined for infringing Article 20 of the Services Directive since 2009, i.e. the year when the Services Directive should have been transposed in Member States. European Consumer Centres report that most infringements concerning unjustified geographical discrimination are not reported by consumers due to their lack of knowledge of their rights, and they estimate that the problem is growing with the development of e-commerce (74% of the complaints received by ECCs regarding price differences or other geographical discrimination relate to online cross-border purchases ). At present, Article 20 of the Services Directive is however not part of the CPC Regulation's Annex (i.e. the CPC cooperation mechanisms cannot be used to enforce it). It was mentioned as one of the possible areas to be included in the scope of the CPC Regulation by the evaluation . 1.3.2.The minimum powers for national authorities to cooperate are insufficient to tackle infringements in the digital environment efficiently and swiftly The CPC Regulation requires Member States to implement investigation and enforcement powers necessary for the application of the CPC Regulation. These powers are specified in Article 4(6), which serves as the common minimum denominator of all the powers available to Member States in a cross-border context. Without this minimum common denominator the Member States would not be able to cooperate efficiently: to gather and exchange evidence in a legally sound manner (e.g. to ensure that results of an investigation based on the mystery shopping exercise can be used in both countries), to prove and stop infringements and to deter them for the future. This is why it is important that the harmonised list of minimum powers set in Article 4(6) contains all the powers necessary for an enforcement action on the concerned markets. There are a number of misconducts currently developing on the digital markets, which cannot be efficiently tackled under the current cooperation framework. Relocating and/or altering of business practices or hiding/altering of identity to escape enforcement actions

In the digital environment, it may be relatively easy for rogue traders to exploit jurisdictional boundaries and limitations and cause substantial detriment to the consumer. The trading activity of these traders may be quickly closed, only to re-appear in a slightly modified form elsewhere as demonstrated by the case in Box 3. Box 3: Cheap design furniture online: never delivered, but impossible to catch the responsible trader In 2013 and 2014, a large number of consumer complaints (nearly 5,000) were received by the European Consumer Centres, particularly in France and Germany, regarding the late delivery or non-delivery of furniture from a certain online trader. Although the CPC network has commenced an investigation, the strategy of the company made it difficult for authorities (i.e. in IT, DE, FR, ES, UK, IE, SE, AT) to investigate and stop the infringement due to insufficient means to address effectively the problem of the trader changing its holding structure (legal entities), location and name (several websites sold the same goods but under different websites names registered in different countries), its operational structure (the company had a customer service which was relocated to a different country several times, but no fixed showroom or warehouse, which were needed to establish its legal place of establishment), and closing down and reopening its websites following enforcers request to modify its practices. It took more than three years to authorities to discover who was behind this trade. Ultimately they got partial information and evidence thanks to the intervention of a criminal prosecutor in one country that could finally be involved in this case. The possibility, e.g. to directly order the closing down of the websites and to obtain information from domain registrars, could have permitted to stop such practices much faster. Although the total amount of consumer detriment is unknown, a UK newspaper article on the case highlights that many consumers were “left thousands of pounds out of pocket”. Further, the two European Consumer Centres concerned by this infringement estimated the detriment of more than EUR 1.2 million for ca. 3,300 complaints received. In such cases, the trader usually hides its identity behind a number of intermediaries and linked companies. Authorities have limited powers to obtain information on the real trader behind the malpractice and may need to seek the help of specific authorities (such as financial police) or third parties (such as domain registrars). The main problem in this context is the difficulty with gathering evidence, including who the real trader hiding behind many intermediaries is, and hence proving and stopping the infringement. Box 4: Example of difficult cooperation with domain registrars One of the CPC authorities experienced recurring problems regarding a trader's hidden identity. The domain registrars, in response to the authority's requests to reveal the trader's identity, refused to disclose the data due to data protection legislation. There was however no sufficient evidence to initiate a criminal proceeding, which would have been the only solution to obtain the data in the country in question. Traders having good pre-contractual information on their websites but not respecting consumer rights during the sale or after the sale Traders often attract consumers with nice websites but once the consumer has proceeded with an order the trader pays less attention to consumer rights and implements consumer rights infringements such as unjustified payment fees, lack of an efficient complaint service, or refusal of withdrawal right (i.e. according to Articles 11 and 14 of the Consumer Rights Directive ). These traders benefit from the difficulty that enforcers face to get evidence on these practices as enforcers need to recreate the consumers' experience (i.e. enter into the contract with the trader, buy a good, and then exercise the right of withdrawal) . In certain cases a trader changes its behaviour ad hoc, knowing that its commercial practices are being investigated. Therefore, the main problems in this context are the difficulties with gathering and exchange of evidence and hence proving and stopping the infringement. For instance, the evidence collected through mystery shopping exercise (the latter power is not listed in Article 4(6) of the CPC Regulation) in one Member State (e.g. Latvia) could not be used in another Member State, where its authority does not have such a power (e.g. Italy), because it would not be obtained in line with the national law of that Member State. Traders repeating malpractices due to the insufficient deterrent effect of sanctions The availability and choice of sanctions has an impact on the degree of deterrence of public enforcement. The need for sanctions is regulated as part of the substantive legislation included in the Annex of the CPC Regulation. The types of sanctions and their levels are set by national laws. They may however not be applicable in a cross-border context. As a consequence for some Member States, if the infringement is committed in a cross-border context, it may not be sanctioned or the sanction may not reflect the overall dimension of the offence (over all the markets concerned) and its deterrent effect will be limited. In the workshops held with the representatives of the CPC authorities on the review of the CPC Regulation, there was a call to clarify the provisions of the CPC Regulation regarding the sanctioning powers of authorities. The Regulation does not mention specifically the power to impose pecuniary sanctions (fines) in the context of the enforcement cooperation, although such power exists at national level in all Member States for domestic infringements. Infringements remain unnoticed by consumers due to the poor awareness about their rights and/or too low sums involved Another issue is that the CPC Regulation does not specify that investigation/enforcement actions can be initiated on "own initiative" and this is an issue as certain problems tend to be under-reported by consumers. Consumers’ awareness of some key consumer rights guaranteed by EU legislation remains limited. Further, an infringement can generate intentionally only very small individual losses (e.g. a few euro cents for unwanted premium telecom services) but be suffered by many consumers thus producing a great collective detriment. If an authority can only start investigations once it has received a sufficient number of complaints, such infringements may remain unaddressed for a long time. Additionally, the deterrent effect of the enforcement system is low since rogue traders will know that authorities are not allowed to start investigation on an own initiative basis but need actual complaints. Besides, the CPC Regulation contains no specific mechanism for consumers to obtain redress when their rights are violated, as its main aim is to prevent and halt malpractices to protect the collective interests of consumers. Such a mechanism would be beneficial in increasing the deterrent effect on non-compliant traders engaged in cross-border operations, as, in addition to sanctions, they would have to pay compensation to consumers in all the countries targeted by their practices. To address these malpractices, not all authorities currently possess the necessary investigation and enforcement powers. Furthermore, even if these powers would be available in certain countries under national laws, they would need to be made available also in a cross-border context through a legally sound framework (i.e. the CPC Regulation) to produce evidence admissible in legal proceedings in other countries. There is a great disparity among the Member States as evidenced in Box 5 concerning the most commonly needed powers to tackle online infringements: Box 5: Powers Not available in Tackle past infringements DE, FR, LT, LV, LU Mystery shopping AT, BE, CY, DE, EE, EL, HR, IT, LT, LU, MT, PT, SE Test purchases AT, BE, EL, IE, IT, LT, LU, MT, PL, RO, SE Naming of infringing traders CZ, DE, FR, HR, PT Take down websites/domains AT, BE, BG, CZ, DE, FR, EL, HR, HU, IE, LT, LV, MT, NL, RO, SK, SI Withdraw/ suspend trade activity (interim) AT, BE, CY, DE, EE, IE, LU, NL, PL, PT, SE Order consumer compensation All Member States, except EE, ES, PT, RO, UK Where traders fail to comply with consumer law, enforcers usually first seek to work informally with the trader to secure change of its behaviour. This approach can be very effective in cases of less severe breaches of consumer law as it is less costly than going to courts. Yet, the CPC enforcers currently lack the flexibility to choose the most appropriate enforcement means when dealing with breaches of consumer law in a cross-border context: they cannot choose the more appropriate, cheaper, and flexible enforcement tools that could in appropriate cases remove the infringement without delay.

