The main provisions of the Consumer Rights Act 2015 (the "Act") came into force on 1 October 2015. The Act is applicable to the majority of business to consumer contracts and governs, amongst other things, the standards to be met for goods, digital content and services, the fairness of terms and notices and the enforcement of consumer rights. Financial services firms will need to ensure that their terms of business and communications with customers comply with the Act.
The Act introduced the following key reforms:
- Consolidation of UK consumer law: the following key consumer legislation was repealed (in full or in part) or amended by the Act: Sale of Goods Act 1979 ("SGA"), Supply of Goods and Services Act 1982 ("SGSA"), Unfair Contract Terms Act 1977 ("UCTA") and Unfair Terms in Consumer Contracts Regulations 1999 ("UTCCR");
- Unfair terms and notices: notices and announcements aimed at consumers, such as advertisements or website text, are subject to the Act’s fairness test;
- Digital content: in a move to modernise UK consumer law, digital content is now covered by a distinct set of rights and remedies; and
- Enforcement reform: the Act clarifies enforcement powers, reforms class actions and sets down enhanced consumer measures, enabling authorities to force businesses to compensate consumers.
The Act maintains the Financial Conduct Authority’s (the "FCA") powers to challenge unfair terms in certain contracts and newly empowers the FCA to challenge unfair notices. The Act also widens the FCA’s enforcement and investigatory powers.
Prior to the enactment of the Act, UK consumer law was fragmented as it had developed piecemeal over time. The Act consolidates the range of rights and remedies available to consumers in respect of business to consumer contracts in one legislative instrument. This exercise should make UK consumer law more readily accessible and intelligible to consumers and businesses. The Act also introduces some new protections, including in relation to digital content, and strengthens enforcement powers.
In addition to the passing of the Act, the Government has also been pressing ahead with a range of other reforms to UK consumer law, including its implementation of the Directive on Consumer Rights (2011/83/EU), which it was required to implement by 13 June 2014. The Directive was implemented into UK law by the Consumer Rights (Payment Surcharges) Regulations 2012 and the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (the "Consumer Contracts Regulations"), which came into force on 6 April 2013 and 13 June 2014 respectively.
Overview of the Act
The majority of the provisions in the Act apply to England, Wales, Scotland and Northern Ireland, including the provisions within the scope of this report.
Contracts for goods, digital content and services
The Act merges the rights and remedies of the SGA, the Sale of Goods (Implied Terms) Act 1973 and the SGSA. The relevant provisions apply to contracts between traders and consumers for a trader to supply goods, digital content or services. The new rules will not apply to business to business, consumer to consumer or consumer to business contracts.
"Trader": a trader is a person acting for purposes related to their trade, business, craft or profession.
"Consumer": a consumer is a person acting for purposes that are wholly or mainly outside their trade, business, craft or profession. If a trader alleges that a person was not acting as a consumer, the burden is on the trader to prove that was the case.
Note that the definition of "consumer" contemplates the possibility that an individual may not be acting wholly outside their trade, business, craft or profession, but could still qualify as a consumer under the Act. In an analogous context, the European Court of Justice recently ruled that a lawyer who entered a credit agreement secured by mortgage with a bank was a "consumer" within the meaning of the Consumer Rights Directive, because the agreement was not connected with his legal practice, despite the mortgage being secured on his law firm’s premises.
"Goods": goods are any tangible moveable items, including water, gas and electricity that is supplied in a limited volume or set quantity.
"Digital content": digital content is any data that is produced and supplied in digital form.
The provisions relating to the sale and supply of goods apply to "contracts to supply goods" – that is, sales contracts, contracts for the hire of goods, hire-purchase agreements and contracts for the transfer of goods.
The definition "contracts to supply goods" includes conditional contracts, contracts in relation to goods sold on credit or which have not yet been manufactured and contracts where the consideration for the goods is provided by the consumer doing something other than paying a price. Certain contracts and agreements are excluded, including agreements made by deed for no consideration (or, in relation to Scotland, gratuitous contracts) and contracts intended to make a mortgage, charge, pledge or other security.
The Act merges the rights and remedies of the SGA, the SGSA and the Sale of Goods (Implied Terms) Act 1973, with cosmetic updates to the style of the drafting. Contracts to supply goods are deemed to contain implied terms that the goods are of satisfactory quality, fit for purpose and are in accordance with any description or sample of such goods. It is an implied term that the trader has the right to sell or transfer the goods, that the goods are free from charges or encumbrancesand that the consumer will enjoy quiet possession of the goods. Subject to contrary provision, goods must be delivered within 30 days and without undue delay. The goods remain at the trader’s riskuntil they are delivered to the consumer.
