Broader Powers for Consumer Authorities, Part 1: Investigation
21 January 2020
Authors: Sarita Schröder, Jessica Tressfeldt, Anna Räty, and Liisa Vaaraniemi
The Consumer Protection Cooperation Regulation (Regulation (EU) 2017/2394, the “CPC Regulation”) entered into force on 17 January 2020. The CPC Regulation requires national consumer authorities in EU and EEA countries to cooperate to address breaches of consumer law involving traders and consumers in different countries.
The CPC Regulation is directly applicable EU legislation. However, in Finland and Sweden, certain changes to national legislation have been deemed necessary to ensure that the national authorities can effectively exercise the investigation and enforcement powers mandated by the CPC Regulation. In addition, although the CPC Regulation does not require the same powers to be available to the authorities in the case of purely national infringements, it has been proposed in both Finland and Sweden that the authorities’ powers should also be broadened with respect to such infringements.
In this blog post, we summarise the key changes that have been proposed to the Finnish and Swedish consumer ombudsmen’s investigation powers. In a follow-up post , we will look at the key changes that have been proposed to their enforcement powers. The changes were intended to enter into force simultaneously with the CPC Regulation. However, they are still making their way through the legislative procedure in both Finland and Sweden. Thus, it is uncertain when the amended legislation will enter into force in either country.
The CPC Regulation requires that competent authorities have the power to access any relevant documents, data, or other information pertaining to suspected infringements and to compel other public authorities, bodies, or agencies or natural or legal persons to provide such information regardless of its form, format, storage medium, or place of storage. Among other things, this encompasses the power to trace financial and data flows and ascertain the identity of persons involved in these and the power to ascertain bank account information and ownership of websites.
According to the Finnish proposal, the Finnish Consumer Ombudsman (the “FCO”) should primarily seek to obtain the necessary information from the trader suspected of the infringement, who they could compel to provide such information when it is necessary (in Finnish: tarpeellinen) for the purposes of their investigation. When such information is indispensable (in Finnish: välttämätön) for the purposes of the FCO’s investigation, they could also compel another private or public entity to provide the information. In each case, the information should be provided to the FCO free of charge and notwithstanding any provisions on secrecy. The FCO could generally require a trader or other private entity to comply with the order under penalty of a fine. However, this would not apply when the order is directed at a private individual who is suspected of a crime to which the information pertains.
In its statement, the Constitutional Law Committee of the Finnish Parliament has considered the proposed formulation of the FCO’s right of access to information to be unnecessarily broad, as it would also encompass sensitive information. Therefore, the Constitutional Law Committee has required that said provision be clarified to specify what types of sensitive information could be subject to the FCO’s right of access to information.
According to the Swedish proposal, the Swedish Consumer Ombudsman (the “SCO”) should have the authority to order anyone to provide statements, documents, or other information that are needed in matters pertaining to the application of the relevant legislation. This largely corresponds to the right that the SCO currently has. However, the proposed legislation would make it possible for the SCO to issue such an order under penalty of a fine without first trying (and failing) to obtain such information voluntarily. In addition, the current legislation would be harmonised with the CPC Regulation, including by clarifying that the obligation to provide information to the SCO also applies to state and municipal authorities.
The CPC Regulation also requires that the competent authorities have the power to carry out on-site inspections concerning any premises, land, or means of transport that a trader suspected of an infringement uses for business purposes. In the course of such inspections, the competent authorities must be entitled to examine, seize, and copy documents, data, or other information and to interview representatives and employees of the trader and to record their answers. These inspection powers closely resemble the powers conferred on competition authorities in the case of suspected competition law violations.
Based on the proposals, the FCO’s inspection powers would be broader than the SCO’s. This is because, according to the Finnish proposal, the FCO would also be entitled to carry out such inspections in private residences to the extent that they are used to conduct business and provided that inspecting such premises is indispensable for the FCO’s investigation. In contrast, the Swedish proposal concludes that the SCO’s current inspection right should not be extended to cover private residences and that the CPC Regulation does not require Member States to grant the competent authorities such rights. However, it may well be that ultimately private residences will also be off limits for the FCO, at least in the case of purely national infringements, as the Constitutional Law Committee of the Finnish Parliament has considered such inspection rights to be problematic with respect to the right to the protection of the sanctity of the home.
Another key difference between the two proposals is that the Finnish proposal would enable the FCO to carry out unannounced inspections (so-called dawn raids) if notifying the trader in advance of the inspection endangers its purpose. In contrast, the Swedish proposal, confirms the current position on this matter, concluding that the SCO should always inform the trader before conducting an inspection.
Finally, the CPC Regulation requires that competent authorities have the power to carry out test purchases of goods or services, where necessary under a cover identity, in order to detect infringements and obtain evidence concerning them. This includes the power to inspect, observe, study, or test the goods or services.
A specific provision on the right to carry out test purchases would be new in both Finland and Sweden. The proposals in both countries correspond to one another for the most part. However, the Finnish proposal appears to set the bar for using a cover identity somewhat higher than the Swedish proposal. According to the Finnish proposal, the FCO could use a cover identity only when it is indispensable to avoid the test purchase from being uncovered (which may be the case e.g. when purchasing a product online). In addition, the FCO would have to inform the trader of the use of a cover identity as soon as it is possible to do so without endangering the purpose of the test purchase. The Swedish proposal, in contrast, would allow the use of a cover identity whenever a test purchase is necessary for the SCO’s investigation. However, the SCO would have to inform the trader of the test purchase as soon as it is possible to do so without endangering its purpose. This means that the SCO will likely be obligated to inform the trader more often than the FCO following a test purchase.
The Finnish and the Swedish proposals would both entitle the authority to seek reimbursement from the trader for the purchase price of the product or service, except in cases where this would be unreasonable for the trader. As examples of this exception, the Finnish proposal mentions cases where the product or service has been used or where it otherwise cannot be returned to the trader. However, according to the Swedish proposal, the trader should always be offered the possibility to take back the product if reimbursement is claimed.
The broadening of the Finnish and Swedish consumer authorities’ investigation powers will improve their ability to uncover and gather evidence of consumer law breaches. Coupled with the strengthening of their enforcement powers – which we will look at in the follow-up to this post – the changes will further increase the importance of consumer law compliance for businesses offering products or services to consumer customers.