1.3.3.Divergences in procedural standards in the Member States Under the CPC Regulation, the CPC authorities have to follow national procedural rules, which may result in substantial differences: e.g. the degree, type, quality, and admissibility of evidence required to establish infringements to consumer legislation. The information established by a requesting Member State may be insufficient for an enforcement action in another Member State. This was particularly stressed in the 2012 evaluation report and in studies which were procured by the Commission to support this impact assessment. The interpretation of the notions of “sufficient information” and "necessary evidence" in the CPC Regulation therefore depends on national procedures. Where the action has to be brought by the requested authority before a court, the standard of evidence may be higher than in administrative proceedings. Some authorities may require information such as written statements of consumers, as well as the provision of readable screenshots as evidence of the infringements, containing the name of the creator and the creation date, as well as the URL of the part of the website and comprehensible booking steps. This not only creates delays in handling cases (e.g. delays in receiving relevant evidence or in evaluating its providence and reliability) but also may leave infringements unaddressed. For instance, the authority concerned may not be able to obtain the evidence required due to lacking powers or because a specific format of evidence is needed that is not recognised by its national procedural rules. Box 6: Example of divergences in the requirement for "evidence" among countries A CPC authority in country X received around 1,000 complaints regarding a travel services company based in a country Y. The authority X provided extensive evidence (dozens of complaints with attachments and its own investigation report). The authority Y however required written statements from consumers in the language of Y which authority X was not able to supply. No enforcement action was taken and the same online practice continued, resulting in detriment for consumers as they could not recover the money which was charged for their travel reservation. 1.3.4.Significant delays in handling mutual assistance requests In addition to the lack of clarity as to what constitutes "sufficient information" and "necessary evidence", no binding time-limits for handling CPC mutual assistance requests exist . Since 2008 the Commission launches every year the "open cases review" exercise, which aims at ensuring that no mutual assistance request remains unresolved over a long period of time. The Commission applies the following benchmarks, which are set in the Operating Guidelines: requests for information should be handled within 3 months and requests for enforcement measures within 9-12 months. The requested authority should regularly update the applicant authority about the actions taken, at least every 3 months. By the end of 2014, almost 40% of the information requests and 50% of the enforcement requests were not treated and closed within the benchmarks set in the Operating Guidelines. 26% of all open cases were created more than two years ago. Causes for these delays are various: insufficient powers (e.g. adopt interim measures to quickly address an infringement or to obtain the evidence), divergent national procedural rules (e.g. regarding evidence, see above), insufficient resources to address requests in time, prioritisation of domestic infringement cases over CPC infringement cases. Delays result not only in the waste of resources, but they also contribute to prolonged detriment for consumers in cases where infringements are not quickly stopped. 1.3.5.The potential contribution of the Commission to assist Member States in enforcement efforts is unclear and limited In the field of consumer protection – contrary, for example, to the EU competition policy – the Commission does not have investigation and enforcement powers to deal with issues that are relevant at the EU level. The current provisions of the CPC Regulation endow the Commission with a coordinating role or an opinion formulating role in cases where CPC authorities have not found a satisfactory solution. The Regulation provides that, upon request of the Member States, the Commission "may be invited" to participate in coordinated enforcement actions, which aim to address widespread infringements concerning more than two Member States (Article 9 of the CPC Regulation). However, there is no further precision on the role of the Commission and no possibility for it to initiate an action or even participate in one if not invited. It is also unclear under which conditions the Commission could refuse to participate. Up to now, the Commission and Member States have been working together on the basis of gentlemen's agreement, but this is not sufficient: national authorities have required more legal clarity for such actions, especially to provide them with the means to act, should the negotiation with traders fail. In addition, lack of clarity and predictability lead to lower deterrence. The 2012 evaluation report considers that there is a potential for a stronger role for the Commission in the CPC context . All groups of stakeholders responding to the public consultation also agreed that the Commission’s role is too limited in the current CPC Regulation and especially would like to see its role enhanced to assist national authorities in the detection and investigation of EU-relevant infringements and ensure the good functioning of the procedures set out to tackle these infringements. There was however, no support for direct investigation and enforcement powers of the Commission in cross-border infringements. 1.3.6.Insufficient sharing of evidence Obtaining adequate evidence of an infringement may be costly. For example, 26 CPC authorities worked more than 730 hours in the investigation phase of the last EU-wide screening of websites on guarantees which concerned 437 websites selling electronic goods (an estimated EUR 30,295 in staff costs). Insufficient sharing of intelligence among authorities and with the Commission thus consumes unnecessarily substantial resources. Further, the detection of widespread infringements comes too late, partly because of malfunctioning of the current CPC alert mechanism. Exchanging alerts is foreseen in the CPC Regulation but the external evaluation points to a decline in the use of alerts among CPC authorities. It identifies as possible causes an overall lack of clarity regarding the purpose, use and follow-up of the information provided through alerts, and their confusion with information requests. Also, information exchanged is currently not always relevant to those receiving it. At present, the alert message is sent untargeted, as a blanket alert to all authorities connected to the CPC database, irrespective of its relevance or priority, and no feedback about follow-up actions is required. Further, the alert mechanism is not open to organisations, active in consumer protection which could have relevant information. The Commission cannot post alerts either, though it can study EU-wide emerging malpractices or circulate information on specific risks provided by other parties (e.g. from non-EU authorities, consumer associations or the ECC-Net). 1.3.7.Insufficient resources and infrequent use of the CPC in some Member States In accordance with Article 4(7) of the CPC Regulation, "Member States shall ensure that competent authorities have adequate resources necessary for the application of this Regulation". The 2012 evaluation report however points to the shortage of personnel in single liaison offices and competent authorities working on the CPC cooperation in several Member States, noting differences in resources and enforcement capacity across the CPC authorities. The average number of personnel per competent authority is at 4.4 and per single liaison office is at 3.42. In most competent authorities/single liaison offices, less than 2 enforcement officers are employed who deal with mutual assistance issues. Furthermore, the actual number of the personnel in charge to deal with the CPC issues might be actually lower because the personnel does not exclusively handles the CPC related matters and often deals with mixed situations. The evaluation report also identifies a preference in case of scarce resources to use them for domestic infringements. 1.4.Problems The above-identified drivers contribute to a number of problems which limit the effectiveness and efficiency of the cross-border enforcement cooperation in consumer markets. The following three problems are mostly linked to the limitations of the current CPC legal framework. 1.4.1.Problem 1: Insufficient mutual assistance cooperation mechanisms

