The legal relationship between business and the consumer will be fundamentally reshaped by the Consumer Rights Act 2015 (CRA), the key sections of which came into force on 1 October 2015.
This important piece of legislation consolidates existing consumer law which was scattered across different statutes and regulations. It extends consumer rights in specific and quite radical ways, strengthens regulatory oversight of business practice towards consumers and greatly extends consumer rights of redress. These reforms will necessarily have an immediate and material effect on the policy, procedures and practices of consumer-facing businesses in the UK.
We examine below the key changes the CRA introduces, identify some likely effects these changes will have on the way businesses deal with consumers, and consider some ways in which businesses can anticipate and prepare for these.
The Consumer Rights Act 2015 The Act applies to all of the U.K. and is divided into three parts: Part 1 deals with consumer contracts for goods, digital content, and services, Part 2 deals with unfair terms, and Part 3 contains miscellaneous provisions, including, importantly, new enforcement powers.
Consumer: The Act defines a consumer as "an individual acting for purposes that are wholly or mainly outside that individual's trade, business, craft or profession". The requirement that the consumer be an individual excludes companies from claiming consumer rights under the CRA. This definition is broader than that used in the Unfair Terms in Consumer Contracts Regulations (UTCCR), which only apply if someone is acting entirely outside of their business. The CRA should therefore apply to someone who received goods or services and who benefited from them both personally and for their work. Any business claiming that an individual is not a consumer bears the burden of proving this.
Trader: The CRA defines a trader as "a person acting for purposes relating to that person's trade, business, craft or profession, whether acting personally or through another person acting in the trader's name or on the trader's behalf". The implications of this definition for businesses are considered below.
Goods The requirements of the CRA in respect of goods will largely be familiar from the Sale of Goods Act: goods must be:
- of satisfactory quality;
- fit for purpose; and
- conform with the description provided by the trader.
There is also a new implied term that the goods match any model seen or examined by the consumer beforehand. This means that businesses should ensure that staff are trained to:
- identify any differences between the model the consumer sees and the goods that will later be delivered;
- draw these to the consumer's attention before the contract is made; and
- keep some record of this where the difference are significant and/or the value of the goods high.
Remedies The CRA introduce several important new remedies (for consumers) and obligations (for businesses). These are intended to operate sequentially:
- The consumer has a "short-term right to reject" the goods if they do not conform to the contract. This right may only be exercised within 30 days of delivery/installation of the goods. The burden of proof is on the consumer to show that the goods fail to conform;
- The trader otherwise has the right (at the consumer's option) to repair or replace the goods provided. This must be done within a reasonable time. If the consumer chooses this remedy, then under the CRA, it is assumed that the goods had the fault when they were delivered to the consumer, unless the trader can prove otherwise;
- After these first two remedies are exhausted, the consumer may rely upon a statutory right to receive an appropriate reduction in the price. This can be up to the full amount.
- If the trader fails to repair or replace the goods, after just one opportunity to do so, the consumer may then invoke a "final right to reject" the goods entirely. If the goods are finally rejected by the consumer, the trader must provide a refund (using same payment method as the consumer used) without undue delay and in any event within 14 days of agreeing that a refund is due.
Supply of Services Implied terms from existing legislation have now been incorporated into the CRA, including:
- that the service be performed with reasonable skill and care;
- that the price is reasonable, if not agreed; and
- that the services will be performed in a reasonable time, if not agreed.
When representations are made pre-contract which are taken into account by the consumer when deciding to enter into the contract, these will be implied into the contract as express terms. If the services do not conform to what was stated, the consumer may insist upon repeat performance or a price reduction, which can be for the full amount. Consumers who believe that they were misled therefore no longer need to make their claims in misrepresentation (with the tougher requirement of proving their own reliance). Now they may simply claim for breach of contract.
Digital Content Digital content (such as computer games, phone apps or an e-book) is intangible and it is difficult to apply to this the concept of "goods" which is used in pre-Internet legislation. The CRA expressly provides for digital content as "data produced and supplied in digital form", though excludes from "digital content" goods which are sold online or the "conduit" services provided by phone networks or ISPs.
Digital content enjoys similar implied contract terms as goods and services. The CRA requires that digital content be:
- of satisfactory quality;
- fit for purpose;
- as described.
