This guide was last updated in April 2015
The Act is split into three parts. Part 1 deals with consumer contracts for goods, digital content and services; Part 2 covers unfair terms; and Part 3 contains miscellaneous and general provisions.
For the most part, the law set out in the Act is similar to existing UK laws, although there have been some changes particularly in relation to services and unfair terms. The Act also introduces significant changes to private actions in competition law; including expanding the jurisdiction of the Competition Appeal Tribunal, the introduction of opt-out collective actions and the establishment of voluntary redress schemes. However, these changes are beyond the scope of this guide.
The majority of the Act's provisions are expected to come into force on 1 October 2015 and, in theory, should make compliance with consumer protection laws much easier in the long run. However, as the Act makes changes to contractual relationships and affects how products should be offered to consumers, some preparation will be required at the outset. This makes it a good opportunity for businesses to reconsider and review product terms and conditions and other communications.
The Consumer Rights Act applies to contracts and notices between a 'trader' and a 'consumer'.
A 'consumer' is defined as "an individual acting for purposes that are wholly or mainly outside that individual's trade, business, craft or profession". This definition of consumer is wider than existing definitions found in UK and EU law as it includes individuals who enter into contracts for a mixture of business and personal reasons.
A 'trader' is defined as "a person acting for purposes relating to that person's trade, business, craft or profession, whether acting personally or through another person acting in the trader's name or on the trader's behalf". This definition includes government departments and public sector authorities.
Territorially, the Act extends to England, Wales, Scotland and Northern Ireland. However, some parts of the Act include separate rules for Scotland: for example, it makes reference to the Scots law remedy of 'specific implement', which is used to compel performance.
Certain parts of the Act do not apply to financial services firms as they implement parts of the EU's Consumer Rights Directive which do not apply to these firms. The Act does not make it particularly clear which terms do not apply to financial services firms; however, certain provisions relating to the contractual status of information and the delivery and risk in goods which originated in the EU Directive clearly do not apply to financial services firms.
Supply of services
The provisions relating to the supply of services consolidate various pieces of existing legislation and regulation. For financial services firms, the new provisions will apply alongside the various industry-specific regulations which are imposed on businesses, mainly by the Financial Conduct Authority (FCA) and as a result of industry-specific EU legislation. It is intended that if stricter duties or requirements are already in place that these will take precedence over applicable provisions outlined in the Act.
Changes to remedies
Consumers now have statutory remedies of 'repeat performance' and price reduction if a service does not conform to the contract. The remedy available is dependent on the level of non-compliance, for example:
- if a trader breaches its duty to provide services with 'reasonable skill and care', or does not comply with information that they have provided to the consumer about the service, the consumer is entitled to repeat performance or a price reduction for the services;
- if the service is not performed within a reasonable time, or the trader does not comply with the information that it has provided to the consumer which does not relate to the service, then the consumer is entitled to a price reduction for the services.
Although the consumer has a statutory right to these particular remedies in the above circumstances, this does not exclude them from seeking other remedies such as damages or specific performance provided that they do not recover twice for the same loss. The inclusion of specific statutory remedies where none previously existed improves the consumer's position and provides clarity about their rights.
Changes to the contractual status of voluntary statements
Spoken or written voluntary statements, made by the trader, about the trader or the trader's service can now be deemed to be binding contractual terms. This can be the case where the statement is taken into account by the consumer when:
- deciding to enter into the contract;
- making any decision about the service after entering into the contract.
Previously, if a consumer was presented with misleading information, this information would not be deemed part of the contract. This meant that the only remedy available to the consumer would be to raise an action of misrepresentation. As any misleading statements made by the trader can now become contractual terms, a consumer will now be entitled to raise a breach of contract claim. This is significant because claims for breach of contract are generally easier to prove, and because damages will be awarded based on what the consumer's position would have been had the contract been performed.
The test for 'unfair terms' in the Act is the same as that in the 1977 Unfair Contract Terms Act: it provides that a term is "unfair" if "contrary to the requirements of good faith, it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer". The test for unfair notices mirrors that for unfair terms except that it does not make reference to "the contract".
New 'prominence' requirement
The most significant change in the Act relates to 'relevant terms'; which are terms specifying the main subject matter of the contract or setting the price. These terms are not subject to the 'fairness' test provided that they are both:
- transparent: in plain and intelligible language and, if in writing, legible;
- prominent: brought to the consumer's attention in such a way that the average customer – who is well informed, observant and circumspect - would be aware of the term.
This goes further than the existing law, which includes the 'transparency' requirement but not the 'prominence' requirement. This added requirement means that businesses should be even more vigilant in ensuring that relevant terms are clearly brought to a consumer's attention. The fact that a relevant term does not meet these requirements does not make it automatically unfair; however, it exposes that term to additional scrutiny.
Individually negotiated terms
The Act provides that a term can be deemed to be unfair even if it has been individually negotiated with the consumer. This goes further than both the existing law and the EU's Consumer Rights Directive. However, it is unlikely to have a major impact given that very few consumer contracts are actually individually negotiated, as consumers rarely have the bargaining power to negotiate their contract terms individually with traders.
Additions to the 'grey list'
The 'grey list' is an indicative and non-exhaustive list of terms in consumer contracts which may be regarded as being unfair. The list gives an indication of the types of terms which are likely to be considered unfair without any justification being provided. However, a term can be fair even if it is included on the grey list, and can be unfair even if it is not.
The Act adds an additional three terms to the grey list. These are terms which have the object or effect of:
- allowing the trader to decide the characteristics of the subject matter after the consumer is bound;
- allowing disproportionate charges or requiring the consumer to pay for services which have not been supplied when the consumer ends the contract;
- allowing the trader discretion over the price after the consumer is bound.
Inclusion of 'notices'
A consumer notice is broadly defined as a notice that relates to rights or obligations between the trader and the consumer or restricts the trader's liability. The definition includes announcements and other communications even where these are made orally.
Consumer notices were not expressly covered in previous legislation but they are specifically covered in the Act, which brings them within the fairness regime. The Act treats consumer notices in much the same way as contract terms. Businesses will therefore have to be conscious of the content which is included in notices and ensure that this complies with the fairness test.
New duty to consider fairness
A court is now under an obligation to consider contractual terms for fairness, even if neither party to the proceedings raises fairness as an issue. This is already the position of the Court of Justice of the European Union (CJEU). This change will lead to contract terms coming under increasing scrutiny by the courts and terms may be held to be unfair even when the consumer has not complained of unfairness.
The Act is the first piece of legislation to regulate the supply of digital content as such. Generally, the supply of digital content is treated in much the same way as the supply of goods in that it must be of satisfactory quality, fit for purpose, and conform with the description provided by the trader.
The supply of digital content will be regulated when:
- it is supplied for a price; or
- it is supplied free with goods and services which the consumer has paid for, and would not be generally available to consumers otherwise.
The provisions do not apply merely because the trader supplies a service by which digital content reaches the consumer.