The Act introduces some new rights. Certain pre-contract information is incorporated into the contract and where goods are supplied by reference to a model, there will be an implied term that the goods conform to it. If a contract to supply goods includes a term that such goods will be installed by the trader, the goods will not conform if they are not installed correctly.
The Act introduces a series of tiered remedies, which are intended to keep parties out of court and clarify the interaction between a consumer’s rights of rejection, repair, replacement and price reduction.
Consumers have a short-term right to reject faulty goods and treat the contract at an end within the first 30 days of the contract being made. The consumer can exercise this right by indicating by action or verbal communication that they are treating the contract as at an end. There is no requirement for the consumer to put anything in writing, but the exercise must be clear enough to be understood by the trader. This timeframe will be shorter in respect of goods that might reasonably be expected to perish in a shorter timeframe. The right to reject will be extended by seven days if the trader repairs or replaces the goods within the applicable timeframe.
The first tier remedy is the right to repair or replacement. The trader must either repair the goods so that they do conform to the contract or provide a satisfactory replacement within a reasonable time. The trader has one opportunity to get the goods to conform to the contract and if the trader fails, the consumer may exercise their second tier rights.
The second tier rights are the right to a price reduction and the final right to reject. If the trader has failed to adequately repair or replace, or repair or replacement is impossible or disproportionate in the circumstances, the consumer may either seek an appropriate reduction in price or reject the goods. If the final right to reject is exercised, the trader may make appropriate deductions to compensate for usage if:
- The right to reject is exercised more than six months after the consumer has taken possession of the goods; or
- In the case of motor vehicles only, at any time after the consumer has taken possession of the goods.
Exercise of a right to reject entitles the consumer to a refund, subject to a duty to return the goods supplied. The entitlement to a refund, and the return of the goods, is subject to variations depending on the nature of the contract and of the goods supplied.
Not all remedies are available for breaches of some of the statutory rights. The statutory remedies are in addition to consumers’ rights to claim common law remedies (such as damages).
The provisions relating to digital content apply to contracts for a trader to supply digital content, provided that the consumer pays some kind of value for it. This can include free digital content, if it is usually supplied with goods for which a price is paid.
Digital content is subject to similar standards and implied terms applicable to goods. Digital content must be of satisfactory quality, fit for purpose and in accordance with any description of such digital content. Any updates to digital content must also comply with these terms. The Act expressly provides that these requirements will not prevent a trader from improving digital content or adding new features, provided that it continues to conform to its description and any pre-contractual information incorporated into the contract.
Consumers do not have a right to reject digital content. However, consumers do have a right to repairor replacement and, if that is not possible, a right to a price reduction. Traders are not limited to one opportunity to adequately repair or replace digital content. Consumers have the right to repair orcompensation if they can prove that digital content caused damage to a device or other digital content (for example, if digital content was infected with a virus).
The provisions relating to services apply to contracts for a trader to supply services to a consumer, which includes retail financial services contracts. The Act preserves the relevant provisions in the SGSA, with cosmetic updates to the style of the drafting. A trader must perform the service with areasonable degree of care and skill within a reasonable time. If not specified, the consumer must pay a reasonable price for the service.
Anything that the trader (or a person acting on the trader’s behalf) communicates to the consumer about the service, whether orally or in writing, will be deemed to be a term of the contract if it was considered by the consumer before entering the contract or influenced their decision in relation to the services after entering the contract. Examples of communications that could be incorporated into a financial services contract by the Act include promotions and renewal notices. Any such deemed term will be subject to qualifications that the trader made to the communication and any changes that the parties later expressly agree.
In light of this development, financial services firms should consider the effectiveness of their entire agreement clauses as presently drafted. Such clauses may no longer be enforceable or may be deemed to be unfair (see below) if they attempt to exclude terms incorporated by operation of the Act.
Consumers do not have a right to reject services provided to them. However, consumers do have aright to repeat performance, which the trader will be required to complete in a reasonable time, without significant inconvenience to the consumer and at the trader’s expense. If repeat performance is not possible, or if the trader fails to do it within a reasonable time or without significant inconvenience to the consumer, the consumer will have a right to a price reduction.
Exclusion and restriction of liability
As under the previous regime, the Act nullifies attempts to exclude or restrict certain liabilities. Liability from death or personal injury resulting from negligence cannot be avoided. Traders cannot exclude or restrict consumer’s statutory rights or remedies under the Act. Further, traders cannot seek to put consumers at a disadvantage if they attempt to exercise rights or remedies under a contract or make such exercise subject to onerous conditions.
Unfair terms and notices
The Act merges the UTCCR and the business to consumer provisions of UCTA. The Act repealed the UTCCR and the UK’s EU law obligations in respect of the Unfair Terms Directive (93/13/EC) are now implemented by the Act.
