Consumers' new rights to redress qualified by 'average consumer' test

From October, changes to UK consumer protection laws will come into effect and provide consumers with a new right to redress against traders that engage in misleading or aggressive commercial activities.

The Consumer Protection (Amendment) Regulations give consumers the right to unwind contracts, claim a discount or even raise a claim for damages against businesses that act in a misleading or aggressive way.

New guidance issued by the Department for Business, Innovation and Skills (BIS) (22-page / 194KB PDF) highlighted that the right to redress only arises if the misleading or aggressive commercial practice led consumers to take a "transactional decision", such as buying goods or services from a business or selling goods to the trader.

The guidance also explained that the right to redress only applies if the 'average consumer' could be said to have been affected by the business practice at issue in a dispute.

"Where a trader has committed a misleading action, or acted aggressively, the Regulations only apply if the 'average consumer' would have entered the contract or made the payment," the government's guidance said. "It is not enough that the consumer subjectively felt intimidated, or misled. An objective test applies."

"The average consumer is 'reasonably well informed, reasonably observant and circumspect'… A particularly gullible consumer, or one that is easily influenced, would not have any remedy if the same practice would not have affected an 'average consumer'," it said.

A separate test applies for determining whether particular business practices affecting vulnerable consumers give rise to a private right to redress.

Under the Regulations, consumers' right to a damages payment only arises if they have either incurred a financial loss or "suffered alarm, distress or physical inconvenience or discomfort" they otherwise would not have experienced had the company not engaged in a misleading action or aggressive practice.

The right to damages is also limited "in respect of loss that was reasonably foreseeable at the time of the prohibited practice", and businesses can raise a number of defences to exclude their liability.

"Under the Regulations it is a defence to a claim for damages for traders to show that the misleading or aggressive practice happened as a result of a mistake or other cause beyond the trader’s control, and that they took all reasonable precautions to avoid the misleading or aggressive practice from occurring," the guidance said.

"The due diligence defence does not apply to standard remedies. This means that if a trader takes all reasonable precautions to avoid committing misleading and aggressive practices, the maximum extent of its liability to the consumer is the price paid," it said.

The government guidelines explained that awards for damages can be issued in respect of the "economic loss" incurred by consumers as a result of businesses' misleading or aggressive practices. It also said that damages may be payable where businesses' misleading or aggressive practices cause consumers to suffer alarm, distress, physical inconvenience or discomfort.

"The amounts awarded for distress and inconvenience should be restrained and modest, in accordance with the general law in England and Wales and Scotland," the guidance said. "Only in exceptional circumstances would these exceed £1,000, and in most cases, a nominal award, or an amount below £1,000 would be appropriate. Damages for distress are most likely to be appropriate in respect of aggressive practices."

The guidance also explained that the financial services contracts entered into between businesses and consumers, such as in relation to pensions, mortgages, insurance and banking, are not "covered by the new Regulations".