Cross-border Retail and Consumer Credit in the EU: Facilitate, Don’t Regulate

July 19, 2007

Ironically the European Commission plans to regulate in order to create cross-border retail and consumer credit markets in the EU are only likely to constrain innovation and growth. Facilitating the resolution of the real obstacles bottom-up by market participants would be more helpful.

The European Commission recently announced its decision to propose new EU consumer rules in an attempt to create cross-border retail markets in the EU. The member of the European Commission responsible for consumer policy, Mrs Meglena Kuneva, said:


I am convinced that consumer policy is uniquely well-placed to help the EU rise to the twin… challenges of growth and jobs and reconnecting with its citizens…

The Commission’s vision is to demonstrate by 2013 to all EU citizens that they can shop from anywhere in the EU, from a corner shop to a website, with confidence and equal protection. And we will also show to all retailers that they can sell anywhere on the basis of a single, simple set of rules.

We are a long way from those goals now…


A long way indeed.


A 2005 study by the European Consumer Network on cross-border complaints  (see pointed to problems with delivery (46%) and defects or lack of conformity with description (25%) as the two main problems.


Furthermore, Eurobarometer discovered in October 2006 that while 27% of EU citizens shopped online in 2006 only 6% made a cross-border purchase online. It also found that consumer perception is focused on more practical concerns: ‘… it is harder to resolve problems such as complaints, returns, price reductions, guarantees etc’ (71%); ‘there is a greater risk of falling victim to a scam or fraud’ (68%); ‘there is a greater chance of having delivery problems with goods or services’ (66%); ‘there are more problems returning a product they bought at a distance within the ‘cooling-off’ period’ (65%). From a business standpoint, ‘the biggest perceived obstacle to cross-border trade is the insecurity of transactions (61%)… potential problems with resolving complaints (57%)… difficulties in ensuring after-sales service (55%) and extra delivery costs.’ A further 43% of respondents cited language differences as an obstacle to cross-border trade. Such issues may point to problems with enforcement of existing laws and contracts, but not to any fresh regulatory opportunities.


Similarly, a May 2007 study by Civic Consulting (see reveals that efforts to construct a single European market for consumer credit by introducing a new consumer credit directive are flawed. According to the consumer organisations and national banking associations who were polled, ‘the main [non-regulatory] barriers hindering selling of consumer credit products in other EU Member States are different language and culture; consumers’ preference for national lenders; credit risk for lenders – no access to creditworthiness information; problems related to tax, employment practices etc.; difficulties to penetrate local market; different consumer demand in different Member States; lack of consumer confidence in a brand; differing stages of development of consumer credit; and lack of adequate marketing strategies.’ The study concluded that ‘a single market for consumer credit cannot be expected to be created by harmonisation of legislation alone, and this is a long term rather than a short or medium term perspective.’ As such, ‘the supply side of the market… does not expect increased demand and therefore economic growth from the proposal.’


In short, the European Commission is proposing a regulatory solution for problems that have no regulatory solution. This ‘solution’ is likely to become part of another problem, stifling innovation and constraining growth. As has been observed by Marsden et al. (2006) in connection with the reform of the TV Without Frontiers Directive (see, prescriptive regulation tends to cause markets ‘to develop towards more closed and concentrated structures’. This is because larger participants can afford compliance costs and lobbying efforts and have the bargaining strength to shift liability onto suppliers and consumers in a way that smaller market participants cannot – ‘hence, incumbents and regulated actors have incentives to drive up regulatory costs in other parts of the value chain’. Complex regulatory regimes may also either avert venture capital investment from attempted innovation in the regulated activity or ensure that it ‘will only flow to those companies considered to have the ability to “play a good game” with the regulators’.


If the European Commission must play a role in creating cross-border retail markets, then it should help foster solutions to the real obstacles, bottom-up amongst market participants, not pose new ones.



Simon Deane-Johns is Zopa’s General Counsel.