The 2012 evaluation report concluded that the utilisation of mutual assistance mechanisms is sub-optimal, in particular taking into account the number of domestic infringements, cross-border complaints and the extent of cross-border trade relating to the 18 legislative acts within the scope of the CPC Regulation. The evaluation states that "a much greater volume of cases are therefore needed if the full benefits of the CPC Network are to be realised". Measures to encourage use, awareness and common understanding of the CPC framework were recommended. In 2014, there were 297 CPC cases recorded in the database, and this number has been stable since 2007. Statistics on the case-handling in the CPC also show that about half of cases are handled within a time period exceeding the agreed time-frame in the Operating Guidelines. The current mutual assistance cooperation mechanisms are principally geared to address simple bilateral infringements reflecting the cross-border trade of the past (early 2000s) whereby the trader and the harmed consumers are located in two different Member States. Only this type of cases is currently recorded in the CPC database, however, such cases constitute only one fraction of the CPC network's work. There has been an increase in other CPC activities, especially those targeting widespread infringements. Indeed, taking into account the recommendations of the 2012 evaluation report, the Commission has continued to promote and enhance the use of the existing CPC Regulation through an increased number of coordinated activities based on priority areas agreed by the CPC Committee. Box 7: What initiatives have the CPC network and the Commission undertaken within the existing legal framework to address its current limitations? The Commission and the CPC network are continuously organizing legal workshops to promote the common understanding of EU consumer law and emerging threats for consumers in key priority areas: for example, seminars on misleading practices in air transport, financial services and telecommunications took place in 2013-2015. In parallel, the Commission made efforts to develop interpretative guidelines to further facilitate enforcement and compliance as EU consumer protection and policy expanded. The guidelines on the application of the Consumer Rights Directive and on the Unfair Commercial Practices Directive are promoting a common understanding in the assessment of cases and thus improve enforcement of consumer law. The Commission has also reviewed the Operating Guidelines of the CPC network, which provide enforcers a quick and easy reference to the main principles, best practices and key documents related to the network's operation and the best use of the IT-tool. Further, capacity building and control activities were also undertaken. In 2014 the CPC committee endorsed the mandate and scope of activities of the CPC e-enforcement group which is dedicated to the training of enforcers regarding online investigations. The CPC projects and the e-enforcement group have used the new IT tool developed in 2014-2015 – the CPC knowledge exchange platform – to support collaborative work and to disseminate results to the wider CPC network. In 2015 the Commission developed an initiative to support an “e-enforcement training academy”, catering for both the CPC network and the product safety area where similar needs exist to strengthen enforcement of consumer legislation in online businesses-to-consumers trade. Furthermore, the CPC Network, under the coordination of the Commission, has undertaken several enforcement actions. Every year the Commission consolidates the available market information to propose a topic for the screening of websites, prepares legal analysis and questionnaire to carry the screening phase, consolidates and publishes the results. Since 2007 more than 3,600 websites have been checked. These actions permitted for instance to correct about 700 websites in the tourism sector alone – this is the area with most cross-border complaints received by European Consumer Centres. The CPC Network has also concluded two coordinated enforcement actions on the in-app purchases in online games in 2014 and on the car rental in 2015 (see Box 8). These two actions in fact concerned many traders (game developers selling through Google, Apple and Amazon which were the three parties in the action and local car rental companies, franchisees and brokers working with the five major car rental companies). The market share covered by CPC enforcement action, rather than a mere number of cases, counts most in the CPC context: for example, it was 65% of all private rentals in the EU in the CPC coordinated action on car rentals (i.e. one CPC case but with significant economic impacts). The Commission has also taken different measures to address the lack of resources in the CPC authorities. Every year the Commission conducts monitoring of pending mutual assistance requests and put pressure on the authorities concerned to speed up dealing with prolonged cases. The Commission has also taken measures against those authorities, which have not initiated enforcement actions against non-compliant traders based in their territory which were harming consumers in other countries: e.g. letters were sent and missions were organised to several Member States to increase their enforcement efforts and advance with the actions against those traders. All these measures (Box 7) have been effective to enhance the use of the CPC Regulation to a certain extent. However, it has also become apparent that there are certain barriers to the more resource-efficient enforcement cooperation which are associated with the CPC legal framework itself. This concerns in particular the scope of the Regulation and the rules and procedures for handling enforcement requests (such as maximum time-limits). In addition, market developments, especially in the context of the Digital Single Market, require more efficient cooperation mechanisms, for example to extend the powers of the national authorities needed for cooperation to be able to carry actual purchases online or to request information from internet intermediaries about the traders behind websites misleading consumers (see section 1.3 for a detailed explanation of the drivers of the problem 1). These barriers hamper the efficient flow of mutual assistance requests and further take up of enforcement activities across jurisdictional boundaries. And they cannot be removed without further clarification and development on substance of the existing instrument. 1.4.2.Problem 2: No efficient response to widespread infringements across the EU, in particular to those occurring in the digital environment As mentioned above, the current CPC mutual assistance cooperation mechanisms are principally geared to address simple bilateral infringements reflecting the cross-border trade of the past. However, certain infringements to consumer legislation may occur widely in the EU, especially online as digital technologies permit easy development of the same marketing platform for several countries, and hence the same misleading practice can rapidly spread to consumers across the EU (see Boxes 8-9). Widespread infringements are also seen in sectors with a strong cross-border trade such as travel services where operators have to align their practices at the EU level as online booking has considerably facilitated the consumers' research for competitive offers. Car rental is one of these sectors and the CPC action carried out in 2014 exposed the extent to which all operators were compelled to adopt the same type of practices (see Box 9). The importance of widespread infringements was judged to be high by 82% of stakeholders replying to the public consultation on the CPC Regulation review. 91% indicated that a specific cooperation procedure to tackle infringements concerning the whole EU should be an important priority for the CPC network. Such infringements represent indeed a big threat to the economic interests of consumers, and to the functioning of the Internal Market, especially when summed up at the EU level, as they may be perpetrated by traders enjoying important market shares in all countries. Small in absolute numbers, multinational companies (i.e. established in several Member States), have a high contribution to economies. In the EU, their turnover represents ca. 50% of the total business turnover . 1.4.1.1.Treating simultaneous widespread infringements in parallel and not in a coordinated manner creates an unnecessary duplication of enforcement efforts and inconsistencies in the concrete application of EU law As potentially 28 authorities may take non-coordinated actions against the same conduct widespread across the EU, there is a risk of proliferation of diverging enforcement approaches and uneven consumer conditions, as demonstrated by the EU Consumer Conditions Scoreboards . The CPC Regulation contains harmonised provisions for tackling infringements occurring simultaneously in two or more countries and provides that national authorities coordinate their actions so as to consistently apply the same response to malpractices spreading across the EU and avoid that a divergent approach is taken against the same breach of EU legislation (Article 9 of the CPC Regulation). However, the external evaluation report pointed out that the provisions requiring coordination on widespread infringements in the CPC Regulation are too loose to generate an efficient EU-level response. The evaluation also stressed that each authority still has to act individually so that their action has legal validity. This is costly duplication of national enforcement efforts (it is estimated that per each coordinated action, Member States' costs could be halved thanks to a streamlined coordination procedure ). The external evaluation therefore determined the need for highly coordinated approaches or even a single action at the EU level for which the Commission could play an important role . At the CPC workshops held (on 24 June 2014 and 18 March 2015), the participating representatives from the majority of Member States confirmed the need to clarify and enhance the mechanism under Article 9 to tackle widespread infringements, to ensure legal certainty for all concerned. In addition, when CPC authorities take enforcement actions to cease an infringement that is widespread in the EU, they usually do so according to their national procedural rules, which are different and depend on the enforcement system in the country concerned. As a result, in some Member States the same infringement is ceased faster than in others, if at all, and the detriment suffered by consumers is prevented/stopped swiftly in certain countries, while in others it may continue indefinitely as demonstrated in the case regarding Apple's misleading advertising of commercial guarantees (see Box 8). Box 8: The misleading advertising of a commercial guarantee plan resulted in duplication of enforcement efforts, inconsistent enforcement approaches and unequal protection of consumers In December 2011, the Italian CPC authority imposed a fine of EUR 900,000 on Apple for misleading advertising of its commercial guarantee scheme and misleading information on applicable legal guarantees stemming from EU law. Consumers in the other EU Member States were targeted by the same practice described in a single webpage of the Apple website. Despite the European Commission's encouragement to other Member States to take appropriate action , very few of them acted demonstrating, de facto, a lack of willingness to coordinate. Consumer associations complained that the lack of coordination of enforcement actions resulted in uneven consumer protection across EU, duplication of enforcement efforts and an uneven level playing field in the Digital Single Market , and some of them decided to carry (costly and lengthy) actions on their own..

