In the age of the price comparison websites, stating a low headline price with a variety of hidden charges seems to be a growing trend within many industries: with the airline industry, hotels and mobile phone operators all identified as offenders in this Guardian article from earlier this year. 

In fairness to the businesses engaged in such practices, it can also be argued that competitive pressures encouraging such behaviour are perpetuated by us as consumers every time that we choose the cheapest price without scrutinising other aspects of the overall deal.  I certainly know that when I’m choosing insurance I will often view it as a commodity and go for the lowest rate, even though as a solicitor I well know that the policy document setting out the exact scope of the cover should be an equally important factor.

A consultation paper published by the Law Commission and the Scottish Law Commission (the “Law Commissions”) yesterday proposes reform to the law of unfair contract terms which would require businesses to set out charges in a “transparent” and “prominent” fashion, or risk having the charges be deemed unenforceable if they are considered unfair.

The proposals follows in the wake of the decision (widely criticised by consumer groups) by the Supreme Court that banks’ unauthorised overdraft charges are exempt from being assessed for fairness under the current unfair terms legislation because they relate to the price paid for the bank’s services.  Other cases in this area including a test case which decided that gym contracts with cancellation periods of over one year were unfair have, the Law Commissions say, rendered the law in this field increasingly uncertain, to the detriment of both retailers and consumers. 

Based on previous consultation responses, there does seem to be a general consensus among representatives of both consumers and business that the law in this area is over complex and insufficiently certain.  I would agree that more certainty in this area would be welcome: while cynical observers might think it suits lawyers for the law to be uncertain it actually makes for a very difficult environment in which to provide reliable advice and to draft “fair” and legally enforceable contracts. 

The Law Commissions also argue that the proposed reforms are good for honest traders who may otherwise loose out to their more unscrupulous rivals by being upfront about their prices.  Leaving aside the open question of to what extent consumers will make better decisions if provided with more information, two questions which occur to me immediately are:

  1. with price comparison websites and other advertising not typically forming part of the contract process itself, won’t there still remain significant competitive pressure to quote a low headline price to get customers “through the door”?
  2. without industry standardised means of presenting pricing information it could still be very difficult for consumers to make meaningful industry wide comparisons and for honest traders to be confident of a level playing field: I’m reminded of scenarios such as food labelling where retailers have been unable to agree on a consistent industry wide standard. 

On the whole, my feeling is that businesses will be likely to welcome greater certainty in this area of the law, but may view a requirement to make all contractual charges sufficiently prominent that the “average consumer would be aware of them” as challenging, given that a low level of attention to detail has probably become the norm for the average consumer.

The Law Commissions’ consultation is open for responses until 25 October 2012.  Further information is available here.