Marketers need to take note of two important developments regarding consumer protection compliance.  The first is a ruling by the ECJ, confirming the existing OFT and CAP Code guidance that a consumer must not be required to incur any cost whatsoever in order to ascertain whether they have won a prize, to gain information about their prize, or to claim it.  The second is a reminder from the ASA about the obligation on promoters to make available the "significant terms and conditions" for promotions.  We look at the practical impacts.

ECJ confirms absolute ban on any consumer payment for prizes

In October the ECJ gave its ruling in the case of Purely Creative and others v Office of Fair Trading. The decision is significant because it gives national courts guidance on one particular grey area of the EU consumer protection regime. In the ruling, the ECJ confirmed that where a consumer is lead to believe that he has won, or will win, a prize, a promoter cannot make him pay any costs whatsoever to find out if he has won, or to claim, or to take possession of, the prize. This includes situations where the cost is de minimis, such as a postage stamp, or where a consumer is offered an additional free route.

Is a prize which incurs a cost really a 'prize'?

The Court of Appeal had referred various questions to the ECJ regarding the interpretation of Paragraph 31 of Annex 1 of the Unfair Commercial Practices Directive (2005/29/EU) (UCPD), which is transposed into UK law by the Consumer Protection From Unfair Trading Regulations 2008.  Paragraph 31 is one of the Directive's blacklisted practices which are automatically considered unfair (and therefore prohibited). It covers a situation where a promoter creates "a false impression that the consumer has already won, will win, or will on doing a particular act win, a prize of other equivalent benefit, when in fact either:

  • there is no prize or other equivalent benefit; or
  • taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost."

The Purely Creative case related to the second scenario.  In brief, the company distributed prize-draw scratch-cards where consumers were told that they could claim one of various prizes, but to do so they had to pay to contact the promoter (either by post, on a premium rate number or via reverse SMS), and in some instances pay additional costs such as delivery and insurance of their prize.  The promoter argued that no "false impression" had been created since the consumer was sufficiently informed of the costs involved; however, the ECJ disagreed. Even where a consumer knew he would have to incur a cost, a "false impression" still arose since the consumer, once told he had won a prize, would not have expected to have to pay anything in order to find out what it was or to claim it.

The ECJ ruled that paragraph 31 imposed an unequivocal ban on any form of cost to the consumer whatsoever. This was essential for legal certainty and consistency across Member States. If the ECJ had held that de minimis costs were permissible, it would have left national courts with the difficult task of evaluating the cost in relation to the value of the prize on every occasion. Furthermore, the ban extended to cover any step taken by the consumer to find out information about his prize or collect it, such as paying to phone the promoter or covering the postage on the prize itself.  The view taken by the OFT in its existing guidance on the regime was therefore vindicated.

In its judgment, the ECJ stated that the concept of a true 'prize' should be preserved by interpreting paragraph 31 as meaning that a prize in respect of which the consumer is obliged to make a payment of whatever kind cannot be regarded as a 'prize'.  Thus even if an alternative route is offered which does not require the consumer to bear any cost, the promotion will still fall foul of the UCPD. The presence of one route requiring payment means that the consumer, possibly opting for the fastest route in his excitement, may incur a cost.

Promoters must be clear in their description of prizes

As well as taking care with prize claiming routes, promoters should also be careful with regards to the exact description of the promotion to avoid being liable for unintended costs. The Court contrasted the example of an 'entrance ticket' for a football match, which would not require the promoter to cover the cost of transport to and from the stadium, as opposed to 'attendance' at that event, whereby the promoter would be liable for the consumer's travel.  It is important that promotions contain clear and sufficient information which can be understood by the public targeted by the practice and which enables a consumer to identify a prize and assess its nature.  Whether a promoter meets this burden or not is for the national courts to assess.

Other compliance points: ASA guidance on "significant Ts and Cs"

Of course, avoiding specifically blacklisted practices is just one hurdle that marketing departments need to navigate.  Promoters need to avoid breaching the UCPD's prohibitions on misleading actions and misleading omissions more generally.  These requirements are reflected in sections of the CAP Code, and the ASA recently updated its guidance on terms and conditions for sales promotions. The 2 page document recaps on the rules on making available "significant Ts and Cs" and those for prize promotions in particular. It includes illustrations of complaints which the ASA has upheld (or not) on related scenarios.

Comment and practical steps

The ECJ case focussed on promotions which exploited the psychological effect of winning a prize in order to entice a consumer to act irrationally and incur a cost, which the OFT argued is exactly the type of aggressive practice that paragraph 31 was enacted to stamp out.  It is worth noting that such promotions are usually run by professional promotions businesses - that is, companies whose sole source of profit is running promotions such as these - as was the situation with Purely Creative.  Companies running genuine promotions for the purpose of promoting a product or brand may find this judgment presents less of a concern; nonetheless, the decision provides clear guidance for any promotion which suggests that a consumer has won, or will win, a prize.

Nonetheless, promoters need to continue to ensure all aspects of their promotions avoid breaching the prohibition under the UCPD on misleading acts and misleading omissions.  Breaches of the UK regulations carry the risk of censure by the ASA, formal enforcement by the OFT and even criminal liability.  The OFT has shown in the past four years that enforcement of the rules is high on its agenda.  Key guidance for businesses on compliance is available from the following sources: