On the 14th of November, the CJEU published its long-awaited decision on Compass Banca (Case C-646/22; we have previously discussed it here). In this case, the
CJEU, for the first time, elaborated on who the ‘average consumer’ is,
especially in light of the persistent critiques from
behaviouralists, and further clarified the assessment of and the consequences
for unfair commercial practices under the UCPD (Directive 2005/29/EC).
The case involves
a commercial practice by the Italian company Compass Banca which the Court termed ‘framing’ – a term typically associated with a specific type of cognitive bias rather than a concrete commercial practice. Namely,
Compass Banca presented an offer for a personal loan alongside
an unrelated insurance
product, leaving consumers with the impression that it was not possible to
obtain the loan without taking out the insurance. In particular, there was no
cooling-off period between the signing of the two contracts. Even though
Compass Banca claimed that it was made clear to consumers that the loan was
not contingent on the insurance, the Italian consumer authority requested a
seven-day cooling-off period to be granted and, upon Compass Banca’s failure to
comply, found the practice of framing an ‘aggressive’ and thus ‘unfair’
commercial practice under the UCPD. Compass Banca challenged this decision in
court, which invited questions reaching the CJEU.
The CJEU’s ruling
The first
question concerns the extent to which behavioural insights about individuals’
cognitive biases should inform the concept of the ‘average consumer’, a notion that lies at the heart of the UCPD as a benchmark for assessing the
effects of a particular commercial practice on consumers’ decision-making processes.
Such an explicit reference makes this (abstract and somewhat academic) question
not merely ‘hypothetical’ and justifies its admissibility (paras 37-39). Probably
unsurprisingly, however, the Court avoided adopting academic terms like ‘homo
economicus’ and ‘bounded rationality’ which were used by the referring court. This, of course, does not really make a
difference to the substantive reasoning.
With
reference to recital 18 of the UCPD (which came from the Court in the first place), the Court
restated that the ‘average consumer’ is an individual ‘who is reasonably
well-informed and reasonably observant and circumspect, taking into account
social, cultural and linguistic factors’. The CJEU highlighted the nature
of the ‘average consumer’ as an objective criterion which is independent of any
specific consumer’s knowledge, but ‘not statistical’, which nonetheless allows
national courts to take into account ‘more realistic’ considerations when exercising
their own faculty of judgment to determine the ‘typical reaction of the average
consumer’ (paras 48-51, recital 18 UCPD). With this understanding, the Court continued to
clarify the two prongs of the average consumer benchmark: ‘reasonably
well-informed’ and ‘reasonably observant and circumspect’. (I read it as the former relates to obtaining information/its availability, while the latter to processing information/its effectiveness.) As to the former, in view of the trader’s mandatory information obligations, it
should be understood as ‘referring to the information which can reasonably be presumed
to be known to any consumer, taking into account the relevant social, cultural
and linguistic factors, and not to the information which is specific
to the transaction in question’ (para 52). The lack of information is thus not
excluded from the assessment of the effects of a commercial practice. Here, I think the Court was indicating that being ‘reasonably well-informed’ does not require consumers to actively seek out material information that the trader is legally obliged to provide.
Similarly,
the nature of being ‘reasonably observant and circumspect’ does not exclude
considering the influence of cognitive biases, should such biases be likely to
affect a reasonable average consumer to materially distort their behaviour (para 53). The Court then recalled its several
cases which acknowledge that an average consumer may be deceived, may
have varied levels of attention regarding different goods and services, may be
subject to an erroneous perception of a piece of information and may be simply
unable to understand the technical details in certain transactions (paras
54-56). While these cases were usually discussed as ‘deviations’ from the
average consumer standard, the Court used them as ‘evidence’ to confirm
that a ‘reasonably observant and circumspect’ consumer is not a perfectly or particularly observant and circumspect one (adverbs used by AG Emiliou in para 42). Nonetheless, the Court cautioned that the
existence of constraints like cognitive biases does not automatically make them
legally relevant and decisive in finding an unfair commercial practice: ‘it is
still necessary for it be duly established that, in the particular
circumstances of a specific situation, such a practice is of such a kind
as to affect the consent of a person who is reasonably well-informed and
reasonably observant and circumspect, to such an extent as to materially
distort his or her behaviour’ (para 57). There seems to be a high bar for courts to apply behavioural insights. In all, the Court concluded by sticking to the
classic definition of a rational consumer while accepting the possibility of constraints that can impair consumers’ decision-making capacity,
such as cognitive biases.
