The Consumer Rights Bill 2022 proposes significant reform of consumer protection law. It will substantially transpose the EU’s “Omnibus Directive”1 (implementing the EU’s “New Deal for Consumers”) as well as transposing the EU Digital Content Directive2 and the EU Sale of Goods Directive3.
This briefing considers the likely impact of the Consumer Rights Bill 2022 (as initiated, see here) on financial services in Ireland. For an overview of the Bill more generally, see our earlier briefing here.
Status and Timing
The Bill was published on 22 April 2022. There appears to be a drive to enact the legislation speedily, although it may still lag behind timelines specified in the EU Directives being transposed (eg the Omnibus Directive requires the enacted legislation to take effect in Ireland from 28 May 2022). Based on statements in legislative debates so far, the legislation is expected to be enacted in mid-2022 and to come into force later this year. Consequently, businesses may not be afforded very much time between now and the coming into force of the legislation to make any relevant changes to documentation and processes.
What is the Impact on Financial Services?
The first point to note is that the Bill applies to contracts with a “consumer” (being an individual acting for purposes wholly or mainly outside their trade, business, craft or profession) concluded after the coming into effect of the legislation.
While the Bill applies to a broad range of consumer contracts generally, it has a much narrower application to “financial services” with many of its Parts specifically excluding them from scope. A “financial service” is defined as “…any service of a kind normally provided in the ordinary course of carrying on a banking business, an insurance business or a business of providing credit, personal pensions, an investment service or a payment service”.
While reiterating that much of the Bill excludes financial services, nonetheless, for those in-scope financial services that are provided to consumers, the following are likely to be the principal implications of the Bill, once it is enacted:
- Exclusion/Restriction of Liability: service contracts will no longer be permitted to exclude or restrict the service-provider’s liability in relation to a list of specified provisions of the Bill (eg supply of service; conformity of service with contract; reasonable price for service).4 A breach of this provision would constitute an offence. Consequently, financial services providers should review their consumer-facing contracts to identify if they contain any affected clauses and, if so, make appropriate amendments.
- Unfair Terms: significantly, the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 (the “Regulations”) are to be revoked and replaced by the provisions set out in Part 6 of the Bill. While not mandated by the Omnibus Directive itself (which made limited changes to the Unfair Contract Terms Directive5 (“UCT Directive”) transposed by the Regulations), the provisions of Part 6 represent a significant change from those set out in the Regulations. Some of the more noteworthy changes are:
Black list: A new “black list” of standard contractual terms and conditions that are always unfair. This includes items such as: seeking to transfer the onus of proof to the consumer where it should rest with the provider by law; requiring a consumer who is party to arbitration to pay the party’s own costs; conferring exclusive jurisdiction on the courts where the trader is domiciled, unless that is also where the consumer is domiciled. Section 132 of the Bill sets out the complete list.
Grey list: The existing “grey list” of potentially unfair contractual terms is retained and expanded. Interestingly, the Bill also expressly presumes such terms to be unfair, whereas the existing Regulations simply state they “may be regarded” as unfair.
CJEU jurisprudence: Helpfully, the substance of a number of decisions of the Court of Justice of the European Union on the UCT Directive are translated into legislative provisions. For example: a contract is not automatically excluded from the scope of the legislation because the consumer did not pay a price under the contract; the meaning of a contract must be “transparent” (as defined) to the consumer; the court has a duty to consider, even where not pleaded by the consumer, the fairness of the terms of an in-scope contract.
Exclusions: the number of items excluded from potential assessment for unfairness has been narrowed, in particular by (i) extending the assessment to terms individually negotiated and (ii) narrowing the exemption for core contract terms.
- Hire Purchase / Consumer Hire: existing provisions regulating the provision of goods under hire-purchase and consumer-hire agreements (“Hire Agreements”) are supplemented by a range of new consumer-protective provisions. These include a series of terms that are implied into all Hire Agreements, additional remedies for customers, and the creation of offences for (i) “representations” (which includes advertising and standard-form contracts) purporting to restrict rights of a hirer, and (ii) contractual provisions which seek to exclude or restrict the owner’s liability in relation to specified provisions. There are also new provisions in relation to the hire of goods with digital elements. This is another significant expansion of regulation in the area of consumer Hire Agreements, following the commencement on 16 May 2022 of the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 (see our briefing here).
- Offences / Fines: as is typical in such legislation, the Bill makes breach of a number of its provisions an offence with secondary liability for officers of a body corporate in certain circumstances. It will be a defence for the defendant to prove that due diligence was exercised and all reasonable precautions were taken to avoid the commission of the offence. It remains to be seen whether this dual test will be a difficult standard to satisfy. There is the potential for the imposition of fines or imprisonment on conviction. The Bill sets out a list of indicative and non-exhaustive criteria that a court must take into account when determining the appropriate sentence for a Part 6 offence. These include the nature, gravity, scale and duration of the infringement. In addition to penalties, a convicted person will be liable for the costs and expenses of the proceedings and investigation unless the court, for “special and substantial reasons”, orders otherwise. This is in addition to, and not instead of, any fine or penalty that the court may impose. A convicted trader may also have to compensate consumers for any loss or damage caused by its offending behaviour although this will depend on whether the consumer has brought separate proceedings under the Act in respect of the same matter. If the court does grant a compensation order, this may be instead of or in addition to any fine or penalty imposed by the court. In addition to laying out dedicated offences and penalties under the Bill itself, the Bill also amends the European Union (Cooperation Between National Authorities Responsible for the Enforcement of Consumer Protection Laws) Regulations 2020. When amended, these Regulations will specify that, where (i) an offence is committed under specified parts of the Bill (including Part 6) or certain provisions of the Consumer Protection Act 2007 and (ii) this also constitutes an intra-EU or relevant widespread infringement under those Regulations, then further fines can be imposed of up to 4% of relevant turnover or €2 million, depending on the circumstances. For example, a financial services provider that continues to use a term held by the court to be unfair (following an application for such a declaration by an “authorised body” such as the Central Bank of Ireland), or where an authorised body publishes an order under the Bill declaring a term of a consumer contract to be unfair, the financial services provider commits an offence and could be liable to the turnover-based fine.
- Consumer Protection Act 2007: The Bill also proposes a series of amendments to the Consumer Protection Act 2007, which could apply to the provision of products (which can include financial services) within the scope of that Act (such as in respect of misleading commercial practices). As mentioned above, the turnover fines regime will extend to certain breaches of the Act.
Financial service providers that deal with consumers generally have robust documentation and processes in place to ensure compliance with the many different requirements of consumer and financial services legislation. As part of that ongoing compliance work, it will be important to review the Consumer Rights Bill in detail to determine whether compliance frameworks will need to be amended. Given the likely tight time-lines and the potentially extensive scale of the review that will be required (especially where there are multiple consumer-facing products), early engagement with the Bill and, in particular, with the issues discussed above, would be prudent.