Business, Innovation and SkillsWritten evidence submitted by the British Retail Consortium (BRC)

The BRC

1. The BRC directly or indirectly represents the vast majority of retailers in the UK, small and large, trading through face to face sales, online, catalogues, mobile phone and tablet and any combination thereof.

2. We understand that the Select Committee will review the submissions already made to the Department for Business in the context of consultations on proposals in the draft Bill. For that reason, this submission will essentially summarise the key points we would wish to emphasise.

Executive Summary

3. The BRC is generally supportive of the Bill as drafted as a balanced package.

4. It will clarify consumer and business rights and obligations and provide a greater degree of certainty.

5. We regret it has become distanced from the transposition of the Consumer Rights Directive in terms of implementation date.

6. We note the Bill goes beyond EU law requirements and recommendations in respect of the right to reject; remedies for defective products; and collective redress in competition issues. Our main concern is on collective redress where the safeguards proposed by the EU to prevent US style class actions are absent. We would call on the Government to re-draft its proposals on collective redress in Competition issues to bring it into line with the EU Commission Recommendation.

7. We welcome the attempt to define a digital content regime, though we believe the EU should introduce a fully harmonised regime.

8. The proposals on civil redress in consumer protection cases are a sensible addition to the means of obtaining redress being balanced and fair to business and consumers and an element of the public enforcement process.

9. We have some concerns over the introduction of only one failed repair OR replacement of a defective product before the consumer has a right to a refund or price reduction. This goes beyond the EU requirement. Guidance on other aspects will be necessary.

10. The proposals on services are a welcome attempt to clarify rights and obligations.

Overview

11. The BRC is generally supportive of the Bill as drafted as a package.

12. We believe it is a balanced, proportionate approach to guaranteeing the appropriate level of consumer rights and duties and business rights and duties in a world where consumer protection can never be absolute; consumers have a responsibility for their own decisions; and businesses have a responsibility to provide them with the information they need to make those decisions—and to provide them with safe products that are fit for purpose and match the description.

13. We support the attempt to clarify consumer rights and provide a greater degree of certainty where there has hitherto been a degree of ambiguity. Inevitably the provision of certainty brings with it a reduction in flexibility—in the capacity to make adjustments for individual circumstances—but we believe that the Bill in general strikes the right balance and that excessively prescriptive options in previous consultations have been sensibly ruled out.

14. We would note, however, in passing, that the Bill goes beyond the requirements in EU law in terms of the continuation of the right to reject alongside EU remedies; the prolongation of EU remedies for defective products from two years to six years; the provision of 100% refund in the first six months; and the total lack of the EU safeguards against excessive class actions in the proposals for collective redress. While we understand the reasons for most of these in that they would involve removing traditional protections for consumers in the UK, in the case of collective redress these are new provisions where the UK has chosen to go beyond the EU recommendation in spite of Government statements that this would not happen in the future.

15. Originally it was envisaged that this Bill would be part of a package that would include the transposition of the Consumer Rights Directive and that it would be possible to present the package as a whole to consumers and businesses in one go. We regret that the two have become separated and that there could well be a gap between the implementation of the Directive in June 2014, as required by EU law, and the implementation of the Bill possibly as late as April 2015. This will increase training costs for staff—essential to ensure consumers receive their rights without having to fight for them—and also undermine efforts to inform businesses and consumers of the new arrangements.

16. Within the Bill, we support in particular the proposals on:

The right to reject

Civil redress

Digital content

Unfair contract terms

Trading Standards Powers.

17. On balance but with some specific reservations, we also support the proposals on:

The remedies for goods that are not fit for purpose.

Remedies for services.

18. We are less enthusiastic about the proposals on:

Private Actions in Competition law (collective redress).

19. Against this background, we recognise the Bill overall offers a reasonable balance for consumers and businesses. Consequently, in spite of our reservations in some areas where we would welcome change, and in spite of the fact that it embellishes EU law and Recommendations on remedies and on collective redress, we would offer our support for the Bill going forward provided it remains a balanced package overall.

