Business, Innovation and SkillsWritten evidence submitted by the National Franchised Dealers Association

CONSUMER LAW REFORM AND PRIVATE ACTIONS IN COMPETITION LAW

1. Introduction

1.1 The National Franchised Dealers Association (NFDA) welcomes the opportunity to comment on the Draft Consumer Rights Bill (the Bill).

1.2 The NFDA is responding on its own behalf and for its sister associations the National Motorcycle Dealers Association (NMDA) and the National Association of Motor Auctions (NAMA). The response is split into two parts: the first focuses on the reform of consumer protection laws in the context of goods and services and the second considers various reforms to the private actions regime for competition law breaches. Whilst the NFDA, together with its sister associations, welcome the Government’s renewed commitment to protecting consumer rights, we have some concerns that specific parts of the proposed Bill may focus too single-handedly on the rights of the consumer at the grave expense of the rights of the retailer.

1.3 The NFDA would welcome the opportunity to appear at any oral evidence sessions held by the BIS Select Committee.

2. Background

2.1 The NFDA represents the interests of franchised vehicle dealers in the UK. The NFDA, together with the NMDA, have 3,000 members who retail cars, commercial vehicles and motorcycles. NAMA represents motor auctions and its members represent 90% of vehicles sold through auctions in the UK. These three trade associations represent a majority percentage of memberships to the Retail Motor Industry Federation, which collectively represents businesses across the entire retail motor sector, which in turn employs 554,000 individuals with an estimated annual turnover of £140 billion. The vast majority of the NFDA’s members are SMEs who sell directly to consumers (as well as corporate customers, fleets etc). It follows that the motor retail sector is one of the most important business sectors in the UK and, indeed, Europe, with substantial potential for cross-border trade.

2.2 We have, for many years, been pro-active in championing consumer welfare alongside the welfare of our members (whether in terms of greater commercial independence, more transparency in dealings, improved choice, better quality services or lower prices).

3. Consumer Law Reforms

3.1 We are generally supportive of the changes in the Consumer Bill of Rights to consumer law. We agree many of the changes are sensible and attempt to make the legislation clearer and more transparent and will achieve the goal of making the legislation easier to understand for consumers and businesses alike.

3.2 However we do have some comments and concerns with the Bill, primarily with the proposed legislation relating to goods which are likely to impose significant additional cost on dealers, particularly as these changes could allow some consumers to act in an aggressive or vexatious way. We also have some concerns with the changes in respect to auctions which would allow businesses to be treated as consumers when buying online.

3.3 Goods—Right to Reject:

3.3.1The concept of codifying early rejection is beneficial to both consumers and traders, however the right balance needs to be struck. The issue with goods such as motor vehicles is the time of ownership does not generally reflect usage. In the retail motor trade distance travelled is often more important than time of ownership and codifying a fixed period of 30 days for early rejection into the Bill shows no flexibility for a particular consumer’s situation. For example, a customer may have had the car 30 days but only travelled 10 miles whilst another customer may have only had the car a week and travelled 1500 miles. To not take account of the vast potential range of circumstances can only prejudice the retail motor trade.

3.3.2A further issue with the changes in “rejection right” is the extension in the new legislation allowing a consumer to accept the offer to have a fault repaired successfully but still retain the right to reject the vehicle within the 30 day period. This, coupled with the absence of the “right to deduct” an amount for usage of the vehicle during the initial 30 days of ownership, has the potential for significant detriment to the retail motor trade.

3.4 Goods—Right to Replacement:

3.4.1We are concerned that the proposed wording in section 23 of the legislation has removed crucial safeguards preventing consumers demanding a repair or replacement where it is disproportionate to have a reduction in price or an order cancelled. We are concerned that the wording to section 23(3)b is open to interpretation, particularly the use of the term “those other remedies.” This may be interpreted in two ways:

Either, all remedies open to the consumer including cancellation and reduction in price

Or, that this refers only to repair or replacement.

The latter has the potential to result in restricting the Court’s opinion if the consumer will not accept a price reduction. We would prefer wording that could be given a wider interpretation.

3.4.2We also note that the section makes reference to the consumer requiring the trade to repair or replace. Whilst it can be implied that the consumer has to come back to the original dealer, the wording is sufficiently close to the current legislation to suggest that this would not be the requirement. Given the added burdens on the motor dealer as a result of the increase in consumer protection in the legislation, we feel it would be a reasonable requirement to include that the right to obtain the cost from an alternative repairer should only be recoverable in the event of the original dealer refusing to comply.

