Category Archives: Consumer Law

“If It’s Easy to Read, It’s Easy to Claim”. Or is it?


Easy reads? Yes, please

In recent years, the interest in reading ease of business communication has grown considerably. The financial services industry – an industry that designs and sells products which are intangible and consist entirely of words – is a case in point. Against the backdrop of waning levels of consumer trust in financial institutions such as banks and insurers, several initiatives have recently been deployed in the financial services arena aimed at garnering consumer trust by ‘simplification’ of legally relevant written material such as contracts, standard contract terms, disclaimers and correspondence. Indeed, conventional wisdom is that consumers highly value simple words and sentences and are suspicious of ‘legalese’, legal mumbo jumbo. Moreover, there is ample evidence showing that consumers are badly motivated to read general contract terms in the first place and that they easily suffer from information overload and cognitive depletion when they actually do read. Unsurprisingly then, the policy goal of improving reading ease (‘readability’) of legal documentation has found its way into regulatory agendas. Various EU rules and national rules instruct financial service providers to communicate in a clear, fair and non-misleading way. Moreover, article 5 of the EU Unfair Terms in Consumer Contracts Directive (93/13/EEC) simply commands that general contract terms shall be drafted in plain, intelligible language and that in case of ambiguity the interpretation most favourable to the consumer prevails.

Hence, it seems that lawmakers, regulators and courts alike are keen to support the ‘plain language movement’ by embracing the strive for simplicity in legal documents such as general contract terms. Indeed, at first sight there is much to be said in favour of the ‘plain language movement’. For example, research shows that plain language, consistent use of vocabulary, avoidance of overload and ambiguity, adaptation to the readership and ease of document structure may impact on comprehension, that the use of headers may aid recall and retrieval tasks and that adding connectors, logical structure and coherence markers between sentences is beneficial to inexperienced readers. Likewise, in the area of legal communication there is evidence showing that simplification of legal documents improves clarity for non-expert readership.

But what does it do for consumers?

So, in light of this literature it seems reasonable to assume that simplifying language merely has beneficial effects and that improvement of reading ease automatically accommodates consumer needs. Indeed, when asked, consumers state that they value attempts to simplify wording and structure of general contract terms and that they prefer simplicity over ‘legalese’. But the question remains: what does improved reading ease actually do with consumers? Do consumers develop different attitudes towards the user of the general contract terms? Are they more likely to develop trust in the user of the easy to read contract terms? Do they show more confidence in their own interpretation of the contract, given that they have a better understanding of the wording of the contract? Do they think and act differently when confronted with easy to read contact terms as compared to consumers who are exposed to ‘legalese’?

We know preciously little about whether ‘easy to read contracts’ actually cause consumers to change their attitude towards the contract and the counterpart who drafted the contract terms at hand. The available evidence is ambiguous at best. Therefore, together with co-authors Pieter Desmet and Mark Van Dam, I conducted an experiment on the effect of reading ease in general contract terms on consumers’ perceptions and actions concerning their contractual position. In a recent article for the Journal of Consumer Policy, we report the experiment against the background of the existing literature. In our experiment, we focus on one specific aspect of the effect of reading ease on consumer attitudes and the ‘thinking and deciding’ processes in consumers, namely in a situation of conflict at the stage of performance of the contract.

What we found

Our findings show that easier-to-read insurance contract terms inflate estimates of the compensation that will be awarded in the case of an accident. Second, we investigated whether reading ease also influences the willingness to engage in conflict in case of claims denial. We measured the participants’ willingness to engage in advice seeking, complaint filing or legal action and found evidence for an indirect relationship: improved reading ease raised expectations of coverage which in turn was an important determinant of the willingness to seek information, file complaints or undertake legal action. However, contrary to our expectations we did not find a direct effect of reading ease on this willingness to engage in conflict. One of the explanations for this may be that although the difference in reading ease between the ‘hard’ and ‘easy’ to read versions is in itself significant, the effect size is rather subtle.

