The new Consumer Protection from Unfair Trading Regulations are due to become law in April 2008. This means sellers that have regular dealings with consumers have a little time to review their internal sales processes and marketing and advertising policies to ensure they are compliant.

The Unfair Trading Regulations have come about as a result of the EU’s Unfair Commercial Practices Directive (2005/29/EC), which harmonises unfair trading laws across Member States. This means that a consumer can expect the same level of protection in any Member State as he would get in his own Member State. Therefore, sellers (particularly those that trade over the internet) need to be aware that trading with some European consumers will become more regulated as, by implementing the Directive, Member States improve their consumer law.

The Directive also offers protection to businesses from misleading advertisements and comparative advertising. This will be implemented in the Business Protection from Misleading Marketing Regulations 2007 due to come into force alongside the Unfair Trading Regulations. Their implementation is because the Unfair Trading Regulations repeals legislation which contained protections for businesses.

Will the Unfair Trading Regulations apply to you?

Yes, if you are a trader acting for purposes related to your business, including anyone acting on your behalf or in your name. Some traders are obvious, some less so - the OFT guidance on the Unfair Trading Regulations says that a regular user of eBay could be deemed a trader. This would ultimately depend on the frequency of transactions and the presence of a profit motive. The Unfair Trading Regulations will protect consumers, who are individuals acting for purposes outside of his business, i.e. in a private capacity.

What is unfair under the Unfair Trading Regulations?

The Unfair Trading Regulations focuses on the ‘commercial practices’ of traders in relation to ‘products’.

A ‘commercial practice’ can be any pre- or post-contractual act, failure to act, course of conduct, commercial communication, advertisement, sales pitch, after sales service or debt collection.

A ‘product’ is any good or service, including immoveable property, rights, obligations, physical and intangible items and even the provision of credit. This wide definition includes property leases, loans, internet sales, the trading of promises, holiday and flight sales and car rental as well as traditional high street or catalogue sales.

While a commercial practice might not seem unfair to a consumer from the world at large, it could be unfair to a specific or targeted group of consumers, or a vulnerable group of consumers. For example, advertising toys during children’s programmes is likely to be aimed at children or parents, who will then be the appropriate group of consumers for considering whether an advertisement is unfair.

Unfair commercial practices fall into four categories:

1. misleading actions;

2. misleading omissions;

3. aggressive commercial practices;

4. specific practices listed in Schedule 1 to the Regulations;

These practices must cause a consumer to take, or be likely to take, a different ‘transactional decision’. A transactional decision can include post-purchase decisions as well as the decision to buy, including whether to pay a debt or request a refund or replacement product.

There is also a general, catch-all, prohibition on unfair commercial practices.

Misleading actions and omissions

Misleading actions occur where the trader has given false information to, or deceived, the consumer by:

giving generally misleading information about purchasing considerations (e.g. product characteristics or rights of quality and fitness for purpose);

  • causing confusion by the way a product is marketed (e.g. by misusing a competitor’s trade mark); or
  • failing to comply with affiliated codes of conduct. An omission will be misleading if it:
  • hides information needed in the circumstances to make an informed purchase (e.g. that after sales service is not included in the price); or
  • provides information in an unclear, unintelligible, ambiguous or untimely manner.

Special provision is made in the Unfair Trading Regulations for invitations to purchase, such as bill board, webpage or magazine advertisements, listing additional information that should be given in each advertisement.

Aggressive commercial practices

The Unfair Trading Regulations prohibits commercial practices significantly impair or limit (or are likely to) a consumer’s freedom of choice or conduct concerning the product by harassment, physical or physiological coercion or undue influence. Examples in the OFT’s draft guidance include a mechanic who has done more work than agreed but refuses to return a consumer’s car until the bill is paid in full (exercising undue influence) and a salesman who stays in home for so long that the occupant feels compelled to purchase a product (significant impairment). When considering whether a practice is aggressive, the Unfair Trading Regulations provides a list of non-exhaustive factors to be considered in the context in which the practice was exercised. Practices that are always unfair

The Unfair Trading Regulations contains a list of 31 different situations, some quite industry-specific, whereby a practice will automatically always be considered unfair. Examples include falsely claiming to be a signatory to a code of conduct, making personal visits to a consumer’s home following requests to not do so, and falsely claiming that a product is able to cure illnesses.

General prohibition

Sweeping up any unfair commercial practice that does not fall into any of the above is the general prohibition. It prohibits a commercial practice that contravenes the requirements of professional diligence to materially distort (or be likely to) the economic behaviour of a consumer with regard to a product. Professional diligence is the special standard of skill and care required by honest practice and/or good faith in the market in which the trader operates, as expected by a reasonable person. This may include compliance with applicable codes of conduct or industry guidance. A material distortion is an impairment of a consumer’s ability to make an informed decision and this must be significant enough to change a consumer’s mind.

Policing the Unfair Trading Regulations

Trading Standards and the OFT will enforce the Unfair Trading Regulations, taking such action as they deems appropriate in each case. This could include providing education and guidance, using self-regulatory bodies such as the Advertising Standards Authority (and their codes of conduct) and civil and criminal enforcement. Civil action can result in a court awarding an enforcement order against a rogue trader to cease an illegal commercial practice

Criminal prosecution

For all but the general prohibition, it will be enough for the OFT or Trading Standards to prove that there has been a prohibited act or omission, regardless of whether the act or omission was intentional or accidental. Whether or not the trader actually intended to use an unfair commercial practice will only be relevant in respect of the general prohibition.

Defences are available to all but the general prohibition if the trader can show that the commission of the offence was due to a mistake, reliance upon or an act or default of another or an accident beyond the trader’s control and that he took all reasonable precautions and exercised all due diligence (in practice as well as in written trading procedures) to avoid it. Other defences are available to advertisement publishers in specific situations. Where a body corporate commits an offence with the consent or connivance, or due to the neglect, of an officer of that body, the officer can be prosecuted as well as the body corporate. This means that senior managers and directors now have direct accountability for the sales and marketing behaviour of their companies.

Aside from the negative public relations caused by a criminal prosecution, the penalties (for any trader and a body corporate’s officers) on conviction are a fine not exceeding £5,000 (magistrates court only), or a potentially unlimited fine and/or imprisonment for up to two years (Crown Court only).

What should I do?

While the Unfair Trading Regulations has simplified the legislation surrounding consumer rights, it will still sit alongside legislation governing the quality and suitability of goods and services, as well as consumer credit, direct marketing and distance selling regulations.

Now is an excellent opportunity to:

  • review your sales procedures
  • review your marketing practices
  • put in place clear policies and procedures to ensure employees understand what constitutes an unfair commercial practice.

Not only will this reduce the likelihood of employees engaging in unfair commercial practices, but the presence of regularly reviewed, maintained and enforced procedures can provide evidence of thorough due diligence in the face of allegations of unfair trading