Consumer protection: the consequences for those who fail to comply with the “Omnibus Directive”

On March 18, 2023, in the Italian Official Gazette was published the Legislative Decree No. 26/2023, implementing the “Omnibus Directive” on consumer protection. What is most relevant for Italian companies is the risk of receiving sanctions from the Italian Competition Authority, making it necessary to adapt their procedures, marketing strategies and contractual models.

What is the impact on businesses of the "Omnibus Directive"?

The implementation of the Omnibus Directive in Italy, introducing new rules on transparency, information and consumer protection, makes it necessary for further business adaptation in terms of procedures, marketing strategies and contractual models in use.

As an example, marketing strategies will have to be updated to comply with the indication of paid advertising in search results and the verification of the actual authenticity of product reviews.

The regulatory changes affect various contractual conduct and business behavior that will, henceforth, be deemed unfair. In order to comply with the new regulations, entrepreneurs will have to provide consumers with even greater transparency by providing clear and understandable information regarding the products/services offered and their terms of supply.

In order to avoid large penalties, it is crucial to take early action to map out activities and make the business adjustment required by the regulations in time. Let’s look in more detail at what penalties are involved.

What are the penalties for violation?

The new penalties have been increased significantly. For violations at the national level, the maximum amount of the administrative penalty that can be issued by the Italian Competition Authority (Italian Competition Authority) has been raised from 5,000,000.00 to 10,000,000.00 euros (Article 7, paragraph 9, Italian Consumer Code).

Although it was not subject to regulatory innovation, we would like to recall that the minimum penalty in case of misleading consumer information on products that are likely to endanger the health and safety of consumers or intended for children and teenagers is 50,000.00 Euros.

For violations at the Union level, penalties can be up to 4 percent of the annual turnover achieved in Italy or in the EU member states affected by the violation: if information on annual turnover is not available, the maximum amount of the penalty will be 2 million Euros.

The penalties can have a significant impact on online activities, as they increase the financial risk associated with noncompliance with respect to the new rules. Let’s examine in greater detail what the main changes and new obligations are.

What are some of the business practices under review?

The entrepreneur will have to clearly say, for products offered on online marketplaces, whether the third party offering the products is a professional or not, based on the third party’s own declaration to the online marketplace provider (Article 22, paragraph 4, letter e bis, Italian Consumer Code).

In the same spirit of maximum transparency, should consumers be provided with the opportunity to search for products, a special section of the online interface must also be created that is directly and easily accessible from the page where the search results are presented, regarding the main parameters that determine the ranking of the products presented to the consumer as a result of his or her search and the relative importance of these parameters in relation to other parameters (see Article 22, paragraph 4a, Consumer Code).

Consequently, punishable conduct will be considered:

• providing search results in response to a consumer’s online search without clearly indicating any paid advertisement or specific payment to obtain a better ranking of products within those results (Art. 23(1)(m bis), Consumer Code);
• indicating that reviews of a product are posted by consumers who have actually used or purchased the product without taking reasonable and proportionate steps to verify that the reviews are from such consumers (Art. 23, para. 1, letter m bis, Consumer Code);
• sending, or instructing another legal or natural person to send, false consumer reviews or false endorsements or providing false information regarding consumer reviews or endorsements on social media in order to promote products (Art. 23, para. 1, letter bb quater, Consumer Code).

The new rule also attempts to curb the state of “perma-promotion” adopted by some companies. Let’s see how Italian implementation has dealt with the “Omnibus Directive”.

How will the "price reduction announcements" have to be adjusted?

The new rules regarding price reduction announcements are set out in Article 17a of the Italian Consumer Code and stipulate that price reduction announcements must indicate the price charged in the 30 days before the promotion.

More specifically, the article introduced to implement the Directive and in force as of April 2, 2023 provides that:

• Each price reduction announcement shall indicate the previous price charged by the trader for a specified period of time prior to the implementation of such reduction.
• Previous price means the lowest price charged by the trader to the generality of consumers during the thirty days prior to the application of the price reduction.
• The provision in paragraph 2 does not apply to perishable agricultural and food products.
• For products that have been placed on the market for less than thirty days, the trader is required to indicate the time period to which the previous price refers.