3.5 Goods—Right to Reduction in Price or Final Right to Reject:

3.5.1Whilst sections 23(3) (b) and (c) are commensurate with the current application of the law in respect to reduction and final right to reject, section 23 (3) (9a) is a significant addition. Current best practice when an issue occurs is to initially repair then if not successful replace on a like for like basis or cancel. Whilst the law does not define how many repairs are appropriate there is a general acceptance that more than one can occur depending on the severity of the failure.

3.5.2If the legislation is enacted in the proposed form any goods sold by a trader will get the right to either one attempt to repair or one replacement. Whilst this is appropriate for many goods sold by retailers, we believe it is not for motor vehicles and their associated parts. Motor vehicles are by their nature complex and as such herald potential problems when repairing. Not only can faults be hard to diagnose and isolate, but it is not unusual for the repair of one fault to trigger another. If the one repair rule was to be introduced this could lead to significant additional cost for motor repairers as they take precautionary measures to ensure the one repair is sufficient to avoid triggering a cancellation. This is likely to include the replacement of potentially unnecessary parts at the cost of both the consumer and the repairer, either because repairers believe the part could be the cause of the problem or to decrease the risk of future breakdown.

3.5.3One further point we note is that the final right to cancel includes the right to make a deduction for the use of the good by the consumer. The calculation for this is set in the legislation, although we note that goods such as motor vehicles with a defined value can have this applied instead, providing it is not lower than the calculation value. We also note that goods under six months old that do not have a defined value cannot have a deduction made against them. Although we welcome the idea of using a defined value where applicable, there are some issues for dealers particularly in relation to new vehicles. Although the sector has highly respected and sophisticated valuation guides they generally do not value vehicles under six months old, leading to obvious difficulties in providing a defined value. This will leave dealers highly exposed by this section of the legislation. A brand new vehicle can lose circa a quarter of its value as soon as it driven off a dealer’s forecourt by a consumer. Therefore if a consumer invokes their right to cancel within the first six months of ownership a dealer could be exposed to significant financial loss, as the car would not only have lost substantial retail value but the dealer would also struggle to counteract this loss via taking deductions for usage from the consumer.

3.6 Goods—Time for Delivery of a Vehicle:

3.6.1We have some issues around the sections in the legislation regarding delivery times. Although we accept the changes give consumers protection we are concerned that the consumer as opposed to the dealer will be able to define a time limit for the delivery of a vehicle and, as a result, this can only lead to more consumers cancelling orders for vehicles.

3.6.2Dealers, particularly with new vehicles, have very little control over deliveries when consumers order directly from a manufacturer. In this instance, the delivery system is very dependent on a number of factors including factory output issues, shipping and road transportation, all of which have inherent factors which can cause delay in delivery to the showroom. Whilst we agree that the consumer has a right to expect delivery of goods in an agreed time period, we are concerned that giving the consumer the power to invoke such strict rigidity does not adequately protect the interests of the dealer who may be affected by actions beyond direct control.

4.1 Services—Information about the Trader or Service to be Binding:

4.1.1We have some concern about section 52 of the Bill, particularly the proposals outlined in 52 (1) (a) and (b). As the proposal stands, anything spoken or written to the consumer by or on behalf of the dealer will become incorporated into the contractual agreement, potentially binding a dealer to statements or descriptions made by a third party without their knowledge.

4.1.2In its widest possible interpretation the trader would be bound to perform standard services in line with any advertising or statements made that purport to be “standard practice”. For example, if a consumer sees an advert by a dealer for a 48,000 miles service, thus indicating that this is the standard service for his particular vehicle, the customer may then approach another dealer expecting the identical level of service without referencing the advert to the dealer. He then discovers the service is not identical and insists it is part of the contract that further repair work is carried out. Although we would hope that this would be unlikely, we are concerned by this sections apparent lack of any requirement of knowledge on the part of the trader before they become bound by such terms. We would therefore suggest that perhaps the wording could be modified to include only statements made by the trader themselves.

5. Auctions

5.1 The proposed changes in definitions relating to auctions give the National Association of Motor Auctions (NAMA) cause for concern. Section 2(6) of the proposed Bill removes section 12(2) (b) in the current Sale of Goods Act that states “the buyer is not in any circumstances to be regarded as dealing as a consumer:

(b)if he is not an individual and the goods are sold by auction or by competitive tender.”

As the law stands, companies and partnerships can never be consumers at an auction, howsoever they act. If these changes are enacted, however, a company or partnership could act as a consumer at auction where there is no opportunity to attend in person, for example at an online motor auction. We are concerned that some smaller motor traders could abuse this right when buying cars for resale.

6. Consumer Law Reforms—Conclusion

6.1 The proposed Consumer Bill of Rights incorporates much of current consumer law, but we are concerned that there are a number of major changes that will have significant impact on the retail motor sector. The Bill appears to unbalance the relationship between consumer and trader, leaving the retail industry with little defence against abuse at the hands of the consumer.

