Consumer protection laws in Germany: Major updates

Bird’s eye view of the most significant changes

Over the last few years, the EU has adopted a wide variety of Directives overhauling the EU consumer law framework substantially, including:

• the introduction of GDPR-like fines by the Omnibus Directive (2019/2161/EC)
• stronger, business-impacting consumer law requirements set forth by the Sales of Goods Directive (2019/771/EC) and the Digital Content Directive (2019/770/EC)

On 1 January 2022 the Sales of Goods Directive and the Digital Content Directive became and on 28 May 2022 the Omnibus Directive will become binding in the Member States.

In Germany, the legislative process for the implementation of these new consumer Directives has been completed by adopting four different acts. Furthermore, on 10 August 2021 the German legislator adopted another act impacting consumer law requirements which introduces additional consumer protection rules going beyond EU law requirements. These German acts introduce a variety of new requirements and obligations as well as new sanctions for breaches of consumer law, including heavy fines of up to 4 % of the annual turnover in the Member State(s) affected by the breach.

The pressure on businesses to ensure compliance with consumer law will be greater than ever. It is therefore high time for any company dealing with consumers to get up to speed with the contents of the New Consumer Protection Laws and to review and update its terms and conditions as well as processes to avoid potentially expensive consequences.

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In Germany, the legislative process for the implementation of the Omnibus Directive (2019/2161/EC)[1], the Sales of Goods Directive (2019/771/EC)[2] and the Digital Content Directive (2019/770/EC)[3] (“New Consumer Directives”) has been completed by the adoption of the following acts:

• Act regulating the sale of goods with digital elements and other aspects of a sales contract (“Sales of Goods Act”),
• Act implementing the Directive on certain aspects of contract law relating to the provision of digital content and digital services (“Digital Content and Services Act“),
• Act amending the Civil Code and the Introductory Act to the Civil Code in implementation of the EU Directive on better enforcement and modernisation of Union consumer protection rules and repealing the Regulation transferring responsibility for the implementation of Regulation (EC) No 2006/2004 to the Federal Ministry of Justice and Consumer Protection („Omnibus Act I“),
• Act to strengthen consumer protection in competition and trade law („Omnibus Act II“), and
• Ordinance amending the Price Indication Ordinance.

Furthermore, on 10 August 2021 the German legislator adopted the Fair Consumer Contracts Act (“Fair Consumer Contracts Act”) which introduces additional consumer protection requirements going beyond EU law requirements.

The above-mentioned German acts (“New Consumer Protection Laws”) introduce a variety of new requirements (e.g., new definition of defects, extended period of reversal of proof, and new requirements for personalised pricing; i.e., the price presented to consumers has been personalised based on automated decision-making and consumer profiles) and numerous new obligations (e.g., obligation to provide updates; provision of guarantees on a durable medium; introduction of a cancellation button; additional pre- and post-contractual information obligations) as well as stricter penalties for breaches of consumer law, including fines in the style of the GDPR for widespread infringements and infringements with a Union dimension as well as damage claims of consumers.

In this context, it is also worth mentioning that the EU adopted the Collective Redress Directive (2020/1828/EC) which introduces collective redress mechanisms for consumers and which must be implemented by 25 June 2023 (for details see: A new EU Directive signals the start of collective actions on behalf of the EU consumer (twobirds.com)).

The pressure on businesses to ensure compliance with consumer law will therefore be greater than ever. It is therefore high time for any company dealing with consumers to get up to speed with the contents of the new consumer protection laws and to review and update its terms and conditions as well as processes to avoid potentially expensive consequences.

Who is affected by the amendments?

The New Consumer Protection Laws are relevant for any consumer facing company since the new provisions impact online as well as offline contracts and cover

• traditional, analogues goods,
• goods with digital elements (e.g., smart TVs, smartphones, smartwatches),
• digital goods/content (e.g., operating systems, Apps, and any other software),
• digital services (e.g., software-as-a-service offered in the cloud computing environment, continuous supply of traffic data in a navigation system, continuous supply of individually adapted training plans in the case of a smart watch).

Furthermore, due to the right of redress, even companies in previous parts of the supply chain (e.g., producers with an indirect distribution system) may be affected.

What new obligations are going to be introduced?

