Explanatory Memorandum to COM(2011)793 - Alternative dispute resolution for consumer disputes

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dossier COM(2011)793 - Alternative dispute resolution for consumer disputes.
source COM(2011)793 EN
date 29-11-2011
1. Context of the Proposal

This present proposal, together with the proposal for a Regulation on Online Dispute Resolution for consumer disputes (Regulation on consumer ODR), has to be seen in the context of efforts to improve the functioning of the retail internal market and more particularly to enhance redress for consumers.

A substantial proportion of European consumers encounter problems when buying goods and services in the internal market. In 2010, this was the case for approximately 20% of European consumers[1]. Despite a generally high level of consumer protection guaranteed by legislation, problems encountered by consumers are often left unresolved. The losses incurred by European consumers because of problems with purchased goods or services are estimated at 0.4% of the EU GDP.

In addition to having recourse to traditional judicial means of redress[2], consumers and businesses in some Member States have the option to refer their complaints to alternative dispute resolution entities ("ADR entities"). These entities aim at resolving, out-of-court, disputes arising between parties, through the intervention of an entity (e.g. arbitrator, conciliator, mediator, ombudsman, complaints board).

The Commission has adopted two Recommendations on consumer ADR[3] and established two networks dealing with ADR (ECC-NET i and FIN-NET[5]). A number of EU sector-specific legislation contains a clause on ADR[6] and the Mediation Directive[7] promotes the amicable settlement of disputes, including consumer disputes. However, the analysis of the current situation identified the following main shortcomings which hinder the effectiveness of ADR: gaps in the coverage, the lack of consumer and business awareness as well as the uneven quality of ADR procedures[8].

The lack of effective ADR poses particular challenges in the context of cross-border transactions (e.g. language barriers, potentially higher costs, differences in legislation between Member States).

In view of the problems identified, the Commission undertook to propose measures on ADR that ensure that all consumer complaints can be submitted to an ADR entity and that disputes arising from cross-border transactions could be more easily resolved[9].

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2. Results of Consultations with the interested Parties and Impact Assessment 2.1. Collection of expertise and consultation of interested parties


The Commission conducted several studies on ADR. These include the 2009 “Study on the use of Alternative Dispute Resolution in the European Union”[10] carrying out an in-depth analysis of existing ADR entities and their functioning in all Member States, the study on "Consumer redress in the EU: consumers' experiences, perceptions and opinions"[11], the 'Assessment of the compliance costs including administrative costs/burdens on businesses linked to the use of Alternative Dispute Resolution (ADR)' (2011) and the study on 'Cross-border ADR in the European Union' (2011)[12].

A public consultation on the use of ADR was launched in January 2011[13]. There appeared to be a high degree of consensus as to the subject of ADR: all respondents agreed on the need to further develop ADR in order to improve the functioning of the internal market. The vast majority of respondents also supported action at EU level and stressed the need for quality ADR procedures which should be available particularly for disputes arising from cross-border transactions and in the digital environment. In their view, effective ADR procedures should be guided by a number of common principles, such as impartiality, transparency, effectiveness and fairness. Many respondents supported the improvement of ODR procedures, in particular for e-commerce transactions, where there are an increasing number of complaints especially for low-value cases.

In March 2011, the Commission services together with the European Parliament organised a summit on 'Alternative Dispute Resolution for internal market and consumers', which brought together some 200 interested parties. The debate showed general support for the development of ADR, including ODR, for consumers and highlighted the need for EU action. In April 2011, a workshop on 'ADR: how to make it work better?' was organised within the European Consumer Summit[14] with 60 stakeholders participating.

Complementary input was provided, in particular, through a business consultation conducted by the Commission services between December 2010 and January 2011 through the European Business Test Panel[15] and a business consultation conducted between March and May 2011 via the SME survey platform[16].

The European Data Protection Supervisor (EDPS) was also consulted.

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2.2. Impact assessment


The Commission has carried out a detailed impact assessment (IA), analysing a range of policy options for both 'ADR coverage, information and quality' and 'ODR for cross-border e-commerce transactions'. The IA concluded that only a combination of two instruments on ADR and ODR can ensure access to impartial, transparent, effective and fair means to resolve domestic and cross-border consumer disputes out-of-court. In particular, a Framework Directive is the most appropriate way to ensure full ADR coverage in all Member States, to inform consumers about ADR and to ensure that ADR entities respect specific quality principles. Full ADR coverage will create the required framework on the basis of which an EU-wide ODR system can effectively deal with disputes relating to cross-border e-commerce transactions.

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3. Legal Elements of the Proposal 3.1. Main elements of the proposal 3.1.1. Ensuring that ADR procedures exist for all consumer disputes


Under the present proposal, Member States shall ensure that all disputes between a consumer and a trader arising from the sale of goods or the provision of services can be submitted to an ADR entity, including through online means. In order to fulfil their obligation, Member States may use existing ADR entities and adjust their scope of application, if needed; or they may create new ADR entities or a residual cross-sectoral entity.

