Amendment to Prices Act: ACM targets price reduction campaigns

From 28 May 2022, stricter rules must be observed by companies that offer price reductions and make price comparisons. The aim is to ensure that consumers are no longer misled by fake offers. One major change is that a price reduction campaign will be permitted only if a product has been sold at the “prior” price within a 30-day period before the offer is made. The Netherlands Authority for Consumers and Markets (“ACM”) has announced that it will fine companies that fail to comply with these rules. The main changes and exceptions are addressed in this blog.

Prices Act and Products (Price Indication) Decree

The European Commission had already decided to better enforce and to modernise consumer protection by introducing a wide range of new legislation. Those new rules are also known as the New Deal for Consumers (see our earlier blog).

One of the components of the New Deal is the Omnibus Directive, which amends the Directive on consumer protection in the indication of the prices of products offered to consumers. That Directive has been implemented in the Netherlands in the Prijzenwet (Prices Act) and the Besluit prijsaanduiding producten (Products (Price Indication) Decree). Those regulations obligate companies, among other things, to communicate their prices in a homogenous and transparent manner.

The rules provide, for instance, that consumers may not be misled by fake offers. That would constitute consumer deception. Businesses, particularly those operating online, may currently increase the “prior” price (also known as the reference price with which the reduced price is compared) immediately before an offer and in that way contrast a high “prior” price with a low reduced price. That makes it difficult for consumers to check whether the price reduction shown is real. If a trader offers a discount on a product, that product must actually have been sold at the “prior” price within a three-month period before the offer is made.

Article 2 of the Omnibus Directive adds new articles that address, among other things, price reduction notices. The new rules reduce that three-month period to a period of 30 days, whereby the “prior” price must be the lowest price charged by the trader within that 30-day period. The purpose of the new rules is to prevent companies from presenting consumers with fake price advantages, in the form of a fabricated price reduction.

ACM will monitor compliance with the new legislation. According to ACM, the new standard is clearer for both companies and consumers, which allows ACM to enforce the regulation more effectively. ACM may impose fines of up to €900,000 on companies for violating consumer rules, or even 4% of the turnover of the company in question (previously 2.5%). And it may also impose fines of up to €900,000 on the persons who were actually responsible for the violation.

New rules and enforcement

From 28 May 2022, the “prior” price must be the lowest price actually charged by the trader within a period of at least 30 days before the offer is made. That is the standard rule. An example: a product was offered for €100 for months, but the trader has reduced the price to €80 since a few weeks. The product is still not selling after a month, so the trader decides to offer it at a 50% discount. When making that offer, the trader must compare the reduced price with a reference price of €80, because that is the lowest selling price that it charged in a 30-day period before the offer. The trader may therefore advertise “from €80, for €40”.

The following is not permitted under the new rules:

A trader lowers the prices of its products before the Dutch Sinterklaas celebration in early December. It increases the prices one week later. In the week before Christmas, it lowers the prices by offering a discount, while stating the prices increased after Sinterklaas as the “prior” prices and the reduced Christmas prices as the reduced prices. That gives consumers the impression that they are being offered an extra large price reduction.

In the above example only the lowest price before the price reduction may be used as the reference price: in other words, the reduced price that was charged during earlier price reduction campaigns within a period of at least 30 days. The trader must state the prices from before Sinterklaas as the reference prices.

The standard rule applies to all types of price reduction: reductions in the form of a percentage or campaigns such as clearance sales, Black Friday, etc.

The Omnibus Directive - through Article 2 - allows member states to introduce an exception to the default rule. The government has announced that it will exercise this authority. In the Netherlands, the standard rule does not apply to:

  1. offers in which no comparison is made with a price previously charged by the trader;
  2. perishable products or products with a limited shelf life and a use-by date;
  3. products that have been on the market for less than 30 days; and
  4. progressive price reductions.

The exceptions are implemented in a governmental decree. These exceptions are explained in more detail below.

(a) Offers without a comparison to a price previously charged

It is permitted to make price comparisons in which the selling price is compared with a recommended retail price or the price charged by a competitor. A mobile phone provider may therefore advertise the “best price” or “lowest price” or may offer a lowest price guarantee.

(b) Perishable products

For perishable products, with a use-by date, it is permitted to offer price reductions in which the “prior” price is the price that applied immediately before the price reduction, rather than the lowest price during the period in which the product was on the shelves. This exception applies to products whose prices may change rapidly, such as dairy products, meat or fish, and products with a use-by date. A butcher offers fresh meat at a 10% discount on the first day of sale. He advertises “Steak, straight from the farm! Today only at a 10% discount, from €6 for €5.40”. The next day the discount ends and the full price is charged. He advertises: “Steak, €6”. One week later, when the steak has almost reached its use-by date, the butcher decides to offer it at a 50% discount. In that case the most recent price before the price reduction, i.e. the full price of €6, may be used as the reference price. Because a perishable product is involved, the butcher is not required to state the lowest price within the past 30 days.

(c) Products that have been on the market for less than 30 days

It is permitted to offer a price reduction for a product that has been on the market for less than 30 days, in which case the trader itself may choose the period during which the discount applies in relation to the reference price. This type of promotion is often referred to as an “introductory discount”.

(d) Progressive price reduction

It is permitted to offer a product at a reduced price, after which the price reduction increases incrementally, for instance on a weekly basis, until the end of the discount period. In that case, a trader may state the full price, i.e. the price at the beginning of the series of price reductions, as the reference price. Progressive price reductions are very common in the clothing sector. A pair of trousers is offered at €100. That offer is followed by incremental price reductions of 15%, 35% and 50%. The trader may state the full price of €100 as the reference price in all those offers. This exception to the rule may not be applied, however, to progressive price reductions with an interim price increase. In that case the standard rule applies again: A shirt is first offered at €100, then at €90 and then at €80. The price is subsequently increased to €85. If that is followed by a new progressive price reduction, from €85 to €80 and then to €70, the trader must state €85 as the “prior” price.

Finally

ACM has already announced that it will enforce the new rules on price indications (see our earlier blog). It had already stated that it had kept records of the online offers of 25 webstores over a longer period. ACM found that online shops advertised offers that were not real offers. It has announced that it will use this analysis as a preamble to the enforcement of the new rules in 2022. Forewarned, forearmed!

More information on consumer rules and our other blogs can be found at consumentenrecht.info

More information on a dawn raids by ACM and the European Commission can be found at invalacm.nl

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Martijn van de Hel

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Diederik Schrijvershof

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