What you need to know about landmark Consumer Rights Bill

Who: UK Government

Where: London

When: 12 June 2013

Law stated as at: 3 July 2013

What happened:  

As anticipated in our June update, the Government has published its long-awaited draft Consumer Rights Bill. The draft Bill is ambitious in scope, and aims to reform and consolidate consumer law through the introduction of a number of measures including:

• Introducing specific rights and remedies for consumers buying digital content;
• Updating the rights and remedies available to consumers buying goods or services;
• Enhancing consumer protection from unfair contract terms;
• Clarifying the powers of enforcers to investigate potential breaches of consumer law;
• Introducing enhanced measures to give consumers greater potential for effective redress; and
• Making it easier for consumers and businesses to challenge anti-competitive market practices.

If approved in its current form the draft Bill will streamline at least eight pieces of existing legislation and aims to simplify consumer law to make it easier to understand. The Department for Business, Innovation and Skills (“BIS”) estimates that this could save businesses in the UK up to £2.8million per year in reduced training costs and £9.3million per year in simpler complaint handing procedures per year[1].

Advertisers and online sellers will need to prepare for this new consumer law landscape. Whilst it may be too soon to review campaigns and redraft all terms and conditions for sales to consumers, the increased regulatory and litigation risks for consumer-facing businesses proposed in the draft Bill mean that it is imperative to keep up-to-date with these upcoming changes.

We summarise the headline measures introduced by the Bill below.

Digital content

The draft Bill seeks to modernise existing consumer protection by introducing a new category of digital content with a bespoke set of rights and remedies appropriate for the nature of digital content.

Last summer’sconsultationby BIS indicated that current consumer protection does not cater well for the concept of digital business and the courts struggle to apply the rights found in the sale and supply of goods and services legislation to different types of digital content transactions. The draft Bill has addressed this by introducing a new category of digital content which will cover any data supplied in a digital form (including software, music, computer games and apps).

Consumers will have a range of “statutory rights” automatically included in contracts for the supply of digital content that they have paid for, or were provided free with goods, services or digital content that was paid for (e.g. a computer game that comes free with a paid-for magazine). Crucially, for online computer game providers, the draft Bill makes clear that this could include digital content that was paid for with a facility like virtual currency, for example a magic sword bought within a computer game that was paid for within the game using virtual currency like “jewels” where these jewels were originally purchased with money. These statutory rights will include that the digital content:

• Be of satisfactory quality – judged according to the expectations of a reasonable person taking into account the price paid and any descriptions of the content made by the trader, the producer, or their representatives. Traders should therefore keep in mind that the expected quality of content will vary between, for example, a 69p app and an expensive piece of software. Public statements made about the quality of the digital content, advertising and labelling, will all be taken into account in assessing what level of quality will be “satisfactory”.
• Be fit for a particular purpose – as specified by the consumer to the trader. This will apply even if this purpose is unusual for the type of digital content being supplied.
• Match the description provided – digital content will need to match any description of it given by the trader to the consumer, including any pre-contractual information on the main characteristics of the content, its functionality or interoperability which traders will be required to provide to consumers under the Consumer Rights Directive(which must be in force in the UK in June 2014). If a trial version is made available to a consumer as part of a marketing campaign it will not be enough for digital content to match the trial version if it does not match other descriptions of the digital content provided by the trader.

If a trader supplies digital content that does not comply with these statutory rights, the trader will need to offer consumers the right to a repair or replacement of any non-conforming digital content. If repair or replacement is not possible, does not resolve the fault, or the trader takes too long or inconveniences the consumer in providing the repair or replacement, it will have to offer the consumer a refund of a proportion of the price paid for the digital content. The level of refund will depend on the nature of the faulty content. For example, a film that fails to play at all might merit a refund of the total price paid for it, whilst a computer game that was enjoyed for 5 months before a minor bug develops might only warrant a refund of a small proportion of the price paid.

Traders should take comfort that there is no limit to the number of repairs or replacements it can make to digital content before it must provide a partial refund to the consumer (which is not the case if supplying goods under the draft Bill). This is because digital content like computer games may contain a few “bugs” on first release. Some consumers will request repairs in relation to these bugs but the majority of consumers will wait to have the bugs fixed by updates which they agreed to in the contract but did not specifically request. The draft Bill makes it clear that restricting the number of repairs could therefore incentivise consumers to report minor problems with digital content to amass the number of repairs required to proceed to a price reduction.