On their side, traders may decide to bring their business practice into compliance in some Member States and not in others according to their analysis of the risk of being subject to an enforcement action and to their litigation possibilities and resources. This not only undermines the deterrent effect of enforcement actions, as the scale of the sanction does not fully reflect the widespread nature of the infringement, but it also creates legal unpredictability in the Single Market . 1.4.1.2.What has the CPC network and the Commission done so far to address widespread infringements under the current legal framework? The Commission has enhanced the use of the existing CPC Regulation through coordinated activities based on priority areas agreed by the CPC authorities, which addressed widespread infringements covering most of EU countries. The Commission also took a pivotal role in these coordinated actions (see Box 9). It provided data from its studies and databases, organised the dialogues with the concerned traders and published the results. By engaging itself strongly in these two actions it permitted to reach a consistent EU-level approach that persuaded the traders to fully cooperate. Box 9: Case study (1): in-app purchases in online games marketed as free Following the CPC screening of websites offering digital content products and consumer complaints about the misleading marketing of in-app (for a fee) offers in online games presented as "free", the CPC authorities presented a common understanding of the breaches of consumer legislation in such a model to leaders of the industry directly at the EU level: namely Apple iTunes and Google Play, as well as trade associations representing game developers. By the end of 2014, all traders concerned changed their practices: they did not advertise games containing in-app purchases as free anymore and they considerably strengthened parental control on payments. It is estimated that at least EUR 68 million of detriment to European consumers had been generated by the identified breaches on the EU market. Such an action was welcomed by the CPC authorities and traders concerned. Case study (2): unfair practices in the car rental sector Due to the steady increase of car rental related complaints registered by the European Consumer Centers, the CPC network opened a dialogue with major car rental companies and Leaseurope in 2013-2014 to resolve problems encountered by consumers renting a car cross-border. By July 2015 Avis/Budget, Enterprise, Europcar, Hertz and Sixt agreed to change their booking sites and rental desk practices to, among others, make rental price or fuel options more transparent, provide more information on insurance and waiver products and avoid the aggressive sale of expensive supplements, make sure that a consumer gives prior consent to any additional payment card charges (i.e. in case of a damage to the car). Implementation of agreed changes will be monitored in 2016 by the Commission, CPC authorities and the ECC-Net. Furthermore, in 2016 Leaseurope will issue guidance for its 45 member associations, referring to what was agreed in this coordinated action with the major industry players. Despite their success, these coordinated actions have revealed several deficiencies in the CPC Regulation (Article 9) to address widespread infringements. In particular: The CPC Regulation is unclear regarding the scope of widespread infringements (see section 1.3.1 above) and the process (e.g. unclear time-line, insufficient due process safeguards for traders, unclear consequences if the traders do not implement the agreed undertakings). The current process is based on a voluntary negotiation with traders. The outcome of the coordination process ("common enforcement position") is not explicitly governed by the CPC Regulation and not binding on CPC authorities or businesses. Therefore, in case a trader fails to respect its voluntarily commitments, the work has to restart from scratch at national level to establish the infringement, duplicating the resources and cost. Further, Article 9 does not detail the roles of different actors (e.g. who decides on the final drafting, who communicates with traders, who chairs meetings, who negotiates undertakings, and who monitors the commitments of traders). The supporting role of the Commission is limited and not specified in the current CPC Regulation (see section 1.3.5 above). The Commission took a pivotal role in the coordinated actions described above (Box 9), which was recognised as essential to the success of the case but such an approach is not sustainable in the long-term and has a limited deterrent effect. Further, national priorities often take over the European priorities, resulting in several uncoordinated national proceedings which might end up in different outcomes (see Box 8 above) and thus unequal enforcement of the same provision of EU law regarding the same specific malpractices jeopardizing efforts to build a common action at EU level. These current limitations of the CPC legal framework generate legal uncertainty. It prevents some authorities from active participation in coordinated actions and encourages others not to act. It also makes the process for the Commission and the lead authority taut and difficult to coordinate. Estimates show that, in addition to increased legal certainty, a more streamlined procedure could lead to savings for national authorities, ca. EUR 180,000 in total per action. Especially these savings would be significant (ca. EUR 815,000 per action) should the voluntary negotiations have failed to produce a sufficient improvement in practice. The experience gained so far therefore confirms the need for a more developed, resource-efficient and clearer mechanism for a coordinated action under Article 9 of the CPC Regulation to address pan-European infringements. 1.4.3.Problem 3: Difficult detection of infringements and lacking prioritisation of enforcement action The development of e-commerce and online booking services has allowed for wide-ranging marketing campaigns in a fast and cheap manner that can reach millions of consumers instantly. This requires the setting up of a much speedier intelligence-gathering system than for offline trade and also an increase in the agility and flexibility of authorities so that they can decide on priorities. The external evaluation has exposed the lack of resources for enforcement cooperation as a serious impediment to its efficiency. This is also partly linked to the under-estimation of the importance of infringements with a cross-border dimension as explained in the section about the infringements which are not taken into account (see section 1.3.1). Further, the experience gained so far from the in-app and car rental coordinated enforcement actions has showed that pooling existing resources and expertise on priority infringement cases is feasible and leads to efficiency gains which need to be sought further. 1.5.Consequences These problems make the cross-border enforcement cooperation ineffective and inefficient, resulting in low deterrence in enforcement actions, legal uncertainty for traders, authorities and consumers and in duplication of enforcement efforts and cost. The identified shortcomings also partly contribute to the malfunctioning of consumer markets and to a persistently high non-compliance rate (other factors include lack of traders' awareness or understanding of key consumer rules, insufficient market transparency, impact of dominant traders, etc.). In 2014 the average non-compliance rate in cross-border online trade was estimated for more than 1/3rd of websites checked (from a review of 2,600 websites in 5 key consumer markets, 37% were found in breach of consumer law). This translates into consumer detriment of EUR 770 million in these sectors only.





Figure 1: Problem Tree Drivers Problems Consequences Inefficient public enforcement of consumer legislation in cross-border context Limited scope of CPC Regulation Insufficient minimum powers to cooperate Divergences in national procedural laws Delays in handling mutual assistance requests Limited and unclear contribution of the Commission Insufficient sharing of evidence

Insufficient resources dedicated to CPC cooperation



Average non-compliance rate of 37% in 5 key consumer sectors Insufficient mutual assistance cooperation mechanisms No efficient response to widespread infringements across the EU, in particular to those occurring in the digital environment Difficult detection of infringements and lacking prioritisation of enforcement action



Consumer detriment EUR 770mln per year resulting from 37% non-compliance rate in the 5 test sectors

Legal uncertainty Unequal consumer protection Low deterrence Inconsistent enforcement approaches regarding the same infringement Duplication of enforcement efforts and cost



1.6.Baseline scenario: how would the problem evolve?

