The Consumer Rights Act 2015 ("the Act") comes into force on 1 October 2015 updating consumer rights and remedies (Part 1) and restating the law in relation to unfair terms (Part 2).
The Act sets out a framework that overhauls consumer rights and remedies in relation to defective goods, services and digital content, as well as overhauling the law relating to unfair terms in consumer contracts.
It also provides better means for consumers and small to medium-sized enterprises to challenge anti-competitive behaviour and consolidates enforcers' powers to investigate breaches of consumer law. However this briefing concentrates on the changes to consumer rights and remedies and unfair terms frameworks.
PART 1: CONSUMER RIGHTS AND REMEDIES
Part 1 of the Act simplifies and clarifies the law over consumer rights on goods, services and digital content.
The policy intention is that rights and remedies should be more easily understood and user-friendly for consumers, resulting in fewer disputes being litigated or, where applicable, requiring adjudication. However, from 1 October 2015, the remedies available to consumers will be more clearly defined, so there is a key concern for traders that it may actually drive an increase in early cancellation and rejection of goods.
GOODS: MUST MATCH A MODEL SEEN
As before certain rights will be implied into a contract for the purchase of goods, including that they are of a satisfactory quality, are fit for purpose, are as described and that they match any sample seen.
In addition, a new term will now be implied where a customer has entered into a contract on the basis of a model seen or examined beforehand, which is that the goods delivered will match the model seen, except to the extent that any differences are brought to the consumer's attention before he or she enters into the contract.
This implied term applies whether or not the goods supplied are of satisfactory quality or fit for purpose. It will particularly affect sales where the customer views goods at a dealership or retail outlet and before making an order. It is essential, in such circumstances, for the customer to be told, at the time he or she views the model, of any differences between the model seen and the goods that are being purchased. There is no guidance on the level of detail required when indicating differences but it is unlikely that a general disclaimer that "the goods may not match the model seen" will suffice. This throws a spotlight on point of sale disclosures and the importance of making sure that the customer interaction is as it should be.
GOODS: THE SHORT TERM RIGHT TO REJECT
This remedy is limited to 30 days after purchase and delivery and/or installation and is available if the goods:
- are not of satisfactory quality,
- are not fit for purpose,
- are not as described, or
- do not match a sample or a model seen or examined
There is no mechanism by which traders can "contract out" of this right, e.g. by ensuring that the customer "accepts" the goods. Once the customer alleges that the goods do not conform to the contract, there needs to be a conversation and the trader must either agree that the customer is entitled to a refund or establish that the goods do conform to the contract and so there is no refund due. If there is an entitlement to a refund, it must be paid within 14 days using the same means of payment that the customer used to make the payment in the first place.
The customer can request or agree to the repair or replacement of the goods, in which case, the "clock stops" until the repair or replacement is complete, at which points it continues where it left off (except that if the time less is fewer than 7 days, then there is a further 7 days).
Traders are understandably anxious about where this leaves them vis a vis manufacturers who have supplied faulty goods. However, the law regulating the relationship between supplier and manufacturer in this regard has not changed. A manufacturer dealing with a trader on its written standard terms cannot exclude or restrict any liability except in so far as the contract term satisfies the requirement of reasonableness. Going forwards, if the risk of more consumers exercising their new easier-to-use rights materialises, where manufacturers seek to exclude or restrict their liability, traders may feel they have have more reason to seek to protect their interests as a matter of negotiation. We understand that, as a matter of good housekeeping, some traders are reviewing their agreements with manufacturers, although smaller retailers with less bargaining power will have less opportunity to influence terms of business than larger and more well-known brands.
GOODS AND DIGITAL CONTENT: RIGHT TO REPAIR OR REPLACEMENT
At any time during the first 6 months after delivery of goods or digital content, the customer has a right to repair or replacement if they do not conform to the contract. If the consumer requires the trader to undertake a repair or replacement, that must be done within a reasonable time and at the trader's cost. The trader will be able to avoid undertaking a repair or replacement if it can demonstrate that the repair or the replacement is impossible. If it has to provide the remedy, it will be able to dictate whether it goes down the repair or the replacement route if one remedy is clearly disproportionate when compared with the other.
GOODS, SERVICES AND DIGITAL CONTENT: RIGHT TO A PRICE REDUCTION
Where the rights to repair or replacement of goods or repeat performance of services are not possible or have failed, a consumer has a right to a price reduction. Importantly, a consumer only has to accept one failed repair or replacement before they can opt for a price reduction and if a customer opts for a price reduction he or she has a right to receive a refund for anything already paid above the reduced price.