Proposals the BRC Fully Supports

Right to reject

20. The BRC supports the proposal to define the length of the short term right to reject as 30 days for a product that is defective or not fit for purpose. This should provide clear ground rules for both businesses and consumers.

21. Hitherto, there have been wide variations in the length of time that is a “short term” right to reject. At times the courts have interpreted this as being as long as a year in the case of white goods. This has meant that retailers have been uncertain whether a consumer has a genuine right or not and has consequently resulted in disputes between retailers and consumers based on different perspectives and different understanding of consumer rights.

22. Our one concern, however, is that there is a potential for misunderstanding in that whereas the EU remedies of repair or replacement attract a reversal of the burden of proof in the first six months, the right to reject will be exempt from this. In exercising the right to reject it will be for the consumer to prove they have a right and the good was faulty not the business to disprove it. Consumer and business education will be important here.

23. Although the time period of the right to reject will now be limited, this does not necessarily mean that retailers will refuse any claim that is outside this period. Many retailers go well beyond the legal requirements in their dealings with consumers as part of their competitive positioning. For example, they may offer refunds even for products that are not defective. It is likely that many will continue to offer “right to reject” type refunds on a voluntary basis. However, the 30 day rule will provide a legal floor and the basis on which both parties can negotiate in any given situation.

Civil Redress

24. The BRC believes that consumers have a right to redress (to be put back in the position they would have been) when things go wrong.

25. In general this is sorted out between consumers and the business directly without the need for any external intervention. Very few cases end up in court—indeed one member has many millions of transactions a year but under half a dozen end up in a dispute in court.

26. There are already many methods of seeking redress including direct negotiation with the business; Code schemes; the small claims court; ADR (which will be enhanced with the implementation of the new ADR Directive); and the courts themselves. In our view these processes should form the first preference for consumers in dealing with a problem that has not been sorted out with the retailer direct.

27. However, we accept that there may be occasions where it is more appropriate for redress to be made available to everyone affected as part of the public enforcement process—and indeed that giving a role to enforcers to negotiate with companies to come to a voluntary arrangement is also appropriate.

28. Therefore we support the proposal in the Bill because it is effectively, at the formal level, a follow on procedure once the case is proven or voluntarily admitted and because it is limited to public enforcers. This maintains and enhances the role of public enforcement and reduces the opportunity for opportunistic claims and the eventual emergence of a US style class action system. It also means that the risk-based, targeted approach to enforcement where seeking compliance through education or information is more highly regarded than prosecution is not undermined by a secondary tier of private enforcement.

29. Our only caveat is, indeed, that we trust that enforcers will not feel obliged to prosecute more cases simply in order to obtain redress. This would run counter to the whole objective of enforcement policy in recent years—targeted, risk based enforcement with a focus on securing compliance through education or information rather than formal enforcement action. We would trust that the capacity to negotiate a deal would be sufficient in most cases.

30. We recognise that some consumer organisations may have preferred to go further. However, we believe that this is a reasonable compromise compared with a full scale class action system and to a large extent in keeping with the recent Recommendation of the European Commission.

Digital Content

31. Digital content is a growing area of business for many retailers both domestically and cross border.

32. Given the cross border nature of the trade—and its potential for the development of the digital single market—we regret that the EU has failed to define consumer rights in this area on a fully harmonised basis and shows no desire to do so. It is an obvious area for EU agreement.

33. In the absence of such agreement, the UK has no choice but to attempt to define consumer rights in the area in a way that might eventually form the basis of EU agreement.

34. In our view the proposal in the Bill makes a realistic assessment of the rights a consumer might expect to enjoy for defective content and indeed the rights a court might be expected to grant. It is a common sense approach.

35. We welcome the fact that the Government has chosen to create a new and separate—though linked—regime for such content because we believe it presents unique issues.