The New Consumer Protection Laws supplement the existing consumer law obligations and introduce various new requirements, including the obligations set out in this section.

The New Consumer Protection Laws establish partly different rules for (i) analogous goods (application of Sections 434 et seqq. German Civil Code, “GCC”), (ii) goods with digital elements (application of Sections 434 et seqq., 475b et seqq. and 327 et seqq. GCC) and (iii) digital goods and services (“digital products”, application of Sections 327d et seqq. GCC). Affected companies should therefore assess in a first step what category is relevant for its products and services.

1. For all companies offering goods/services to consumers

The provisions set out in this section apply to all types of goods and services, i.e., analogue products, products with digital elements as well as digital products:

• Payment with data (Secs. 312 para.1a and 327 GCC). Currently, consumer protection rules in Secs. 312 et seqq. GCC only apply to consumer contracts that have as their subject matter a “non-gratuitous” (“entgeltliche”) performance by traders. Since 2022, these rules on consumer contracts apply where the trader supplies something to the consumer, and the consumer pays a price or “pays” with personal data. A payment with data requires that the consumer provides personal data to the trader, except if the personal data is exclusively processed by the trader for the purpose of performing contractual duties or for compliance with legal requirements to which the trader is subject. Consequently, the strict rules of Secs. 312 et seqq. GCC also apply to the extent a trader wants to also use personal data for other purposes than the mere performance of the contract and/or compliance with law (e.g., for marketing purposes).
• New definition of material defect setting forth objective as well as subjective requirements (Secs. 434 and 327e GCC). A new definition of defects has been introduced which requires compliance with subjective and objective requirements, namely:
  • to conform with the subjective requirements for conformity, the goods shall (i) have the agreed description, quantity, and quality, and possess the agreed functionality, compatibility, interoperability, and other features; (ii) be suitable for the use required by the contract, and (iii) be supplied with all accessories, instructions, including on installation, and customer assistance as required by the contract; and
  • to conform with the objective requirements for conformity, the goods shall, in particular, where applicable: (i) be suitable for ordinary use (i.e., fit for the purposes for which goods of the same type would normally be used, taking into account existing technical standards, applicable sector-specific industry codes of conduct); (ii) be of the usual/common quality (i.e. be of the quantity and possess the qualities and performance features, including in relation to functionality, compatibility, accessibility, continuity and security, normal for goods of the same type and which the consumer may reasonably expect, given the nature of the goods and taking into account any public statement made by or on behalf of the trader, or other persons in previous links of the chain of transactions); (iii) where applicable, be supplied along with any accessories and instructions which the consumer may reasonably expect to receive;
• Strict requirements to deviate from objective criteria (Secs. 476 and 327h GCC). Very strict requirements apply for deviations from established objective criteria (see previous bullet), i.e., consumers must be specifically informed that a particular characteristic is deviating from the objective criteria and the consumer must expressly and separately accept it when concluding the contract.
• Strict requirements for supplementary performance (Secs. 439 and 327l GCC). An obligation to take back the defective item at the buyer's own expense is added in the case of subsequent delivery, the consumer may also in general choose between repair and replacement which must be carried out (i) free of charge, (ii) within a reasonable period; and (iii) without any significant inconvenience to the consumer.
• Period of reversal of the burden of proof is extended (Secs. 477 and 327k GCC). The reversal of the burden of proof in the case of defects in a sales contract is extended from 6 months to one year. In the case of business-to-consumer purchases, sellers must prove that the purchased item was free of defects not only in the first six (6) months - as it was previously the case - but in the first twelve (12) months after handover of the purchased item. The extension of the burden of proof in consumer transactions has thus been tightened considerably to the detriment of the seller. As before, the legal presumption can be rebutted, for example if the seller can prove that the defect was caused by improper handling or wear and tear. However, such proof can be costly and difficult. The doubling of the time limit to one year will therefore most likely burden traders with more disputes and higher costs.
• Limitation to agree on contractual term (Sec. 309 no. 9 GCC). The conclusion of long-term agreements via general terms and conditions become more difficult because contracts with a continuing obligation may in future not have (i) an initial term of more two (2) years; (ii) an automatic tacit extension (except an extension for an indefinite term with a monthly right to terminate) and/or (iii) a termination period of more than one (1) month to the end of the initial term. This regulation is a German peculiarity.
• Form and scope of commercial guarantees (Sec. 479 GCC). An obligation to provide guarantees on a durable medium is introduced (e.g., print, CD, USB stick, email with pdf). Where a producer offers a guarantee of durability, the producer shall further be liable directly to the consumer, during the entire period of the guarantee for a subsequent performance in accordance with statutory law, i.e., a guarantee must in future have the scope of the statutory claim for subsequent performance.
• Strict right of redress within the supply chain (Secs. 445a, 445cand 327u GCC). The right of recourse within the supply chain has been extended by adding the take-back costs, an obligation to compensate the buyer for expenses incurred by the seller due to breach of an updating obligation (see below), as well as the abolition of the maximum limit for time limitation.
• No prohibition of assignment by consumers (Sec. 308 no. 9 GCC). To ensure that consumers may transfer claims, clauses in general terms and conditions prohibiting an assignment by the consumer to third parties are not valid and enforceable. This regulation is a German peculiarity.
• Personalized pricing (Article 246a, § 1 para.1 no.6 Introductory Act to the GCC). Traders are required to inform consumers whenever a price presented to them has been personalized based on automated decision-making and consumer profiles.