What are the implications of our findings? It is clear that in both the European and national context, lawmakers, regulators and courts are increasingly taking an interest in the simplification of legally relevant written documentation in consumer markets such as standard contract terms. This is especially the case in the domain of financial consumer products, where complexity of the product is matched by the complexity of the contractual wording used to describe the product. Regulatory standards in this area are used to push financial service providers to switch to ‘easy to read’ general contract terms. Our findings indicate that enhancing reading ease may also inflate consumer expectations in regard of the performance levels of the professional counterpart. These heightened expectations in turn can influence consumers’ willingness to engage in conflict when such expectations are disappointed. To be clear, we do not advocate that this should stop policy-makers from insisting on improvement of reading ease as a goal in itself but we do point out that there is a caveat. The least that can be said is that blindly regulating towards enhancing reading ease without taking into account its effects on consumer attitudes, expectations and willingness to engage in conflict, may result in parts of the picture remaining unseen. It seems to us that consumer trust in the insurance industry will not benefit if ‘easy to read’ contract terms give rise to raised levels of expectation, only for these to be disappointed in the subsequent claims process. So, ideally, insurance companies would include a ‘road testing’ phase in their product approval procedure to test both the effect of their use of enhanced reading ease on cognitive aspects such as comprehension levels in their consumer audience as well as the effect on the attitudes and the ‘thinking and deciding’ processes in consumers.

Read the article


Mass Torts in Europe

In recent years, the issue of mass tort litigation and the fair and efficient settlement and adjudication of mass torts has drawn increasing attention in academic discourse, legal practice and policy debates. Indeed, academics, practitioners, courts, legislatures and policymakers throughout Europe have been struggling with the ‘massification’ of private law relationships, both in and outside of tort law.

A recently published book titled “Mass Torts in Europe“, co-edited by Gerhard Wagner and myself, is devoted to European perspectives on mass tort litigation. With this blog entry, I summarize the introductory chapter to the book.Mass Torts in Europe

Undoubtedly, the quantity and quality of the extant literature on mass litigation and class actions is overwhelming. Within the European legal debate, however, the emphasis seems to be mostly on ‘massification’ in competition, consumer and securities law. Our book adds to the existing literature by collecting a number of case studies mostly on tort cases and, by combining these with thematic chapters in which the challenges concerning mass torts are mapped, explored and analysed from a European perspective. By implication, this book thus combines substantive law and procedural law aspects on the one hand, and issues concerning the practical operation of law and related mechanisms of behaviour modification and dispute settlement on the other. As a result, this book does not only involve reference to ‘the law in the books’ but extends well into the domain of ‘the law in action’.

The set-up of the book is briefly as follows. The introductory chapter sketches the contours of the issues of mass torts and related problems of substantive and procedural law. Then, the book follows two main threads: insights from practitioners and academic reflections.

Insights from Practitioners

In the first section, case reports written by expert practitioners give an insight into the practical operation of the law in various cases of mass tort. These chapters cut through jurisdictions and vary from mass breast implant scandals to large-scale financial fraud. Although other orders would have been perfectly tenable, we have decided to arrange the case studies in the following order. First, under the heading of ‘several events with common causes’, there are two case studies on defective products and business processes endangered life and health: asbestos and silicone breast implants. Secondly, under the heading ‘one event with multiple victims’ we deal with two salient disasters that caused widespread death and injury: the grounding, tilting and capsizing of the Costa Concordia (2012, Italy) and the derailment and collision of a high-speed train at Eschede (1998, Germany). Thirdly, the theme of ‘multinationals and multi-district actions’ deals with the accountability in tort of multinational corporations for mass damage caused elsewhere, illustrated by the litigation of African silicosis claims against mining companies and environmental claims against Shell before UK courts. The fourth and final category of case studies involves financial markets and mass damage. One case study involves the allegedly misleading annual report of the German Telekom-case, a second one the Italian bank (over)charge class action and a final third one the claw-back actions by the trustee in the Madoff bankrupt estate.