The quality will be "satisfactory" under the CRA if it "meets the standard that a reasonable person would consider satisfactory", taking account of any description, price and any other relevant circumstances. This is an objective standard, so if, for example, a computer game turned out to be dull or a film particularly upsetting, this is irrelevant to whether the quality of the digital content is satisfactory or not.
Remedies: if the consumer is able to show that the digital content does not conform to the contract, the consumer is entitled in the first instance to repair or replacement. If repair or replacement of the digital content is not possible or too slow, the price may be reduced or refunded entirely. This change in the law removes an ambiguity that arose from rapid changes in technology. We should not assume that this new provision will not itself one day need updating or replacement.
Pre-Contract Information and Statements Section 50 of the CRA makes a change in the law which is likely to be highly significant for future consumer claims against businesses. Pre-contract statements made by the trader or his representative relating to the trader or its services (such as details regarding payment, performance, or after-sales support) are now implied by the CRA into the trader's contract with the consumer as express terms. This widens considerably the potential liability of businesses for breach of contract claims.
Regulations do exist to govern pre-contract statements made to consumers; under the Consumer Contracts (Information, Cancellation and Payments) Regulations 2013 traders must provide the consumer with a list of the information provided pre-contract. It also implies a term into each consumer contract that the trader has complied with its information obligations. The CRA also makes information provided under those Regulations a term of the contract. Yet these obligations are intended to ensure that everything is said which should be said; they do nothing to protect businesses – or indeed consumers – from those things said before the consumer decides to proceed which should not have been said, because they are partial, inaccurate or misleading. The contractual liability for such statements which the CRA now imposes on businesses may well lead to the wider use of standard sales scripts which limit this risk. Businesses will wish to ensure that representations about them or the services to be provided (that previously were perhaps made casually or without much thought) should now be accurate in all material respects, as they will have contractual force.
There is another important point to note here: the consumer's entitlement to the remedies specified by the Act may also be triggered by the statements, actions (or failure to act) of some third party entirely independent of the trader. The only requirement is that the third party is acting in the trader's name or on the trader's behalf. The connections between the trader (as business counterparty) and those acting on behalf of that business for purposes of the Act can in practice be very tenuous indeed. This creates potential lines of liability over which the business may have little or no knowledge and control.
Credit Agreements and s. 50 CRA The consumer who buys new white goods for his kitchen and wishes to do so on credit will probably rely upon the store assistant or manager for an explanation of the terms of the credit agreement, even though that store is unlikely to be a party to the credit agreement itself, which will probably be between the consumer and a third-party bank. The description of the credit agreement terms and of their practical effect on the consumer given by the sales assistant will, under s. 50 of the CRA, be implied into that credit agreement as express terms. These terms will be binding on the bank, even though it is likely to know nothing about them unless and until the consumer seeks to rely upon what he was told.
Similarly, if a sales assistant makes statements to a consumer about a fridge, including its after-sales service and the consumer then buys the fridge with her credit card, the statements made by the sales assistant become (by virtue of s. 50) terms of the consumer's contract. If the servicing of the fridge differs from what was stated of it, the consumer will then in theory have a claim against the credit card company under s. 75 of the Consumer Credit Act 1974. The card company will know little about fridge servicing and nothing about the account of it given to the consumer by a sales assistant at an unrelated commercial entity. Commentators are already fearing a possible rise in claims against card providers. The full effect of s. 50 will not be known until consumers start to invoke it in a range of contexts and to test its limits. Further developments on its scope and application are therefore not out of the question.
Credit agreements seem to present other problems. Consider for example, the short-limit “right to reject", by which the consumer may reject goods that do not conform to the contract up to 30 days after delivery. The CRA does not address the liabilities of a creditor financing a sale transaction under a debtor-creditor-supplier agreement where the buyer rejects the goods under a statutory right. At least some of the CRA's new consumer rights may at present operate at the expense of consumer credit companies.
Unfair Terms Part 2 of the CRA consolidates the Unfair Contracts Terms Act 1977 (UCTA) and the UTCCRs, retaining consumer protection as its overriding objective. The CRA moves away from the test of reasonableness found in UCTA and simply requires all consumer contract terms to be fair. Fairness is defined in s.62(1) in the same way as in the UTCCRs:
A term is unfair if, contrary to the requirements of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer.
