New German Consumer Protection Law

Talking about start-up companies, the whole thing is more or less about internet business. With respect to Germany and probably the whole European Union, the legal framework for internet companies is ever changing. Especially consumer protection laws have always been a source for legal evolution and also a cause for trouble. Consumer Protection laws in the EU tend to be overly protective and might hinder some founders to develop their business model.

Let’s take a common example: Based on the current German law, a consumer has the right of withdrawal within 14 days after the contract has been concluded without stating any reason (Widerrufsrecht). The company is obliged by law to refund the consumer making use of his right and take back the goods delivered. As you can see, consumer protection law can be risky for
smaller companies.

In this context, we would like to draw your attention to a relatively recent reform of the German Consumer Protection Law, which provides for deep changes in the whole statutory system. The law enacted by the German Bundestag came into force on 13th June 2014.

I allow myself to abbreviate its title with “Law for the Implementation of the Consumer’s Rights Directive” (Gesetz zur Umsetzung der Verbraucherrechterichtlinie und zur Änderung des Gesetzes zur Regelung der Wohnungsvermittlung – VRRLUmsG).

As the title suggests, the law is derived from a EU directive. To put this into context with the upcoming European elections, I should say that most of the beloved consumer protection laws come from Brussels. Unfortunately, most German citizens do not recognize them as Brussel-made.

I will present some of the key changes caused by this law. [spacing size=”20px”]

Scope of application – now more precise[spacing size=”20px”]

One needs to know that consumer protection laws only apply in b2c-contracts, not in b2b and not in c2c-contracts. B2c means that the party offering the goods or services is running a business and the party receiving the goods or services, the client, acts as a consumer. In general, that hasn’t changed. But what happens if the deal is somehow mixed? For example, the client intends to use the goods or services for business and private purpose (so called “dual use contracts”). In this case, the law is now more precise than before. For the consumer protection laws to apply, the deal needs to be concluded mainly for private purposes. More than 50 % should suffice.

In court proceedings, the alleged consumer has the burden of proof that his intentions were private (that hasn’t changed).
Additional services need to be agreed upon explicitly So called ,,additional services” (Zusatzentgelte) now need to be agreed upon explicitly. Sounds nice. But what are ,,additional services”?

Everybody knows it and probably hates it: If you book a flight online, sometimes you accidentally book a “travel cancellation insurance” as well. For this additional service, you will be charged extra. How did that happen? In most cases, there was some optional field available on the website’s form and that field was marked for you already. So, if you don’t want the services, you
have to unmark the option. This is called “opt-out”.

Unfortunately, the law is not very clear and does not define what “explicitly” means in this context and if “explicitly” requires a separate agreement for such services. However, according to the new law, such “opt-out”-services as described above should not be permissible anymore.

Companies should now be very careful not to implement “opt-out services” with extra fees. Technical changes will be necessary in webshops.[spacing size=”20px”]

Extra charges for means of payments[spacing size=”20px”]

Charging extra fees for means of payment won’t be permissable anymore in future (so called “surcharging”). For example, if you accept PayPal or credit card as means of payment for your webshop or internet service, you may only charge the actual PayPal or credit card fee, not more. Moreover, you may only charge anything extra at all, if you also provide for a common cost-free payment option. If you cannot provide a cost-free option, you cannot charge anything at all, no matter how much the payment service costs your business. [spacing size=”20px”]

Extra hotline charges[spacing size=”20px”]

To complete the row about extra charges, I have one more for you: If your customer contacts you having questions about the concluded contract, you cannot charge any extra hotline fees. The customers will only pay the standard landline charges. No more extra frees, no more €1.99 per minute.