36. Overall we believe this proposal should be accepted as a clear statement of consumer rights without undermining the rights of providers and licence holders or entering that complex world needlessly.

Unfair Contract Terms

37. We support the changes to the rules on Unfair Contract Terms. While it is now possible for price to be considered, this is only so if it is not clear and prominent. There is, therefore, a simple way of ensuring it does not become subject to review. We would hope guidance would be produced to indicate exactly what clear and prominent means.

Trading Standards Powers

38. The BRC supports the proposals on trading standards powers.

39. It is clear that many rogue traders operate across local authority boundaries and this particularly applies to internet sales.

40. The new Consumer landscape means that this requires trading standards officers to be able to work outside their area.

41. In general we believe the need for notice to be given of a routine (as opposed to a complaint driven) inspection is useful.

42. BRC has always advocated that legislation and enforcement of legislation is driven by risk—interventions should be risk based intelligence lead and conducted with a sense of proportionality.

43. The desire for the Government to regulate to achieve this and for the trading standards community to implement this is a recurring theme, for example through the Regulatory Enforcement and Sanctions Act creating the Primary Authority Principle and the concept of inspection plans to better manage interventions for businesses operating over a number of local authorities, and recent consultations on regulatory compliance code and promoting growth.

44. Trading Standards have increasingly limited resources and as a consequence need to be more targeted on how that resource is used, so the number of interventions is naturally reducing.

45. The proposal to require notice for inspections formalises this theme—it does not prohibit routine inspection of premise, it requires notice so that the business can ensure that the necessary personnel, manuals, equipment, documentation etc are available. This will ensure the intervention is time efficient and the quality of any dialogue is assured—in particular if non compliances are identified.

46. Inspectors should be checking the BRDO website in any event to establish if the proposed intervention is impacted by an existing inspection plan, so the obligation to give notice becomes part of the “pre—flight check” required prior to a routine inspection type intervention.

47. The proposal contains appropriate checks and balances that benefit business and regulators alike.

48. Businesses that want to can waive the obligation—for example if a business wants to avoid any additional administration, or is keen to allow the adherence to its central processes to be robustly scrutinised locally as it has nothing to hide, so is comfortable with unannounced spot checks. We are interested to understand how this will operate, presumably co-ordinated through existing Primary Authority and Home Authority relationships.

49. For other businesses, for example small medium enterprises where the burden of an inspection may have a greater impact, or the systems are less well evolved, so the right personal being available is critical to the success of the intervention, giving notice would ensure efficient use of time and resource.

50. For the regulators, the legislation does not prohibit interventions where there is reasonable cause to believe (this concept needs to be given more clarity, perhaps in guidance) that prior notice would defeat the purpose of the intervention—where there is intelligence that a rogue practice is being operated, or unsafe goods are available the need for urgent intervention is obvious, and responsible retailers would support the intervention of the regulators in these circumstances to assure a fair trading environment is maintained.

51. The BRC anticipates that the existence of this requirement will not prevent effective interactions between regulators and regulated, it is likely that it will increase the effectiveness of many interventions, by making them more time and resource efficient, and it is likely that some retailers would voluntarily invoke the option to waive the obligation.

Proposals where we have some Concerns

Remedies for goods that are not fit for purpose etc

52. This element of the Bill effectively re-transposes the EU Guarantees Directive.

53. When the Directive was first transposed, we argued that the inter-relationship between the EU remedies and the old UK remedies was not clear and that it would be preferable to have a single coherent regime. We were right—and the Government has finally admitted it with the proposals advanced in this Bill to substantially integrate the regimes.

54. That Directive requires consumer remedies of repair, replacement and refund if a good is defective at the time of purchase for a period of two years. The Bill extends this to six years in England and Wales and five years in Scotland.

55. The Directive does not specify the number of repairs or replacements that are permissible before the consumer has the right to a refund. Nor does it specify what adjustments for use should be made to any refund. The Bill goes beyond the Directive and limits the number of repairs OR replacements to one single repair OR replacement—after which the consumer is entitled to a refund or price reduction. In the first six months the refund for a good will be 100%, with a reversal of the burden of proof.

