The European Union is taking another large step towards improving how consumers are protected within the digital economy by proposing new legislation that could fine companies up to 6 percent of their total annual global turnover if they engage in certain types of unfair digital commercial practices.
The Digital Fairness Act would restrict some of the methods used on the Internet to influence consumer choices, such as misleading interface design, advertisements targeted towards children, and other design elements that encourage consumers to use platforms more than they otherwise would.
On November 9th, a draft of the bill was released. European Commission Justice Commissioner Michael McGrath will introduce this bill to the European Parliament on November 11th. At that time, there will be further negotiations between the European Parliament and the various member states of the European Union regarding the passage of this bill. Once these negotiations are completed, then the bill can pass into law.
The proposal is important for technology firms, e-commerce retailers, subscription-based businesses, social networking sites and individual users that use more of their daily tasks via digital means.
What are digital dark patterns?
The main focus of the proposal will be the implementation of “dark patterns,” which refers to design elements on websites or applications that manipulate a user into making decisions they wouldn’t normally make.
Examples of manipulative techniques used by websites may include: – Creating a system where a user can easily sign up for a service, yet has difficulty cancelling the service; – Displaying false time limits that pressure the user into taking action before they have had time to consider their options; – Concealing hidden fees associated with products/services until the final step of the purchasing process; and – Consistently prompting users to choose options that they do not want to pursue.
Such designs may cause confusion with regard to making online purchases, especially if the consumer is attempting to compare prices, or understand what they are purchasing.
This proposed bill would define as an unfair commercial practice those consumer interfaces that utilize manipulation to coerce consumers into purchasing goods or services.
This can be done by looking at how customers are using your website, your mobile app, your subscriptions page, and your online payment process.
Design that produces immediate sales can lead to regulatory issues when design causes confusion among users, and/or design stops users from being able to make an educated choice.
New scrutiny of personalised advertising
The draft will also limit targeted ads to children and at-risk consumers.
As an example, digital advertisers utilize a variety of data (such as user browsing history, interest profile and prior interaction with ads) to determine which ads will be shown. This personalization provides consumers with more targeted marketing messages, however, there are many people who do not fully comprehend how this form of targeted marketing occurs.
Children are especially important in this discussion since they may not have as much knowledge about how to identify persuasive tactics and/or the commercial goal of some of the material.
With the proposed rules being implemented, companies will have to assess how they define the protected group of customers, the data used in defining those customers, and if the advertising system complies with the finalized law.
Implementation may include changes to how ads are served, who is selected for an audience, the consent process used by a business, and the way the business complies internally.
The exact requirements depend upon what the legislation ends up being and how the regulatory agencies decide to enforce those requirements.
Dynamic pricing faces transparency requirements
A second area addressed by the proposed regulation deals with “dynamic pricing,” where the price of a good or service can vary based on several variables (e.g., how much of the product/service is available, when the purchase takes place, and what the level of demand for the product/service is).
Dynamic pricing is a technique used in many different types of businesses such as travel, ticketing, and online retailing. Dynamic pricing can assist businesses with managing customer demand, however, customers may have trouble understanding why prices vary or if there are still products available for purchase at the advertised price.
Traders who use dynamic pricing will be required to disclose how many of their products are being sold at the discounted rate.
The purpose of this is to assist consumers in evaluating an offer and distinguishing between true shortage of products and sales methods designed to pressure consumers into purchasing them quickly.
Businesses who utilize automated pricing systems may therefore be required to evaluate the content being presented to their consumers, and confirm that such content reflects the availability of goods/services.
Increased transparency would likely affect how organizations provide details about special promotions and limited-time pricing.
Controls over addictive platform features
Businesses would have to let their customers turn off some of those features which help make people use products excessively or compulsively.
Digital platforms utilize multiple ways of engaging their users with various forms of notifications, recommendation feeds, and continuous scrolling. While these tools may assist in discovering new content, critics argue that many of the designs used by digital platforms promote the user spending more time than they initially had planned on the platform.
The draft represents an attempt to deal with how digital products are created, as opposed to just dealing with what is distributed through them.
For platforms, the problem will be to determine which features are covered by the ultimate definition of what constitutes a “platform feature” and how users can disable those features.
What could the proposal mean for businesses?
A possible fine of up to 6 percent of a company’s total annual revenues could create a strong financial reason for large corporations to follow the law.
This figure however, does not represent a penalty on all types of designs. The legislation remains a proposed bill and the final form will establish what types of violations exist, how they will be enforced and when penalties can be assessed.
Companies that operate across different markets will likely have to work with each other to coordinate compliance with the requirements of the European Union (EU) and those of their worldwide product teams.
The actual impact on smaller businesses when updating website interfaces, pricing systems, and advertising procedures is yet to be determined, however, the scope of the final regulations will largely define what is required of these businesses.
Consumers may find that having stronger protection provides them with a better understanding of their online shopping experience and allows them to have more say in some of the ways they use technology.
The proposal is just one part of a larger European effort to regulate the business practices of big tech companies and other digital platforms. The true effectiveness of this regulation will be determined by the laws that are adopted by the various EU institutions, as well as how well the rules are enforced.