The present proposal covers disputes between consumers and traders arising from the sale of goods or the provision of services. This includes complaints filed by consumers against traders but also complaints filed by traders against consumers. The present proposal applies to ADR entities that seek to resolve disputes between consumers and traders out-of-court through the intervention of a dispute resolution entity. It covers in particular mediation procedures but also non-judicial procedures of an adjudicatory nature, such as procedures before consumer complaint boards, arbitration and conciliation procedures. The present proposal does not apply to consumer complaint handling systems operated by the trader nor to dispute resolution entities where the natural persons in charge of dispute resolution are employed exclusively by the trader. It also excludes direct negotiations between the parties.

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3.1.2. Information on ADR and cooperation


When disputes arise, consumers must be able to quickly identify which ADR entities are competent to deal with their dispute. To this end, this proposal ensures that consumers will be able to find information on the competent ADR entity in the main commercial documents provided by the trader and, where a trader has a website, on that website. In addition, traders will have to inform consumers on whether or not they commit to use ADR in relation to complaints lodged against them by a consumer. This obligation will act as an incentive for traders to use ADR more frequently.

Under the present proposal, Member States shall ensure that consumers can obtain assistance when they are involved in a cross-border dispute. Member States may delegate responsibility for this task to their centres of the European Consumer Centre Network (ECC-net) which currently performs the function of guiding consumers to the ADR entities competent to deal with their cross-border disputes.

Under the proposal, ADR entities will be encouraged to become members of networks of ADR entities in sector-specific areas when they deal with disputes in that area. In addition, the present proposal encourages cooperation between ADR entities and national authorities entrusted with the enforcement of consumer protection legislation.

The present proposal contains provisions ensuring the respect of strict guarantees of confidentiality and data protection, in compliance with the relevant Union legislation.

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3.1.3. Quality of ADR entities


The present proposal aims at ensuring that ADR entities respect the quality principles of impartiality, transparency, effectiveness and fairness. Such principles have been laid down in two Commission Recommendations. By giving a binding effect to these principles, the present proposal will create a level playing field for ADR and strengthen the confidence of both consumers and traders in ADR procedures.

Transparency of ADR entities should guarantee that the parties receive all the information they need to take an informed decision before engaging in an ADR procedure. ADR procedures should be effective and address certain shortcomings associated with court procedures, such as costs, length and complexity. Based on the results of existing studies, the present proposal requires that disputes should be resolved within 90 days. In order to ensure that ADR procedures remain accessible to all consumers, the present proposal provides that they should be free of charge or of moderate costs for consumers.

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3.1.4. Monitoring


In order to ensure that ADR entities function properly and provide quality services for consumers and traders, they should be closely monitored. In each Member State, a competent authority will be in charge of monitoring the functioning of ADR entities established on its territory. The competent authorities will inter alia assess, on the basis of information notified to them by ADR entities, whether a given ADR entity respects the quality requirements laid down by the present proposal. In addition, the competent autorities will publish regular reports on the development and functioning of ADR entities. Every three years, the Commission will report to the European Parliament and the Council on the application of the Directive.

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3.2. Subsidiarity principle


The proposal is based on Article 114 of the Treaty on the Functioning of the European Union.

The development of a well-functioning ADR system within the Union, built on existing ADR entities in the Member States and respecting their legal traditions, will strengthen consumer confidence in the retail internal market, including in the area of e-commerce. It will also open up new opportunities for businesses. Action by Member States alone is likely to result in further fragmentation of ADR, which in turn would contribute to unequal treatment for consumers and traders in the internal market and create diverging levels of consumer redress in the Union. Action at Union level, such as proposed, should provide European consumers with the same level of protection and promote competitive practices amongst businesses, thus increasing the exchange of products or services across borders.

Defining at Union level common principles and rules for ADR entities and ADR procedures in all Member States will have the clear advantage of ensuring an effective and adequate treatment of consumer disputes arising from domestic or cross-border transactions. It will also ensure that quality levels of ADR procedures are more homogenous in the Union.

The divergence in national policies on ADR procedures (or the lack thereof) shows that unilateral action by Member States does not lead to a satisfactory solution for consumers and businesses. Efficient and effective ADR for cross-border disputes requires a well-functioning system of domestic ADR entities on which the EU-wide ODR platform will be anchored.

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3.3. Proportionality


The proposal complies with the proportionality principle for the following reasons:

The proposal does not go beyond what is strictly necessary to achieve its objectives. It does not regulate all aspects of ADR but focuses on some key aspects of out-of-court dispute resolution. The framework Directive will build on ADR entities that already exist and will leave the choice of form and methods to achieve the results expected to Member States.

The objectives of this proposal will be achieved at the lowest costs to businesses and Member States, while avoiding duplication of expenses and unnecessary administrative burdens.

Contents

1.

Budgetary Implication



This proposal does not have an impact on the EU budget. Therefore no financial statement is attached to the proposal.