EUR 500,000 fine for Dutch webshop and executives in e-commerce caseFriday, 7 October 2016
The Netherlands is widely considered a frontrunner in e-commerce. Webshops are prolific. Customers increasingly buy online. However, selling online carries risk. Webshops must obey consumer protection rules. If they don’t, they risk high fines, as a recent EUR 500,000 fine evidences. This particular case concerned failure to provide customers with refunds. Both the webshop and its executive directors were held liable.
The Dutch Competition Authority (“ACM”) is a relatively active consumer rights’ watchdog. It does not hesitate in general to impose significant fines. A recent case clarifies how webshops are fined for not taking into account the customer rights, when doing business online. Webshop owners or directors are also at risk.
Trying to Sidestep Consumer Refund Rules
Dutch company T.O.M. sold bikes, athletic wear and athletic accessories. For its online sales, it used various webshops. However, it did not attract happy customers. Basically, the ACM report states that if customers cancelled a purchase order, they were not automatically given refunds – unless they specifically insisted on getting them.
As a result, consumers started sending negative comments to the ACM (the Dutch government operates its own consumer rights and complaints website, ConsuWijzer). Based on these market signals, a mainstream consumer organisation backed up their critique with an investigation.
Online consumers are allowed to cancel a purchase order within 14 days after the day they receiving their purchase, no reason being necessary (right of cancellation). A webshop must refund these consumers within 14 days. The refund must encompass both the purchase order plus any shipping costs. In principle, it is not allowed to refund through a voucher or store credit (only if the consumer paid for the purchase with a voucher).
T.O.M. did not automatically refund consumers upon request. At first, it would do nothing if customers failed to enter their IBAN bank account details on the return form. Only if customers protested, were they provided with a refund, in the form of a voucher. Only people that kept protesting were eventually refunded in cash. Often, shipping costs were not refunded either.
High Administrative Fines
ACM had signaled earlier it was taking cases such as these very seriously. In the present case, it imposed fines totaling EUR 500,000 on T.O.M. The two executives were held jointly and severally liable for EUR 125,000 each.
Henk Don, Member of the Board of ACM, explained the rationale of this fine: “It is important that consumers are able to make online purchases with confidence, that they are able to cancel their orders without any problems, and that they know they will get their money back. ACM takes action against online stores that do not stick to these rules, as they hurt consumer confidence”.
T.O.M. felt the ACM investigation failed to take due care, because ACM based its conclusions on a selective approach, focusing only on the refund cases that fit their suspicions. T.O.M. also criticized the investigation as incomplete. It alleges ACM did not take into account the actual refund practice, but focused solely on the refund procedure.
ACM seems particularly concerned with online trade. Earlier online compliance cases discussed e.g. spam, ticket stores, high interest rates at pawn shops, fashion businesses, gaming, etc.
ACM had previously announced it would take action against online stores that do not give consumers their refunds in a timely manner or fail to do so at all. In that context, more online stores are on ACM’s radar. This is the first case in which ACM has imposed a fine.
The sheer amount of the fine has drawn criticism from both lawyers and the judiciary. Nevertheless, the case clearly indicates a willingness to tackle commercial practices that undermine consumer rights, in the interest of building e-commerce confidence.
5 Tips To Avoid High Fines
Webshops would generally be well-advised:
To find out precisely which consumer protection rules apply when selling online. Although many of the consumer protection rules originated in Brussels, and thus resemble each other throughout the EU, there may be differences as between EU Member States.
To inform online customers fully and correctly about their rights and entitlements.
To refund using the same payment method the customer originally used (no vouchers or store credit). In case of cancellation, ACM requires the webshop to take a proactive approach. Webshops have to refund automatically. One should not wait for angry customers to start complaining.
Full refunds are obligatory, including shipping costs.
To seek specialised legal assistance in case you become involved with the ACM (either as a business or as an executive director). Negotiating with and litigating against the ACM is fraught with legal pitfalls. Avoiding these requires expertise and experience. The consequences of dismissing warning signals, are evident from the present EUR 500,000 fine.