Analysing the Consumer Rights Bill
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What do the government’s new consumer rights reforms mean for businesses?
The last 12 months have seen significant change to the consumer law landscape, prompted by the EU Consumer Rights Directive's overhaul of the law at a continental level in June 2014. The Consumer Contracts Regulations 2013 implemented this EU legislation in the United Kingdom by bringing into law further rules relating to distance and online selling including:
- a "cooling-off period" for consumers to change their mind extending from seven to 14 days;
- the period for refunding customers being cut from 30 to 14 days;
- 'pay now' buttons on traders’ websites must now clearly signpost the customer's obligation to pay;
- a prohibition on pre-ticked boxes on traders' websites meaning further 'up-sells' must be actively agreed to;
- a maximum 30-day window for the delivery of goods and services, unless the customer agrees otherwise; and
- a ban on premium rate helplines - all must charge the basic rate.
The Consumer Rights Bill, which received royal assent on 26 March 2015, will consolidate the reform and the myriad other UK legislation which provides protections and rights for the consumer into a single Act when it comes into force on 1 October 2015.
This article highlights the key changes implemented by the Bill and summarises what the position will be when the changes have been incorporated into the existing law.
Standards applying to goods
The standards around quality currently implied as standard terms by existing legislation will be replicated under the Bill and extended to cover any goods purchased based on a model of the final product.
The requirements that goods must be of satisfactory quality, fit for purpose and meet the expectations of the consumer currently implied into all trader-to-consumer contracts by the Sale of Goods Act 1979 will be replicated in the Bill when it comes into force. This standard currently expressly applies to all goods that are bought on the basis of a description or a sample, but a further category of goods - those purchased following the viewing or examination of a model of the final product - will be added to this list under the Bill. Vendors should therefore be aware that any goods based on prototypes or models must meet this standard or the consumer will be entitled to a refund.
This standard doesn't just apply to brand-new goods. For an item purchased from a second-hand dealer, for example, the consumer is entitled to expect the standard to meet the same criteria. Of course what is "satisfactory quality" may differ to account for the item being second hand.
Pre-contract information required under the Consumer Contracts Regulations is now part of the implied terms.
When the Bill comes into force, it will be an implied term of the contract that the pre-contract information currently required under the Consumer Contracts Regulations will be provided to the consumer. Sellers should therefore be aware that failure to provide this information - which is currently listed in the Schedules to the Consumer Contracts Regulations 2013 and includes things such as the identity of the trader, total price of the goods, delivery charges and the trader's complaint handling policy - will leave them open to having to refund the customer.
Remedies available to the consumer
Consumers have a right to reject within 30 days goods that do not meet the statutory standard. A new 'tiered' remedy system gives the consumer a further, final right to reject.
Refund within first 30 days
Consumers have the right to reject any item that does not conform to the contract within the first 30 days of receiving it and receive a full refund.
Repair or replacement within first 30 days
Should the consumer choose instead to have the goods repaired or replaced, the time limit for the right to a refund is 'paused' until the goods are returned the consumer. If, upon return, the item still does not conform to the contract, then the consumer's right to reject is extended by a minimum of seven days.
Repair or replacement after first 30 days
If a fault is discovered after the 30-day rejection window, the consumer has the right to a repair or a replacement. The trader has one opportunity to provide the consumer with a product that conforms to the contract.
Refund or price reduction following first repair or replacement
If repair or replacement is impossible, the attempt at repair fails or the replacement is also defective, the consumer has a final right to reject or a right to a reduction in price.
Consumers' rights have been enhanced in this regard as the new Act will give customers a clear window in contrast to the existing "reasonable" timeframe. This is in addition to the 14-day period for consumers to change their minds and the reduction from 30 to 14 days for the period in time in which traders must be provide a refund brought in by the EC Directive.
Given the substantive change in this area, traders must review their refund and repair policies to ensure that they remain fully compliant.
Digital content will be introduced as a new distinct category of product and must meet a minimum standard. Upon purchasing digital content it will be implied in the contract that the product will be of satisfactory quality, fit for purpose and compliant with any description. These implied terms apply regardless of whether the consumer paid money for the digital content or the digital content came free with other goods for which the customer had paid.
The product itself could be anything from the broad spectrum of digital content - defined as "data which are produced and supplied in digital form" - including eBooks, MP3s and in-app purchases from 'freemium' computer games.
If the digital content fails to meet the implied terms, the consumer is entitled to a repair, a replacement or (in limited circumstances) a price reduction of up to 100%. There is no direct right to a refund unless the digital content is in a physical item, for example a DVD, for which the usual remedies for goods (set out above) apply.
A new default delivery period of 30 days is proposed by the Bill, unless a longer period is agreed when the contract is formed. Any liability for damages in respect of the goods will only be passed on to the consumer once they come into his or her physical possession.
Unfair contract terms/transparency
Terms governing price and subject matter must be prominent and transparent while the Bill subjects 'consumer notices' to the fairness test in addition to consumer contracts. Breaching this will render the term unenforceable.
As with previous legislation, the Bill provides a 'blacklist' of terms that will always be considered unfair as well as a 'grey list' of terms likely to be considered unfair. The following three terms will be added to the grey list:
- disproportionality high prices where the consumer decides not to conclude or perform the contract;
- terms which allow the trader to determine characteristics of the goods after the consumer has entered into the contract; and
- terms which allow the trader to determine the price of the goods after the consumer has entered into the contract.
Furthermore, traders must ensure that the terms governing the price and/or subject matter are ‘transparent’ (ie, using plain and intelligible language) and ‘prominent’ (ie, brought to the consumer's attention in such a way that the average consumer would be aware of the term). Failure to adhere to this requirement will leave the clause open to be subjected to the fairness test.
Enforcers such as Trading Standards officers must give 48 hours' notice to businesses when carrying out routine inspections. Trading Standards officers will still be able to carry out unannounced inspections where they suspect illegal activity.
Given the magnitude of the reform, at DLA Piper we are likely to be proactive in reaching out to clients to ensure that they are fully compliant ahead of the Bill coming into force. Businesses and staff are likely to need training on the new legislation, redrafting of refund policies and standard terms and a review of conditions to ensure that key terms are prominent and transparent, and that no terms fall into the new, unfair categories. As such, despite the reform's intention of simplifying the law, we anticipate - in the short term at least - that the Consumer Rights Act will be accompanied by an increase in work for our commercial teams.
Luke Jackson is a trainee solicitor at DLA Piper’s Leeds office.