[author: Jan Philipp Sparenberg]

Provisions on consumer protection account for only a small part of the 9th amendment of the German Act Against Restraints of Competition (ARC), which recently came into force. However, the introduction of the reform has led to a highly controversial debate in the press and literature.

Consumer protection in Germany

Traditionally, private enforcement is the main means of protecting consumer rights in Germany. This involves consumers or, more probably, recognised consumer protection associations bringing private law actions to ensure that consumer protection provisions are applied. Unfair competition law plays a central role here. For example, consumer organisations issue cease and desist letters in response to breaches of general terms and conditions of business. If unsuccessful, they then take legal action.

Unlike previously, the debate about the 9th amendment of the ARC focused on strengthening public enforcement. Not that public enforcement of consumer protection law is completely unknown in Germany: the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) and the German Federal Network Agency (Bundesnetzagentur – BNetzA) already have powers to enforce consumer rights. BaFin is responsible for the protection of all consumers in the area of financial services, while the BNetzA monitors the misuse of phone numbers. As a result of the 9th amendment of the ARC, the German Federal Cartel Office (FCO) now also has powers to protect consumers.

Consumer protection and the ARC – do they fit together?

Ludwig Erhard, the father of the ARC, recognised long ago that the consumer is the measure of all things because “what other purpose should an economy have than to help all people achieve ever better and freer lives“. The consumer protection activities on which the FCO will now focus are derived primarily from the notion of the consumer developed by the ECJ. The benchmark used by the ECJ to assess the fairness of a commercial practice is the average consumer making an informed decision. Such an individual is deemed by the ECJ to be reasonably well-informed and reasonably observant and circumspect. However, an informed decision is only possible if there are (genuine) alternatives available. This is where antitrust law comes in.

What’s new?

The 9th amendment of the ARC includes two new paragraphs in sec. 32e ARC that extend the existing powers of the FCO to conduct sector investigations to the area of consumer protection. Under sec. 32e para. 5 ARC, the FCO can in future investigate certain branches of industry or – across sectors – certain types of agreement if there is a justified suspicion of significant, permanent or repeated violations of consumer law provisions that, in terms of their nature or extent, impact the interests of a large number of consumers. The FCO is not permitted to investigate if another authority (such as BaFin or the BNetzA) has jurisdiction.

The newly added sec. 32e para. 6 ARC is interesting because it is indirectly relying on private enforcement to remedy any identified violations. Consumers, consumer organisations or other companies are denied the right to be reimbursed the expenses incurred in issuing a cease and desist letter for four months after the final report is published. This provision was inserted in the hope that the companies themselves will remedy the violations within four months without any further coercion from the authorities, but through the pressure of private enforcement. In addition to consumer organisations, competitors in particular have an interest in any violations being remedied and fair competition being established. However, as the final report is not binding (unlike a fine notice, for example), it remains to be seen whether private enforcement is sufficient, bearing in mind the underfunding of consumer organisations. The 9th amendment of the ARC saw no agreement reached (yet) regarding any power to have violations remedied by the FCO, for example.

Another new provision of the ARC is sec. 90 para. 6 ARC, which grants the FCO the rights that it already has in antitrust damages proceedings. From now on, the FCO must be notified by courts of any pending disputes that involve significant, permanent or repeated violations of consumer law provisions which, in terms of their nature or extent, impact the interests of a large number of consumers. The FCO must be provided with all pleadings, records, decrees and decisions if it requests them. It can then participate in the proceedings as an amicus curiae by submitting pleadings or attending the oral hearing, for example. This power gives the FCO an insight into serious or systematic violations of consumer protection provisions that could, in turn, give rise to an initial suspicion prompting a sector investigation pursuant to sec. 32e ARC.

Outlook

In view of the greater number of systematic violations of consumer protection provisions, there is a need not only to strengthen private enforcement by introducing class actions, for example, but also to strengthen public enforcement. Harassment in the form of illegal cold calls, spam emails or failure to comply with data protection law has noticeably increased. Only in extremely rare cases will the consumers affected be prepared to invest the time and money to take legal action against the perpetrators – especially as the damage caused to the individual is often minor. At a macroeconomic level, however, these systematic violations probably have a considerable effect. The first step has already been taken in granting the FCO the power to uncover these systematic violations. However, another probably crucial step is to give the FCO (or a new consumer protection authority) the power to remedy such violations. We eagerly await the debate (on this) that will accompany the 10th amendment of the ARC.

The next post from our blog series on the German Competition Act reform “What applies as of when? – As of when will the 9th amendment of the German Act against Restraints of Competition (GWB) apply?” will be published tomorrow.