1.6.1.The level of compliance with consumer legislation is unlikely to improve without more stringent enforcement efforts The following factors will affect the evolution of problems, especially online: The expansion of cross-border online shopping in the EU All expert sources predict a steady expansion of e-commerce in the EU, as very few markets (i.e. the UK and Nordic countries) may have reached maturity yet. Cross-border online consumer expenditure is also expected to grow in similar proportion or slightly faster. From 2013 to 2018, with a compound annual growth rate of 12%, the online retail market is expected to be worth ca. EUR 234bn by 2018 . According to the research by the European Multi-channel and Online Trade Association, 14% of online sales in 2014 were non-domestic business-to-consumer sales (including both EU and non-EU sales). This is expected to increase to 20% by 2018 . Traders are increasingly operating in multiple Member States through branches, subsidiaries, franchises or agents, offline and in the digital environment. Consequently, an increasing proportion of retail sales have a cross-border dimension . The prevalence of malpractices As cross-border transactions increase, new possibilities for unscrupulous traders to abuse consumers' trust will be found and infringements will grow. The ECC-Net's experience in handling cross-border complaints shows that complaints involving cross-border e-commerce speedily overtook complaints about other forms of cross-border shopping (for example mail order or while on holiday). In 2007 online sales accounted for 54% of the total of complaints, whereas by 2014, they account for more than two thirds. New technologies and business models On one side very positive for innovation, growth and jobs, the expansion of new forms of marketing practices in the digital economy raises new challenges and issues on consumer protection. The trends to be taken into account concern the app economy which grows currently at 12% per year; big data technology and services set to grow from EUR 3 billion in 2010 to EUR 16 billion in 2015; cloud computing estimated to expand to almost five times its 2013 market size in the next years, and the uptake of entire markets by sharing economy platforms (in the fields of accommodation, car transportation, music or finance, they have grown exponentially with a global revenue of around EUR 14 billion today that could reach EUR 300 billion by 2025). The complexity of the chain of responsibility has considerably increased and raises the question of the liability of online platforms allowing offers and demand to meet, along with the boundaries between roles (user, consumer, producer, agent, tenderer, seller). 1.6.2.Private enforcement systems will not replace public enforcement functions Other legislative measures in the EU have been designed to ease private actions to get cross-border redress through out-of-court mechanisms . In addition, as of 10 January 2015, all judgments falling within the scope of the Brussels I Regulation (recast), regardless of their value, benefit from the abolition of intermediary procedures for recognising and enforcing a judgment and in the future, the European small claims procedure (if the revised proposal is adopted) will be updated to raise the limit on eligible claims from EUR 2,000 to EUR 10,000. Litigation costs in national procedures are also expected to decrease over the years as a result of an expected increase in the use of electronic means of communication by the courts. It is unlikely that all malpractices can be eradicated by private actions by consumers as this would require a huge change in their tendency to under-report issues, to avoid litigation when the value of the detriment is small or simply because they are generally little aware of their rights . Therefore, in particular for tackling widespread infringements affecting the collective interests of consumers, the CPC enforcement cooperation would remain pertinent. Yet the CPC framework to address widespread infringements would remain with many deficiencies, as described in the problem section. 1.6.3.New policy initiatives adopted in response to the Digital Single Market Strategy will need an effective cross-border enforcement cooperation tool The substantive consumer legal framework is expected to be reinforced through a new directive/regulation on contract rules for online purchase of digital content and tangible goods and an instrument addressing consumer discrimination based on place of residence or nationality. To ensure optimal enforcement across borders, these initiatives could be covered by the scope of the CPC Regulation either by an amendment of the CPC Regulation during the negotiations or by a reference to the CPC Regulation in the respective legislative initiatives. This extension of the scope of the CPC Regulation would be a positive development, providing the CPC authorities with a competence to address cross-border and widespread infringements in the digital environment. However, without reinforced enforcement tools (in particular without "digitally fit" powers), the CPC cooperation framework would remain slow and not be able to stop infringements by fast acting traders. 1.6.4.Enforcement tools will become increasingly challenged by innovations in the digital economy The system of cooperation put in place by the CPC Regulation was built at a time when e-commerce was much less important. Therefore, the CPC enforcement tools (i.e. minimum powers for cooperation) and cooperation procedures were mostly developed with a cross-border offline retail trade in mind. This is slowly fading out, as infringements are no longer just committed across two national territories: they are more and more widespread. Although expansion of the digital economy and increased choice may be construed as beneficial for consumers, this trend also involves increasing challenges for both enforcement authorities and consumers. Currently and even more in the future globalisation, technological developments and the fast spreading of e-commerce would require tools adapted to the specific enforcement challenges of the digital economy: dematerialisation of transactions, multiplication of online intermediaries, localisation of the various actors in the value chain in several countries, ease for online traders to relocate or hide their identity, rapidity of the spread of marketing practices, and constant innovation in online business models. 1.6.5.Cost and delays in the current CPC cooperation will remain Without substantial improvements, the current CPC framework would not ensure the optimal pooling of resources. In particular with respect to widespread infringements, the current situation would be maintained – uncoordinated parallel enforcement actions against the same infringement would not be prevented, resulting in delays, legal uncertainty for businesses and duplication of efforts and inefficient use of scarce resources. The cost and delays in the current mutual assistance mechanism (Problem 1), inadequacy of the current procedural mechanism to address pan-European infringements in an efficient way (Problem 2) and the current difficult detection of infringements and lacking of prioritisation of enforcement action (Problem 3) would also remain and would be even more noticeable, with possible severe consequences for consumers, including increasing consumer detriment. Moreover, constraints to public finances in many Member States may result in further reductions in staff at enforcement bodies, which would reduce further the effectiveness of enforcement.