Other statutory rights will include consumer entitlement to:

• Immediate refund of the total price paid for digital content if the supplying trader did not have the right to provide the content to the consumer, for example, if a film turns out to be an unlicensed pirate copy; and
• Compensation for damage to consumer property which was caused by digital content. If a consumer downloads software containing a virus which damages the consumer’s device and pre-existing software, the software provider may have to pay to replace the damaged device and software. This will be the case regardless of whether the digital content was paid for or provided free of charge.

Goods

The draft Bill re-states and enhances the law on the sale of goods to consumers by introducing the following measures:

• Right to refund within 30 days – currently consumers can reject faulty goods until they have been “accepted”. Acceptance is demonstrated by the consumer acting in a manner which is inconsistent with the seller’s ownership or retaining the goods beyond a “reasonable time”. In practice it is often not clear when a “reasonable time” might have lapsed. Consequently, under the draft Bill consumers will have a fixed time period of 30 days following purchase in which they can reject faulty goods and receive a full refund.
• Single right to repair or replacement – consumers already have a right to a repair or replacement of goods which do not conform to the contract. The draft Bill retains this right, but clarifies that consumers need only accept a single repair or replacement before being able to get some money back.
• No “deduction” for use in first 6 months – traders may not, in the first 6 months after purchase, reduce the level of refund due to a consumer to take account the consumer’s use of faulty goods unless there is a proven second hand value and an active market for the goods. Currently traders are entitled to reduce any refund to take into account any use of the faulty goods that a consumer has enjoyed.
• Delivery and risk– traders will need to deliver goods without undue delay and within 30 days after the contract is made (unless the trader and consumer agree otherwise). Goods will remain at the risk of the trader until they come into the physical possession of the consumer. This means that traders will need to pick their third party delivery carriers with care and review all terms of carriage to check this risk is effectively mitigated.
• Aligning remedies for goods supplied under different contract types– currently, where faulty goods are supplied, the forms of redress available can depend on the type of contract under which the goods are supplied. The draft Bill aims to consolidate and align the remedies available for goods supplied under different contract types, such as sale, work and materials, conditional sale or hire purchase.
• Setting out more clearly the standards that the goods must meet and removing references to conditions, warranties & implied terms– the draft Bill removes the legalistic concepts of implied conditions and warranties and sets out the standards that goods must meet as “statutory rights”. These standards themselves remain broadly unchanged, for example, contracts for the sale of goods will be treated as including terms that the goods are of satisfactory quality, they are fit for a particular purpose, and they are as described.

Services

The Bill re-states the existing law on consumer rights in relation to the supply of services, introduces a new statutory right that services provided must comply with information given by the trader, and introduces new statutory remedies for consumers through the following measures:

• Ban on excluding or limiting statutory rights – under current law, traders are able to exclude or limit their liability to provide a service with reasonable care and skill, providing the exclusion or limitation is “reasonable”. Under the draft Bill, this statutory term cannot be limited or excluded, and traders cannot limit their liability for other losses to less than the contract price.
  • Services provided must comply with information given by the trader – this will apply regardless of whether or not the information is captured in the contract. It will include anything said or written about the trader or the service if it was taken into account by the consumer when deciding whether to buy the services, and any pre-contractual information the trader is required to provide under the Consumer Rights Directive (such as the total price payable, identity of the trader and the main characteristics of the services).
  • Repeat performance followed by refund – if services are not performed with reasonable care and skill, or the services fail to comply with information given by the trader about the services, the consumer can ask for a repeat performance to put the service right. If this is not possible, not done within a reasonable timescale or causes further inconvenience to the consumer, the trader must offer a refund of an appropriate amount.
  • Immediate refund – If services are not performed within a reasonable time or fail to comply with information given by the trader about itself the consumer is entitled to a refund of an appropriate amount.

Unfair Terms

The draft Bill aims to clarify and consolidate legislation governing unfair terms in consumer contracts, currently contained in two separate pieces of legislation, the Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCRs”)and the Unfair Contract Terms Act 1977 (“UCTA”). This consolidated legislation will apply to all terms in contracts between traders and consumers whether negotiated or not, and will also apply to notices to the extent they relate to rights or obligations between traders and a consumer or purport to exclude or restrict a trader’s liability to a consumer as long as it is reasonable to assume it is intended to be read by a customer, for example a sign in a car park.

Contract terms and notices will only be binding on a consumer if they are “fair”. A term will be deemed unfair if it puts the consumer at a disadvantage by causing a significant imbalance in the parties’ rights and obligations to the detriment of the consumer (although the Bill does not prevent a consumer relying on an unfair term or notice if it chooses to do so). The Bill contains a non-exhaustive list of terms which may be regarded as unfair which broadly reflect, with three new additions, the existing “grey list” of terms that may be regarded as unfair under the UTCCRs.

