Consumer protection from Unfair Trading Regulations

Peter Barton, corporate partner

From May of this year changes to consumer protection legislation may have a significant impact upon your business. The UK is currently one of the few EU member states not to have a general fair trading duty incorporated into its national law.

However, on 26th May 2008, the Consumer Protection from Unfair Trading Regulations 2008 (the “CPRs”) come into force. Broadly, the CPRs impose an overall ban on misleading commercial practices providing civil and criminal sanctions for businesses in contravention.

Will the CPRs affect your business?

The CPRs prohibit unfair business-to-consumer commercial practices in all business sectors, before, during and after a transaction. Any act your business performs in promoting selling or supplying a product to consumers may be regarded as a relevant commercial practice.

Even if your business does not have a direct transactional relationship with consumers it may still be affected by the CPRs. Any commercial practice which has the potential to affect consumers may be covered even where the relationship between producer and consumer is indirect. For example, where a manufacturer sells its product to retailers, any labels that it produces must be compliant with the CPRs.

If your business is involved in the promotion, sale or supply of a product (which includes services) of any kind to consumers, it will need to consider whether its practices are compliant with the CPRs. Failure to do so may result in severe consequences including civil and criminal sanctions and the related impact upon its reputation.

What practices will be prohibited?

This prohibition falls broadly into three categories:

1) 31 specified practices that will be deemed unfair in any circumstances
2) Misleading actions or omissions and aggressive commercial practices
3) Safety-net provisions.

Specified commercial practices which are unfair in any circumstances:

31 commercial practices will be specifically prohibited from 26 May of this year. If your business engages in any of these practices from this date it is likely to be in contravention of the CPRs. Some of the more significant specifically prohibited commercial practices are listed below:

• Displaying a quality mark without authorisation
• Falsely claiming to be a signatory to a code of conduct
• Falsely claiming that a product is able to cure illnesses
• Falsely representing oneself as a consumer. This means that practices which involve the business posing as a consumer in order to promote its goods, for example, putting out a restaurant review under a false name, will be unlawful
• Making a materially inaccurate claim about the risk to the personal security of the consumer or his family if he decides not to purchase the product in question
• Making personal visits to the consumer’s home and ignoring the consumer’s request to leave and/or stay away
• Making persistent and unwanted solicitations by telephone, fax, e-mail or other remote media except in circumstances and to the extent justified to enforce a contractual obligation
• Including in an advertisement a direct exhortation to children to buy advertised products or persuade their parents to buy advertised products for them
• Falsely stating that a product will be available for a very limited time in order to obtain an immediate decision
• Claiming to offer a competition or prize promotion without offering reasonable prizes or an equivalent
• Describing a product as “gratis”, “free”, “without charge” or similar if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item.

The final three specifically prohibited practices are anticipated to have the most significant immediate impact upon businesses.

Conceivably the prohibition on falsely stating that a product will be available for a very limited time in order to obtain an immediate decision, could preclude the operation of the ubiquitous “offer extensions” associated with furniture stores and the like and ongoing “closing down sales” which last for months and sometimes even years.

Likewise, the prohibition on offering a competition or prize promotion without offering reasonable prizes or an equivalent could preclude the operation of competitions which do not necessarily produce a winner, such as spot the ball competitions and may place stricter obligations on businesses to track down competition winners who have been informed of their good fortune, but have failed to respond.

Finally, the prohibition on describing a product as “free” where the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item, could signal the end of the buy one get one free offer, as arguably the cost of paying for the first product is greater than the unavoidable cost of responding to the commercial practice.

Misleading actions or omissions and aggressive commercial practices

Misleading actions

Commercial practices are misleading if they give false information which causes or is likely to cause the average consumer to make a transactional decision that he would not otherwise have taken. A simple example of a misleading action is where a business falsely tells a consumer that his boiler cannot be repaired and that he will need a new one. A more sophisticated example of a misleading action is where a business advertises a product claiming that it is available at a discounted rate, where in fact that product has only been available for a very short time in one of the businesses’ numerous retail outlets.

Misleading omissions

Commercial practices are also misleading if they omit material information which causes the average consumer to make a decision that he would not otherwise have made. Simple examples of a misleading omission would be where a business omits to mention that a contract will run for a minimum period, or where a business runs a car park, but fails to clearly display the price of parking at a point before the consumer enters the car park.A more sophisticated example might be where a business sells an extension package to a piece of computer software, which requires the original software to operate, but does not inform consumers of that fact.

Aggressive commercial practices

An aggressive commercial practice is one which, by means of harassment, coercion or undue influence, significantly impairs the average consumer’s freedom of choice and so causes the average consumer to take a transactional decision that he would not otherwise have made. Examples of potential aggressive commercial practices are, a business selling credit which pressurises an existing borrower to take out an additional loan, or a mechanic who has performed additional work on a consumer’s car, without the consumer’s consent, but refuses to return the consumer’s car until the consumer has paid for the additional work.

The safety net provisions

The safety net provisions, which are more commonly known as the general prohibition, are intended to act as a catch-all to cover those unfair commercial practices not respectively prohibited by the provisions described above. A commercial practice will be regarded as unfair if it

• contravenes the requirements of professional diligence
• materially distorts the economic behaviour of the average consumer in relation to a product (or is likely to do so).

Professional Diligence

Professional diligence is the standard of skill and care which a trader may reasonably be expected to exercise towards consumers. It is an objective standard which will vary according to the context.

Material Distortion

The behaviour of an average consumer is “materially distorted” if his ability to make an informed decision is impaired so that he makes a decision that he would not otherwise have made.The general nature of the safety net provisions makes it difficult to provide examples of their possible effect at this stage, although needless to say, they provide significant scope for commercial practices to be found to be unfair and subsequently become effectively prohibited and such developments will be a matter for the interpretation of the courts.

The consequences of failure to comply with the CPRs

Businesses who fail to comply with the CPRs may incur both civil and criminal sanctions. Enforcement of the CPRs will be carried out by enforcement agencies such as the OFT. Consumers or competitors will not have a right of action for themselves, although one would expect these groups to report offenders to the relevant enforcement agencies.

Civil sanctions

Enforcers may apply to the courts for an enforcement order to prevent infringements of the CPRs. Breach of an enforcement order could be a contempt of court which could lead to up to two years imprisonment and/or an unlimited fine.

Criminal sanctions

Certain enforcers may also prosecute for contravention of the CPRs. The penalties for summary conviction, are a fine not exceeding the statutory maximum, which is currently £5000 and for conviction on indictment, a fine or imprisonment not exceeding two years or both.

Informal consultation

It is anticipated that enforcers will normally seek to resolve infringements informally through consultation with the offending business before applying to the court for an enforcement order or seeking to prosecute and will accept an undertaking from the offender not to engage or repeat, the conduct constituting an infringement.

Consequences for your businesses’ reputation

Obviously the imposition of any of the above sanctions against your business could have severe consequences for its reputation, particularly criminal sanctions, which naturally carry a certain stigma.

Conclusion

Although the CPRs are not intended to impact upon businesses which treat consumers in a fair fashion, it is obvious that their broad scope and the potential uncertainty created by possibility of their extension (or retraction) by judicial interpretation means that all businesses need to consider their potential impact. We recommend that your business reviews its consumer business practices to ensure that it is not in obvious contravention of the CPRs. If you are in any doubt, we recommend that you take legal advice and would be happy to assist.

For further information or any assistance please contact Peter Barton, corporate partner on 0113 227 0371 or email peter.barton@gordonsllp.com