1.6.6.Consumer detriment is likely to increase in the future and the business environment in the Digital Single Market will remain suboptimal As a result of all these trends, the number of situations where the intervention by the CPC network and coordination by the Commission is needed would increase, but if the tools for enforcement cooperation are not functioning better, consumer detriment would not be addressed better and the increase in cross-border online trade penetration would mean an overall increase in the detriment suffered by consumers. Furthermore, the existing inconsistencies in enforcement outcomes would continue preventing markets to level and compliance costs to decrease, especially for businesses active in the Digital Single Market. 2.Why should the EU act? According to the principle of subsidiarity (Article 5 (3) of the Treaty on the Functioning of the European Union), action on EU level should be taken only when the objectives of the proposed action cannot be achieved sufficiently by Member States alone and thus mandate action on an EU level. Consumer protection belongs to shared competences between the EU and the Member States. As stipulated in the Article 169 of the TFEU, the EU shall contribute, inter alia, to protecting the economic interests of consumers as well as promoting their right to information and education in order to safeguard their interests. The CPC Regulation is based on Article 114 of the TFEU to which Article 169 TFEU refers and it helps to achieve these objectives in the context of the proper functioning of the Internal Market. The borderless nature of digital technologies poses challenges for the enforcement of consumer rights by public authorities whose action is constrained by their jurisdictional boundaries. On the other side, big online players implement their business models at the EU level, if not at the global level, directly. To ensure consistent enforcement of consumer rights across the EU and to tackle efficiently infringements of consumer rights legislation spanning over several Member States, it is necessary to coordinate public enforcement activities. The issue being addressed has therefore intra-EU aspects which cannot be sufficiently achieved by the Member States’ individual actions because they cannot ensure cooperation and coordination by acting alone. Cooperation between national authorities responsible for the enforcement of consumer protection law can therefore be better achieved at the Union level. Furthermore, action at the EU level would produce clear benefits (compared to Member States’ action) in terms of effectiveness and efficiency, as the improved Regulation could step up the use of this network-based cooperation model to ensure smarter enforcement of common consumer protection rules across the EU. There would be savings emanating from the EU-wide management of a widespread infringement (ca. EUR 180,000 in case of a successful action and EUR 815,000 in cases of a failed action) compared to individual responses by several Member States. The initiative would also improve the functioning of the Digital Single Market by contributing to reducing the consumer detriment that results from non-complaint practices, which amount to ca. EUR 770 million in the five consumer sectors. 3.What should be achieved? Based on the problems identified in section 2, the following policy objectives for the review of the CPC Regulation have been established: GENERAL OBJECTIVE oTo develop more modern, efficient and effective CPC cooperation mechanisms to reduce the consumer detriment caused by cross-border and widespread infringements to consumer law in the EU and contribute to the completion of the Digital Single Market. SPECIFIC OBJECTIVES oReduce situations where important cross-border and widespread infringements are not detected or sufficiently addressed through the CPC framework (to address the limited scope and insufficient minimum powers described in section 1.3, insufficient mutual assistance mechanisms described in problem 1 and insufficient tackling of widespread infringements described in problem 2) oReduce unnecessary delays and costs in the CPC cooperation (to address all the three problems) oReduce situations where CPC authorities reach diverging outcome concerning the same malpractice (to address all the three problems) 4.What are the various options to achieve the objectives? The following five policy options were considered to achieve the above policy objectives and to remedy the problems identified: Option 1: Baseline scenario – no policy change. The current CPC Regulation would continue to apply and national authorities and consumers would continue benefitting from the cooperation tools and protection afforded by it. 1.Scope. The substantive consumer legal framework is expected to be reinforced through a new directive/regulation on contract rules for online purchase of digital content and tangible goods and a possible instrument to address consumer discrimination based on place of residence or nationality. Further, other legislative measures in the EU have been designed to ease private actions to get cross-border redress through out-of-court mechanisms. As from 15 February 2016, the Online Dispute Resolution is operational, which facilitates the online resolution of contractual disputes between EU consumers and traders over purchases made online. Thanks to this, consumers and traders will be more confident in trading online and across borders. Consumers will be encouraged to seek redress even for low-value purchases and enforce their rights. However, short-term infringements and infringements by subsidiaries of multinationals (i.e. happening in parallel in many Member States) would remain outside the scope of the CPC Regulation. 2.Powers and mutual assistance mechanism. The current minimum powers to cooperate would remain unchanged, as well as the CPC mutual assistance mechanism. 3.Widespread infringements. National authorities, with the facilitation of the Commission, would continue carrying out coordinated enforcement actions (such as screening of websites and common actions similar to the in-app purchases case) to address widespread infringements. The legal basis, procedure and the role of the Commission to address these widespread infringements would remain with deficiencies, as described in the problem section. 4.The current alert mechanism, market surveillance, priority setting and resources dedicated to the CPC cooperation would remain unchanged, as described in the problem section. Option 2: Implementing legislation and non-legislative ("soft law") measures to improve and clarify CPC cooperation, combined with self-regulation to increase business compliance In 2006 the Commission adopted a decision regarding the mutual assistance mechanism of the CPC Regulation. It sets the information requirements, which include the minimum information to be included in requests for mutual assistance and in alerts, benchmarks for handling mutual assistance requests and the use of languages . Although the implementing decision clarified the information requirements for the mutual assistance requests, it was insufficient to address the problems described in the problem section, as they mostly concern limitation of the current CPC legal framework available for consumer protection authorities to cooperate on a sound and formal legal ground that is necessary for them to act beyond their national jurisdiction boundaries. 1.Scope – the same outcome as under the baseline scenario. Implementing or soft law measures cannot alter the scope of the CPC Regulation, as this can be achieved only by the revision of the Regulation. 2.Powers and mutual assistance mechanism. Clearer, up-to-date and detailed implementing measures based on the existing CPC Regulation would clarify and streamline CPC cooperation, e.g. set time limits to answer mutual assistance requests; clarify further what information needs to be provided when an authority is making an information or enforcement request and what the content of the reply to this request should be. Through soft law measures common standards on gathering and use of evidence could be established. However, these measures would not provide for "digitally fit" powers for cooperation among enforcement authorities (e.g. test purchases/mystery shopping, blocking of websites, sanctions in a cross-border context) and would not develop the mutual assistance mechanism and enforcement cooperation beyond the current CPC Regulation, as this can be achieved only by the revision of the Regulation in view of the need to give specific legal powers to national authorities to enable them to act in a cross border context. 3.Widespread infringements. Clearer, up-to-date and detailed implementing legislation based on the existing CPC Regulation would also complement and clarify the basic framework for coordinated enforcement actions under Article 9 of the CPC Regulation. The contribution of the Commission would be clarified, but would remain limited. The Commission's role in enforcement cooperation mechanisms, especially in cases in which traders refuse to cooperate or do not comply with their commitments, can only be legally extended through the revision of the CPC Regulation. 4.The current alert mechanism, market surveillance and priority-setting would be clarified and streamlined by these measures, e.g. the use of the alert mechanism. Soft law measures (recommendations and guidelines) could encourage prioritisation and project-based thinking. Voluntary benchmarking of resources per Member State could be put in place with an annual comparison and peer review. Member States could on a voluntary basis submit enforcement plans. In addition to the national and EU consumer legislation, traders could adhere to voluntary codes of conduct, certification schemes and other self-regulation standards to ensure better compliance with consumer protection legislation. Option 3: Revision of the CPC Regulation to extend its scope and strengthen its efficiency Option 3 would be based on Article 114 TFEU, to which Article 169 TFEU refers, and would cover the following measures: 1.Extend the scope of the CPC Regulation to cover short-lived infringements, infringements by subsidiaries of multinationals (i.e. happening in parallel in many Member States), as well as infringements to Article 20 of the Services Directive (banning discrimination by service provider on the grounds of residence or nationality of the recipient). In addition, as mentioned under the options 1-2, the initiatives to implement the DSM Strategy would fall under the scope of the CPC Regulation. 