New Rights for Consumers
From 1 October 2014 consumers will have new rights to seek redress from businesses and, where appropriate, compensation when they have been victims of a misleading or aggressive commercial practice. These new rights need to be recognised by businesses operating in most sectors which deal with consumers and will apply in respect of transactions made on or after 1 October this year.
The new Regulations establish a personal right for consumers to bring a claim and, if necessary, pursue it in the civil courts. This builds upon the existing criminal offence created by The Consumer Protection from Unfair Trading Regulations 2008 (the “2008 Regulations”) which give enforcement authorities the power to prosecute traders carrying out unfair commercial practices.
“Prohibited Practices” Under the New Regulations
Prohibited practices are misleading actions or aggressive practices by the trader that cause the average consumer to take a transactional decision he would otherwise have not taken. In order for a consumer to be able to bring a claim, the prohibited practice must have been a “significant factor” in his decision to enter into the transaction; if it was not a significant factor, there will be no claim.
“Misleading actions” and “aggressive” practices have the same meanings as in the 2008 Regulations. Misleading actions involve false information in relation to a wide range of matters or an overall presentation which deceives or is likely to deceive the consumer. This extends to the marketing of goods or services in such a way as to create confusion with competitors or their products. Aggressive practices cover harassment or undue influence that significantly impairs the average consumer’s freedom of choice.
Types of Transactions Covered by the New Regulations
The new Regulations apply where:
- A trader enters into a contract with a consumer for the sale or supply of a “product,” which includes goods, services, digital content and rights generally (such as software);
- A consumer enters into a contract with a trader for the sale of goods to the trader. This will not apply, however, if the trader is also supplying a product to the consumer (such as a part exchange); or
- A consumer makes a payment to a trader for the supply of a product as above or in payment of a debt owing to or which is claimed by the trader.
Consumer credit will be within the scope of the new Regulations if it is provided under a restricted-use credit agreement but not if it is secured by a mortgage over land or if it is to refinance existing indebtedness. No other financial services regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA) are affected by the new Regulations.
Transactions which are purely business to business are not covered by the 2008 Regulations or the new Regulations.
The remedies available to the consumer are, as applicable, a right to “unwind” the transaction, a right to receive a discount on amounts paid or payable by the consumer and a right to damages.
The right to unwind aims, if possible, to put the consumer back in the position he was in before the transaction but, in the case of a contract for the sale or supply of a product by the trader, the consumer must exercise this right within 90 days. Whether or not the consumer has the right to unwind such transaction (or wishes to do so), he has the alternative or additional remedies of the right to a discount on amounts paid or payable and the right to damages for losses incurred and for alarm, distress, physical inconvenience or discomfort. The discount on amounts paid or payable is on a sliding scale from 25 per cent if the prohibited practice is minor up to 100 per cent if it is very serious.
The consumer will not be able to unwind the payment of a debt arising from some other transaction if that debt was, indeed, owing to the trader although the consumer could still claim damages (but not a discount) if the prohibited practice by the trader was a significant factor in the consumer’s decision to pay it.
Although the new Regulations evidently provide yet another layer of protection for consumers in addition to existing laws and regulations, they specifically disallow double recovery. They also allow for certain defences by the trader to a claim for damages, such as mistake, reliance on information from a third party or that the trader took all reasonable precautions and exercised due diligence to avoid the occurrence.
In the context of restricted-use credit, both the 2008 Regulations and the new Regulations are capable of applying to either or both the supply of credit and the sale or supply of the goods or services financed by the credit.
From a regulatory perspective, conduct amounting to a prohibited practice is likely also to be conduct which falls short of FCA Handbook requirements including that of treating customers fairly.
It would not appear that the prohibited practices under the new Regulations will necessarily give rise to a breach of contract and in respect of which the consumer could bring a claim against the creditor under section 75 or 75A of the Consumer Credit Act. Some prohibited practices could, however, give rise to a claim for damages for misrepresentation and the new Regulations will allow the consumer to pursue the creditor under section 75 for such a claim even though his claim against the supplier will be for redress under the Regulations rather than for damages under the Misrepresentation Act.
Whether or not the restricted-use credit agreement is regulated, the “unfair relationship” provisions in the Consumer Credit Act are likely to provide the consumer with an alternative claim in many of the circumstances in which he might have a claim under the new Regulations.