Elements of Consumer Protection in the Context of Traditional and Electronic Commerce in Costa Rica

Rolando García, Senior Counsel in ARIAS Costa Rica and expert in Commercial Law, shares with us the following article:

The development of commerce has changed rapidly in recent years, leading to a paradigm shift in how consumers acquire goods and services. Providers have had to improve not only their commercial offerings but also the way these offerings are made available to consumers, who increasingly prefer to use means that allow them to make their purchases more quickly, efficiently, and securely. It is in this scenario that online shopping has become an important, even necessary, means for providers to maintain their positions in the market.

The law is not oblivious to this reality and has recognized the need to expand consumer protection in this market segment, compared to the traditional model of in-store sales. Currently, Costa Rica has some specific regulations for electronic commerce that, while not the most developed and significantly behind the regulations of other markets, represent a starting point in pro-consumer regulation, which we believe is necessary.

Among these regulations, we find the right of withdrawal, known in other legal systems as rescission, which simply means the consumer's ability to reverse the effects of a contract made with a merchant, treating it as if it had not been made.

In Costa Rica, this right has a restricted application compared to other legislations, as will be briefly mentioned later. Specifically, the Law for the Promotion of Competition and Effective Consumer Defense stipulates in Article 40: "In home sales carried out outside the merchant's or provider's premises, provided that the nature of the good allows it, the consumer, under the right of withdrawal, may rescind the contract without liability within eight days from its perfection.”

From the reading of this article, we can identify several relevant elements for its application:

1. The right of withdrawal applies only in home sales, i.e., outside the merchant's commercial establishment.
2. The right of withdrawal will only apply when the nature of the good allows it. Thus, consumable, perishable goods, or those made to specifications provided by the consumer would not be subject to withdrawal.
3. The contractual rescission executed under the right of withdrawal will not generate liability for the consumer.
4. The right of withdrawal must be exercised within eight days from the perfection of the respective contract.

In this regard, the First Civil Court of San José, in ruling 00188 – 2006 on March 8, 2006, stated:

"The aforementioned benefits are out of place and hindered in a novel and sui generis scenario like consumer rights, particularly in the assumption of payment guarantees regarding consumer financing credits, where the application of payment principles aimed more at protecting the payment creditor contrasts openly and to the absolute detriment of the consumer.”

An example of this, closely related to payment guarantees for credit card contracts, can be seen in one of the distinctive notes of our Law for the Promotion of Competition and Effective Consumer Defense No. 7472, which recognizes the particular importance of home sales. Not only does it break with the general principles of our law regarding contracts (recall that cases of unilateral rescission in our law are very few) by establishing the possibility of regret after the parties have agreed on price for goods, as regulated in Article 40 Ejúsdem, which acknowledges the right of withdrawal within eight days following the contract.

This establishes a true right of regret, the ability to rescind the contract, which involves the restitution of the good or service and the cancellation of the payment method.

Conversely, transactions between merchants and consumers within the merchant's commercial establishment will not be subject to the application of the withdrawal right established by Costa Rican regulations.

Additionally, some exceptions to the application of the right of withdrawal are established:

a) Goods that by nature are consumable, perishable, or cannot be resold after being installed or used.
b) When the goods subject to the contract must be tailored or custom-made according to the buyer's specific needs; if the seller demonstrates that upon receiving the notice of rescission they had already tailored or prepared the goods or sent an irrevocable purchase order to the foreign supplier.
If the goods are in the process of being manufactured or prepared, or if only some of these tasks have been completed, the buyer may exercise the right of withdrawal by paying the seller the value of what has been done. If the import order is revocable, the buyer must bear the costs incurred in placing and revoking the order.

Now, as we mentioned at the beginning, we are witnessing a paradigm shift from the traditional regime of sales in commercial establishments or home sales to an entirely electronic one. These changes are not foreign to the law, which, not with the speed and rapidity characterizing the market and business, has made some initial efforts to regulate electronic commerce in protection of consumers.

