POLICY BRIEFING. They will be able to demand that substandard services are redone, or failing that get a price reduction.

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1 POLICY BRIEFING The Consumer Rights Bill 18 March 2014 Rachel Salmon, LGIU Associate Summary The Consumer Rights Bill was introduced to Parliament on 23 January 2014.It has completed its committee stage. An amended version was published on 14 March A date for the third reading has yet to be announced. The Bill brings together much of the existing legislation relating to contracts for goods, services, digital content and unfair terms in consumer contracts. It clarifies the standards a consumer can expect, and sets out what they can do when goods, services or digital content do not meet these standards. The Bill proposes a set 30-day time period for when consumers can return faulty goods and get a full refund. Consumers will have the right to get some money back after one failed repair of faulty goods (or one faulty replacement). They will be able to demand that substandard services are redone, or failing that get a price reduction. Consumers will be able to get a repair or a replacement of faulty digital content like film and music downloads, online games and e-books. The Bill introduces easier routes for consumers and small and medium sized enterprises ("SMEs") to challenge anti-competitive behaviour through the Competition Appeal Tribunal ("CAT"). The Bill consolidates enforcers powers to investigate potential breaches of consumer law into a single set by amending the Unfair Trading Regulations 2008 (CPRs). The Bill will also enable Trading Standards to operate across local authority boundaries.

2 POLICY BRIEFING It will also give the civil courts and enforcers like Trading Standards greater flexibility to take the most appropriate action for consumers when dealing with breaches of consumer law, for example enabling them to obtain compensation on behalf of consumers. The Government also intends implementing the majority of the Law Commissions recommendations to strengthen consumer s rights if they feel they have been given misleading information or treated aggressively by traders. The Consumer Rights Bill mainly applies to the whole of the UK. This briefing is of particular interest to members and staff involved with Trading Standards, Markets, local economic and business development, Environmental Health, regulation of the private rented sector and those providing and commissioning consumer advice services. Briefing in full Background The Government believes existing consumer rights laws are too complex, fragmented and unclear. They have developed in a piecemeal way and have not kept pace with technological change. Aims The Consumer Rights Bill aims to: Structure Streamline key consumer rights covering contracts for goods, services, digital content and the law relating to unfair terms in consumer contracts into one place; Clarify the law where it is confusing, or written in legal jargon; Modernise the framework for the digital age; Deregulate to reduce business burdens and costs; and Enhance measures to protect consumers, where it is appropriate to do so. The Bill has three parts: Consumer Contracts for Goods, Digital Content and Services; Unfair Terms; and Miscellaneous and General - covering investigatory powers, enhanced consumer measures such as enabling enforcers to seek

3 POLICY BRIEFING compensation on behalf of consumers and measures to enable individual consumers or businesses to act on behalf of others in private actions on unfair competition. Impact on existing legislation The Consumer Rights Bill brings together a range of legislation from the Sale of Goods Implied Terms Act (1972) to the Enterprise Act (2002) and implements a range of EU directives. These are outlined in Sections 8-12 in the explanatory notes. The Bill focuses on contracts between consumers and businesses. Some elements of existing legislation relating to contracts between businesses, contracts between consumers and regulations relating to all types of contracts will be retained, and the relevant legislation amended. A full explanation of the impact on existing legislation is outlined in Sections 23 and 24 of the explanatory notes. A draft Bill was published on 12 June 2013 following extensive consultation with consumers, businesses and enforcers. The Government then invited views on the draft Bill and, in addition, the Bill was scrutinised by the Business Innovation and Skills Select Committee. The Government set out its response to the consultations in a statement issued in January Commentary Part 1: Goods, Digital Content and Services Chapter 1: Introduction Types of contracts (Section 1) The Consumer Rights Bill applies to contracts between consumers and traders for the sale of goods, services and digital content. A contract may be written, verbal or implied by the conduct of either trader or customer e.g. if a person gets into a taxi they are implying that they want to be taken somewhere by the driver. To form a contract there must be an offer, an acceptance and consideration an exchange in most cases the exchange of goods or services for money. Rights relating to different types of products (Section 2) Consumer s rights may vary, depending on whether they are purchasing goods, services or digital content. For mixed contracts, where there are elements of goods, services or digital content the relevant remedy will be applied. But consumers will be entitled to terminate all elements of a contract if one element is faulty. For example if a builder agrees to install a granite worktop which turns out to be scratched, the consumer can request a refund of both the price of the worktop, and the fee charged for installing it. Standardising definitions (Section 2)

