With the countdown to implementation of the EU Unfair Commercial Practices Directive er.. counting down, in the first of a series we focus on a number of key questions in relation to the ‘always illegal’ black- listed commercial practices at the back of the Directive.
EU Directive 2005/29/EC of 11 May 2005 concerning unfair business to consumer commercial practices.
Required transposition date: 12 December 2007
Frequently asked questions on the "always unfair" commercial practices at Annex 1
Practice 13 looks interesting at first sight as it appears to offer a new weapon in the fight against product look-alikes. It condemns as always unfair "Promoting a product similar to a product made by a particular manufacturer in such a manner as deliberately to mislead the consumer into believing that the product is made by that same manufacturer when it is not."
I say at first sight because on closer analysis that word deliberately introduces a mens rea element that creates a high evidential barrier to any prosecuting body. In fact it probably still makes it easier to establish a case under the Trade Descriptions Act 1968. Section 2 (1) (i) makes it a strict liability offence to give any indication, direct or indirect and by whatever means of the person by whom goods have been manufactured or produced." However it should be borne in mind that as regards services s 14 of the TDA introduces a mens rea element by requiring knowledge or at least recklessness as to falsity.
Then there is aggressive practice 28, which prohibits
"including in an advertisement a direct exhortation to children to buy advertised products or persuade their parents or other adults to buy advertised products for them."
This has been hailed by consumer groups as a new weapon in the fight against so called pester power advertising. Industry groups are less enthusiastic saying this is a regulatory issue not a matter for the criminal law.
The DTI has to some extent echoed this by stating in its December 05 consultation document that criminalising all 31 prohibited practices may adversely affect the self regulatory regime operated by the ASA.
On that front, it is interesting to note that the CAP Code governing non broadcast advertising and the BCAP Code governing TV and radio ads are different on this issue. While the BCAP Code mirrors almost exactly the Directive by stating under the heading "Direct Exhortation" that
"advertisements must not directly advise or ask children to buy or to ask their parents or others to make enquiries or purchases."
In contrast the closest the CAP Code comes to this is at para 47.4 where it prohibits making a direct appeal to children to purchase unless the product is one that would be likely to interest children and that they can reasonably afford.
A related provision says marketers must not actively encourage children to make a nuisance of themselves.
So again although at first sight this practice looks novel with a potential to change the game, it turns out that there are existing UK regulations that come very close to the prohibition already.
The same goes for practice 26 which prohibits making persistent and unwanted solicitations by telephone, fax, e-mail or other remote media."
This looks to present another new threat for direct marketers until one checks the Communications Act 2003 and finds at sections 128-130 provisions conferring on Ofcom the power to take action against persistent misuse of an electronic communications network or service and levy fines of up to £5000, soon to be £50,000 if Ofcom gets its way.
3. Please give examples of practices included in the list that relate to meeting certain standards or product endorsement and comment on how far are these practices already recognised as being unfair in the UK?
There are quite a few.
Prohibited practice 1 is "claiming to be a signatory to a code of conduct when the trader is not"
Prohibited practice 2 is "displaying a trust mark, quality mark or equivalent without having obtained the necessary authorisation"
Prohibited practice 3 is "claiming that a code of conduct has an endorsement from a public or other body which it does not have."
Prohibited practice 4 is "claiming that a trader or a product has been approved, endorsed or authorised by a public or private body when he/it has not or making such a claim without complying with the terms of the approval."
Are these already recognised in the UK as being unfair?
The Trade Descriptions Act 1968 comes into play again by prohibiting at s. 2 (1) any indication by any means with respect to "approval of goods by any person or conformity with a type approved by any person" So this anticipates pp 4 and arguably pp 2 also for goods and there are similar provisions in respect of services at s.14.
It is less clear whether the TDA would apply to pps 1 or 3 but if the indication is made in advertising then the Control of Misleading Advertisements Regulations may apply and entitle the OFT to apply for injunctive relief if other established control systems have been unable to prevent the practice. Such practices would in advertising clearly breach the CAP and BCAP Codes as misleading.
4. The Directive refers to an "invitation to purchase." What does this mean and how does it relate to a contractual offer?
Definition of "invitation to purchase" is "a commercial communication which indicates characteristics of the product and price in a way appropriate to the means of the commercial communication used and thereby enables the consumer to make a purchase"
In English contract law terms this falls somewhere between an invitation to treat and an offer capable of acceptance but in a way this comparison is not helpful. The importance of the term is not its role in the formation of a binding contract but instead in determining when certain material information must be given to consumers.