Be careful: If you still charge hotline fees for such calls after 13th June 2014, the customer is not obliged to pay his phone bill. But the law now allows the communication services provider to charge you with the unpaid hotline fees. Better think about it.[spacing size=”20px”]

General Obligatory Hints and Information[spacing size=”20px”]

With the new law there will be a general information obligation regarding all b2c contracts which was never so broad before. The information obligation comprises a catalogue of information which needs to be disclosed by the company. The mandatory catalogue includes information such as (among others)the main attributes of the goods or services,

  • the company’s identity and contact info,
  • the aggregated price of the goods or services including all taxes,
  • payment conditions,
  • purchaser’s rights regarding defects of the goods,
  • the date up to which or at least the deadline within the company intends to fulfill the contract,
  • restrictions of interoperability and compatibility of hardware and software

and many more.

The information must be provided before the customer accepts or makes the offer to conclude a contract.[spacing size=”20px”]

Mandatory Button[spacing size=”20px”]

The new law implements and refurbishes a very recent law which has been enacted closely before. The German (and European) Law foresees a mandatory button to appear with respect to contracts concluded with consumers online on eCommerce websites.

Before the consumer consents to the contract and completes his order, he needs to be provided with certain information regarding purchase price, term time and conditions of cancellation, among others. The information needs to be implemented in a way so it is easily understood, visible and highlighted. This formulation certainly makes possible a lot of interpretation what is “easily understood” and “highlighted” and what is not. Since the sanctions for not-complying with this law can be pretty painful, most companies should use a very plain and simple language and website style.

There are certain requirements for the mandatory “button” I mentioned above. This “button” actually is quite important. If the requirements for the “button” are not met, the law foresees for the contract to be null and void which certainly is a very dramatic result. The webshop where the consumer finalizes his order has to make sure that the customers explicitly confirms that his order results in a payment obligation. In other words, the button needs to make clear that the order is not for free!

If the order is completed with a clickable button, the law even tells the webshop owner how to label it. The button label has to contain the information “order liable to pay” or a similar formulation.[spacing size=”20px”]

Scope of application broadened: “Contracts concluded outside business premises”[spacing size=”20px”]

The new law changes the whole structure of the consumer protection laws. The old law applicable before 13 June 2014 dealt with the so called “doorstep selling” and “distant contracts”. Doorstep selling (“Haustürgeschäfte”) tackled specific situations where allegedly a lot of psychological pressure is put on the customer, such as contracts concluded at home, at workplace, during leisure events initiated by the company selling the product or in cases where the customer was approached in public transport in order to sell the product.

As most people know, distance contracts fell within the scope of application as well. Distance contracts (“Fernabsatzverträge”) are contracts for the supply of goods or the rendering of services, including financial services, which are entered into between an entrepreneur and a consumer solely by the use of means of distance communication. According to this definition, sales through webshops for instance fell under the consumer protection law.

As of 13 june 2014, not only distant contracts and doorstep selling will be protected by consumer protection laws. The new scope is much broader. The new term to learn is “contracts concluded outside of business premises” (“Außerhalb von Geschäftsräumen geschlossene Verträge”). As you can see, this could also include repair services agreed upon in the customer’s apartment or contracts concluded in the premises of a notary public or a lawyer. The scope of application for “distance contracts” remains more or less unchanged.[spacing size=”20px”]

New rules: Date of delivery must be mentioned[spacing size=”20px”]

With respect to distance contracts, the list of information which must be provided before concluding the contract is heavily extended as well.

I believe the most interesting change is the new obligation to mention the date up to which the goods or services will be delivered. It is not clear whether indicating a delivery period is sufficient or if the company has to provide a delivery deadline or a specific date. Since it seems more or less impossible to mention a specific date, for the time being we have to stick with the delivery period.[spacing size=”20px”]

New rules for products containing digital content[spacing size=”20px”]

Another change which caught my attention is the information to be disclosed regarding digital content. The company selling a digital product is now obliged to provide information about the functioning of such products including technical measure of protection.