4 POLICY BRIEFING The bill establishes standard legal definitions for the terms consumer trader goods and digital content. Standardising remedies for different types of agreements (Sections 3-8) The Bill establishes the same remedies for different types of agreements sale, conditional sale, work and materials, barter or exchange, hire, and hire-purchase agreements and contracts where goods are manufactured or produced for a consumer for a price e.g. made to measure suits. Chapter 2: Supply of goods (Sections (Sections 3-33) Core quality rights (Section 9-18). Goods must be; fit for purpose; of satisfactory quality as described match sample; and match models seen or examined. Remedies (Section 19-27) Consumers will be able to return faulty goods within 30 days and get a refund if they are not satisfied with the quality. Currently a consumer s right to obtain a refund lapses after a reasonable period of time, this is interpreted differently by retailers, so the Bill establishes a clear timeframe. If the goods do not conform to the contract at any time within six months the consumer can request a repair or replacement. If the goods still do not comply after one attempt at either the consumer has the right to a reduction in price or to reject the goods, which may entitle him/her to a full of partial refund. A trader may make a deduction for use. Hire or hire-purchase goods In the case of goods for hire or hire purchase, a consumer may obtain all or part of the money paid up to that point. Marketing statements Public statements made in advertising or labelling will be taken into account along with price and product description when determining whether goods are of satisfactory quality and the consumer may be entitled to a total or partial refund.

5 Deliveries (Section 28) POLICY BRIEFING Wrong quantity: A consumer can reject all of the goods if the wrong quantity is delivered. But if s/he chooses to accept them, they must pay for them all, even if extra have been delivered. Delivery by instalment: A consumer can refuse to have goods delivered in instalments. If one instalment is faulty s/he can demand a refund or request the contract is ended this will be determined on a case-by-case basis. Delivery times: Unless otherwise agreed the trader must deliver the goods within 30 days of the contract being made. If a trader agrees to deliver goods immediately this usually means it is essential that they are delivered quickly and if this does not occur the consumer would usually be able to end the contract, unless an alternative arrangement can be made. Passing of risk (Section 29) Risk does not pass from the trader to the consumer until the consumer takes physical possession of the goods. And, unlike most of the terms relating to goods in this Bill, this clause also applies to goods sold at auction. Guarantees (Section 30) These are legally binding and must be made available to the consumer within a reasonable time. They must be written, in clear language, English if the goods are offered for sale in the UK. They must state that the guarantee does not affect consumer s rights (under the Bill), include the guarantor s name and address, the timeframe and territorial scope. Traders ability to restrict or exclude their liability (Section 31) Traders cannot opt out of any of their duties under this bill. Nor can they prevent consumers from seeking remedies. The Bill does not prohibit traders insisting consumers seek arbitration to resolve conflicts, but it makes clear that imposing such conditions may be regarded as unfair. This measure also applies to the supply of digital content and services. Applying the law of a non EEA state (Section 32) The Bill states that consumer contracts will be subject to UK law if they have a strong connection with the UK, even if it states that it is governed by laws of a country outside the EEA. This aspect applies to all aspects of the Bill relating to goods, other than deliveries and passing of risk Chapter 3: Supply of digital content Definition (Section 33)

6 POLICY BRIEFING Digital Content is defined as data which is produced and supplied in digital form, including: software; music; computer games and applications ( apps); content stored via cloud computing; and bespoke software e.g. website design The definition does not apply to services which enable consumers to access digital content such as internet or mobile phone services. Types of contracts covered The Bill covers digital contract that are paid for with money. This may include gift vouchers or virtual currency, originally purchased with money. The Government has reserved the right to regulate digital content received in exchange for personal data. Consumer s rights (Section 34-47) As with goods, consumers can request a repair or a refund if they are not satisfied with the digital content. There is no limit to the number of repairs a provider can offer. There is no 30 day right to reject digital content only when it is supplied with goods e.g. a disk, included with a digital camera. If a consumer can prove that the digital content supplied has damaged his/her other digital content or device the trader must either repair the problem or provide financial compensation. Consumer s core quality rights in relation to digital content are similar to those for goods, see above. The Bill allows providers to update content without seeking prior agreement from the consumer. But the contract must state that this may occur and the update must not breach the consumer s core quality rights. The time period for bringing a claim begins at the start of the contract, not at the time of the update Consumers have six years from the start of the contract to bring claims. They have to prove the upgrade caused damage. Chapter 4: Supply of services Consumer s core quality rights (Sections 48-52) Services must be carried out with due care and skill

7 POLICY BRIEFING Information about the trader or service is binding The price must be reasonable The service must be performed within a reasonable time Consumer s rights (Sections 53-59) If the consumer feels the service has not been undertaken with due care and skill or that it has not been undertaken in accordance with the information provided s/he can request that the work is done again and, if this cannot be done or completed within a reasonable time the consumer can request a reduction in the price. Consumers may still also claim damages through the civil courts. Chapter 5: General and Supplementary provisions Unfair terms (Section and Schedules 2 and 3) The Bill covers contracts between traders and consumers and consumer notices, which include things like signs or messages designed to be read by consumers. Contract terms, including contracts agreed in addition to the original contract, must be fair. Unfair terms put the consumer at a disadvantage, by limiting the consumer s rights or disproportionately increasing their obligations as compared to the trader s rights and obligations. The courts should apply the Fairness Test taking into account the circumstances which existed when the term was agreed, other terms in the contract and the nature of the subject matter of the contract. Courts are under a duty to apply the Fairness Test even if the parties have not asked them to do so. Schedule 2 of the Bill lists examples of contract terms which the courts must regard as unfair, known as the grey list, which has been updated to include terms that: allow the trader to claim disproportionately high early termination charges from the consumer; give the trader discretion to decide the subject matter of the contract after the contract has been entered into; allow the trader to determine the price after the consumer is bound by the contract. The list is not exhaustive and the courts must still apply the Fairness Test even in such cases. To avoid the Fairness Test the main subject of the contract, usually the goods, service or digital content or the price must be prominent and transparent to prevent

