With Christmas just around the corner, retailers are busy enhancing their distance selling capabilities in order to benefit from the £8.5 billion that consumers are expected to spend online over the festive period. This huge growth in the e-retail market has not gone unnoticed by the Office of Fair Trading (OFT). It has been scrutinising online retailers' websites and recently placed 62 top online retailers on its 'naughty list' for failing to comply with consumer protection laws. The OFT report, published in October 2012, highlights that many websites still fall short of the required legal standard.
This update examines the OFT's investigation and the risks of non-compliance for distance sellers, and identifies the OFT's three main concerns to help online retailers improve their websites and fulfil their legal obligations in time for the busiest trading period of the year.
Online trading is primarily regulated under the Consumer Protection (Distance Selling) Regulations 2000 and the Electronic Commerce (EC Directive) Regulations 2002. Following a web sweep of 156 websites, the OFT wrote to 62 'top' online retailers to inform them that their websites were potentially in breach of these regulations. In particular, the OFT was concerned that some retailers were providing inadequate contact details, applying hidden charges to customers' total order and forcing onerous obligations on consumers that effectively restricted their right to claim a refund.
Under the Electronic Commerce Regulations, organisations are required to provide detailed contact information for consumers. The OFT report states that of the 156 websites reviewed, only 83% had provided the "full geographic address" required, with 12% of retailers' websites displaying merely a post office box address and 5% providing no physical address at all.
Businesses are also obliged under the Distance Selling Regulations to provide complete pricing information to consumers when the price is first displayed. However, the OFT report said that although 60% of sites indicated upfront that compulsory charges would be added to the first price shown, 24% of retailers levied additional unexpected charges, such as delivery fees or credit card surcharges, at the point of purchase.
Moreover, the Distance Selling Regulations state that consumers have certain rights to cancel a contract and claim a refund. Although almost all websites notified consumers of their right to a refund, 33% of them imposed unreasonable restrictions on how consumers could exercise that right (eg, by insisting that the product be returned in its original packaging or condition).
The OFT web sweep serves as a timely reminder that online retailers cannot afford to ignore consumer protection laws. Traders that fail to comply with the Distance Selling Regulations and the Electronic Commerce Regulations risk formal enforcement action by the OFT or local Trading Standards bodies, which could include civil proceedings and criminal sanctions. Naturally, there is also the risk of negative publicity and cost and time being incurred in addressing complaints.
Although the OFT report found that the majority of online retailers were largely in compliance with the regulations, it identified that websites could be improved in three ways:
- Always provide both a full geographic address and an email address in order for consumers to make direct contact.
- Clearly display any additional charges early on in the process of a transaction and ensure that these charges can be justified.
- Do not impose unreasonable or onerous conditions on a consumer's right to cancel or claim a refund.
As always, online retailers are advised to use plain and simple English to explain consumer rights and key terms clearly.
The OFT's warning to retailers is part of a general movement towards enhancing the level of protection available for consumers.
New EU-wide rules for online shopping, contained in the EU Consumer Rights Directive published in 2011, will make significant changes to the Distance Selling Regulations and Electronic Commerce Regulations. The new rules are expected to come into force in the United Kingdom by June 2014. As well as increasing the burden on retailers to provide enhanced information about upfront costs, the directive will extend the cancellation period from seven to 14 days for services purchased at a distance, and will require the retailer to provide a refund for cancelled goods or services within 14 days of receipt of the cancellation.
The directive also prohibits traders from introducing payment surcharges above the actual cost incurred to use that means of payment. Retailers will no longer be able to charge consumers for communicating any post-contract queries, complaints or cancellation requests.
Perhaps of most concern to online retailers is the possibility that the government will give consumers a private right of redress against traders in addition to pursuing claims through the OFT or Trading Standards. This could create a raft of claims for breach of contract or breach of statutory duty. The government is consulting on how these proposals may work in practice and its findings are expected to be published on March 6 2013.
Online retailers face pressure not only from a proactive OFT, but also from further legislative change. In order to stay on the OFT's 'good list' this Christmas, online retailers should continue to review their websites and standard terms to ensure that they remain in compliance with the law, both as it currently stands and as it continues to develop against the backdrop of major reform in consumer law with the implementation of the Consumer Rights Directive and the government's proposed Consumer Rights Bill.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.