House of Commons - Draft Consumer Rights Bill - Business, Innovation and Skills Committee

Draft Consumer Rights Bill - Business, Innovation and Skills Committee Contents

2 Background to the draft Bill

Existing consumer law

7. The UK's consumer law has evolved over many years, through different pieces of domestic and European legislation. At present, 12 separate pieces of legislation cover key consumer rights in the UK, while around 60 pieces of legislation cover the investigatory powers of consumer law enforcers. As a result, consumers and businesses face difficulty and uncertainty when trying to establish their rights and responsibilities.

Proposals for reform

8. In Autumn 2012, the Government issued a number of consultations proposing measures to reform UK consumer law.[6] The Government published its Response to these consultations,[7](hereafter, the 'Government Response'), along with the draft Consumer Rights Bill, Explanatory Notes, and final impact assessments, on 12 June 2013.

9. As currently structured, the draft Bill consists of three parts:

Part 1—deals with consumer contracts for goods, services, and digital content;
Part 2—deals with the law relating to unfair terms in consumer contracts; and
Part 3—deals with consumer law enforcers' investigatory powers; enhanced consumer enforcement measures; and private actions in competition law.

Purpose of the draft Bill

10. In a Written Ministerial Statement, Jo Swinson, Parliamentary Under-Secretary of State for Employment Relations and Consumer Affairs, stated that the aim of the Bill is to introduce a simple framework that would set out in one place the rights and obligations of consumers and traders:

This [Bill] will help consumers and their advocates understand their rights when things go wrong, with the aim of empowering consumers and promoting growth through competitive markets. Overall, the draft Bill reduces regulatory burdens for business, with the aim of making markets work better. For example, businesses should have fewer and less costly disputes with customers, because rights are clearer. Disruption caused by unplanned enforcement officers' visits should be reduced by the proposed requirement to give reasonable notice to businesses when carrying out routine inspections. It should be easier for businesses and consumers to hold to account those who have breached competition law.[8]

11. The Government has said that simplifying and reforming consumer law should make markets work effectively and drive economic growth.[9]

Impact of the draft Bill on existing legislation

12. The draft Bill brings together the key consumer rights from 12 statutes, the most significant of which are listed in Table 1, below:[10]

Table 1: Summary of the effect of the draft Consumer Rights Bill on existing legislation[11]

Supply of Goods (Implied Terms) Act 1973 This will be replaced by provisions in the Consumer Rights Bill

Sale of Goods Act 1979 For business to consumer contracts this will mainly be replaced by the Consumer Rights Bill but some provisions of SGA will still apply, for example, rules which are applicable to all contracts of sale of goods (as defined by that Act—essentially these are sales of goods for money), regarding matters such as when property in goods passes. The SGA will still apply to business to business contracts.

Supply of Good and Services Act 1982 For business to consumer contracts, this Act's provisions will be replaced by the consumer Rights Bill. The SGSA will be amended so that it covers business to business contracts only.

Sale and Supply of Goods Act 1994 This will be replaced by provisions in the Consumer Rights Bill.

Sale and supply of Goods to Consumers Regulations 2002 This will be replaced by provisions in the Consumer Rights bill.

Unfair Contract Terms Act 1977 In respect of business to consumer contracts the Act's provisions will be replaced by the Consumer Rights Bill. The UCTA will be amended so that it covers business-to-business and consumer-consumer contracts only.

Unfair Terms in consumer Contracts Regulations 1999 These will be replaced by the Consumer Rights Bill.

13. The Government intends that the provisions in the existing legislation which apply to contracts between a trader and a consumer only will be repealed. The provisions which relate to other types of contract (for example contracts between businesses) will remain in the existing legislation.[12] Therefore, the draft Bill would apply to contracts between a trader[13] and a consumer,[14] and not to business to business or consumer to consumer contracts.

Wider reforms of consumer law

CONSUMER RIGHTS DIRECTIVE

14. In addition to the Bill, the Government will implement the European Consumer Rights Directive ("CRD") through the draft Consumer Contracts (Information, Cancellation and Additional Payments) Regulations. Laws to implement the CRD have to be adopted and published by December 2013 and should apply from June 2014.[15] The CRD:

· For all contracts where a trader provides goods, services or digital content to a consumer, requires that a trader must provide certain information (for example on the main characteristics of the goods, services and digital content) before the consumer is bound by the contract;

· Specifies the consumer's cancellation rights (during so-called "cooling off periods") for goods, services and digital content contracts concluded at a distance or off premises; and

· Introduces various measures aimed at protecting consumers from hidden charges once they have entered into a contract.[16]

15. The CRD also prohibits excessive card payment surcharges and this was introduced in the UK in April 2013 through the Consumer Rights (Payment Surcharges) Regulations 2012.[17] In its oral evidence to us, Which? said that it was monitoring compliance with this legislation, and had seen some industries introduce "rebranded" charges labelled as holiday or administrative charges which referred to a broad range of services and were not caught by the regulations.[18] Which? argued for a coordinated and responsive legislative approach:

16. The draft Bill implements only a small number of the CRD's provisions. Clauses 10 and 11 in relation to goods, clauses 38 and 39 in relation to digital content, and clause 52 in respect of services, provide that pre-contractual information supplied in accordance with the CRD is to be treated as included as a term of the contract. The CRD will also require traders to provide details of the main characteristics of the goods, digital content and services being sold, as well as information such as the name and address of the trader.[20]

17. Clause 29 implements a CRD requirement that in respect of sales contracts under which the trader is required to deliver the goods to the consumer, the trader must deliver the goods on an agreed date or within 30 days after the contract is made.[21] If the consumer had told the trader that delivery within the initial timeframe was essential and the trader fails to deliver, the consumer may reject the goods or treat the contract as at an end and receive a refund. Otherwise, the consumer may state a further reasonable timeframe within which the trader must deliver the goods, and if this fails, then the consumer may reject the goods or treat the contract at an end, and receive a refund.[22]

18. Several submissions argued that the draft Bill would go further than or "gold plate" the CRD,[23] and one argued that the draft Bill would be "incompatible" with the CRD.[24] This was a particular concern in relation to the provisions on digital content in the draft Bill. The Government consulted on implementing the CRD alone as part of its consultation process. The Government's impact assessment stated that this was rejected because:

The Consumer Rights Directive does not cover rights regarding non-conformity with the contract or quality issues except to the extent that performance that is not in accordance with the pre-contractual information will be a breach of contract. If we implemented the CRD alone, the quality standards available for digital content transactions would remain unclear. Arguably introduction of the CRD may reinforce the legal position that digital content on disk is to be treated as goods but it will not help clarify what rights there are regarding the quality of intangible digital content. This is because the CRD states that digital content supplied on a tangible medium should be considered as a good but does not set out or indicate what rights exist on quality for digital content per se or remedies for breach of those rights to quality.[25]

19. The Minister said:

Let me reassure you that the draft Bill is entirely consistent with the Directive[...]The Directive does not directly address the issue of quality nor of the appropriate forms of redress when the quality standards are not met. These are dealt with in the draft Bill.[26]

20. Thirteen sectors are exempted from the CRD. Member States have some flexibility about whether the CRD is applied to those sectors. The Government has said that it does not intend to extend the provisions to the exempted sectors in the majority of cases, including financial services and property sectors and those activities which are regulated by the Gambling Act 2005, "on the basis that these sectors are subject to appropriate sector specific legislation".[27]

21. In developing proposals for the Consumer Rights Bill, the Government said that it had taken into account the definitions and measures contained within the CRD and, "as far as appropriate", had made the draft Bill consistent with the CRD, "with the intention of achieving overall a simple, coherent framework of consumer legislation".[28]

22. We agree with the Government that the Consumer Rights Directive does not address quality rights in relation to digital content, and we broadly support the Government's proposals in this area. In our consideration of the draft Bill, we have been mindful of the need to avoid gold plating of EU legislation.

MISLEADING AND AGGRESSIVE PRACTICES

23. At present, misleading and aggressive trade practices are covered by two sources of law. The Consumer Protection from Unfair Trading Regulations 2008 (the 2008 Regulations) deal with public enforcement, while private rights are dealt with by a complex mix of common law and statute, under the law of misrepresentation and duress.[29]

24. In 2009 Consumer Focus commissioned research into consumers' experience of unfair commercial practices and estimated that the total detriment suffered by UK consumers was around £3.3 billion per year.[30] The Government has argued that the law providing redress for victims of misleading commercial actions is too complex, while the law on aggressive practices leaves gaps in consumer protection. This causes consumer detriment (particularly amongst the most vulnerable consumers) and undermines the operation of the legitimate market.[31]

25. The Government's intention is that the draft Consumer Protection from Unfair Trading (Amendment) Regulations 2013 will enhance the opportunities for redress for victims of misleading and aggressive practices and will introduce:

a. A private right of redress for consumers who have been victims of misleading or aggressive practices

b. Standard remedies for those victims including the right to unwind the contract within 90 days, or the right to a price reduction.

c. Entitlement to seek damages if the victim can prove the misleading and aggressive practices caused further economic losses, or distress or inconvenience.[32]

ALTERNATIVE DISPUTE RESOLUTION DIRECTIVE

26. In November 2011 the European Commission published a Communication on Alternative Dispute Resolution (ADR) for consumer disputes in the Single Market alongside legislative proposals for a draft Directive on consumer ADR (the ADR Directive) and a draft Regulation on Online Dispute Resolution (ODR).[33]

27. The main aim of the proposed legislation is to improve the functioning of the retail internal market and, more particularly, to enhance redress for consumers. The Commission argued that problems with purchased goods or services often go unresolved because access to ADR across the EU is inconsistent and inadequate, which discourages consumers from buying cross-border. The Commission proposes that legislative action is needed to ensure that every consumer in the EU has access to alternative dispute resolution in the event of a contractual dispute.[34]