This Part is applicable to all consumer contract terms, regardless of whether they are individually negotiated, and consumer notices (to a limited extent). The provisions are also applicable to specific terms of secondary contracts (which do not have to be consumer contracts) if they reduce the rights or remedies or increase the obligations of a person under the "main contract".
The fairness provisions in the Act are not restricted to standard form contracts and include all terms, including those individually negotiated by the consumer. Terms which are unfair are unenforceable against a consumer, but a consumer may enforce them against a trader (if they wish to do so). To the extent practicable, if a term is unfair the rest of the contract will continue to have effect.
The Act defines fairness in this way: "a term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer." Whether or not a term is fair is determined by reference to all the circumstances existing when the rights or obligations to which it relates arose and to the terms and nature of any contract on which it depends (this process is known as the fairness test).
Contract terms relating to the main subject matter of a contract or to the price charged for the relevant goods or services are not subject to the fairness test, provided that such terms are transparent (see below) and prominent (that is, brought to the attention in such a way that the "average consumer" would be aware of the term). This exemption is narrow. For example, the price charged for a service will not be subject to the fairness test, but a clause stipulating how a consumer should pay for a service (e.g. in a particular currency or in instalments) will be.
The Act proscribes contract terms and notices that are deemed to be automatically unfair (known as the blacklist), including such terms or notices that purport to exclude or restrict liability for death or personal injury resulting from negligence.
The Act includes an indicative list of terms which may be deemed to be unfair, subject to the fairness test (known as the grey list). The grey list includes the terms previously listed in UCTA and adds three new potentially unfair terms:
- Terms which require the consumer to pay the trader a disproportionately high sum in compensation if they decide not to conclude the contract or for services which are not supplied;
- Terms which permit the trader to determine the subject matter of the contract after the consumer has become bound by it; and
- Terms which give the trader discretion to determine the price payable under the contract after the consumer has become bound, except where the contract sets out a mechanism for determining the price in such situations.
In the context of a dispute, the Act obliges courts to consider the fairness of the terms of a contract, whether or not the parties raise fairness as an issue.
The Act extended the scope of the fairness test to include consumer notices to the extent that they either relate to rights and obligations between a trader and a consumer or purport to exclude or restrict a trader’s liability to a consumer. Consumer notices include communications addressed to consumers, such as advertisements, announcements and website text, whether such communications are written or not.
Transparency of terms and notices
All written terms of consumer contracts and notices must be transparent in order to comply with the Act (that is, they must be expressed in plain and intelligible language and be legible). If a term in a consumer contract or a notice could have different meanings, the meaning that is most favourable to the consumer will prevail.
The Act preserved and supplemented the pre-existing enforcement regime. The relevant authority responsible for enforcing a breach of consumer law is determined by the offence or provision that is being enforced (for example, the FCA is responsible for enforcing fairness in respect of certain financial services contracts). The Act sets out generic investigatory powers, which all enforcers can exercise. Authorities can also seek criminal prosecution and civil injunctions to stop businesses infringing the law.
The Act introduced additional civil measures (known as enhanced consumer measures) to increase consumers’ access to direct remedies and force businesses to change their practices. Under the Act, authorities can compel businesses to establish redress schemes by which they directly compensate consumers for their losses and impose requirements on businesses to take compliance measures (such as appointing a compliance officer or improving staff training).
The Act maintained the FCA’s powers under the UTCCR to challenge unfair terms in the standard form contracts of authorised firms and appointed representatives undertaking regulated activities. However, as the fairness provisions in the Act are not restricted to standard form contracts (as discussed above), the FCA can now also review terms that have been individually negotiated by consumers. The FCA canimpose fines and seek undertakings or injunctions in respect of terms or notices that are unfair, non-transparent or exclusionary or restrictive in respect of certain liabilities.
The Competition and Market Authority’s (the "CMA") powers to take enforcement action in respect of financial services contracts where the trader is not authorised or an appointed representative is also maintained.
FCA rules and guidance
In response to the changes introduced by the Act, the FCA has made consequential amendments to the Handbook, Enforcement Guide and Unfair Contract Terms Regulatory Guide (which has been renamed the Unfair Contract Terms and Consumer Notices Regulatory Guide). The changes came into force on 1 October 2015 and were non-material. As noted by the FCA in its recent quarterly consultation paper (CP15/19), these changes will "not require us to materially change our relevant approaches and policies."
The CMA has published guidance on the unfair terms provisions in the Act (CMA37). The CMA’s guidance includes an annex of historic examples of unfair terms, previously published by the Office of Fair Trading, indicating that the CMA has adopted this material.