EU Proposes Fines of Up to 6% of Global Revenue for Digital Platforms Using...

The European Commission is proposing fines of up to 6% of a company's annual global turnover for digital businesses found guilty of using manipulative online designs to pressure consumers into spending more or targeting children with personalized advertising.

The penalties form part of the proposed Digital Fairness Act (DFA), a new regulatory framework intended to strengthen consumer protection across e-commerce, social media and other digital services. A draft of the legislation, seen by Reuters, outlines measures targeting deceptive website and app designs, personalized advertising aimed at vulnerable users, opaque pricing practices and features that encourage excessive platform use.

European Commission Justice chief Michael McGrath is scheduled to present the proposal on Wednesday. It will then need to be negotiated with EU member states and the European Parliament before it can become law.

The proposed legislation marks another attempt by European authorities to place greater responsibility on technology companies and online businesses for how their platforms influence consumer behavior. While existing digital regulations address issues such as data protection, competition and online content, the DFA focuses more directly on the commercial techniques used to influence purchasing decisions and keep users engaged.

Its financial penalties could expose major technology companies and online retailers to substantial costs, particularly those with large international revenues. A fine calculated as a percentage of global turnover would make the potential consequences significant even for companies whose offending practices are concentrated in particular markets.

One central provision would classify business-to-consumer dark patterns as unfair commercial practices. These include deceptive or manipulative interface designs that steer users towards purchases, subscriptions or other decisions they might not otherwise make.

Examples of such practices can include making it difficult to cancel a subscription, presenting misleading choices during checkout, or designing interfaces that encourage consumers to spend more than intended. The draft legislation seeks to prevent companies from using these techniques to exploit the way consumers interact with digital services.

The proposal also targets personalized advertising directed at children and vulnerable consumers. This would restrict businesses from using individualized advertising techniques to influence groups considered more susceptible to commercial pressure.

The measure could have implications for social media platforms and digital advertising businesses that rely on user data to tailor promotional content. Personalized advertising is a major component of the online commercial model, allowing companies to match advertisements with users based on their interests, behavior, and other information.

Restricting its use for children and vulnerable groups would require businesses to pay closer attention to how they classify audiences and deploy advertising systems. Companies may also need stronger safeguards to prevent prohibited targeting from occurring through automated advertising processes.

The proposed rules could create additional compliance costs for platforms operating across several jurisdictions, particularly where advertising systems are managed centrally but serve users in different countries.

Another provision addresses dynamic pricing, a practice in which prices change in response to real-time demand. The approach is common in sectors such as ticketing, where prices can rise as availability falls or demand increases.

Under the draft, traders using dynamic pricing would have to disclose how many items are available at the advertised price. The requirement is intended to give consumers clearer information about the availability of a deal and reduce the possibility that advertised prices create misleading expectations.

The measure could affect online ticket sellers and other businesses that adjust prices according to demand. Companies would need to provide more transparent information about the number of products or tickets available at a particular price, rather than simply displaying a figure that may change as consumers attempt to complete a purchase.

Under the proposal, platforms may have to let users disable addictive features.

The DFA would also require traders to give users the opportunity to switch off features that encourage compulsive or excessive use of digital services.

Such features can include design elements that encourage users to remain on a platform for extended periods or repeatedly return to it. The proposal places the issue within consumer protection regulation, treating certain engagement mechanisms as practices that may require greater user control.

This could force digital businesses to reconsider product designs that prioritize engagement and prolonged usage. For social media companies, online marketplaces and other consumer platforms, the commercial value of keeping users active is closely connected to advertising exposure, transactions and subscription revenue.

Giving users the ability to disable certain features could result in tension between consumer protection and business models built around maximizing time spent on platforms.

The proposal also raises questions about implementation. Regulators will need to determine which features qualify as encouraging compulsive or excessive use and how companies should provide users with meaningful control. The wording of the final legislation and subsequent enforcement guidance will be important in determining how broadly the requirements apply.

The financial services sector has also raised concerns that the proposed protections may not go far enough.

Finance Watch, an organization that campaigns for the public interest in financial services regulation, said the draft lacked sufficient safeguards for consumers investing online.

"The proposals on dark patterns go in the right direction, but they lack ambition to sufficiently protect consumers in financial services," said Peter Norwood, the organization's senior research and advocacy officer.

His comments point to a particular risk in digital financial services, where interface design can influence decisions involving savings, investments, and other financial products. Consumers may face prompts encouraging frequent trading, complex product choices, or decisions that come with financial risks they do not fully understand.

The proposed legislation's broader treatment of manipulative design could address some of these concerns, but Finance Watch's response suggests that consumer protection groups want more explicit safeguards for online investment services.

However, negotiations are expected to be the major determinant of the law's reach.

The proposal is not yet binding law. Its provisions will be subject to negotiations between EU governments and the European Parliament, where the scope of the restrictions, enforcement powers and penalties could be revised.