Consumers

Liberal Democrat online policy consultation

5.0.1 No new consumer protection policy can begin without an understanding of the current policy environment and new developments. DBERR (and the Law Commission, part of the Ministry of Justice) are currently undertaking a review of consumer law, but because existing consumer legislation is so fragmented (see Appendix 1), an overall review of consumer protection policy is not an easy exercise to undertake.

5.0.2 There are currently four main European Directives designed to protect consumers. These cover: unfair contract terms, sales and guarantees, distance selling, and doorstep selling.

5.0.3 The new proposal currently in progress is the draft Consumer Rights Directive (CRD). The CRD aims to merge the four existing directives into a single framework: removing inconsistencies and closing gaps. It concerns contracts for all business-to-consumer sales of goods and services (covering purchases made in a shop, at a distance or away from business premises).

5.0.4 The European Consumer Commissioner Meglena Kuneva has outlined 12 priority areas:

• Tough new rules on delivery across the EU, including new rules on late delivery, non delivery and damage in transport
• An end to hidden charges – “no display no pay”
• A strengthened EU wide 14-day “cooling off” period and right of withdrawal for consumers
  A new ban on default pre-ticked boxes
• A new “see through clause” to tackle the problem of omissions in required information for consumers
• A major crackdown on pressure selling
• Closing the loopholes for distance selling
• New transparency obligations
• New protection for mobile-commerce and tele-commerce
• A new EU “black list” and “grey list” of unfair and abusive contract terms
• New EU-wide protection for online auctions
• Clear information about consumer rights at the point of sale itself

5.1 Problems with Current/Forthcoming Legal Framework

5.1.1 There is a clear danger that the existing myriad of separate and self-standing pieces of legislation has left people with no clear sense of their rights as a consumer. The CRD is attempting to address this and so we broadly welcome the both the clarity and the new protections which the draft CRD, in theory, will provide.

5.1.2 However, it would be difficult to produce an all embracing “Consumer Code” because rights necessarily vary considerably between different purchases according to:

• the nature of the product being supplied
• how the product is “bundled” with other goods and services
• what sort of credit (if any) is involved
• how the purchase is transacted (for example distance and doorstep sales versus over-the-counter).

5.1.3 Many have called for a general duty to trade fairly. That is, a legal obligation to trade fairly, regardless of matters such as trade association membership, definition of contract term or type of business. There is still no general duty to trade fairly in UK legislation, or indeed the draft CRD. While there are difficulties in ensuring how this works in practice; this idea deserves consideration.

5.1.4 The CRD proposal will move away from the minimum harmonisation approach followed in the four existing Directives (i.e. Member States may maintain or adopt stricter national rules than those laid down in the Directive) to embrace a full harmonisation approach (i.e. Member States cannot maintain or adopt provisions diverging from those laid down in the Directive). In some areas, however, full harmonisation could come at the expense of weaker protections for UK consumers.

5.2 Pressure Selling

5.2.1 As discussed in Section 3, sellers do not, and indeed should not, have to wait for customers to arrive at the door. Marketing embraces a vast range of activities, including public relations, sponsorship, product promotion by way of samples or discounts, media advertising and targeted direct sales. Provided that the information to customers is or is believed to be true and the methods used to bring the product to their attention do not place prospective purchasers under duress, then the market may be considered to be operating fairly.

5.2.2 However, some types of business operating in highly competitive sectors are notorious for their aggressive sales methods, e.g. property time share and double glazing, and the advent of “chuggers” (charity muggers) on our streets shows that these methods are not confined to profit making concerns. Although at various times some of these sectors have tried to regulate themselves, where marketing and sales techniques invade privacy, become a nuisance or are so aggressive that a customer feels pressurised into buying formal regulatory protection becomes necessary, especially for the more vulnerable.

5.3 Fraud

5.3.1 Whilst victims of a fraud can seek redress under the common law and certain specific pieces of legislation, the presumption of “caveat emptor” still permeates law and Government policy and, other than in respect of financial services, there is very little by way of legislation that might deter the establishment of fraudulent schemes or discourage potential victims from being drawn into them. In fact most “scams” fall outside the reach of the Financial Services Authority and as they are frequently perpetrated by organisations based outside the EU, preventative measures become essential as it is unlikely that redress can be obtained.

