HMG’s announcement yesterday of its plans for the enforcement of consumer law in England, Wales and Scotland is just one of many changes to come. Together, they will change how firms interact with their consumers and increase regulatory and litigation risks for consumer-facing businesses.
Need to know
- The UK government (HMG) plans to give Trading Standards powers to enforce most consumer law in Great Britain, including national-level cases. There are doubts as to how effectively this will work in practice.
- The new Competition and Markets Authority (CMA)’s primary function as a competition regulator is confirmed. But the CMA will retain some consumer law powers, including lead responsibility for enforcing unfair contract terms legislation. The CMA will also be able to conduct studies and impose remedies in markets where competition is not working due to practices or conditions that make it difficult for consumers to exercise choice. The lack of a bright line between the CMA and Trading Standards in some cases means that some duplication – and uncertainty – will inevitably remain.
- Other reforms currently under consideration by HMG will increase consumers’ statutory rights and create new ways for them to claim compensation from businesses.
- Combined with EU-driven reforms to access to justice and consumer redress, what we may see is a move away from enforcement against consumer law breaches by regulators towards private enforcement by consumers (or their lawyers).
- The institutional changes will be enacted in coming months. A new Consumer Bill of Rights is likely to become law by end 2014.
- These reforms must also be considered hand in hand with the recently announced competition law reforms (click here for our recent competition law briefing).
Who enforces consumer law?
Currently, local authority Trading Standards Services (TSS) enforce small scale breaches of consumer law, whereas the Office of Fair Trading (OFT) tends to take on larger cases involving more widespread consumer detriment. The OFT has been increasingly active in recent years in taking on “pure” consumer law cases (i.e. those with no competition law angle). Its preferred approach has been to tackle traders who it believes have treated consumers unfairly, in order to secure undertakings concerning future conduct or, in some cases, injunctions under Part 8 of the Enterprise Act 2002. High-profile cases include those against Purely Creative and Ashbourne.
Both TSS and the OFT have been helped in these efforts by the powers they now have under the Consumer Protection from Unfair Trading Regulations 2008 (the “CPRs”), which criminalise a range of “unfair” business conduct towards consumers. The OFT has also brought cases under the Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCRs”) – a well-publicised example being the bank charges litigation – and its investigations often proceed under both the CPRs and the UTCCRs.
Yesterday, HMG released its response to last year’s consultation on “Empowering and Protecting Consumers”. Despite the anodyne title, the consultation proposed a significant shake-up of the enforcement of consumer law in England, Wales and Scotland. A key proposal was that the OFT (whose competition law enforcement role is to be taken over by the new CMA) should be stripped of its consumer law enforcement powers, and that these should be transferred entirely to TSS. In other words, that TSS should primarily enforce consumer law, taking on both local and national-level cases.
Many respondents to the consultation felt that TSS lacked the experience, the resources and quite possibly the will to take on difficult national cases against well-funded opponents. In particular, given the financial risk involved in taking on such cases, many felt that cuts in local authority spending would rule this option out.
HMG has not accepted these arguments and has decided that:
- A National Trading Standards Board (NTSB) will be established immediately, which will have responsibility for prioritising national and cross-local authority boundary enforcement in England and Wales. Local TSS, under the guidance of the NTSB, will take on primary responsibility for enforcing consumer law, including larger cases.
- The OFT’s consumer law enforcement budget will be progressively allocated to the NTSB and then on to local authorities.
- However, the OFT’s successor – the CMA – will keep responsibility for investigating and prosecuting cases that involve the UTCCRs and can also rely on consumer law powers in the context of market studies it undertakes.
- A new unit will be set up to share intelligence between the NTSB, the CMA, Citizens Advice and the Regulated Industries Unit.
What we think of these changes
- The capacity of TSS to deal with big cases is largely untested. They certainly lack the OFT’s institutional knowledge of how to run such investigations, although it is possible that former OFT personnel may join the NTSB.
- Because funding will be tight, and the NTSB will be under pressure to deliver greater “bang per buck”, enforcement is likely to be more targeted on the most egregious breaches of consumer law or those which cause the greatest consumer detriment overall (and which thus garner the biggest headlines). This may paradoxically mean more rather than less activity involving against large national traders. Better sharing of information between regulators may also encourage this.
- There are real uncertainties as to how the split between the NTSB/TSS, on the one hand, and the CMA, on the other, will work. For example, many big investigations today are into alleged breaches of the UTCCRs as well as the CPRs – who takes those in future?
HMG has also said that it wants Citizens Advice (aided by Which?) to become the publicly-funded voice of consumers and the main source of information for them about their rights, with Consumer Focus and Consumer Direct facing abolition. There are also other changes, e.g. the creation of a new Regulated Industries Unit (covering postal services and energy) and greater efforts to spot future issues that could harm consumers. HMG intends that these changes will be implemented via Orders under the Public Bodies Act 2011 or suitable primary legislation.
New rights for consumers to sue
These institutional reforms are one of a set of moving parts. The consumer landscape in England, Wales and Scotland is going to look very different by 2015.
- Consistent with its localist agenda and to save costs, HMG is keen to see consumers take more responsibility for enforcing their own rights. Currently, UK consumer rights are set out in 12 Acts and regulations, including the CPRs, the UTCCRs, the distance selling rules and the Sale of Goods Act. A new Consumer Bill of Rights would consolidate these into a single piece of legislation, making it easier for consumers to enforce those rights against businesses. BIS plans to consult on the new bill in May 2012, with the intention for it to be on the statute book by end 2014.
- The Consumer Bill of Rights will also implement the EU Consumer Practices Directive, which imposes new obligations on businesses engaged in B2C transactions. Key changes concern extended cooling-off periods, enhanced refund rights, price transparency and clearer information, restrictions on surcharges, obligations on the delivery of goods and the right to have defective goods replace/repaired within two years.
- It is also likely to extend the Sale of Goods Act to cover digital products (e.g. music and software downloads) and to create new rights for consumers to sue businesses. The current proposal is for consumers to win compensation for breaches of the CPRs, e.g. if businesses do not provide all the information upfront that they need to make informed purchasing decisions, or engage in other misleading practices.
- At the same time, EU proposals for consumer collective redress (“class actions”) and ADR in consumer cases may streamline the means open to consumers to obtain compensation, particularly in cases involving widespread detriment but where the compensation involved in each individual case is low in value.