The Commission says in commentary that this is intended to exclude "general product or brand awareness marketing" but concerns have been expressed that the definition fails to make a sufficient distinction between those commercial comms that provide a real opportunity to purchase and marketing or advertising where a price is mentioned but the advertiser has no intention of soliciting direct response orders by mail order for example.
The DTI in its consultation has requested further feedback on this in case it requires further explanation in Guidance.
5. What practices relating to making an invitation to purchase products are considered unfair under the Directive and how far are they covered under existing UK legislation?
Practice 5 of Annex 1 ("Making an invitation to purchase products at a specified price without disclosing the existence of any reasonable grounds the trader may have for believing that he will not be able to offer for supply or to procure another trader to supply, those products or equivalent products at that price for a period that is, and in quantities that are, reasonable having regard to the product, the scale of advertising of the product and the price offered (bait advertising))
Practice 6 ("making an invitation to purchase products at a specified price and then:(a) refusing to show the advertised item to consumers; or (b) refusing to take orders for it or deliver it within a reasonable time; or(c) demonstrating a defective sample of it, with the intention of promoting a different product (bait and switch))
Other relevant practices in relation to "invitations to purchase" are in the "Misleading commercial practices" section at Article 7.
This provides at 7.4 that in an invitation to purchase, it will be a misleading commercial practice to either fail to mention any of 5 particular material matters or be unclear, unintelligible, ambiguous or untimely about any of these.
The 5 matters are, to summarise
(a) the main characteristics of the product
(b) the geographical address and identity of the trader
(c) the price
(d) the arrangements for payment, delivery, performance or complaint handling
(e) for products and transactions involving a right of withdrawal or cancellation the existence of such a right
As regards existing controls on these practices, in the context of material disclosures under Article 7, similar disclosures are required in online and distance sales situations by respectively the Electronic Commerce (EC Directive) Regulations 2003 and the Consumer Protection (Distance Selling) Regulations 2000.
To the extent that an invitation to purchase involves face to face contact and the Trade Descriptions Act may not apply then there may currently be a gap in specific regulatory controls
6. It is not unusual to see offers that apply for a limited period only or shops that have "closing down" sales that last indefinitely. How are these types of practice likely to be affected?
Pp 7 states that "falsely stating that a product will only be available for a limited time, or that it will only be available on particular terms for a very limited time, in order to elicit an immediate decision and deprive consumers of sufficient opportunity to make an informed choice" is an unfair practice.
Pp 15 states that "claiming that the trader is about to cease trading or move premises when he is not" is also an "always unfair" practice.
Currently such practices are unlikely to be caught under the Trade Descriptions Act as the list of ten matters as to which a relevant description can be given excludes "availability"
Under the Distance Selling regs of 2000 clear and comprehensible information must be given as to the period for which any offer or price remains valid, whilst such references in advertising will likely be caught by the Misleading Advertisements regulations.
These controls aside, as regards price indications the Consumer Protection Act 1987 is likely to apply if any of the above practices involve any type of misleading price indication, given that statute's widely drawn provisions in that area. Also, either pp will be caught by the CAP or BCAP codes as misleading
7. What will UK traders need to think about when offering after sales services to consumers outside the UK?
Practices 8 and 23 are relevant here:
Their effect is to prohibit two practices in this context.
Say a UK trader is emailing an offer to a French resident, perhaps of a laptop. The first pp would be to promise that after sales service will be provided in French, then after closing the sale, only offer it in English.
The second pp would be to indicate pre sale that after sales service was available in France when this was not the case.
Under existing UK law such practices would likely be caught for example by the Trade Descriptions Act but only provided recklessness as to or knowledge of falsity were established.
8. What impact will the list of practices have on insurers?
Pp 27 prohibits "requiring a consumer who wishes to claim on an insurance policy to produce documents which could not reasonably be considered relevant as to whether the claim was valid, or failing systematically to respond to pertinent correspondence, in order to dissuade a consumer from exercising his contractual rights"
It is likely such practices would in relation to most general insurance policies already create problems under the Financial Services and Markets Act, the related Handbook. And the FSA's "treating customers fairly " approach which applies pre and post sale.