Groupon agrees to better trader diligence as part of consumer protection undertakings

The popular online discount voucher company has undertaken to ensure that when its adverts compare original and discounted prices, those reference prices are "accurate, honest and transparent".

Groupon has also agreed to carry out "accurate, honest and realistic" assessments of traders' ability to honour offers as they have been advertised as well as display any limitations that may apply to deals "clearly, prominently and on the same screen or before purchase".

In addition Groupon will take "reasonable steps" to make sure that claims made about health or beauty products are adequately substantiated. It will also ensure that contract terms and conditions are fair and will use refund policies and cancellation rights "in accordance with the Distance Selling Regulations," the OFT said.

Groupon has three months in which to implement the changes.

“As a young and innovative business, Groupon acknowledges that our processes and procedures have not always kept pace with our rapid growth," Roy Blanga, UK managing director of Groupon said in a statement.

"We have independently made many improvements since early 2011 and have worked transparently and constructively with the OFT to identify areas that require further changes.  We take their concerns very seriously and will be willingly implementing the recommended changes," he said.

The OFT had opened its investigation into Groupon's compliance with consumer protection laws in July last year. The regulator said its concerns centred on the company's compliance with the UK's Distance Selling Regulations, Consumer Protection from Unfair Trading Regulations and Unfair Terms in Consumer Contracts Regulations.

In December advertising watchdog the Advertising Standards Authority (ASA) began referring complaints it received about Groupon to the OFT after expressing "serious concerns" about the company's ability to observe advertising rules.

The Distance Selling Regulations give shoppers specific legal protections and different cancellation rights from those buying in store.

Businesses are generally required to supply goods within 30 days or pay a refund, but the regulations state that in most circumstances online purchasers have the right to cancel an order they made within seven days of the goods being delivered and receive full refunds. Online customers are also entitled to a full refund for goods or services not provided by the date agreed with a business.

The Unfair Terms in Consumer Contracts Regulations sets out rules that businesses must comply with when drawing up contracts for customers. Under the Regulations "unfair" contract terms are prohibited and refer to terms in a contract which have not be "individually negotiated" that cause "a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer," contrary to the requirement that they be drafted in "good faith". Under the Regulations written contracts must also be drafted in "plain, intelligible language".

Under the Consumer Protection from Unfair Trading Regulations a practice is unfair if it fails to meet the standard of "professional diligence", which is the standard of skill and care that would reasonably be expected of a trader in its field of activity, and it materially impairs an average consumer's ability to make an informed decision, causing him to make a decision he would not otherwise have made.

The OFT said ASA is to continue to refer ad complaints to it for the next three months "whilst Groupon improves its processes". After that period ASA will investigate any future complaints it receives about Groupon ads.

"Collective buying and discount schemes can offer real benefits for both consumers and merchants," Cavendish Elithorn, senior director in the OFT's goods and consumer group, said in a statement.

"The market is growing rapidly, but it's important that consumers benefit from consumer protection law as well as from the discounted offers. Groupon has cooperated fully with our investigation and is making changes to its business practices to address our concerns. We will be monitoring the situation closely to ensure that consumers benefit from these improvements," Elithorn said.