Blog

The legislator amended Act CLV of 1997 on Consumer Protection (hereinafter referred to as the “Consumer Protection Act“) with effect from 28 May 2022 in order to implement the provisions of an EU “omnibus” directive (hereinafter referred to as the “EU Directive“[1]). In our opinion, the transposition is not flawless.

1. Factors to be considered in determining the legal consequences

“To facilitate more consistent application of penalties”[2], the EU Directive sets out the criteria to be taken into consideration in determining the legal consequences of consumer protection infringements (hereinafter “Criteria“).

The amendment of Consumer Protection Act transposed into Hungarian law these Criteria. Such Criteria are, for example, the value of the goods affected by the infringement[3], any action taken by the business entity to mitigate or remedy the damage suffered by consumers.[4] Unlike the text of the EU Directive, the Consumer Protection Act does not explicitly indicate that these are “non-exhaustive and indicative criteria“[5] At the same time, the last category of the adopted Criteria is “any other aggravating or mitigating factors applicable to the circumstances of the case“[6]. Accordingly, the authority may, when deliberating a given infringement, also consider not explicitly listed aspects.

2. Fines in case of coordinated actions by the Member States

The EU Directive sets out the amount of the fine that can be imposed in case of coordinated actions against widespread infringements and widespread infringements with a Union dimension.

Before overviewing the new dispositions, it is worth recalling what kind of infringements are subject to fines:

• Widespread infringement

„(a) any act or omission contrary to Union laws that protect consumers’ interests that has done, does or is likely to do harm to the collective interests of consumers residing in at least two Member States other than the Member State in which:

(i)   the act or omission originated or took place;

(ii) the trader responsible for the act or omission is established; or

(iii) evidence or assets of the trader pertaining to the act or omission are to be found; or

(b) any acts or omissions contrary to Union laws that protect consumers interests that have done, do or are likely to do harm to the collective interests of consumers and that have common features, including the same unlawful practice, the same interest being infringed and that are occurring concurrently, committed by the same trader, in at least three Member States;”[7]

• Widespread infringement with a Union dimension

„a widespread infringement that has done, does or is likely to do harm to the collective interests of consumers in at least two-thirds of the Member States, accounting, together, for at least two-thirds of the population of the Union;”[8]

Under the EU Directive, when sanctions are imposed in accordance with Article 21 of Regulation (EU) 2017/2394 on enforcement measures applicable in the event of coordinated action by national authorities, Member States shall ensure that these sanctions “include the possibility either to impose fines through administrative procedures or to initiate legal proceedings for the imposition of fines, or both, the maximum amount of such fines being at least 4 % of the seller’s or supplier’s annual turnover in the Member State or Member States concerned.”[9] If such fines should be imposed, but „information on the seller’s or supplier’s annual turnover is not available, Member States shall introduce the possibility to impose fines, the maximum amount of which shall be at least EUR 2 million.” [10]

These provisions have been – incorrectly – transposed by the Hungarian legislator as follows:

„(…) the amount of the fine for any infringement imposed under Article 21 of Regulation 2017/2394/EU shall be:

1. a) at least 4 per cent of the business entity’s net turnover,
2. b) at least EUR 2 million if the business entity’s net turnover cannot be determined.”[11]

In our view, the implementation contains the following mistakes:

• The basis of the fine

The Consumer Protection Act does not clearly determine which countries shall be considered when assessing a company’s turnover.

In the above cases, since an undertaking commits an infringement involving more than one Member State, it is vital to clarify as to the turnover achieved in which Member States should be considered.

What if, following a coordinated action, authorities of more than one Member State impose fines? We understand that one of the Criteria may provide guidance stipulating that “penalties imposed on the business entity for the same infringement in other Member States in cross-border cases where information about such penalties is available through the mechanism established by Regulation (EU) 2017/2394 of the European Parliament and of the Council”[12] shall be considered when determining the legal consequences.