2. For all companies offering goods/services via e-commerce to consumers

• Obligation to implement a cancellation button (Sec. 312k GCC). Traders must in future implement a “cancellation button” enabling consumers to terminate ongoing contracts completed on websites. The functionality is mandatory and must be permanently accessible. In addition, it must be legible and clearly labelled (for example, with the text "Cancel contracts here"). The button must lead consumers to a confirmation page where they can provide information on: (i) the type of termination and, in the case of extraordinary termination, the reason for the termination; (ii) clear means of identification; (iii) a clear identification of the contract; (iv) the time at which the termination shall take effect; and (v) contact data to confirm the termination easily by electronic means. The website must also include a confirmation button that allows consumers to directly submit the cancellation. It must be legibly labelled with nothing other than the words "cancel now" or similarly clear wording. This obligation does not stem from the New Consumer Directives but only applies in Germany.
• Fake reviews and endorsements (Sec. 5b para.3 German Act against Unfair Commercial Practices). Submitting or commissioning a fake review or endorsement (conduct which is likely to fall foul of existing consumer protection laws) is expressly forbidden. In addition, an obligation on traders is introduced to justify the reasonable and proportionate steps they have taken to ensure that the reviews on their site are genuine, such as limiting the ability to post a review to verified purchasers only (i.e., how the authenticity of consumer reviews is checked).

3. For all companies offering goods with digital elements to consumers:

The below requirements apply to goods with digital elements which are goods that contain digital products or are connected to them in such a way that the goods cannot fulfil their functions without these digital products.

• Obligation to provide updates (Sec. 475b GCC). To conform, goods with digital elements must (in addition to the objective and subjective requirements applicable to all goods) be updated as agreed in the contract and required to keep the good in conformity. The consumer must be informed of and supplied with such updates, including security updates, for the relevant period. A fixed period has not been set, rather the duty is to apply for the period that the consumer may reasonably expect given the type and purpose of the goods. In relation to the question of how long the consumer can legitimately expect updates, advertising statements, the materials used to manufacture the goods and the purchase price can count. The higher the quality of the goods, the longer they can be expected to be updated. The usual period of use and application of goods of the same kind also plays a role. The ambiguity of the relevant period is likely to create legal uncertainty.
• Longer time limitation period (Sec. 475e GCC). Claims based on a breach of the updating obligation shall not become time-barred before the expiry of twelve (12) months after the end of the period of the updating obligation. Furthermore, if a defect has become apparent within the limitation period, a limitation shall not occur before the expiry of four (4) months after the time when the defect first became apparent.
• Softer requirements for a rescission and price reduction by consumers (Sec. 475d GCC). The requirements for a rescission and price reductions are lowered as the consumer is no longer required to actively set a deadline. The consumer can rescind the contract or reduce the purchase price if they notify the seller of the defect and the seller has not remedied the defect within a reasonable period. In addition, in the case of a particularly serious defect, immediate withdrawal is possible. The setting of a deadline is then also not required for a claim for damages.
• Update of pre-contractual information (Article 246a, § 1 para.1 no. 17 and 18 Introductory Act to the GCC). The list of pre-contractual information has been updated and includes inter alia the functionality (incl. applicable technical protection measures) of products with digital elements and digital products as well as any relevant compatibility and interoperability with hardware and software that the trader is aware of or can reasonably be expected to have been aware of.

