The FCO identifies seven areas of concern in its sector inquiry report:
- In some sectors, such as the insurance sector, websites do not always include all important service providers in a comparison and only a few comparison websites deal with this key information transparently e.g., by providing a negative list.
- In the hotel sector, the amount of commission paid by hotels is one factor that influences their position in a ranking. The FCO takes the view that consumers must be better informed about the influence of commissions on the ranking results.
- In the energy sector, some portals do not list certain offers, either because the energy providers are not prepared to pay a commission or because the offer could be disadvantageous for consumers. In the FCO’s view, consumers are not properly informed about this.
- In the energy and telecommunications sectors, some comparison websites list offers in a ‘position 0’ at the top of the ranking in return for payment from the service provider without indicating that these offers are paid advertisements.
- Portals’ references to shortages, advantages or exclusive offers are sometimes misleading. In the travel sector in particular but also in other sectors, this messaging creates a sense of urgency that may pressure consumers into purchasing or booking.
- Most of the reviews on the websites are given by consumers who successfully concluded a transaction on the website. On the one hand, that prevents fake reviews; on the other hand, it reduces the range of ratings.
- Some comparison websites cooperate with competing providers on the use of databases and search algorithms. Such cooperation can expand the consumer’s opportunities to compare offers, but can also lead consumers to interpret identical results on several supposedly independent websites as a confirmation.
I. Background
Since their development about 20 years ago, comparison websites have continued to gain importance. Comparison websites can significantly reduce consumers’ search costs and improve their decision-making by comparing different offers for a particular service and making it easier for consumers to make a buying decision.
However, some comparison websites have been criticised by consumers, as well as consumer associations, for not always being sufficiently neutral or transparent with regard to factors such as the independence of comparisons, the range of market coverage, offer rankings, availability or the handling of reviews. The FCO takes the view that in individual cases there may be a violation of consumer protection rules, in particular with regard to the German Act against Unfair Competition.
II. Competence of the FCO to investigate into comparison website
In October 2017, the FCO initiated its sector inquiry into comparison websites. In this case, the FCO did not act in its genuine role as a competition authority but rather as a consumer protection watchdog. This sector inquiry is the first of its kind in which the FCO applied its new competences conferred by the ninth amendment to Germany’s Act against Restraints of Competition (ARC), which entered into force on 9 June 2017. Previously. the FCO only had jurisdiction over competition law matters and could not act in the area of consumer protection.
Sector inquiries are not targeted against specific companies, but are intended to examine the conditions in a specific industry sector to find out whether infringements of legal provisions have occurred. Under the revised ARC, the FCO can investigate a specific sector of the economy where it has reasonable grounds to suspect substantial, permanent or repeated infringements of consumer protection law that, due to their nature or scale, harm the interests of a large number of consumers. To meet these requirements, the FCO has set up a new division for consumer protection.
III. The scope of the sector inquiry into comparison websites
The purpose of the sector inquiry was to study the frequently discussed problems related to comparison portals by directly investigating the companies concerned and providing a provisional legal analysis of the findings.
The investigation was conducted in two parts. The FCO undertook a broad structural survey of the structures and existing cooperation of comparison websites and evaluated the responses from more than 100 different websites. Based on these findings, the FCO then conducted a comprehensive and detailed survey with questionnaires addressed to 36 comparison websites operators.
The sector inquiry included pure comparison portals and websites whose main function was to enable consumers not only to compare but also to order certain standardized services from different companies. With regard to the services compared by the websites, the FCO focused on the areas of energy, telecommunications, insurance, finance and travel, which are particularly relevant for consumers.
Websites that offer one-time delivery of goods, test reviews or individualised services were not included as these websites are based on special business models and features.
IV. Demand for new competences in the area of consumer protection
To date, the FCO has no jurisdiction to investigate or penalise infringements of consumer protection rules. It points out that the relevant conduct is often complex, sector-specific and subject to constant change. In addition, the FCO states that inspections of a company as well as access to confidential company information (including internal documents) are regularly required in order to prove an infringement.
As a result, the FCO notes that it is not possible for private players to take successful action against behaviour that violates consumer protection laws, nor are the new transparent regulations sufficient. It suggests that its powers of intervention in the field of antitrust laws should be extended to consumer protection law.
Andreas Mundt, president of the FCO, stated: “Civil lawsuits and regulation alone are no effective remedy for such problems. Due to difficulties of proof and the lack of broad impact, the opportunities to enforce consumer protection under civil law are limited.”
Therefore, he suggests that the competences of the FCO should be enhanced so it is able to enforce existing consumer protection legislation “in a quick and targeted manner”.
V. Outlook
Currently, the German legislator is drafting the 10th amendment to the ARC. It remains to be seen whether the FCO’s demands will be implemented in that amendment. If the German legislator decides in favour of the FCO, the FCO’s competences would extend to the area of consumer protection. The FCO would thus focus not only on protecting competition law but also increasingly on enforcing consumer rights.
Client Alert 2019-109