28. The scope of the ADR Directive covers any contractual dispute arising from the sale of goods or provision of services by a trader to a consumer within the EU. The proposals would require all businesses to inform consumers about an ADR scheme that meets the standards of the ADR Directive. Businesses would also have to specify whether or not they commit to use the scheme should a dispute arise. Businesses would have to do this on their website (if they have one), in their general terms and conditions and in relevant invoices and receipts.[35] The ADR Directive would also require Member States to designate a Competent Authority in charge of monitoring the functioning and development of ADR schemes established on its territory.[36]

29. The second element of the proposals would require the European Commission to establish a European Online Dispute Resolution platform (ODR platform). This would be an interactive website which could be accessed electronically and free of charge in all official languages of the EU. It would effectively be an online portal through which consumers and traders can search for ADR schemes to resolve contractual disputes arising from the cross-border online sale of goods or provision of services between consumers and traders.[37]

30. Several respondents to our inquiry thought that the draft Bill should have included more measures on ADR.[38] Which? said that the draft Bill could introduce the framework for a Consumer Ombudsman since the ADR Directive will require that ADR is available for all consumer transactions.[39] The Ombudsman Services argued that the draft Bill could be "considerably strengthened" by linking it to the requirements in the ADR Directive.[40] Ombudsman Services said that at the expense of ADR, the draft Bill places an unnecessary focus on enforcement, which it believed "should be seen as the last resort and in many respects can be seen as an admission that the system has failed".[41]

31. The ADR Directive must be transposed into UK law by July 2015.[42] If the draft Bill is implemented, the timescale might be broadly equivalent.

32. Given that the ADR Directive covers any contractual dispute between a trader and a consumer within the EU, we expect the Government to explain the extent to which the key requirements of the ADR Directive could have been included in the draft Bill, and why that approach was not taken.

Territorial extent and application of the draft Bill

33. The Government said that the majority of the provisions in the draft Bill extend to England and Wales, Scotland and Northern Ireland. However, certain aspects of Part 3 do not apply to Scotland or Northern Ireland, which the Government said is because of the differences in the law. For example, the provision relating to the Competition Appeal Tribunal issuing injunctions in private actions does not extend to Scotland, and some of the legislation which Part 3 proposes to amend does not extend to Scotland or Northern Ireland, for example, the Sunday Trading Act 1994.[43]

34. The Explanatory Notes set out the position under the three devolution settlements as follows:

· The regulation of the sale and supply of goods and services to consumers is reserved to Westminster under section C7(a) of Schedule 5 to the Scotland Act 1998. Regulation of anti-competitive practices and agreements is reserved under section C3 of Schedule 5.

· The regulation of sale and supply of goods and services to consumers and the regulation of anti-competitive practices are not devolved under the Government of Wales Act 2006.

· Consumer protection is transferred under the Northern Ireland Act 1998, as it does not fall under the list of excepted and reserved matters in Schedules 2 and 3 to that Act. The regulation of anti-competitive practices and agreements is a reserved matter under paragraph 26 of Schedule 3 to that Act.[44]

35. The Government's intention is to ensure consistency of consumer rights and the effectiveness and efficiency of their enforcement across the UK whilst respecting the devolution settlements. To that end, the Government said:

We are in regular discussion with the devolved administrations on the detail of the Bill's provisions and before the Bill is introduced we will ensure that if legislative consent motions are required they will be sought.[45]

6 Department for Business, Innovation and Skills, Enhancing consumer confidence by clarifying consumer law: consultation on the supply of goods, services and digital content, July 2012

Department for Business, Innovation and Skills, Enhancing consumer confidence through effective enforcement: consultation on consolidating and modernising consumer law enforcement powers, March 2012

Department for Business, Innovation and Skills, Consultation on extending the range of remedies available to public enforcers of consumer law, November 2012 Back

7 Department for Business, Innovation and Skills, Government Response to Consultations on Consumer Rights, June 2013 (hereafter, the 'Government Response') Back

8 Department for Business, Innovation and Skills, Written Ministerial Statement, 12 June 2013 (www.gov.uk/government/uploads/system/uploads/attachment_data/file/206372/bis-13-917-written-ministerial-statement.pdf) Back

9 Government Response, page 9 Back

10 Explanatory Notes, page 10 Back

11 Explanatory Notes, page 10 Back

12 Explanatory Notes, paragraphs 23-4 Back

13 The draft Bill defines a 'trader' as "a person acting (personally or through an agent) fir purposes relating to that person's trader, business, craft or profession." (Clause 2(2)) Back

14 See below Back

15 See Department for Business, Innovation and Skills, Consumer Rights Bill: Supply of digital content, Final Impact Assessment, June 2013, page 33 Back

16 Explanatory Notes, paragraph 11 Back

17 Explanatory Notes, paragraph 12 Back