The Regulation for the Law for the Promotion of Competition and Effective Consumer Defense, #7472 (Executive Decree 37899-MEIC, dated July 8, 2013), includes in its Chapter IX some provisions for consumer protection that merchants and providers must observe in conducting their electronic commercial operations.

Of notable application is Article 181 of the Regulation, which states that the provisions of this chapter will govern the relationships between merchants and consumers in the context of electronic commerce, without detriment to other consumer protection regulations. This implies that all consumer protection regulations will apply to electronic commerce.

Specifically, regarding the right of withdrawal related to electronic commerce, we must review Article 75 of the Regulation, which, as mentioned, is expressly applicable to electronic commerce:

Article 75 - Seller's Obligations. The merchant or provider shall have a maximum period of eight calendar days to return all amounts received from the buyer, for which a corresponding receipt must be issued.

The indicated period will run from the day following receipt of the notice of rescission unless the buyer already has the goods, in which case it will run from the day following their return. Unless the parties agree otherwise, the reimbursement will be made at the seller's premises and in cash.

Transactions carried out through electronic commerce will be subject to the provisions of Article 40 of Law 7472 and this Regulation. In any case, the consumer's right of withdrawal must be exercised by the same means used to express consent, and the reimbursement of all amounts received will be made using the same method used for payment. (The emphasis is not from the original).

In the absence of an agreement, the consumer may refer to the CNC (National Consumer Commission).

We see how the legislation equates electronic sales with sales outside a commercial establishment, an equivalence that we believe is accurate, considering the high risk that the consumer assumes when dealing with a merchant they do not know, and regarding products they have not seen before making their consumption decision.

But let’s go further. Why not allow the right of withdrawal when the sale takes place in the merchant's commercial establishment? This presents an interesting dilemma. First, one must weigh the existence of the fundamental principle of contracts: Pacta Sunt Servanda, meaning "what is agreed upon is binding." Under this principle, the parties in a contract must respect the stipulations agreed upon in the instrument generating obligations.

But what happens with consumer relationships? It is essential to keep in mind that consumer relationships are based on the existence of a strong party (the merchant) and a weak party (the consumer). This dichotomy is the foundation of legal protection for consumers and is the basis for the regulatory framework adopted by other legislations.

Let’s take a moment to consider Spanish legislation. The General Law for the Defense of Consumers and Users and other complementary laws, Royal Decree 1/2007 of November 16, states:

"Article 68. Content and regime of the right of withdrawal.

1. The right of withdrawal from a contract is the consumer's and user's ability to render the concluded contract ineffective, by notifying the other contracting party within the established period for exercising this right, without needing to justify their decision and without any penalty. Any clauses imposing a penalty on the consumer and user for exercising their right of withdrawal shall be null and void.”

This provision applies generally to both in-store sales and those made outside the establishment, although for sales made outside commercial establishments, specific obligations and particulars are established, which for the purposes of this discourse is unnecessary to address.

Unlike the Costa Rican regime, the Spanish system grants a broader period for exercising the right of withdrawal, which is 14 days from the receipt of the good subject to the contract or from the signing of the contract if the subject matter involves the provision of services.

In our view, this regulation aligns more closely with the consumer protection model that should be aspired to, and we believe it is necessary to evaluate the possibility of expanding the existing protections in Costa Rica, which we consider do not respond to the reality of the market and business.

In conclusion, we can verify the existence of consumer protection regulations that, while present, may be ineffective. The possibility, which we deem necessary, should be assessed to expand the protective framework, potentially using the existing regulations in other legislations, such as the Spanish model mentioned.

The right of withdrawal or rescission is a useful and fair instrument, provided it is used with awareness and good faith. Therefore, alongside any potential expansion of protections in favor of consumers, there should be adequate consumer education, primarily from family units, as well as an obligation and state function. This can certainly foster economic growth alongside a more educated and responsible consumer.

The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.