Terms relating to the subject matter of the contract or the price paid will be exempt from this “fairness” test, but only if the term is “transparent” and “prominent”. The draft Bill suggests that a term will be deemed transparent if it is expressed in plain, intelligible language, and prominent if brought to the consumer’s attention in such a way that a reasonably well informed, observant and circumspect consumer would be aware of the term. Under current law a trader cannot exclude or limit liability for death or personal injury caused by its own negligence, and cannot limit its liability for other losses unless this limitation is “reasonable”; under the draft Bill these restrictions remain, but limitations of other losses will instead be tested for “fairness”. If a term is found unfair it may be unenforceable by the trader, leaving the trader open to uncapped liabilities.

Enforcement and redress for consumers

The draft Bill seeks to clarify and consolidate the powers of consumer law enforcers. Enforcement of this legislation will rest with a number of domestic bodies including the Competition and Markets Authority (launching on 1 October 2013) and Trading Standards. Current investigatory powers, such as the power to make test purchases, to inspect goods and enter business premises will be strengthened in certain respects. However, the draft Bill also introduces stronger safeguards to protect traders against these extended powers, for example enforcers will usually be required to give at least two business days’ written notice to any trader before entering its premises.

Other powers include the right to apply for injunctions to prevent businesses using terms deemed unfair, and to require businesses to give legally binding undertakings that they will not engage in conduct that involves an infringement of consumer rights. However, these powers sometimes provide little redress for the affected customers. Consequently, the draft Bill provides that enforcers will be able to attach a range of “enhanced consumer measures” to enforcement orders or undertakings. These will focus on offering the consumer redress such as compensation or the right to get out of a contract, compliance measures intended to reduce the risk of repeated bad conduct by businesses, and measures intended to enable consumers to choose more effectively between traders (for example, requiring a trader to sign up to an established customer review site so potential customers can take the traders past actions into account when choosing between providers).

Private actions in competition law

The draft Bill intends to make it easier for consumers and businesses to take action where there has been a breach of competition law by:

• widening the types of competition cases that the Competition Appeal Tribunal (“CAT”) hears (including adding a fast track regime for SMEs);
  • providing a limited regime whereby an representative group or trade association can take collective action on behalf of consumers on an opt-out basis; and
  • promoting alternative dispute resolution by allowing the CMA to accept binding voluntary redress schemes.

Timelines

The draft Bill indicates that it will become the “Consumer Rights Act 2013″, but because it has yet to undergo parliamentary scrutiny in the Commons and the Lords it is unlikely to become law until next year. However the draft Bill is only one element of the changes being made to the consumer law landscape. There is more to come:

• The Consumer Rights Directive must be incorporated into English law by December 2013 and be in force in June 2013, and it does not form part of this draft Bill (although we have already had early implementation of one part through – the Consumer Rights (Payment Surcharges) Regulations 2012). The Directive introduces some fundamental changes to off-premises and distance selling contracts for the sale of goods, services or digital content. For online businesses, the changes may require a re-working of site design and architecture.
• The Government is soon expected to implement new rules through existing legislation giving consumer rights and remedies such as a full refund and the ability to recover for loss, damage, distress and inconvenience if its decision to buy a product or service was influenced by misleading or aggressive practices.

Why this matters

Advertisers and online sellers will need to be proactive in preparing for these changes to avoid the financial cost and reputational damage of the enhanced investigatory and enforcement actions proposed in the draft Bill. Advertisers will need to pay particular attention to any information provided as part of an advertising campaign (whether through point of sale, packaging, social media or any other medium) that could be caught by the new rules requiring that the goods, services or digital content provided will need to comply with all pre-contractual information given to the consumer, whether or not the information is included in the final contract.

We will update further on the draft Bill as it progresses through Parliament. In the meantime all advertisers and online sellers should, where relevant, consider:

• reviewing current practices for dealing with faulty goods, faulty digital content, substandard services and repair, replacement and refund policies;
• reviewing all consumer contracts and notices to ensure that terms are easy for consumers to understand, that particular attention is paid to terms which are especially onerous or unusual and any limitations for losses (other than death or personal injury) are fair;
• assessing all pre-sale descriptions provided to consumers (including any adverts or labelling), to ensure that the goods, digital content or services being provided can comply with these descriptions as they will now be included as contractual terms; and
• factoring in potential costs for updating business practices, amending consumer contracts and training staff for when the draft Bill comes into force.
  

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