4. For all companies offering digital products to consumers:

This section covers contracts which have as their subject matter the provision of digital content and/or digital services (i.e., digital products) by a trader against the payment of a price or the payment with data (see Section 1) are subject to new, special rules:

• Similar provisions as set out for goods with digital elements regarding the obligation to provide updates (Sec. 327e GCC), the time limitation (Sec. 327j GCC), rescission and price reductions (Sec. 327m GCC) and pre-contractual information (Article 246a, § 1 para.1 no. 17 and 18 Introductory Act to the GCC) apply for digital products.
• Immediate Supply (Secs. 327b and 327c GCC). Traders are required to supply digital products to the consumer without undue delay after the conclusion of the contract, unless otherwise agreed. Where a trader has failed to supply the digital product, the consumer shall call upon the trader to supply and if the trader then fails to do so without undue delay, or within an additional period, as expressly agreed to by the parties, the consumer shall be entitled to terminate the contract. The consumer is entitled to terminate immediately, where (i) the trader has declared, or it is equally clear from the circumstances, that the trader will not supply; (ii) the consumer and the trader have agreed, or it is clear from the circumstances attending the conclusion of the contract, that a specific time for the supply is essential for the consumer and the trader fails to supply the digital product by or at that time.
• Provision of current version (Sec. 327e para.3 no.6 GCC). Unless otherwise agreed by the parties, digital products must be provided in the latest version available at the time of the conclusion of the contract.
• Strict obligations after a termination (327p GCC). The trader shall refrain from using any content other than personal data, which was provided or created by the consumer, except where such content: (i) has no utility outside the context of the digital content or digital product supplied by the trader; (ii) only relates to consumer's activity when using the digital product supplied by the trader; (iii) has been aggregated with other data by the trader and cannot be disaggregated or only with disproportionate efforts; or (iv) has been generated jointly by consumer and others, and others are able to continue to make use of the content. Trader shall, upon a request by the consumer, make available any content other than personal data, which was provided/ created by consumer, except in cases (i) – (iii). Trader shall make such content available to the consumer free of charge, without hindrance, within a reasonable time and in a commonly used and machine-readable format.
• Strict requirements for modifications to digital products (Sec. 327r GCC). Traders may make changes to digital products that go beyond what is necessary to maintain conformity with the contract only if (i) the contract provides for this possibility and contains a valid reason for it, (ii) the consumer does not incur any additional costs because of the amendment, and (iii) the consumer is informed of the change in a clear and comprehensible manner. Additionally, traders may only make a change to digital products which affects the consumer's ability to access or use the digital products if the trader also informs the consumer of the change by means of a durable medium within a reasonable period before the time of the change. The information must contain details of (i) the characteristics and time of the change; and (ii) the consumer's rights to terminate respectively to maintain the original version (see next section) unless the impairment of accessibility or usability is only insignificant. If a change impairs the accessibility or usability, the consumer may terminate the contract free of charge within 30 days upon receipt of the information of effective date of the change if the change takes place after receipt of the information. However, a right to terminate is excluded if (i) the impairment of the accessibility or usability is only insignificant, or (ii) the consumer retains access to the unchanged digital product and the usability of the unchanged digital product at no additional cost.

5. For all online marketplaces:

Following the recent changes brought by the P2B regulation (see article), additional requirements apply to marketplaces, including:

• Ranking and search results (Sec. 5b para.2 German Act against Unfair Commercial Practices). Traders must provide clear information on the criteria used to rank products in online searches and disclose paid advertising and whether specific payments have been made to achieve a higher ranking.
• Nature of contract (Sec. 5b para.6 German Act against Unfair Commercial Practices). Online marketplaces are obliged to inform consumers whether an item is purchased from a private individual, and that transactions with private individuals will not benefit from EU consumer protection rules.

What are the possible consequences of violating obligations?

Generally, a breach of consumer protection laws may represent an unfair commercial practice which entitles competitors and consumer protection agencies to send warning letters claiming cease and desist of the breach based on unfair competition law and reimbursement of (statutory) attorney fees for sending the warning letter.

