Business, Innovation and SkillsWritten evidence submitted by the CBI
1. The CBI welcomes the opportunity to submit written evidence to the BIS Select Committee inquiry into the Government’s Draft Consumer Rights Bill. The CBI is the UK’s leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. This response provides detail on the following points:
Updating and consolidating consumer rights legislation is a sensible step towards an effective consumer rights system
The proposed changes must undergo comprehensive scrutiny to avoid creating unforeseen consequences and uncertainty
A Private Actions opt-out scheme risks introducing US style class actions to the UK and will not deliver for business or consumers.
Updating and Consolidating Consumer Rights Legislation is a Sensible step Towards an Effective Consumer Rights System
2. An effective consumer protection regime, which empowers consumers to make smart choices, is good for business and economic growth. The consumer rights landscape in the UK has been identified as being overly complex, causing confusion for business and consumers alike. With 12 pieces of legislation covering consumer rights, and 60 covering the investigatory power of consumer enforcement bodies, it is sensible to consider ways in which this can be streamlined.
3. As well as rationalising existing legislation, it is important that consumer rights are up to date to reflect technological changes. More goods and services are available in digital form and the routes for purchasing existing products and services have increased. The Government is right to ensure that businesses have certainty over how these areas are treated in legislation.
4. The decision to draw together existing legislation in one place in the form of the draft Consumer Rights Bill, updating specific areas of legislation to reflect the changing nature of business and consumer interaction, is a potentially sensible step. The focus must be on streamlining rather than introducing changes that will add further complexity if it is to deliver benefits for business and consumers.
The Proposed changes must Undergo Comprehensive Scrutiny to Avoid Creating Unforeseen Consequences and Uncertainty
5. While it is sensible to rationalise and update existing legislation, the draft Bill must provide clarity in each area. Any uncertainty is likely to add additional costs to businesses and prevent consumers getting the best deal. The Government must work with businesses to ensure that its proposals will create a more efficient system, are practically applicable and will not lead to any unforeseen consequences.
6. The Government must make sure the changes fit alongside existing sector regulations. Businesses should not be subject to overlapping redress schemes from regulators and Trading Standards. The jurisdiction of different sector regulators with responsibilities for consumer protection needs to be carefully mapped, and responsibilities made explicit, before changes are introduced.
7. It is also vital that the purpose and the practical application of individual changes are clear before the decision to legislate is made. Before altering legislation, each proposed change must be scrutinised to ensure that it will bring a positive benefit and can be applied practically. At present, this is not clear in every instance, running the risk of the draft Consumer Rights Bill having a negative impact.
8. In particular, it must be recognised that the delivery of goods and services is fundamentally and necessarily different. Concepts such as satisfactory quality for goods could be difficult to apply effectively to services which often lack a tangible standalone product. This could lead to different interpretations of what counts as satisfactory for a service. For example, a financial services provider could be deemed to have failed to reach a satisfactory quality because subsequent unforeseeable economic changes can negatively alter the effectiveness of advice on a range of services from investments to insurance.
9. Although it is important that consumer law remains up to date with technological changes, the introduction of a digital content regime is useful only if the proposals are fair and can be applied practically. It is of no benefit to business or consumers if it is unclear as to how certain products or services are to be replaced or refunded and where the responsibility lies. The definition of digital content also needs to be carefully scrutinised to ensure that it captures the right areas without becoming a catch-all for all consumer activity online.
10. Changes to unfair contract terms must be carefully assessed to avoid adverse and expensive legal ramifications. For example, the use of the word “prominent”, in relation to certain information in contracts, could lead to confusion if it is taken to mean the visibility of certain information rather than the ease with which the information can be understood by the consumer. Further clarity is needed over concepts such as transparency and prominence, particularly in areas that cannot be assessed for fairness.
A Private Actions Opt-out Scheme risks Introducing US Style Class Actions to the UK and will not Deliver for Business or Consumers
11. The CBI supports the objective of delivering effective redress for those that have suffered loss through anti-competitive practices but opposes the introduction of an opt-out scheme for competition private actions. It is the wrong measure at the wrong time and should not be included in a draft Bill that is otherwise focused on rationalising and updating existing consumer legislation.
12. The introduction of an opt-out scheme risks introducing a US style litigation culture to the UK that will increase costs without delivering meaningful benefits. A recent study,i found that the United States has the highest liability costs as a percentage of GDP in the world, at 1.66%. The UK already has the third highest costs at 1.05%, well ahead of the Eurozone at 0.63% and between 2008–11 litigation costs grew by 47%. The Government’s proposed opt-out proposal runs the risk of further exacerbating this problem and widening the gap to other international competitors.
13. A recent surveyii in the UK also found that 57% of respondents felt the UK Government should not change the civil legal system to be more like the American system compared to only 16% who thought they should. The European Commission also supports the use of opt-in over opt-out schemes. In a series of common, non-binding principles for collective redress published in June 2013, the Commission stated that “collective redress systems should, as a general rule, be based on the opt-in principle”.
14. The CBI maintains that there are serious concerns over the introduction of an opt-out scheme and as a result, this should not be taken forward in legislation. We also strongly believe that once the principle of an opt-out scheme has been established in one area of consumer redress there is a real risk it will spread to others, while any proposed safeguards will erode over time.
15. Instead, more use of Alternative Dispute Resolution mechanisms should be encouraged. There is already innovative work in this area such as the CPR 21st Century Corporate ADR Pledgeiii where companies commit to resolve issues through ADR processes wherever appropriate. The Government should look to make more use of ADR mechanisms with incentives on companies to participate to deliver an effective and robust system of redress without the associated litigation costs.
27 August 2013
References
i The US Chamber Institute for Legal Reform, International Comparisons of Litigation Costs: Europe, the United States and Canada, May 2013
ii Ipsos Mori, UK Consumer Research: Collective Action Lawsuits, May 2013
iii International Institute for Conflict Prevention and Resolution (CPR) and Centre for Effective Dispute Resolution (CEDR), CPR 21st Century Pledge, 2013 http://www.cedr.com/articles/?item=CPR-21st-Century-Pledge