8 POLICY BRIEFING traders hiding unfair terms in the small print. Any ambiguous terms should be interpreted to favour the consumer. A trader cannot limit his/her liability for death or personal injury due to his/her negligence. Investigatory powers (Section 77 and Schedules 5 and 6) The Bill consolidates the powers of consumer law enforcers, including Trading Standards, into a single set, based on those set out in Part 4 of the Consumer Protection from Unfair Trading Regulations 2008 (CPR's), which were amended in 213. Stronger safeguards have also been added to the use of these powers to reduce the burdens on businesses. For example inspectors cannot enter a premises which are wholly or mainly private dwellings unless they have given the occupier at least two working days written notice unless an officer suspects evidence would be lost or destroyed Where advance notice is not given, enforcers must notify occupants when entering the premises, and provide evidence of authorisation or identity. They must leave written notice of their entry when premises are unoccupied. Powers have been limited in some cases. For example, enforcers can only require a trader to produce information if there is a reasonable suspicion that there is, likely to be, or has been a breach of legislation. This does not apply if there is a statutory duty on the trader to hold a particular document. Enforcers must grant reasonable access to goods and documents seized, e.g. so that copies of seized documents can be made. Enforcers may recover the reasonable costs. When seizing goods enforcers must have regard to relevant sections of the code of practice under section 66 Police and Criminal Evidence Act The Bill will allow Trading Standards authorities to collaborate and operate across local authority boundaries. An amendment to the Weights and Measures Packaged Goods Regulations (2006) means that packers of bread sold unwrapped or in open packs will be exempt from keeping records of checks (Section 78). Enhanced consumer protection (Section 79) The Bill will allow enforcers to apply to the courts for an increased range of measures to enable consumers to obtain redress or to reduce the likelihood of further breaches by traders, including;

9 POLICY BRIEFING obtaining compensation for consumers; compelling traders to introduce a complaints handling system; and requiring traders to provide more information to consumers e.g. publicising the breach and measures taken to address it on social media, singing up to a customer review/feedback site. Private Actions in competition law (Section 80) The Bill will make it easier and cheaper for consumers and small businesses to gain redress when they think there has been an infringement of competition law by: Enabling the Competition Appeals Tribunal (CAT) to hear more types of cases; Allowing Collective Actions and Collective Opt-Out Settlements, where a representative brings a case on behalf of a group of claimants to obtain compensation. Providing for voluntary Redress Schemes allowing consumers or businesses to agree compensation without having to resort to court action. Comment From regulating private landlords to challenging payday lenders, taking steps to prevent estate agents charging excessive fees, log book lenders, curbing slot machines and taking on ticket touts councils and local politicians are increasingly being asked to intervene in cases relating to Consumer Rights. The Government hopes the Consumer Rights Bill will provide a 4 billion boost to the economy over the next decade and reduce the estimated 59 million hours a year consumers spend dealing with goods and services problems. The Bill brings together existing legislation and introduces new rights such as the 30- day right to a refund when goods purchased are not up to standard, and updates the law to include faulty digital downloads. These measures have been widely welcomed. Organisations ranging from the CBI to the Citizen's Advice Bureau have broadly welcomed this. However, the Trading Standards Institute and Trading Standards Board have been concerned that the requirement on Trading Standards Officials to provide two days notice of an inspection may hamper their ability to do their job. The LGA and the TSI had lobbied for an exemption to the requirement for written notice of an inspection where an officer reasonably considers that to give advance notice would defeat the purpose of the visit. The Business Innovation and Skills Select Committee supported this in the pre-legislation scrutiny of the draft Bill. Ministers accepted the recommendation from the Committee. Local government has called for Guidance on this issue to clarify the position.

10 POLICY BRIEFING The Citizen's Advice Bureau would like all repairs, replacements and refunds dealt with within 30 days, unless the trader and consumer agree a longer timeframe. They also believe that Collective Redress should be available to consumers experiencing all unfair practices, not just unfair competition. Opposition MPs Stella Creasy, Shadow Minister for Business and Skills and Stephen Doughty unsuccessfully tabled amendments during the committee stage, including measures to allow: consumers to find out whether complaints had been made about a trader; formal representation for consumers on all public bodies; the provision of free legal advice to consumers if necessary; statutory minimum standards for all Trading Standards officers and independent advocates to help consumers get better outcomes from public services. They also believe the Bill should extend consumer protection to small businesses. What do you think? Does this Bill go far enough? What do you think of Labour s proposals would they be workable? What other powers should Councils have to curb rogue traders? For more information about this, or any other LGiU member briefing, please contact Janet Sillett, Briefings Manager, on janet.sillett@lgiu.org.uk