Laws in the EU that require seat belts to be installed in passenger cars do not exempt car manufacturers from the rules based on their size. That parallel might be worth remembering now the EU applies the finishing touches to one of its signature pieces of legislation to regulate online platforms – the Digital Services Act.
Cleaning up the Wild West. But only on big platforms?
The DSA is vital. As online shopping has exploded in recent years, consumers have found themselves ever more exposed to a tidal wave of unsafe and illegal products online. A market sweep by six consumer groups across several online marketplaces in 2019-20 found two-thirds of the products purchased failed safety tests.
The online platforms where these products are advertised and sold to consumers take no responsibility for what’s going on, especially if something goes wrong.
The result is that consumers easily end up buying smoke alarms that do not detect smoke, child clothing that risks strangling them, and jewellery surpassing safe chemical levels 4,000 times.
To remedy this, the DSA introduces a series of due diligence obligations for online marketplaces, in particular the obligation to verify the legality of the traders selling on their platforms. Marketplaces might also be required to perform random checks to verify that the goods they are selling are legal and safe.
However, these measures come with some fine print. There is an exemption for micro and small size companies. Even more worryingly, the European Parliament has gone further and added the possibility of further exemptions by proposing a waiver system for medium-size companies. By exempting small and medium-size marketplaces, the EU is creating a huge loophole around consumer protection obligations.
The reasoning is that these rules must not burden smaller-sized companies and should only target the large entities.
But is this the right approach?
EU rules define small companies as those below 50 employees with an annual turnover and/or balance sheet of under €10 million, and medium-sized companies as those below 250 employees and with an annual turnover of €50 million or less and/or balance sheet of under €43 million.
Those are considerable numbers in the e-commerce world. Many companies will be below these thresholds. Online marketplaces do not need the physical infrastructure traditional retail companies once needed, and their geographical reach is much greater. Even if they are small, they can still pose significant risks when it comes to illegal activities.
But there’s a bigger problem with this sort of thinking.
Consumer protection? yes and no
If you flip the camera away from the companies to be affected and back on the consumer, what will these exemptions mean for them?
Consumers will have to know that safety checks on goods and traders only extend to the large platforms, like Amazon or eBay, and be mindful of the actual size of the platform they are shopping on. Rogue traders, whose products do not comply with product safety rules, will be incentivised to move their activities on to the smaller platforms. Consumers will be more exposed to buying unsafe goods if they go to these platforms.
This is not only going to limit the effectiveness of the DSA in creating a safer online space, it will also create consumer confusion and undermine trust in the market. We know, from German consumer group and BEUC member vzbv, that consumers expect online marketplaces to be responsible for what gets sold on them.
Worse, these exemptions could create a perverse effect by pushing people to shop on the larger marketplaces, damaging the very platforms the EU is trying to protect by creating exemptions for them.
It is the equivalent of exempting smaller car manufacturers from putting seat belts and airbags in their cars on the basis it can reduce their compliance costs. But what would probably end up happening is consumers would shift away from smaller car-makers on the basis they are less safe.
In effect, if these exemptions make it into the final text, they stand to create two tiers of online marketplaces, two levels of consumer protection: the big platforms where in principle people are better protected, and the others where they are not. Exempting small and medium-size marketplaces will have unforeseen consequences.
Exemptions should be very limited and targeted
To consumers, these exemptions will be both confusing and unfair. In the market, they could also do more harm than good.
Consumers have right in the EU to benefit from a high level of protection, regardless of the size of the company they are dealing with.
Our message to the EU institutions is clear: these exemptions are simply too broad, too lenient, and too damaging. At the very minimum, the waiver for medium-size platforms must be ditched and as few platforms as possible should be exempted from basic consumer protection requirements.
If we really aim to put an end to the ‘Wild West’ online, consumer protection cannot depend on how big the outlaws are. Exempting small and medium-size marketplaces from checks on online traders is a bad idea.