Interestingly, where goods have been financed on hire purchase or conditional sale, it is highly likely that the customer will not have paid the reduced price, so he or she will not be entitled to any refund at all. However it may be easier for the trader to simply refund all or part of a deposit paid, as, if the trader wants to keep the deposit, it will have to sign a new hire purchase or conditional sale agreement with the customer, due to the requirements of the Consumer Credit Act 1974.
GOODS: FINAL RIGHT TO REJECT
Where the transaction is for the purchase of goods, as an alternative to the right to a price reduction, the customer has a final right to reject the goods (which can be subject to a deduction for use of the goods if the goods are a vehicle). If the customer opts for a price reduction, he or she cannot then exercise the final right to reject the goods. Again, this right is available if after one repair or replacement the goods still do not conform to contract. It is also available if repair or replacement is impossible or has not been achieved within a reasonable time.
GOODS AND SERVICES PURCHASE ON A CREDIT CARD
The position for transactions financed by a credit card has not changed. Where a credit card transaction is worth between £100 and £30,000 and the customer has a claim against a supplier in respect of a misrepresentation or a breach of contract, the credit card issuer is already jointly and severally liable to the customer. Note, however that while a customer whose goods or services do not conform to contract will have a "like claim" against their credit card issuer, the card issuer is not the "trader" under the CRA, so will not be required to provide the same remedies to the consumer.
PART 2: UNFAIR TERMS
Part 2 of the CRA will replace the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs), in its entirety, and the Unfair Contract Terms Act 1977 (UCTA) in so far as it affects consumer contracts. UK legislation on unfair terms law will, therefore, be updated and consolidated in one place. The Competition and Markets Authority's guidance on the unfair terms provisions in the Act, which was published on 31 July 2015, sets out its understanding of their effect, as well as providing detailed suggestions about how consumer contracts can be drafted to comply with the law.
The Competition & Markets Authority (CMA) is the UK's national competition and consumer authority, having replaced the Office for Fair Trading (OFT) and is responsible for enforcing this legislation. The CMA guidance confirms that the CRA has prospective effect from 1 October 2015, superseding the UTCCRs, and in respect of consumer contracts, the UCTA. The changes in respect of the law on unfair terms are best characterised as mainly consisting of changes in scope rather substance. In this regard, the CRA and the guidance seek to reflect developments in both UK, but also in EU case law. While the UTCCRs and the UCTA will still apply to contracts entered into before 1 October 2015, in so far as the substance of the law is concerned, traders would be best placed not to distinguish between the legislation.
TRANSPARENCY AND PROMINENCE
In line with developments in the EU Court, there is now a greater emphasis on terms in consumer terms and conditions being sufficiently transparent and prominent at the outset. The CMA guidance makes it clear that legibility and clarity of language are not enough; rather, terms should be drafted to ensure that consumers can make informed choices. Another way it is put is that "plain and intelligible" means that the "consumer is in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him which derive from" a clause. For example, the CMA suggest that traders may seek to make significant terms more transparent by providing explanatory material, for example, a summary or a "cooling-off" period. It goes without saying that a disadvantageous term should not be hidden.
The focus on prominence is a reflection of the growing regulatory impatience with smallprint. The CMA guidance states directly that, in the CMA's view, consumers cannot generally be expected to read thoroughly the small print of standard contracts. Therefore, suitable prominence ought to be given to terms depending on their importance and, where necessary, critical terms highlighted. The guidance accepts that it may not always be possible to give a large number of terms suitable prominence. While the addition of this requirement may appear to represent a significant departure from the previously understood position, in reality the CRA and the guidance are reflecting recent case law.
The general rules about fairness are unchanged. A term will be unfair if, contrary to the requirements of good faith, it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer.
Importantly, a finding of unfairness does not require proof that a term has caused actual harm, rather that it could potentially cause consumer detriment. Again, this reflects the new paternalism that regulators and government expect traders to display – there is a strong theme that traders should not, whether deliberately or unconsciously, take advantage of the consumers' circumstances to their detriment, so, for example, the CMA refers to economic research about how consumers behave in practice where they do not always read (or it is impractical to do so) the terms of all the contracts that they enter into.
As was the case in the UTCCR, the CRA contains a "Grey List" which is an indicative and non-exhaustive list of terms that may be potentially regarded as unfair. The CRA largely leaves the Grey List as it was under the UTCCRs but has added three new items concerning disproportionate termination fees, rights to determine or change what is supplied and price variation clauses. A price variation clause is particularly relevant to long term or indefinite period contracts. The CMA guidance explains that, while such clauses are not necessarily unfair because they are discretionary, they must be clear as to what consumers can expect and not be open to abuse.