In addition, the Omnibus Act I and Omnibus Act II introduces – as required by the Omnibus Directive – sanctions for certain breaches against

• the Act against Unfair Competition („Gesetz gegen den unlauteren Wettbewerb“, “UCA”), i.e. unfair commercial practices which have been introduced based on the Unfair Commercial Practices Directive (2005/29/EC); namely for example Sections 5c, 7, 7a, 8b UCA;
• the Act on the Prohibition of the Use of Price Clauses in the Determination of Monetary Debts („Gesetz über das Verbot der Verwendung von Preisklauseln bei der Bestimmung von Geldschulden“), i.e., requirements based on the Price Indications Directive (98/6/EU); and
• Consumer protection provisions which have been introduced into the GCC based on the Consumer Rights Directive (2011/83/EU) and the Unfair Contract Terms Directive (93/13/EEC), this includes Sections 241a, 309, 312a, 312d, 312e, 312f, 312j, 312k, 323, 327p, 346, 355, 357, 356, 475 GCC.

Similar to the GDPR, the Omnibus Act I and Omnibus Act II establish that in addition to existing sanctions, fines of a maximum amount of at least 4% of the trader's annual turnover in the Member State(s) concerned may be applied through the mechanism established by Regulation (EU) 2017/2394 of the European Parliament and of the Council in case of a "widespread infringement" (i.e., infringements in at least three Member States) and/or an "infringement with a Union dimension" (i.e., infringement in at least two-thirds of the Member States, accounting, together, for at least two-thirds of the population of the Union). If information on the annual turnover is not available, the fine may have a maximum amount of at least EUR 2 million.

Thus, enforcement is not only imminent from authorities but also from competitors as well as consumer protection agencies should not be underestimated in practice.

Furthermore, a damage claim is introduced into the UCA according to which consumers may claim damages in case of a culpable (intentional or negligent) unfair commercial practice according to Section 3 UCA and/or a culpable unacceptable nuisance according to Section 7 UCA.

When does the changes come into force?

The new consumer protection laws come into force in different stages.

• the Sales of Goods Act and the Digital Content and Services Act come into force on 1 January 2022 as well as most provisions of the Fair Consumer Contracts (except for the limitation to agree on the contractual term according to Sec. 309 no. 9 GCC which comes into force on 1 March 2022 and the cancellation button according to Sec. 312k GCC which is required as of 1 July 2022), and
• the Omnibus Act I and Omnibus Act II setting forth the sanctions set out above come into force on 28 May 2022.

Outlook

The new consumer protection laws impose several new and far-reaching obligations on traders and dealers which is a timely implementation; this requires the review and update of general terms and conditions (e.g., additional information requirements), processes (e.g., update obligation), and technical setup (e.g., implementation of cancellation button). Companies should come up to speed with these new requirements as soon as possible.

As mentioned, the EU also adopted the Collective Redress Directive (2020/1828/EC) which introduces collective redress mechanisms for consumers and which must be implemented by 25 June 2023. Once, this Directive has been transposed representative actions may be brought against infringements by traders of certain national laws transposing EU law (incl. Sales of Goods Directive, Digital Content Directive, Unfair Commercial Practices Directive, Price Indications Directive, Consumer Rights Directive, Unfair Contract Terms Directive etc.) that harm or may harm the collective interests of consumers.

One may therefore expect stricter enforcement of consumer laws through individual as well as collective redress mechanisms as well as the imposition of fines.

[1] The Omnibus Directive is an overhaul of consumer law, introducing inter alia sanctions in case of a non-compliance with requirements following from the Unfair Commercial Practices Directive (2005/29/EC), the Consumer Rights Directive (2011/83/EU), the Unfair Contract Terms Directive (93/13/EEC); and the Price Indications Directive (98/6/EU).

[2] The Sale of Goods Directive introduces multiple changes as to how sales of consumer goods are regulated across the EU, and what rights and remedies consumers have. It further introduces special provisions for "goods with digital elements" (e.g., smartphones)

[3] The Digital Content Directive harmonize consumer rights and remedies concerning contracts for the supply of digital products (e.g., games, music or video, mobile applications, and software), including where there is no payment, but a “payment with data”.