On the other hand, what would happen if only the Hungarian authority impose fines? The EU Directive clearly determines, that “Where, as a result of the coordinated action under Regulation (EU) 2017/2394, a single competent authority within the meaning of that Regulation imposes a fine on the trader responsible for the widespread infringement or the widespread infringement with a Union dimension, it should be able to impose a fine of at least 4 % of the trader’s annual turnover in all Member States concerned by the coordinated enforcement action.”[13]

However, the Consumer Protection Act does not contain any provisions covering this case. It is therefore questionable whether, in the case not addressed by the Consumer Protection Act, the authority will follow the EU Directive and consider as the basis for the fine the company’s turnover achieved in the Member States concerned, only the domestic turnover or perhaps the turnover achieved anywhere in the world.

Given the involvement of more than one Member States, the reference to the net turnover seems to serve as a useful addition to the text of the EU Directive. This is because the tax burden in the various Member States may differ and, therefore, it seems easier to uniformly determine the turnover without regard to sales taxes.

• The amount of the fine

The Consumer Protection Act does not seem to align with the EU Directive regarding the amount of the fines.

The EU Directive aims to harmonise the maximum amount of the fine that can be imposed by each Member State (at least 4% of the turnover achieved in the concerned Member State, or EUR 2 million). Therefore, the Hungarian legislator should have determined the upper limit of the fine with the figures stated above at the minimum.

In contrast, the Consumer Protection Act stipulates that the amount of the fine shall be at least 4% or at least EUR 2 million. Thus, the Hungarian legislator codified the EU Directive’s provision using the adverb “at least”, instead of “at most”, which would comply with the EU Directive. In doing so, it has not fixed the maximum amount of fine but rather the minimum.

This way, contrary to the EU Directive, the Consumer Protection Act excludes the option for authorities to impose lower fines than the above-mentioned amounts and, at the same time, it doesn’t maximize the amount of the fines.

In the first article of our series on 2022 consumer protection changes, we analysed the amendments that entered into force on 1 January.

Dr. Máté Zalán Szili

Dr. Krisztián Tivadar

Photo credit: unsplash.com

This article contains general information and is not intended for use as legal advice or legal opinion. Although we have made every effort to provide accurate, up-to-date information in this article, it is possible that the article may not contain the most recent legal or other information due to any changes in the legal environment. The information provided here does not create a client-lawyer relationship between the website visitor / article reader and Tivadar Law Firm. If you would like to ask for our assistance in a specific case, we are at your disposal via the contact details below.

 

[1] DIRECTIVE (EU) 2019/2161 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 27 November 2019 amending Council Directive 93/13/EEC and Directives 98/6/EC, 2005/29/EC and 2011/83/EU of the European Parliament and of the Council as regards the better enforcement and modernisation of Union consumer protection rules

[2] EU Directive Preamble (7)

[3] Consumer Protection Act Section 47 (5) e)

[4] Consumer Protection Act Section 47 (5) b)

[5] Article 1 of the EU Directive inserts a new Article 8b (3) into Directive 93/13/EEC

[6] Consumer Protection Act Section 47 (5) g)

[7] REGULATION (EU) 2017/2394 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 12 December 2017 on cooperation between national authorities responsible for the enforcement of consumer protection laws and repealing Regulation (EC) No 2006/2004 – article 3. (3)

[8] REGULATION (EU) 2017/2394 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 12 December 2017 on cooperation between national authorities responsible for the enforcement of consumer protection laws and repealing Regulation (EC) No 2006/2004 – article 3. (4)

[9] Article 1 of the EU Directive inserts a new Article 8b (4) into Directive 93/13/EEC

[10] Article 1 of the EU Directive inserts a new Article 8b (5) into Directive 93/13/EEC

[11] Consumer Protection Act Section 47/C (1b)

[12] Consumer Protection Act Section 47 (5) f)

[13] EU Directive Preamble (12)