2.Improve the enforcement cooperation tools. Extend the harmonised list of minimum powers for CPC authorities needed to cooperate in a cross-border context, in particular to address the misconducts described in the problem section 1.3.2. For example, to tackle infringements by traders hiding their identity – the power to adopt interim measures (e.g. to suspend a website temporarily, order suspension or retention of payments to a trader) and the power to obtain evidence irrespective of where it is stored and in which format, access to information held by other authorities and third parties. To tackle infringement by traders not respecting post sale requirements – the power to conduct test purchases/mystery shopping. To address repeated malpractices –the power to publish decisions establishing infringements and undertakings, name the trader responsible for the infringement, impose fines and other pecuniary sanctions reflecting the cross-border dimension of the infringement, take down a website, and facilitate redress for consumers. To address infringements concerning small amounts but affecting many consumers – the power to start investigation ex officio. The proposed powers are considered to be future-proof to cater for the effective enforcement in the digital environment. The revised Regulation would also introduce harmonised binding time limits to respond to mutual assistance requests, as well as mutual recognition of evidence regarding intra-Community infringements. 3.Set up a harmonised framework for addressing widespread infringements involving more than two Member States. The following two situations can be distinguished depending on whether the threshold is met: a)Threshold for a mandatorily initiated enforcement coordination procedure is met The revised Regulation would provide for a new harmonised enforcement coordination procedure which would be mandatorily initiated at the EU level where a certain threshold is met. This threshold would need to be based on objective criteria that are easy to verify without in-depth investigation and would be "a reasonable suspicion of a widespread infringement in at least 3/4 Member States accounting together for at least 3/4 of EU population" . This procedure would have the following main elements: The Commission would control that the threshold is met. It would have a mandatory role to initiate the coordinated procedure and to assist CPC authorities. E.g. the Commission would establish joint investigation and surveillance plans, help conducting discussions with traders in view of obtaining undertakings to cease the infringement, help to prepare and disseminate documents among CPC authorities, and coordinate monitoring of traders' commitments (but the Commission would not have direct investigation or enforcement powers, as these powers would still remain the prerogative of national authorities). The obligation of CPC authorities would include: mandatory participation in the coordination procedure provided the Member States are concerned by the widespread infringement. The outcome of this procedure would be "a common enforcement position" agreed upon among authorities, identifying the malpractices at stake on the basis of EU consumer legislation included in the Annex of the CPC Regulation and assessing the solutions proposed by the traders concerned. This common enforcement position, as well as commitments submitted by the traders concerned on its basis would be binding, ensuring that it can be used, if need be, in subsequent national proceedings against these traders. b)Threshold for a mandatorily initiated enforcement coordination procedure is not met The revised Regulation would specify and clarify the format of coordinated enforcement actions under the current Article 9 of the CPC Regulation to tackle widespread infringements below the threshold described under the point a). In this case one authority might coordinate and/or take an enforcement action on behalf of other competent authorities against the widespread infringement or the Commission might be invited by national authorities to take up this coordination role. This procedure would allow parallel enforcement actions carried out by several competent authorities; however it would require simultaneous investigations and inspections to ensure consistency of enforcement measures adopted against the same infringement. 4.Provide for an effective market surveillance mechanism and prioritisation of enforcement actions. This measure would include the categorization of alerts (for action or for information only), which competent authorities notify to each other. Third parties (e.g. consumer and trade associations, European Consumer Centres) would be allowed to submit alerts for information only. The Commission would be allowed to submit alerts for both information and action. Instead of the current reporting requirements under Article 21 of the CPC Regulation, national authorities would submit to the Commission multi-annual enforcement plans, on the basis of which the Commission could suggest European enforcement priorities and benchmarks of best practices. Option 4: Revision of the CPC Regulation: Policy Option 3 + additional elements regarding minimum powers and monitoring of Member States' enforcement efforts

This option would be based on Article 114 TFEU and would, in addition to Option 3, contain the following new elements: 1.Provide for additional minimum powers for enforcement cooperation needed to address intra-Community and widespread infringements involving deceitful commercial practices : powers to freeze assets or ban an economic activity of a trader, disqualify the directors and managers of the company found responsible for the infringement, and publicly name traders suspected of an infringement even before a final decision was adopted. 2.Set up an audit system, similar to the one in the EU food area, to verify the enforcement performance of Member States. Audits would assess based on multi-annual enforcement plans national authorities' enforcement efforts in terms of their effectiveness and allocation of resources. This additional measure would further strengthen the actions of the effective market surveillance mechanism and prioritisation of enforcement under the option 3. Option 5 – New Regulation providing the European Commission with direct powers to address widespread infringements meeting the threshold described in the option 3, combined either with option 3 or with option 4 as regards the existing CPC cooperation The new Regulation would provide for direct investigation, enforcement and sanctioning powers for the European Commission, such as those the Commission is entrusted with in EU competition law or EU merger control. Equipped with these powers the Commission would address widespread infringements meeting a certain threshold ("EU dimension"); the threshold could be the same as in the option 3. National authorities would retain the competence to address infringements that fall below such threshold. The new Regulation would define competences, powers, procedures, procedural rights and obligations of third parties, similarly to Regulation 1/2003 applicable in the EU competition area. In addition, the current CPC Regulation would be revised either as in option 3 or as in option 4, as regards the scope and the minimum powers of the national authorities needed for cooperation, the format of the coordinated enforcement actions under current Article 9 of the CPC Regulation and the prioritisation of enforcement action. The only difference from option 3 and option 4 would be that no enforcement coordination procedure at an EU level to tackle widespread infringements would be needed because the Commission would be acting in such cases. Discarded options: Mutual recognition of national enforcement decisions Although this option could save administrative costs in the first stage of the enforcement procedure it would require substantial changes and harmonisation of national procedural rules. Because of the differences in national enforcement systems, this option would be difficult to implement . The option could negatively impact traders' due process and other fundamental rights, as it would have to deal with an authority in another Member State (e.g. language considerations, official notification of orders, requests and decisions, etc.). The option was therefore discarded as unfeasible from both practical and legal perspectives. Repealing the CPC Regulation Repealing the CPC Regulation is not considered appropriate in view of the external evaluation and public consultation results. CPC Regulation's rationale for intervention continues to be valid. Without the CPC Regulation, cross-border enforcement would not be possible: there would be no mutual assistance mechanism or coordinated enforcement among national authorities. This would result in a greater fragmentation in consumer protection and as such would be undesirable and inconsistent with the EU Consumer Agenda and Digital Single Market Strategy. Repealing the CPC Regulation and replacing it with another existing horizontal instrument for cross-border cooperation among national authorities for the implementation of the Single Market acquis The CPC Regulation would be replaced with an instrument permitting national authorities to cooperate when tackling infringements to consumer legislation with a cross-border dimension. Partial or complete replacement of the CPC Regulation by the Internal Market Information (IMI) system was considered as this is currently the only relevant existing system. Article 4 of the IMI Regulation foresees a possible extension of the IMI system to other Single Market instruments provided that a specific procedure is followed . However, the IMI Regulation does not provide for enforcement cooperation mechanisms that could achieve at least a comparable outcome to the current CPC Regulation. It does not provide for minimum investigation and enforcement powers that are needed for efficient enforcement cooperation, or for cross-border enforcement tools equivalent to the mutual assistance mechanism of the CPC Regulation, and it does not allow for coordinated enforcement actions for widespread infringements. In addition, although the IMI IT tool could cover some of the workflows foreseen in the CPC Regulation (e.g. alerts on emerging malpractices), the CPC enforcement cooperation in its current form goes much beyond the workflows currently available in the IMI system . For these reasons, the existing IMI Regulation cannot replace the CPC Regulation, as major elements of the current CPC cross-border border system would in effect be repealed without replacement. Therefore, this option was also discarded from an early stage. 5.What are the impacts of the different policy options and who will be affected? 5.1.Option 1: Baseline scenario: no policy change See Section 1.5 in the problem definition. 