5.3.2 We list at Appendix 2 a brief description of a number of the common scams currently appearing in the UK. With the exception of “directory advertising”, where money is demanded after the provision of a valueless service, all require their targets to make payments in advance, either by way of fees, purchase of stocks (which usually can’t be sold on except to other targets) or investment. Although one or two, such as “holiday clubs” and “property investment”, do provide purchasers with some form of tangible asset, the real rate of return on outlay after so-called management charges is very low even in the best of cases and the asset would not realise its purchase price if indeed it can be sold on at all. There are, of course, many variants of these schemes and, at the margins it is not always easy to determine which are legitimate and which are not.

5.3.3 Presently the OFT only has powers to decide what is and what is not an acceptable business practice generally and ban registration, freeze assets and close down UK organisations and individuals deemed to be operating scams following a DTI investigation, which can take many years. These powers could be extended to allow the OFT to take pre-emptive action, but key issues to consider would include whether this would constitute a restraint of trade, conflict with human rights and whether, by not having investigated or closed down a business practice, OFT might be perceived as having sanctioned it.

5.3.4 Though it offers advice to victims and may take action with other agencies to investigate scams and suspect organisations operating in the UK, the OFT will rarely, if ever, advise on or investigate a fraud emanating from outside UK. Between them the Serious Fraud Office and the Serious and Organised Crime Agency handle a limited number of such cases but the former is more concerned with “white collar” crime and the latter with “organised” crime. There is an
EU consumers unit which does investigate scams and alerts member states’ agencies but this work is generally after the fact.

5.4 Insolvency

5.4.1 There are certain circumstances in which customers for goods and services are, quite legitimately and with justification, required to make a partial or full payment in advance. This particularly applies to situations where the supplier must buy in materials or otherwise incur time and expenditure in order to design or fabricate something bespoke for that customer e.g. double glazing installation or professional advice. Redress can be sought under the Sale of Goods Act or the contract between the parties if the supplier fails to deliver to the specification but the customer is exposed if the supplier’s business fails during the period between the advance payment and delivery. In the event of insolvency, and unless specific contractual arrangements have been made, the deposit will not enjoy any preference and will be ranked with ordinary creditors.

5.4.2 The Government is presently considering options to address this problem. Some professional institutes and trade bodies operate indemnity schemes specifically to cover deposits held on behalf of customers, e.g. the Law Society, the Association of British Travel Agents, the National Housebuilders Confederation and FENSA (for double glazing). Deposits paid with a credit card (but not debit card, cheque or cash) are covered up to a value of £30,000 by the card issuer - presumably the credit card company having satisfied itself as to the bona fides of an organisation before allowing it to trade using its franchise.

5.5 Licence to Practise

5.5.1 In the UK and internationally, there are many types of goods or services for which some kind of licence is required to allow someone to supply those goods or services, as a guarantee of good quality. This can be because there are serious health and safety consequences to poor quality work, or because it is a kind of service whose quality is very difficult for the consumer to judge. Examples include the professional regulation arrangements of professions like medicine or law, but also schemes like CORGI registration for gas operatives. There are also schemes which are voluntary rather than statutory. Licence to Practise could be a driver to improve levels of training and professionalism in industries which currently suffer from a reputation for ‘cowboy’ traders. On the other hand, the additional cost and bureaucracy of any schemes need to be taken into account. Trades where there can be serious consequences from poor quality work and which are not currently covered by Licence to Practise include electrical installation and domestic plumbing.

Questions

18. Do consumers need more rights? Would further codification or simplification of existing legislation be of significant benefit?
19. Should there be a general duty to trade fairly? If so, how would it work and how would it interact with existing legislation?
20. Can we avoid the pitfall whereby full harmonisation of consumer protection within the EU may reduce protection to UK consumers?
21. What is the proper borderline between acceptable salesmanship, and unacceptably aggressive pressure to purchase?
22. What steps, if any, can be taken to outlaw unacceptably aggressive pressure to purchase?
23. Does the Advertising Standards Authority sufficiently control unacceptable advertising? Does it keep advertising “legal, decent, honest and truthful”?
24. Should the OFT or other agencies have greater powers enabling them to decide what is and what is not an acceptable business practice generally and ban registration, freeze assets and close down UK organisations and individuals deemed to be operating scams?
25. Apart from blocking registration of companies and directors, how should the public be made more aware of unacceptable business practices?
26. Should we require any organisation taking customer deposits, to hold insurance or be part of a trade body indemnity scheme? Should there be a cash threshold above which such a requirement is imposed and if so what?
27. Should we encourage new Licence to Practise schemes, whether statutory or voluntary? If so, in which sectors?
28. How can we educate young people more effectively about their rights as consumers (of both private and public goods and services)?