56. The BRC accepts the 100% refund in the first six months as reasonable and indeed much in line with common practice. It also supports the Government in having rejected a fixed phasing out of the percentage of the refund over the six years in favour of retention of the current system of adjusting the refund in light of circumstances such as use of the good, the cost of the good and thus its potential quality and life expectancy. The phasing out by a reducing percentage would have provided certainty but the wide variety of goods and quality and use means that a more flexible approach is needed.

57. The BRC is more concerned about the decision for one repair or replacement followed by a refund. This may be relevant—and indeed often practised—in the case of lower value goods but could cause problems for higher value goods. For example, a washing machine may be installed and develop a problem. If the problem relates to two parts or requires two visits by a technician does this constitute one repair or two? Then there may be two totally unrelated problems leading to a refund. Sometimes, the problem relates to a consumer not following the instructions. We understand from BIS officials that if the goods are misused this would not be a breach under the Bill; and that the situation where there are more than one fault at the same time or the repairer needs to return would in fact count as one repair provided the trader made it clear the one repair was not complete and needed a second visit. This will require education if it is to be understood—and remains a complication.

58. For these reasons we would have preferred two repairs or one replacement.

59. We would also wish to see some guidance on a number of issues—that the replacement for, say, a four year old good is not to be brand new but can be like for like—ie a reconditioned four year old product; what constitutes one repair(see 57 above); and that a reduction in price as opposed to a total refund means the product is accepted as being of a different quality.

Remedies for services

60. We regret that the Government was not able to fully align the approach to remedies for services with remedies for goods. However, we believe that the proposals are an advance that will enable consumers to understand their rights better through rights of re-performance (a bit like a replacement) or price reduction.

61. The main remaining problem continues to be in the area of a mixed goods and services contract where consumers and some businesses are still not totally clear who is responsible for any defect. We understand that it is the seller of the goods that has to remove and reinstall the defective goods. This will require clear guidance.

Proposals we would Prefer to see Withdrawn or Changed

Private Actions in Competition Law

62. The BRC recognises that uncompetitive practices can harm consumers. We cannot oppose consumers receiving redress in such circumstances. We also accept that it is difficult for individual consumers to prove the damage that they have suffered as a result of an uncompetitive practice.

63. For this reason we would be willing to accept a reasonable procedure that would allow consumers to receive such redress—and for consumers to be able to enforce that right where a business or businesses are unwilling to pay up. ADR provides one route; public enforcer led redress another.

64. In our view, this would be along the lines proposed by the European Commission in its recent Recommendation ie substantially follow on; opt in; no punitive damages; no incentive for law firms to take on spurious cases; loser pays.

65. The Commission regards these as essential safeguards if a US style class action system is to be avoided and if the special concessions for those who co-operate or are whistle blowers are to be preserved.

66. We regret that the UK Government has chosen a different path—one where private bodies can use actions to prove anti-competitive practices as well as claim compensation on an opt out basis in spite of all the difficulties of proving a case.

67. We would recommend that the Government re-drafts this proposal more in line with the EU Recommendation or withdraws it pending further consideration. At the very least, opt out should be replaced by opt in OR the proposal should be limited to a follow on procedure once anti-competitive action has been proven or admitted OR the proposal should be re-shaped on the same basis as the proposal in the Bill for civil redress in consumer protection issues (ie via a public enforcer).

68. It is indeed true that those who do not engage in anti-competitive practices should have nothing to fear (though it would be very expensive to defend a borderline case). We also recognise that consumers will welcome this provision as a disincentive to those who might engage in such practices and that to withdraw the provision totally might unbalance the Bill.

69. What we could not accept would be the extension of this system to consumer protection issues on the UK Government basis.

8 August 2013

Prepared 20th December 2013