5.2.Option 2: Implementing legislation and non-legislative ("soft law") measures to improve and clarify CPC cooperation, combined with self-regulation to increase business compliance Specific objectives Reduce situations where important cross-border and widespread infringements are not detected or sufficiently addressed through the CPC framework Neither the scope nor the minimum powers to cooperate can be extended by implementing measures or soft law. If the scope of the CPC Regulation is not extended (e.g. short-lived and infringements happening in parallel in several Member States) and reinforced powers to cooperate are not introduced, the CPC authorities would find it difficult or impossible to investigate certain cross-border/widespread infringements in the digital environment and offline, particularly where test purchases/mystery shopping exercises are required to obtain the evidence of the infringement or where the infringement can only be stopped by closing down the website or the social media account concerned (e.g. because the trader is located outside the EU). Reduce unnecessary delays and costs in the CPC cooperation Reduce delays Binding time limits for mutual assistance requests, common standards on gathering and use of evidence established through soft law measures and the clarified purpose and use of the alert mechanism would ensure a faster and more systematic detection of infringements and their follow-up. Together with the clarification of the framework for coordinated enforcement actions under Article 9 (steps, time-limits and roles of actors involved), they would result in reduction of delays in the CPC cooperation. Currently, mutual assistance requests are not handled within the benchmarks set in the Operating Guidelines. 40% of information requests take more than three months to handle. 50% of enforcement requests take more than one year to handle and 26% of them take even more than two years to handle. The time limits for dealing with mutual assistance requests would ensure that some requests are handled faster. However, without extended powers and mutual recognition of evidence, this measure would not result in significant reduction of delays as these are mainly caused by the two elements mentioned above. Reduce costs Clarifying the framework for coordinated enforcement actions would slightly improve the effectiveness of CPC cooperation compared to the baseline. However, the mechanism to tackle widespread infringements would remain a combination of 28 national actions and no cost savings could be achieved for authorities. Reduce situations where CPC authorities reach diverging outcomes concerning the same malpractice  Compared to the baseline scenario, this option would ensure a slightly more consistent assessment of traders' practices as the need for cooperation would be clarified. Voluntary preparation and submission to the Commission of multi-annual enforcement plans, or benchmarking of resources would encourage further prioritisation and project-based thinking but would depend on Member States' participation in such voluntary activity. However, as important infringements involving multinational traders would risk remaining outside the radar screen of the CPC network, different enforcement approaches regarding widespread infringements (such as the Apple guarantee case, cf. Box 8) would still occur. Multiple Member States would continue carrying out investigations, taking action at different times with possibly diverging outcomes concerning the same malpractice (without even knowing about it). Traders would still face 28 national proceedings and possibly 28 different interpretations of EU consumer protection rules that are mostly principle based. General objective Reduction of non-compliance rate and related consumer detriment The non-compliance rate is likely to slightly decrease (thanks to a slightly more efficient cooperation and voluntary self- regulation – see below). Self-regulation and compliance with consumer legislation Traders could be encouraged to adhere to voluntary codes of conduct, certification schemes and other self-regulation standards to support compliance with EU consumer protection laws. In certain areas, it is considered to have limited long term effects on compliance with consumer protection laws; in other areas results are mixed or positive. E.g., in the financial services sector an informal self-regulation scheme progressively turned into a self-regulation with oversight by the Securities and Investment Board, and then into direct public regulation by the Financial Services Authority, as self-regulation was not sufficient. Another example in the consumer protection area where self-regulation is applied at national level concerns environmental claims. On the occasion of the European Consumer Summit on 29 May 2012, the Commission gathered views from stakeholders on the use of green marketing, green-washing and misleading green claims in different European markets, and views on the possible way forward. One of the key conclusions was the need to focus on enforcement, in particular in a cross-border context: i.e. further support for national enforcers to properly implement the requirements of the Unfair Commercial Practices Directive and prevent misleading environmental claims by traders including via better guidance, a more pro-active surveillance and a strengthened cooperation between self- or co-regulation and public enforcement. A recent study concluded that self-regulatory systems at national level can be considered effective in both preventing and removing misleading green claims, especially for advertising. Other impacts Economic impacts (SMEs, competiveness, functioning of the Internal Market and competition) This option is expected to have limited impact on the overall macroeconomic context as the level of non-compliance to consumer laws, and the negative consequences this has on consumers' confidence and welfare or a healthy business environment, is not expected to change significantly. Environmental impacts No significant environmental impacts are expected. Social impacts No significant impacts on employment or vulnerable consumers are expected. Impacts on Fundamental Rights (EU Charter of Fundamental Rights) No significant impacts on fundamental rights, such as freedom to conduct business (Article 16 of the Charter) or personal data protection (Articles 7 and 8), because implementing/soft law measures cannot extend the authorities' powers for cooperation to tackle cross-border and widespread infringements. Compliance costs (for the Commission, Member States and traders) 30% FTE (ca. EUR 40,000) for the Commission to implement the measures under this option, which could be covered by redistribution and refocusing of existing personnel. Minimal compliance costs for Member States' authorities to get familiar with the new implementing/soft law measures: 1 day of training would cost ca. EUR 870 per authority . No costs for traders. Impacts on legal systems Minor impacts and they would be felt equally among Member States. Feasibility Feasibility of this option from the legal and technical perspectives is considered to be high. However, the option would not be in line with the expectations from stakeholders (see below). Stakeholder support Stakeholders request stepped-up enforcement cooperation. Thus the option would go against the expectations of stakeholders expressed in the public consultation and in different meetings of networks dedicated to consumer protection.

5.3.Option 3: Revision of the CPC Regulation to extend its scope and strengthen its efficiency Specific objectives Reduce situations where important cross-border and widespread infringements are not detected or sufficiently addressed through the CPC framework The problem definition section presents the figures which show the incidence of short-lived infringements in the digital environment and the potential caseload for CPC cooperation if they were included in the scope. Inclusion of such type of infringements within the CPC Regulation's would reduce the number of situations when such infringements (e.g. regarding misleading advertising of "free" or "limited in time" promotional offers which then turn out to be unwanted long-term subscriptions, or "super cheap" offers whose availability is very limited) go undetected and unaddressed. The proportion of widespread infringements is projected to grow in the coming years due to e-commerce and cross-border retail expansion (see the baseline in the problem section) and with more traders operating in multiple countries . Inclusion of such infringements in the scope of the CPC Regulation would remove doubts as regards their qualification as intra-Community infringements and would be a prerequisite to effectively tackling widespread infringements (new harmonised EU-level procedure to address them). This would reduce the situations where such infringements are not addressed by CPC authorities because of doubts about their intra-Community nature. The authorities would have to take into account the EU dimension of parallel domestic malpractices and the need for a coordinated EU-level action to offer a consistent approach across borders. Thanks to the additional minimum powers, the CPC authorities would be able to act much faster to stop harmful online practices. They would be able to carry out more regular verification of whether websites respect consumers' rights when shopping online, including the right to withdrawal for instance. They would also be able to cooperate on the basis of evidence obtained by each other through investigative tools such as mystery shopping for example. Authorities would also be in position to order interim measures so that websites with scams are taken down without waiting for the end of the investigation. Inclusion of Article 20 of the Services Directive within the scope of the CPC Regulation would provide a cross-border enforcement tool to address unjustified discrimination based on place of residence or nationality of a consumer including unjustified geo-blocking practices, which are per se cross-border. Article 20 of the Services Directive prohibits all types of unjustified geo-discrimination, but sets only general principles. This provision had been poorly implemented and enforced in the past partly because of the absence of a cross-border enforcement tool to enforce it and partly because Article 20 provides a list of justifications that is very broad. However, while the inclusion of Article 20 within the scope of the CPC Regulation would be beneficial to ensure coordinated enforcement across the EU, it would not be sufficient on its own to resolve the geo-blocking problems, as explained in the recently adopted Single Market Strategy. The improved alert mechanism, where stakeholders (e.g. consumer and trade organisations, ECCs, as well the C