Exceptions are “launch prices”, which are characterized by successive announcements of price increases and are not subject to the rules of this article.
The rule also applies for the purpose of identifying the normal selling price to be displayed at extraordinary sales pursuant to Article 15(5) of Legislative Decree No. 114 of March 31, 1998. On the other hand, the rule does not apply to discount sales (referred to in Article 15, paragraph 7, of the aforementioned Legislative Decree No. 114 of 1998), and the price of sales to the public discount does not add up for the purpose of identifying the previous price.

Anyone who violates the provisions shall be subject to the administrative fine referred to in Article 22, paragraph 3, of the cited Legislative Decree No. 114 of 1998, to be imposed in the manner provided therein and taking into account the following criteria:

• nature, seriousness, extent and duration of the violation;
• any actions taken by the professional to mitigate the damage suffered by consumers or to remedy it;
• any previous violations committed by the trader;
• the financial benefits achieved or losses avoided by the trader as a result of the violation, if the relevant data are available;
• penalties imposed on the trader for the same violation in other Member States in cross-border cases where information on such penalties is available through the mechanism established by Regulation (EU) 2017/2394 of the European Parliament and of the Council of 12 December 2017;
• any other aggravating or mitigating factors applicable to the circumstances of the case.

To adapt your promotional strategies to these new provisions, you can follow these practical tips:

• Clearly show the previous price: when you publish a price reduction announcement, you need to show the price charged in the 30 days prior to the start of the promotion so that consumers can assess the actual convenience of the offer.
• Use an appropriate comparison: make sure the comparison price is realistic and based on a price actually charged, and avoid inflating the original price to make the reduction appear more significant than it actually is.
• Pay attention to exceptions: Article 17a provides for some exceptions, such as products on the market for less than 30 days and perishable agricultural and food products. In these cases, it is not necessary to indicate the price charged in the previous 30 days.
• Correct ongoing campaigns: the new rules apply to extraordinary sales, but not to sales below cost. As for promotional campaigns, the new rules will be applicable from the 90th day after the decree comes into force (i.e., July 1, 2023). It is important to adjust your promotional strategies by this date.

How does the new legislation protect consumers who provide personal data instead of paying a price for contracts?

For some time now, it has been customary to ask for the consumer’s or user’s personal data as compensation for provided services. The issue has already been addressed in previous regulatory interventions and also in Italian Competition Authority (Italian Competition Authority) measures.

The new legislation also extends consumer protection to contracts in which the consumer does not pay a monetary price, but provides his or her personal data to the merchant who processes it for purposes other than providing the digital content or service. Protective measures under the legislation include:

• The application of the same rules regarding mandatory pre-contractual information, such as providing information about the merchant, reminder of the existence of a legal guarantee of conformity, and so on.
• The application of the same rules regarding the right of withdrawal without incurring costs.
• The guarantee against unfair trade practices and unfair terms.

To ensure that they comply with these provisions, entrepreneurs offering digital content or services in exchange for personal data will need to adjust their policies and procedures in accordance with consumer protection regulations.

What is the deadline for compliance and how to move forward?

The new regulatory provisions take effect in Italy as of April 2, 2023.

However, as mentioned above, as far as “price reduction announcements” are concerned, the new regulations will be applicable from the 90th day after the decree comes into force (i.e., July 1, 2023).

Here are some practical pointers on how to deal corporately with the issues raised by the Italian implementation of the “Omnibus Directive.”

1. Analyze the new provisions: with the help of a lawyer, it is a good idea to understand what the main differences are with the regulations previously in force.
2. Review the contract documentation in use with reference to the areas touched by the discipline.
3. Map internal policies for price reductions.
4. Establish internal processes to monitor and ensure compliance with the new regulations, such as periodic verification of advertisements.
5. Train staff dealing with communication and e-commerce aspects so they can act more consciously.

To address this umpteenth challenge, consulting experienced compliance and consumer law attorneys can help you fully understand the new regulations and apply them properly in your business.