Academic Reflections

In the second part of the book, we bring together academic reflections on wider issues of mass torts. The section covers a broad range of underlying legal and policy concerns. The chapters were written by outstanding scholars, expert in their fields, with a broad and comparative vision on the issues involved. Here, the volume focusses at a more general level on many of the problematic issues that were raised at case level in the case studies. How do fundamental principles of substantive tort and insurance law (such as joint and several liability, standards of proof of causation), as well as principles of civil procedure (such as rules of evidence, burden of proof and the right to be heard) stand up in face of the challenges posed by ‘massification’? Can civil procedure effectively deal with aggregation of claims, collective damage actions, model case and test case proceedings? What alternatives to litigation have developed in terms of dealing with mass dispute adjudication in tort law and related areas? Have alternative pathways to compensation been successful in addressing all stakeholders’ interests in a fair and balanced way? What is the role of conflict of laws in the market for dispute adjudication services within Europe? And finally, what is the relevance of insolvency proceedings in examining responsibility and fairly distributing compensation?Mass Torts in Europe

Challenges ahead

As can be concluded from the previous, this edited volume covers the breadth and depth of mass tort litigation, negotiation, settlement, adjudication and compensation. In doing so, it offers further guidance in a highly complicated area of the law which involves concepts and principles derived from both substantive and procedural law. The book does not offer rough and ready answers to the challenges posed by mass torts. Underlying the cases and reflections, however, is at least one issue that may merit further discussion: are we ready yet for a common pan-European approach to mass tort litigation? If European legal systems are to tackle the issue of mass tort litigation and the fair, efficient and expedient settlement and adjudication of mass torts, they need to rebalance both substantive and procedural law and principles.




The UCP Directive – nearly ten years on…

In 2005, the European Directive on Unfair Commercial Practices (UCP Directive 2005/29/EC) was adopted. Looking back after almost ten years, one may ask how the UCP Directive has worked out. Surely, the UCP Directive has left its mark on national consumer protection frameworks in the EU. The European Unfair Commercial Practices Directive

Briefly described, the UCP Directive has the ambitious aim of preventing distortion of consumer contracting choice-making, in particular with regard to contract decisions prior to conclusion of a contract and decisions to exercise existing contractual rights. The UCP Directive is a horizontal framework Directive with a maximum harmonisation nature. Because of its broad scope of application, it covers all B2C commercial practices in all sectors (although it gives priority in some areas where more specific (EU) rules apply). The UCP Directive holds provisions on unfair commercial practices, a black list of practices deemed unfair, and dedicated rules on various topics such as Codes of Conduct and the relationship with various information duties in other EU legislation.

The core of the Directive lies in the prohibition of practices contrary to the requirements of professional diligence which materially distort or are likely to materially distort the economic behaviour of the average (targeted) consumer with regard to a product or service. Thus, unfair commercial practices consist of two elements: the (potential for) material distortion of consumers’ transactional decision-making and the normative yardstick of professional diligence. The concept of ‘unfair practices’ is further subcategorised into misleading and aggressive practices.

Since 2005, one of the issues that has caused (and to this day continues to cause…..) headache in various member states is the maximum harmonisation principle, combined with the broad scope of application. As the ECJ has ruled, the maximum harmonisation principle of the UCP Directive overrides national regimes that prohibit combined sales offers in certain B2C markets, regimes that generally prohibit participation in lottery conditional on the purchase of goods and regimes that restrict the advertising of upcoming sales.

