Homestay site Airbnb could face enforcement action if it does not make its pricing and terms clearer.
The European Commission has said the presentation of Airbnb's pricing, as well as its distinction between private and professional hosts, does not comply with EU law, and has demanded the company make numerous changes.
Airbnb has until the end of August to present its proposals to address the issues. If the proposed changes are not considered satisfactory, Airbnb could face enforcement action.
Věra Jourová, commissioner for justice, consumers and gender equality, said: "More and more consumers book their holiday accommodation online and this sector has brought many new opportunities to holidaymakers. But popularity cannot be an excuse for not complying with EU consumer rules. Consumers must easily understand what for and how much they are expected to pay for the services and have fair rules, eg on cancellation of the accommodation by the owner. I expect Airbnb to follow up swiftly with the right solutions."
Airbnb has been told to modify the way it presents its pricing to ensure visitors are provided with the total price inclusive of all charges and fees, as well as clearly identifying if the offer is made by a private host or a professional.
The site has also been told to clearly define its policy on refunds, compensation and the collection of damage claims, as well as provide an easily accessible link to the Online Dispute Resolution platform on its website.
A spokesperson for Airbnb said: "We take this issue seriously and are committed to being as transparent as possible for our community. Guests are made aware of all fees, including service charges and taxes, prior to confirming their decision to book a listing, and we will work together with the authorities to clarify the points raised."