Whether the term is fair is to be determined:
- taking into account the nature of the subject matter of the contract, and
- by reference to all the circumstances existing when the terms agreed and all the other terms of the contract or any other contract on which it depends.
The CRA incorporates the presumption that if a term in a consumer contract is ambiguous and may be interpreted in different ways, the meaning that is most favourable to the consumer will prevail. If a term is unfair, it will not bind the consumer and so will be unenforceable. Terms which are unenforceable on unfairness grounds may be in principle be separated from the rest of the contract.
"Core terms" exemption Contract terms relating to the subject of the contract or to price were previously treated as core terms which were exempted from the fairness requirement. The UTCCRs only required that these terms be in plain and intelligible language. The CRA has changed this. Though the core terms are still exempt from the fairness requirement, s.64 of the CRA provides that this exemption is only available when the contract term in question is:
Transparent: the text must be legible and the term must be expressed in plain and intelligible language.
Prominent: the term must be brought to the consumer's attention in such a way that the average consumer would be aware of the term.
This change in the law could have quite a major impact on the way businesses lay out their standard contracts and present key information to consumers. In order to discharge the duty imposed by this provision (and thereby shield a contract's core terms from an assessment of their fairness), businesses will need to consider what information the consumer truly needs in order to form a reliable and properly-informed judgement about the contract. If key terms relating to pricing or some fundamental aspects of performance are banished towards the back of the document, perhaps among others unrelated material, is difficult to see how a business would succeed in arguing that that those core terms were prominent and so had been brought to the consumer's attention. Businesses that wish to rely on the core terms exemption would be well-advised to review their existing contracts to ensure compliance with this new standard.
"Grey List" of terms that may be unfair: the CRA transposes the Grey List from the UTCCR and adds three further items to it which will generally be considered to be unfair:
- disproportionately high excess fees (for example, fees that are greater than the reasonable cost to the business);
- Terms whereby the subject matter of the contract is determined after agreement; and
- Terms whereby price is determined after agreement, once the consumer is already bound.
The addition of these three types of clause to the Grey-List means that as part of any general review of their standard documents, businesses should determine whether they include clauses which could be said to fall within these new suspect categories.
Enhanced Consumer Measures The CRA amended the Enterprise Act 2002 to empower enforcement bodies (such as the Competition and Markets Authority (CMA) and Trading Standards) to apply to the courts for an enforcement Order to address breaches of consumer law. The enforcement body must first consult with the offending business, which may provide an undertaking and submit to a monitoring programme. The "Enhanced Consumer Measures" (ECMs) the CRA creates may include:
- Appointing a compliance officer
- Providing training to staff
- Collecting information from customers on compliance by the business
- Signing up to a ADR scheme to manage complaints
- Setting up a scheme to provide redress to customers and ensuring that the scheme is probably publicised
Rights of Redress The sections of the Enterprise Act 2002 amended by the CRA set out in detail how consumer redress schemes should operate. Redress schemes are another type of ECM. It is a statutory requirement that any ECM should be just reasonable and proportionate, taking into account the benefit to consumers, the likely cost to the business in complying with any measures, and the likely cost to consumers of obtaining the benefit of the measures. It would not be proportionate, for sample, to set up a redress scheme in which the losses by consumers were relatively small, the difficulty of identifying eligible consumers considerable, and the costs of administering the scheme high.
ECMs are endorsed by the court – non-compliance with court orders by a company would be a contempt of court for which directors can be fined or imprisoned.
Rights of Collective Action by Consumers The CRA makes a number of important reforms to the management of large-scale litigation. These are intended to make it easier for large groups of claimants to bring claims. The Competition and Appeals Tribunal is designated a specialist tribunal for competition cases.
The new ability of the court to hear large cases relating to the infringement of competition law has been a widely-publicised development associated with the CRA, particularly in relation to the increasing use of follow-on damages claims after European Commission and UK Competition Commission rulings. The CRA amends the procedure for large-scale litigation in England and Wales for breaches of competition law by permitting "opt-out” collective actions, in which claimants who fall within that class participate automatically unless they expressly opt out using the required procedure. In such cases, the claim is brought by a representative of the class. This means that individual claimants do not each need to bring a separate claim, cutting costs and other bars to such claims being brought at all. This is likely to lead to a rise in large-scale consumer litigation in the English courts.