A further problematic issue is the ambit of exceptions to the maximum harmonisation principle. For instance, article 3 (2) provides that the Directive is without prejudice to contract law and, in particular, to the rules on the validity, formation or effect of a contract (e.g., rules on fraud, mistake and misrepresentation). This is usually understood to be an exception in favour of national private law. However, in those countries where the UCP Directive was implemented in the Civil Code as a species of tort law, divergence between the ‘UCP tort’ and contract rules may easily occur. Furthermore, article 3 (9) allows more restrictive national rules in the area of financial services. As far as financial services are concerned, the Directive is a minimum harmonisation framework. Also, in case of conflict between the provisions of this Directive and other EU rules regulating specific aspects of unfair commercial practices, the latter shall prevail and apply to those specific aspects (article 3 (4)). Particularly difficult areas are TV-advertising and health claims in advertising.

Other problematic issues include the ‘average consumer’ yardstick, also in light of the maximum harmonisation character of the Directive. National courts applying this standard may find themselves offering less protection to consumers than they were used to under pre-existing national protective frameworks. The UCP Directive, like so many rules of EU consumer law, is modelled around the ‘average consumer’. According to standing case law, the ‘reasonably well informed and reasonably observant and circumspect’ consumer can be expected to make a serious effort at collecting and understanding all available information on essential aspects of a contract. The ‘average consumer’ is neither easily impressed nor quickly deceived. . The framework assumes consumers to be ‘reasonably well informed and reasonably observant and circumspect’ rational choice actors who  make serious efforts at collecting and understanding all available information on essential aspects of a transaction.This average consumer is a non-existent model of man, not a statistical average but a normative yardstick.

On the other hand, however, the UCP Directive seems to acknowledge that some consumers such as the elderly and children are ‘below average’ and that such vulnerable consumers are in need of further protection against repeat-players with superior knowledge on how they can be encouraged, persuaded, seduced and discouraged. Herein lies a delicate tension between protection and individual responsibility.

These and other experiences with the 2005 UCP Directive are the subject of a book I co-edited with Amandine Garde and Orkun Akseli. The book, titled “The European Unfair Commercial Practices Directive – Impact, Enforcement Strategies and National Legal Systems”, was recently published by Ashgate. On the publisher’s website, the introductory chapter is freely downloadable.

The book is roughly divided into four parts. Part I deals with issues of implementation, approximation and harmonisation. As noted earlier, the maximum harmonisation nature and its exceptions of the UCP Directive raise particular challenges to national legal systems. For instance, in what areas does the Directive leave room for manoeuvring? In what ways does it cause frictions with domestic law? Does it conflict with other areas of EU and domestic consumer law?

Part II deals with vulnerability issues. The UCP Directive is slightly ambiguous as concerns vulnerability due to age, mental or physical condition. On the one hand, the Directive assumes consumers to be “reasonably well informed and reasonably observant and circumspect”. Therefore, the ‘model consumer’ is considered to be confident and proactive in gathering and processing information before making transactional decisions. On the other hand, however, the Directive seems to offer specific protection to old, young, disabled and challenged consumers. Obviously, the question is what makes these groups vulnerable in connection with commercial practices. And are they the only ones prone to succumb to certain unfair practices?

In Part III, the interaction between the UCP regime with other forms of regulation of traders’ behaviour is discussed. How does the UCP Directive relate to other generic and specific EU rules of consumer protection? Does it complement or interfere with other regimes – be they legislative, regulatory or self-regulatory?

Finally, in Part IV of the book various issues of enforcement come to the fore. In principle, the UCP Directive leaves it to Member States to decide on the enforcement architecture. The result is a plethora of instruments across the EU, each with their advantages and drawbacks. What lessons can be learned from the various choices at Member State level? Recently, the European Commission communicated its first report on the application of the Directive. The gist of the report is that the UCP Directive itself is adequate as it stands but that enforcement efforts need to be intensified. All the more reason to delve deeper into the enforcement issues…

In short, the book offers a survey of some nine years of combating unfair commercial practices within the European Union and as such sheds further light on how the UCP Directive has actually worked out.