Making consumer law fit for purpose

Consumer law is currently a complex patchwork of legislation, with areas of overlap and uncertainty. As a result, both consumers and businesses struggle to understand their rights and obligations, potentially undermining competitiveness and growth.

The core legislation setting out consumer rights and remedies in relation to the supply of goods and services, such as the Sale of Goods Act, is over thirty years old, and has evolved on a piecemeal basis, partly as a result of the implementation of EU laws. For example, cancellation rights for distance contracts were introduced in 2000 and in 2002 specific rights were introduced providing remedies of repair and replacement for faulty goods.

Successive governments have focused on the need to clarify, simplify, consolidate and modernise consumer law, and the current momentum looks set to result in significant changes to the current regime.

A package of reform measures is currently being progressed, the flagship ?of which is a Consumer Bill of Rights. This will consolidate existing laws into a single, user-friendly statute, and repeal, in whole or in part, the Sale of Goods Act, Unfair Contract Terms Act, and Unfair Terms in Consumer Contracts Regulations amongst others. The package will include the provisions of the EU Consumer Rights Directive, which must be implemented in the UK by December 2013 and will apply to contracts from June 2014.

The Department for Business, Innovation and Skills (BIS) issued two key consultation documents this summer. The first sets out the government’s proposals for updating, clarifying and simplifying consumer rights in relation to the supply of defective goods, services and digital content, intended to be a core element of the Bill of Rights. The second consultation discusses proposals for the implementation of the Consumer Rights Directive in the limited areas where the UK has options.

Single Consumer Bill of Rights

Many of the proposals set out in the consultation do not involve substantively increasing the scope of consumer rights, but rather aim to clarify existing rights and remedies and to consolidate them into a single, user-friendly Consumer Bill of Rights. However, the material changes proposed include:-

? a minimum 30 day period for rejecting faulty goods, to replace the current concept of a “reasonable time” (except where the goods are perishable or both parties would reasonably expect a delay before use);

? specifying the number of times that retailers may attempt repairs or replacements of faulty goods before the consumer’s rights of refund or reduction in price are triggered. Various options are proposed including one repair, two repairs, three or four repairs where each repair is minor or an alternative approach by reference to cumulative repair time;

? removing the right of retailers to deduct from refunds to take account of use, or controlling how the deduction is made;

? in relation to the supply of services, introducing a default requirement for performance within 30 days and statutory remedies where the existing obligation of “reasonable care and skill” is not met, including repair or re-performance, with a reduction in price and/or termination rights if these remedies fail;

? for services contracts relating to a consumer’s goods or property (e.g. installation or repair services), introducing a strict liability “satisfactory quality” standard; and

? a separate regime for sub-standard digital content, based on the regime for goods e.g. statutory remedies of repair or replacement followed by a discount or refund, and potentially a 30 day period within which to reject. A raft of questions have been posed, such as whether quality standards should apply to free content and the rights and remedies that should apply to “related services” such as downloading and streaming services.

Extended contractual rights

The directive is much reduced in scope from the original proposal which aimed at full harmonisation of consumer rights within the EU, and primarily focuses on off-premises and distance contracts but also applies to on-premises contracts. The current Distance Selling Regulations and Off-Premises Regulations (Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulations 2008) will be repealed when the directive is implemented.

Many of the requirements of the directive will be familiar to businesses but there are also significant changes, including the following:

? harmonising pre-contract information rights for distance and off-premises sales, and introducing new information requirements e.g. online businesses must ensure that when placing orders, consumers explicitly acknowledge their obligation to pay, by inserting an “order with obligation to pay” button or similar. Non-compliance means the consumer is not bound to pay anything. For all contracts, consumers must be reminded of the legal guarantees of conformity (e.g. satisfactory quality).

? increasing cancellation periods for distance and off-premises contracts from seven to 14 days.

? requiring consumers to be provided with a template form for cancellation (currently only required for off-premises contracts), and where the consumer is not informed of their right to cancel, the cancellation period is extended for a period of up to one year, whereas under the current regime this period is generally three months.

? distance and off-premises traders must refund monies within 14 days of receipt of a cancellation notice, as opposed to the current period of 30 days.

? distance and off-premises contracts for services can be cancelled by the consumer where the service has started within the usual cancellation period, provided that the consumer pays for the proportion of the service performed. Under the current regime once a service has started (with the consumer’s consent) cancellation is not possible.

? all payments by the consumer must be expressly agreed (e.g. pre-ticked boxes will be prohibited), and there must be no excessive surcharges for use of payment cards. The provisions regarding surcharges will be implemented ahead of the other provisions of the directive, and were the subject of a separate consultation.

? customer service help lines about existing contracts can only be charged at basic rates.

? clarification of rights for digital content e.g. specific information requirements regarding functionality and interoperability, and the scenarios where cancellation rights do not apply.

The majority of the provisions of the directive are maximum harmonisation, meaning that the government cannot implement either more or less stringent provisions. As such the consultation focuses on the relatively few areas in which the government has flexibility. In those areas its key proposals include extending certain of the directive’s provisions to healthcare services, package travel, timeshare contracts and social services. The government also proposes not to apply pre-contract information requirements and cancellation rights to off-premises contracts under 50 Euros, or pre-contract information requirements to on-premises “day-to-day” transactions where payment is made straight away e.g. buying a coffee.

Welcome simplification

The consolidation and simplification of consumer law currently found in 12 different pieces of legislation is to be welcomed. It will make it easier for businesses to ensure compliance and for disputes to be resolved, and should encourage competition as consumers become more confident to buy from businesses that are not household name brands. Although many of the directive’s provisions favour consumers, there are also a number of changes that benefit businesses, such as stricter controls regarding the return of goods by consumers exercising their cancellation rights and the timing of refunds. In the event of cancellation, consumers may also be liable for the diminished value of a product where their handling of the product went beyond what was necessary to examine it, which is clearer than the existing obligation to take reasonable care.

A number of questions remain however. For example, concern has been expressed by some respondents to the first consultation that the alignment of remedies across goods, services and digital content may be inappropriate bearing in mind the numerous differences between them, and that the drive for simplification may be at the expense of flexibility. In relation to the directive, whilst the maximum harmonisation principle of the directive should lead to a more consistent regime across all EU member states (and therefore lower costs for business), there remains some exceptions to this principle. Also, BIS proposes to implement the directive by “copying out” its provisions and this will result in ambiguity in some areas which will need to be addressed by supplementary guidance.

Concerns have also been raised over the possibility that the directive will be implemented through secondary legislation rather than within the Consumer Rights Bill itself, and over the retention of existing consumer regulations which will continue to apply, as this seems contrary to BIS’ aim of a simplified and consolidated consumer law regime. In its responses to the consultations, the OFT has stated that the government should provide even greater protection to consumers, over and above what it is currently proposing.

Whilst the principle of reform is generally supported by business and consumer groups, the complexity of the consolidation initiative must not be underestimated. One must also hope that by the time the reforms are implemented, the economy has recovered such that UK businesses are in a good position to bear the inevitable costs of getting to grips with the new regime.

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