EU proposal for all distance contracts to include a withdrawal button

The question

How will the EU’s proposed withdrawal button impact businesses?

The key takeaway

The EU is seeking to impose a withdrawal button for all distance contracts entered into by consumers. This expands its initial proposal which only required a withdrawal button for financial services contracts. If approved, this proposal will apply to a wide range of businesses, including many who now sell online, who they will face strict requirements for implementing a withdrawal button or a similar function.

The background

On 11 May 2022, the European Commission (EC) proposed a new Directive intended to improve how financial services are provided to EU consumers (te EC Proposal). This includes strengthening the right to withdraw from financial services that are agreed electronically as distance contracts, such as those agreed online, by requiring providers to set up a withdrawal button on the interface that consumers use.

However, On 24 February 2023, the Council of the European Union (the Council) responded to the proposal setting out their support for its expansion by requiring that all consumer contracts agreed at a distance include a withdrawal button or similar function.

The development

The EU’s consumer agenda

The EU has an ongoing obligation to ensure high levels of consumer protection. It has been implementing this over several years beginning with the Consumer Rights Directive of 25 October 2011 (CRD) which initially established the right for EU consumers to withdraw from many types of distance contracts.

The EC Proposal takes this further by recommending amendments to the CRD, including the withdrawal button, to ensure consistent rules for governing consumer financial services throughout the EU. Similarly, the Council’s suggested expansion of the EC Proposal to all distance contracts is intended to ensure that it is just as easy to withdraw from distance contracts as it is to sign up. Both the EC Proposal and the Council’s suggested expansion aim to implement the EU’s New Consumer Agenda, adopted on 13 November 2020, which set out a strategic framework for modernising EU consumer protection.

Strict requirements

The EC Proposal prescribes how businesses should implement the withdrawal button. This
includes:

• clearly labelling the button with the words “Withdraw from Contract” or equivalent wording
• placing the button in prominent view and ensuring it is available as soon as the distance contract is agreed and throughout the entire withdrawal period
• ensuring that activating the withdrawal button creates an instant confirmation notice that a consumer has exercised their withdrawal right, including the date and time it was exercised, and
• requiring businesses to retain detailed records on how the button is used.

The Council’s expanded proposal also specifies that the button or withdrawal function should:

• allow consumers to withdraw by providing their name, identifying the contract they agreed; and stating the electronic method that will be used to send them a withdrawal confirmation
• provide an extra confirmation step to prevent accidental, one-click, withdrawals
• enable consumers to withdraw from only part of their contract if it includes multiple goods or services, and
• increase consumers’ awareness of their right to withdrawal, especially for remote consumers who do not have the chance to test or inspect what they are buying in person.

The expanded EC Proposal will now be negotiated between the European Parliament and the Council where the current wording may be approved or changed further. Once approved, the final proposal will enter into force on the 20th day following publication in the Official Journal of the European Union.

Why is this important?

If approved, the expanded EC proposal will impose wide reaching requirements on EU retailers who sell online. Industry response so far has been negative, with 17 trade associations submitting a statement rejecting the Council’s extension of the proposal to all distance contracts. Businesses are also likely to be concerned that compliance may incur significant costs, limit flexibility and stunt growth potential as well as undermine their ability to offer distance contracts in flexible ways.

Any practical tips?

EU businesses should be aware of the requirements of the EC Proposal and be ready to make adjustments in order to implement it. Businesses should also be mindful that the proposal will only apply to distance contracts which offer a right to withdraw and will not apply to excluded contracts, such as those involving cryptoassets. Businesses should also keep up to date on national legislation which may impose similar requirements. For example, recent German legislation has imposed a cancellation button for subscription services offered on websites.

Summer 2023