6.2 We are particularly concerned that some of the changes in respect to goods such as “right to a replacement” and “cancellation” will encourage malicious and vexatious claims. It is also likely to push the cost of business upwards as the retail industry exhibits more cautious sale practices and implements safeguards in order to better protect itself. This in turn could actually lead to consumers getting far less value from goods and services as cost increases in order to cover the additional costs to businesses. We do not believe the assertion that the Bill will promote trade with consumers and certainly any increase is likely to be lost to the additional costs of working under new rules.

7. Private Actions in Competition Law

7.1 The NFDA is supportive of any initiative that attempts to deliver a more effective means of redress for businesses and consumers, both of which have fallen victim to anti-competitive agreements or behaviour. We agree that a strong competition regime is fundamental to growth in the UK economy and it is vital that any measures introduced should encourage investment and innovation amongst businesses and ensure that consumers get the best deal possible.

7.2 In the NFDA’s view the interests of consumers are closely aligned with those of dealers (retailers). Dealers serve as the key channel through which consumers can access greater choice, more competitive pricing and experience improved customer service and quality (both in relation to sales and after-sales services).

7.3 It follows that any measure designed to facilitate the enforcement by dealers (many of which are SMEs) of their rights against powerful trading partners—to ensure greater independence amongst dealers but without encouraging parties to pursue unmeritorious claims—will help both businesses and consumers. Particularly in the case of SMEs, we welcome any move that allows small businesses to exercise their rights effectively and without potentially damaging important commercial relationships and ensuing large costs during mitigation with larger traders.

7.4 In this regard, by potentially allowing the NFDA or a similarly well-established and responsible body to pursue a claim on behalf of affected members, the NFDA considers that the Bill represents a positive step in enhancing the application of competition law through private enforcement and, as far as its members are concerned, increases opportunities for weaker commercial parties to challenge collectively anti-competitive behaviour on the part of stronger trading partners.

7.5 In terms of the specific features of the Bill, the NFDA agrees that the UK’s specialist competition court, the Competition Appeal Tribunal (CAT), should be permitted to hear fast-track stand-alone cases (involving SMEs) rather than just “follow-on” cases, as well as applications for injunctions rather than just damages claims.

7.6 The NFDA also agrees that collective action in respect of competition law infringements should be made easier and that the Bill achieves this. It is a positive development that the current regime—which allows only the consumer association “Which?” to bring claims, and only on an opt-in basis—should be expanded significantly to include other consumer representative bodies and trade associations. The fact that the CAT, in addition to certifying cases as suitable for collective action, has the powers to either accept or reject a “just and reasonable” representative for those proceedings should help ensure the legitimacy of claims. However, the NFDA is keen to review the CAT’s explicit guidelines on this point when it is published in due course.

7.7 In addition, the NFDA notes that in contrast to recent EU (Recommendation) proposals, the Government proposes to allow certain cases to be conducted on an “opt-out” rather than on an “opt-in” basis only, as at present. Given its well-defined membership, the NFDA is relatively neutral on this particular feature of the reforms, however it accepts that there are some advantages for pursuing an opt-out model in certain cases which should be assessed by the CAT depending on the circumstances of the individual case.

7.8 The NFDA notes that to prevent excessive damages awards, damages would limited to the amount necessary for adequate compensation and the CAT would be prohibited from awarding damages on an “exemplary” or punitive basis. We believe this is a necessary measure to reduce the risk of unmeritorious litigation.

7.9 Further, while the NFDA would appreciate more time to evaluate the provisions for collective settlements under the Bill (under which the alleged infringer and those parties claiming to have suffered harm could apply to the CAT to approve a settlement) its initial reaction to this feature is positive.

8. In a similar vein, the NFDA notes the mechanism for ADR in collective claims, by way of a statutory “voluntary redress scheme”. Under this feature, we understand that the CAT could approve a voluntarily agreed scheme for compensation to be paid by alleged competition law infringers to a group of victims. The NFDA agrees that this might present an incentive to alleged infringers to agree to such a scheme and to do so at an earlier stage, perhaps resulting in the CAT reducing any penalties the infringers may ensue.

9. Conclusion

9.1 As far as private action in competition law is concerned, the NFDA concludes that the Bill is heading in the right direction in terms of improvements to the current system of collective redress.

9.2 The only area where the NFDA would have liked the Government to have gone further is to have considered extending representative or collective action beyond the confines of competition law or, at the very least, to have explored the possibility of improved regulation and remedies in respect of unfair commercial practices in B2B relations along the lines currently being considered by the European Commission.

23 August 2013