Also, the company has to say something about the interoperability or compatibility of software or hardware if such restrictions were known. I believe this mainly includes information about the compatible operating system (e.g. Windows, Mac, Linux) and the hardware required (e.g. x86, x64 architecture).[spacing size=”20px”]

Right of revocation[spacing size=”20px”]

The right of revocation, as it was implemented before 13 June 2014 and will be implemented in the future, grants the right to cancel a contract without any specific reason to be stated. Thus, the consumer can withdraw from the contract, send back the goods and get back the purchase price. Compared to general contract law in most legal systems, such a right to “get rid of a contract” without any specific reason is a rather alien element.[spacing size=”20px”]

Revocation period[spacing size=”20px”]

The revocation period remains 14 days after conclusion of the contract and proper instruction of the revocation right. That has not changed.

Before 13 June 2014, the right of revocation remained eternally (literally – it was called “eternal right of revocation”!), if the company did not provide proper instructions about the revocation right. Thus, the right of revocation simply ended – never! This was considered to be a rather grotesque result. Accordingly, under the new law the right of revocation ends at the latest 12 months after the initial period of revocation elapsed.[spacing size=”20px”]

Beginning of revocation period[spacing size=”20px”]

With respect to the revocation period the following rules apply:

  • The revocation period cannot begin before the contract is concluded
  • It does not begin before the company disclosed a proper instruction regarding the right of revocation
  • In case of a purchase of consumable goods the period does not begin before the goods are received by the purchaser
  • In case of digital goods purchased the revocation right may end in a more complicated way: When the selling company has started fulfilling the contract with the consumer’s explicit consent given prior to the fulfillment and the consumer has approved his knowledge of losing the revocation right.[spacing size=”20px”]
Proper Revocation instructions[spacing size=”20px”]

The selling company is obliged to provide the consumer with due revocation instructions explaining his right to withdraw from the contract.

The law provides companies with a sample notification (Musterwiderrufsbelehrung) containing the instructions. There is no obligation to use this sample notification. However, the sample notification is definitely in accordance with the law. By using a different sample notification, companies risk costly warning letters of competitors or consumer associations.

ATTENTION: The sample notification has changed since 13 June 2014. By using the old sample notification, you risk WARNING LETTERS as described above. You should not hesitate to ask a lawyer for implementing the new revocation instructions and also review your General Terms of Business.[spacing size=”20px”]

Declaring revocation[spacing size=”20px”]

Just as before, the consumer still needs not to explain why he has revoked the contract. Before 13 June 2014, consumers could just send back whatever they bought and by doing so tacitly revoke from the contract. However, sending back the goods does not suffice for the revocation anymore. The new law requires the consumer to explicitly revoke the contract.

It must be noted, that the revocation declaration needs not to contain any kind of reason, explanation or statement regarding the revocation. It just needs to make clear, that revocation is intended.

Since 13 June 2014, there is a sample form for exercising the revocation right. There is no obligation for the consumer to use this form. Also, since 13 June 2014, the consumer may declare his right to revoke the contract on the phone.[spacing size=”20px”]

Costs of transportation[spacing size=”20px”]

It is true that since 13 June 2014, the consumer has to pay for the shipment costs in case of revocation, notwithstanding the value of the goods. Before, the company had the burden of the shipment costs if the goods were of a value greater than 40 euros.

It is however very important to know, that the company must inform the consumer about this obligation to carry the shipments costs! Otherwise the costs remain with the company.[spacing size=”20px”]

Risk of Warning Letters[spacing size=”20px”]

With warning letters, competitors of companies not complying with consumer protection law can demand such companies to stop their practice. Unlike in many other countries, such warning letters bear immense cost risks, since under German law, the competitor infringing the law is obliged to pay the lawyer fees for the first (!) warning letter, even without having been warned before. In other words, if lawyers find a competitor to cooperate with them, they can build up something like a cash machine.

Not complying to the consumer protection rules can thus be very costly. There is no free strike if competitors disclose violations.