The Department for Business and Regulatory Reform has published for laying before Parliament the “final” version of regulations implementing the EU Unfair Commercial Practices Directive. Stephen Groom grapples with some key last minute changes from earlier drafts.
Topic: Consumer protection
Who: H.M. Govt
When: March 2008
Law stated as at: 7 April 2008
The UK Government finally laid before Parliament what are likely to be the final, final versions of the Regulations designed to transpose into UK law the EU Unfair Commercial Practices Directive ("UCPD").
The principal Regulations are the Consumer Protection from Unfair Trading Regulations 2008 ("CPRs"). Directly related to these are the Business Protection from Misleading Marketing Regulations 2008 ("BPRs"). Both measures are currently due to come into force on 26th May 2008.
The final versions of these Regulations differ in various respects from the previous drafts circulated. Here we will focus on the changes in the area of the categories of consumer whose likely reaction to the practice in question will be key to determining whether a "commercial practice" breaches the Regulations. These help highlight some crucial issues that will need to be addressed in assessing whether advertising or marketing campaigns comply with the new regime.
On the important issue of the definition and treatment of different categories of "consumer," the Government has responded to industry concerns that the previous drafts deviated dangerously from the original UCPD. One concern was that these deviations threatened to create a climate in which any advertisement that might be seen by a "vulnerable consumer" had to be crafted with that type of consumer in mind, irrespective of whether this was the advertiser's intention.
The changes now made at the last gasp bring the CPRs more into line with the UCPD and reduce concerns in this area, but in one significant respect they still differ. This is in the definition of the normal, common or garden consumer. This matters because it is the likely reaction to "commercial practices" of the normal consumer that will in most cases determine whether the practice is a criminal offence.
"Average consumer" defined?
Early versions of the draft UCPD included a definition of what it termed the "average consumer." This was the "reasonably well informed and reasonably observant and circumspect" individual "taking into account social, cultural and linguistic factors" created by the European Court of Justice in various past judgments in consumer protection cases.
However, the final version of the UCPD dropped this from the Directive itself, leaving only a residual reference in the preamble. The given reason was that it was healthier to allow the ECJ scope in future cases to change its approach to the characteristics of the "average consumer" depending on changing surrounding circumstances and consumer attitudes.
The UK Government, however, has had no such compunctions. Having fallen back into line with the UCPD by adopting the Directive's "average consumer" in favour of the "typical consumer" dreamed up earlier by Whitehall draftsmen, it then promptly contradicts the Brussels approach by effectively installing at the last moment a fixed definition of "average consumer" at Regulation 2 (2) of the CPRs. This reads:
"In determining the effect of a commercial practice on the average consumer where the practice is addressed to a consumer or consumers account shall be taken of the material characteristics of such an average consumer including his being reasonably well informed, reasonably observant and circumspect."
Will this benefit UK marketers compared with current UK laws (which have no statutorily defined "average consumer") or those in other EU states which follow the UCPD more closely? Our belief is that on balance it should, but time will tell.
Additional consumer benchmarks?
Then at CPR Regulation 2 (3)-(6) the CPRs focus on cases where an additional consumer benchmark might apply.
Here another crucial change is made which is at odds with the UCPD and again, perhaps fortunately so from the point of view of UK marketers.
Previous drafts of the CPRs followed the UCPD in stating that the additional benchmark would apply if advertising or marketing was either addressed to a particular group of consumers or "reached" that group.
"Reaching consumers" concept dropped
Now the key concept of a practice "reaching" consumers, even though this may not have been the intention of the advertiser, has been dropped. It is now only if a campaign is "directed" (as opposed to "addressed" in the UCPD, reason for change and difference in meaning unclear) to a particular group of consumers that additional benchmarks might come into play.
So far, so good for UK marketers, but once it has been determined that the advertising was "directed" at a particular group other than the "average consumer" as defined, (it will be interesting to see how the courts wrestle with the concept of "directing" a marketing activity) then it will be the likely effect of the marketing on the average member of that group that goes to determining if an offence has been committed.
From here the CPRs fall roughly back into line with the UCPD. They provide that the relevant likely effect will be that on "a person who is particularly vulnerable to the practice or the underlying product because of their mental or physical infirmity, age or credulity" if such a person would be an average member of the particular group to which the marketing was directed and the advertiser could be reasonably expected to foresee this.
What type of likely effect of a "practice" creates a risk?
What effect on vulnerable consumers will create a risk of an offence? It will be "material distortion" of "economic behaviour." This is the same "material distortion" as is required for the "general prohibition" to come into play.
What has come to be termed the "general prohibition" is the final longstop designed to catch out unfair commercial practices which have somehow avoided being (1) one of the 31 specific "always unfair" practices listed at Schedule 1 to the CPRs (2) an "aggressive commercial practice" as described in Regulation 7, (3) a "misleading omission" under Regulation 6 or (4) a "misleading action" under Regulation 5.
One significant distinction between (1) to (4) above and the "general prohibition" is in the area of the likely effect on the relevant consumer of the practice in question.
Different types of likely effect on consumers for different offences
For "average consumers" who are not vulnerable as defined, the types of likely effect that will create a risk of illegality differ depending on whether the practice falls into (1) (2), (3) or (4) above or the "general prohibition."
The different reaction types are as follows:
(1) (the 31 "always unfair" practices) no reaction has to be proved-strict liability if the practice is occurring;
(2) ("aggressive commercial practices") if it significantly impairs or is likely to significantly impair the average consumer's freedom of choice or conduct in relation to the product concerned ….and thereby causes or is likely to cause him to take a transactional decision he would not have taken otherwise;
(3) ("misleading omissions") causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise;
(4) ("misleading actions") causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise (same as for #(3) above); and
"General prohibition"- materially distorts or is likely to materially distort the economic behaviour of the average consumer with regard to the product. "Material distortion of economic behaviour" is further defined at Regulation 2 (2) as: "appreciably to impair the average consumer's ability to make an informed decision thereby causing him to take a transactional decision he would not have taken otherwise."
So it will be seen that the "effect test" will be stricter for the general prohibition (with a mens rea ingredient as well-see Regulation 8 (1) (a)) and for advertising or marketing directed at vulnerable consumers.
Aggressive and misleading practices directed at vulnerable consumers?
Given that outside the 31 "always unfair" practices, the likely impact and effect of the advertising in question is key to whether the CPRs will have been breached, it is disappointing that we have as many as three differently nuanced types of effect that have to be juggled with before reaching a determination on likely compliance. But this is the scheme of the UCPD so HM Govt had no room for manoeuvre on this.
However what is the position where campaigns which would otherwise be within the definition of aggressive commercial practices, misleading omissions or misleading actions are directed at vulnerable consumers?
Though this is by no means clear from the Regulations, our best current guess is that the arguably stricter, "material distortion" test will apply. Strange when one might have thought that a lower threshold would have been more appropriate for more impressionable and credulous consumers.
Why this matters:
The last gasp changes made by the BERR to the CPRs in these areas highlight the degree to which UK advertisers and marketers will have to grapple post 25 May 2008 with apparently minute, but potentially significant differences in the wording of the Regulations depending on what type of consumer is involved and what type of impact the practice in question is likely to have.
Here it is noteworthy that no actual impact has to be shown necessarily. That the type of effect can be shown to have been likely will be enough.
Is it come back the Trade Descriptions Act, 1968, all is forgiven, or do these complications have the net effect of making it more difficult for the enforcers to establish the commission of an offence?
The latter currently feels more likely given the above analysis, but time will tell!