The second
question concerns whether the practice of ‘framing’ in this case is in all circumstances aggressive or at least unfair. First, the Court found that framing is not categorically
blacklisted in all circumstances, since it does not correspond to any practice
listed in the ‘complete and exhaustive list’ of Annex I (para 68). Second, the
Court indicated that neither can framing be found aggressive, in most
cases, when applying the general test under Art. 8 UCPD: there is no ‘harassment’
and ‘coercion’ in their usual meaning in daily language (para 72), and there is
no ‘undue influence’ as framing ‘does not, as such, imply the existence of acts
of pressure, even if that practice is likely to create a bias of framing’ (para
75). Third, it is still possible that a non-aggressive practice can be a
misleading one in the sense of Arts. 6-7 UCPD. In this case, the Court noted
that framing leaves consumers with the (misleading) impression that it was impossible
to get a loan without taking out the insurance (para 80) – though Compass Banco
has claimed otherwise (para 82). Ultimately, it is for national courts to
assess the unfair nature of a commercial practice (para 83).
The third
and fourth questions ask: Should framing be found unfair, do the UCPD and Art.
24(3) of Directive 2016/97 on insurance distribution preclude the national authority
from requiring a cooling-off period to be granted in order to put an end to the
unfair practice? Regarding Directive 2016/97 the question was answered negatively, as Art. 24(3) only requires
the possibility of buying a good or service separately without the ancillary
insurance (as a package). As to the UCPD, the Court held that while it
precludes ‘a general or preventive obligation to comply with a certain
cooling-off period’ in an ex-ante manner (para 91), it does not preclude
national authorities’ ex-post ‘power to issue directions to that trader’ once
there has been an established unfair commercial practice (para 92). However,
the measure taken cannot restrict the freedom to provide services (per Art. 4
UCPD) and must respect the rights codified in the Charter of Fundamental Rights, in particular the freedom to
conduct a business under its Art. 16 (paras 94-95). In this light, the
principle of proportionality mandates that a measure is only acceptable when ‘there
are no other equally effective means of putting an end to that practice which
are less prejudicial to the freedom to provide services and the freedom of the
trader concerned to conduct his or her business’ (para 96). In short, requiring
a cooling-off period is fine, unless there are less intrusive alternatives. Here,
the Court took a rather constitutionally informed approach to the enforcement
of consumer protection, though one might wonder why consumer protection itself
(Art. 38 of the Charter) was not brought to the balancing exercise.
Comments
This case
adds an interesting (but definitely not conclusive) annotation to the controversial notion of the ‘average consumer’. The Court wants to keep the baby and the bathwater: the average consumer is indeed ‘observant and circumspect’ (which receives heavy criticism) but only ‘reasonably’ so (which allows considerable leeway and flexibility). While the Court
stressed that its analysis was specifically made ‘within the meaning of [the
UCPD]’, its reasoning would most likely have broader implications as the
average consumer benchmark is creeping into other consumer instruments.
To some, the Court has said nothing new in this case – nowhere in EU law has it ever committed to interpreting the average consumer as ‘homo economicus’. To others, this decision may be celebrated as a victory for behavioural law and economics. However, the wording of the decision suggests (‘an individual’s decision-making capacity may be impaired by constraints, such as cognitive biases’) that cognitive biases are not the decisive nor the only factors that can ‘impair’ a consumer’s decision-making capacity. (Here, I would prefer ‘influence’ over ‘impair’ as we don’t want to reinforce ‘observant and circumspect’ and marginalise ‘reasonably’.) Indeed, while behaviouralists have commendably challenged the predominant information paradigm for better consumer protection, it has been pointed out that their critique lacks a social
dimension – how choices are shaped not only by our individual cognitive
capacities but also by our interpersonal interactions, social practices,
cultural preferences and institutional set-ups. In this regard, the Court made reference ‘to the fact that a loan applicant is normally in need, to the complexity of the contracts presented for signature by the consumer, to the concurrent nature of the combined offer and to the short period granted to take up the offer concerned’ (para 80) – which appears to be a list of factual and contextual factors that should be considered when ascertaining how ‘reasonably observant and circumspect’ the average consumer should be in this case. And this list clearly goes beyond cognitive biases (so does the list by AG Emiliou in para 40).
In any case, determining the average consumer’s typical reaction should not be reduced to an empirical exercise solely aiming for a realistic approximation of real-life consumer behaviour, even with the help of behavioural science and even AI. This is clear in recital 18 of the UCPD (‘in line with the principle of proportionality’, ‘taking into account social, cultural and linguistic factors’, ‘not a statistical test’) and from the Court. Instead, delegating national judges ‘to exercise their own faculty of judgement’ ultimately asks them the normative question of how much protection should
be afforded to the consumers in our political economy. So if we take this normative dimension seriously, we can explore other ways to flesh out the benchmark beyond what was discussed in this case. But then, to what extent should realistic considerations inform this normative assessment? And what assumptions, insights, frameworks, theories or imaginaries should serve as the normative guideline for judges to fill in the definition?
Like it or not, the average
consumer is here to stay, and the debate is certain to persist. How ‘reasonable’ the average consumer should
be expected to be, what and who should inform this definition, and therefore what the desirable level of consumer protection should be – these questions will continue to puzzle academic debates, judicial reasonings and
even political processes.
