Business urges to remove corruption and other risks from the draft law on consumer protection

13/ 12/ 2022

On December 9, 2022, at a meeting of the Verkhovna Rada Committee on Economic Development, the draft law On Consumer Protection was supported for the second reading and included proposals (which had not been previously discussed, although the document had been developed for almost 4 years in working groups) that pose risks to Ukrainian entrepreneurs, level the state course for deregulation of business and are not fully consistent with European standards. Thus, the proposed provisions set for the establishment of two new, rather monopolistic in their functions, authorized bodies in the system of consumer protection: the public organization Union of Public Consumer Associations and the Commission for Extrajudicial Dispute Resolution. It is assumed that they will have extended atypical powers to control the activities of businesses and bring them to justice. At the same time, additional administrative and financial burden is determined for business entities, the appointment, and size of which will be influenced by the newly created bodies. Moreover, the Union is proposed to be vested with such powers as determination of the amount of compensation for damage in accordance with the methodology developed by it; determination of ratings of business entities in various areas and indicators of quality, reliability, financial stability; training and advanced training of those responsible for consumer protection. It also provides for the possibility to have other rights defined in the charter of the organization. Such expanded powers, according to the EBA experts, may result in interference in the internal economic activities of business, biased approach to determining the amount of damage and the cost of training programs, interpretation of financial information of companies (potentially confidential), etc. The draft law also proposes to empower the competent authority to conduct control checks of businesses on the presence of appointed persons responsible for consumer protection and impose fines for non-fulfillment or untimely fulfillment of these requirements in the amount of one thousand tax-free minimum incomes, which expands the range of administrative responsibility for businesses and entail, among other things, additional costs. The question of how this Union will be elected and whether business representatives will participate in it remains unresolved. According to the EBA experts, in European countries, despite the existence of such organizations, they have no influence on the economic activities of business entities. Most independent consumer organizations provide consulting services to the population and/or conduct educational campaigns, and provide other services in the field of consumer protection. Moreover, in European countries, such organizations are organized as branches (with several organizations operating), which ensures internal competition between them and the possibility of choosing an organization by the consumer when protecting their rights. There are also open questions regarding the formation of the Commission for Extrajudicial Dispute Resolution. Despite the fact that the Commission provides for the participation of representatives of the competent authority, the majority of representatives of this body will be from the Union (six from the Union and three from the competent authority), and therefore, the resolution of issues and decisions will largely depend on this organization, which will directly affect the objectivity and transparency of decision-making. This approach is not in line with the Commission Recommendation 98/257/EC on the principles applicable to bodies responsible for out-of-court settlement of consumer disputes of 30 March 1998. At the same time, there are proposals to introduce the consideration of cases in the order of extrajudicial dispute resolution and decision-making by the Commission based on the conclusions of the Union. Such an approach, in particular in terms of compensation for non-pecuniary damage, according to the EBA experts, does not comply with the current legislation of Ukraine, according to which the amount of non-pecuniary damage can be determined only by the court. At the same time, determining the amount of damage by the Commission in each case without exception may carry additional corruption risks and lack of an objective approach to the consideration of cases. Summing up, the EBA certainly supports the need to update the legislation in the field of consumer protection, including the approximation of national consumer protection legislation to EU legislation. At the same time, given that most of the amendments were made to the draft law at the last moment, and were not discussed with businesses and the public, completely negate the purpose and European principles that were laid down in the development of this document and carry potential corruption risks, the EBA appeals to the Chairman of the Verkhovna Rada of Ukraine not to support the draft law in the current version. Thus, it should be sent for revision, taking into account the reservations of the comments on the activities of the Union and the Commission, the provisions on possible administrative and financial pressure on business, and only then return to voting for the document in the session hall. We hope that the voice of business will be heard!

On December 9, 2022, at a meeting of the Verkhovna Rada Committee on Economic Development, the draft law “On Consumer Protection” was supported for the second reading and included proposals (which had not been previously discussed, although the document had been developed for almost 4 years in working groups) that pose risks to Ukrainian entrepreneurs, level the state course for deregulation of business and are not fully consistent with European standards.

Thus, the proposed provisions set for the establishment of two new, rather monopolistic in their functions, authorized bodies in the system of consumer protection: the public organization “Union of Public Consumer Associations” and the Commission for Extrajudicial Dispute Resolution. It is assumed that they will have extended atypical powers to control the activities of businesses and bring them to justice. At the same time, additional administrative and financial burden is determined for business entities, the appointment, and size of which will be influenced by the newly created bodies. Moreover, the Union is proposed to be vested with such powers as determination of the amount of compensation for damage in accordance with the methodology developed by it; determination of ratings of business entities in various areas and indicators of quality, reliability, financial stability; training and advanced training of those responsible for consumer protection. It also provides for the possibility to have other rights defined in the charter of the organization. Such expanded powers, according to the EBA experts, may result in interference in the internal economic activities of business, biased approach to determining the amount of damage and the cost of training programs, interpretation of financial information of companies (potentially confidential), etc.

The draft law also proposes to empower the competent authority to conduct control checks of businesses on the presence of appointed persons responsible for consumer protection and impose fines for non-fulfillment or untimely fulfillment of these requirements in the amount of one thousand tax-free minimum incomes, which expands the range of administrative responsibility for businesses and entail, among other things, additional costs.

The question of how this Union will be elected and whether business representatives will participate in it remains unresolved.

According to the EBA experts, in European countries, despite the existence of such organizations, they have no influence on the economic activities of business entities. Most independent consumer organizations provide consulting services to the population and/or conduct educational campaigns, and provide other services in the field of consumer protection. Moreover, in European countries, such organizations are organized as branches (with several organizations operating), which ensures internal competition between them and the possibility of choosing an organization by the consumer when protecting their rights.

There are also open questions regarding the formation of the Commission for Extrajudicial Dispute Resolution. Despite the fact that the Commission provides for the participation of representatives of the competent authority, the majority of representatives of this body will be from the Union (six from the Union and three from the competent authority), and therefore, the resolution of issues and decisions will largely depend on this organization, which will directly affect the objectivity and transparency of decision-making. This approach is not in line with the Commission Recommendation 98/257/EC on the principles applicable to bodies responsible for out-of-court settlement of consumer disputes of 30 March 1998.

At the same time, there are proposals to introduce the consideration of cases in the order of extrajudicial dispute resolution and decision-making by the Commission based on the conclusions of the Union. Such an approach, in particular in terms of compensation for non-pecuniary damage, according to the EBA experts, does not comply with the current legislation of Ukraine, according to which the amount of non-pecuniary damage can be determined only by the court. At the same time, determining the amount of damage by the Commission in each case without exception may carry additional corruption risks and lack of an objective approach to the consideration of cases.

Summing up, the EBA certainly supports the need to update the legislation in the field of consumer protection, including the approximation of national consumer protection legislation to EU legislation. At the same time, given that most of the amendments were made to the draft law at the last moment, and were not discussed with businesses and the public, completely negate the purpose and European principles that were laid down in the development of this document and carry potential corruption risks, the EBA appeals to the Chairman of the Verkhovna Rada of Ukraine not to support the draft law in the current version. Thus, it should be sent for revision, taking into account the reservations of the comments on the activities of the Union and the Commission, the provisions on possible administrative and financial pressure on business, and only then return to voting for the document in the session hall. We hope that the voice of business will be heard!