Consumer rights online - Big changes ahead
In recent years the retail environment has moved to an increasingly online model. And new digital products and services are being consumed – ebooks, TV and film on demand, apps and so on.
Consumer law has been struggling to keep up. From 2014 onwards we can expect to see significant changes to the law applying to online sales with two important developments: the Consumer Rights Bill and the Consumer Rights Directive. These laws reflect concerns that consumer law is not fit for purpose in the digital world.
On 23rd January 2014 the Consumer Rights Bill was introduced to Parliament. The Bill, if passed, will consolidate various pieces of consumer legislation and will give consumers important new rights, including in relation to faulty digital content. Of more immediate concern to businesses, especially those who deal with consumers online, will be the Consumer Rights Directive – a piece of European legislation dating from 2011. The Directive will be implemented in the UK by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (the "Regulations") and will apply to the vast majority of consumer contracts entered into in the UK from 13th June 2014.
Certain categories of goods and services are excluded from the scope of the Regulations, such as contracts relating to gambling, health, banking and insurance, but otherwise the Regulations will apply to all contracts concluded "off-premises" (i.e. at a consumer's home) as well as contracts concluded "on-premises" (i.e. in a shop) and at a distance (i.e. online or by telephone). The Regulations will replace both the Consumer Protection (Distance Selling) Regulations 2000 ("Distance Selling Regulations") and the Cancellation of Contracts made in a Consumer's Home or Place of Work etc Regulations 2008 (better known as the Doorstep Selling Regulations).
Although many of the provisions of the Regulations are the same in respect of off-premises and distance contracts, there are some key differences, and the remainder of this briefing will focus on "distance contracts" as these are of most relevance to online sales.
Much of what is in the Regulations will be familiar to businesses as they reflect principles in the Distance Selling Regulations. But the new law replaces the Distance Selling Regulations and there are important changes – this means those who provide goods and services online or through an online sales process are going to have to revisit their terms of business to make sure they comply with the new law. This briefing is not comprehensive – it highlights some key provisions but does not describe all aspects that need to be complied with.
Under the Regulations, businesses will be required to provide certain "pre-contract information" to consumers before entering into distance contracts with them. The list of pre-contract information to be provided is extensive, and will vary depending on the type of contract (goods, services, digital content). An example of some of the pre-contract information required in respect of a distance contract is set out below:
- the main characteristics of the goods or services;
- the name of the business;
- the total price (inclusive of taxes);
- delivery charges;
- where the contract is of indeterminate duration/contains a subscription, the total costs per billing period/total monthly costs;
- the duration of the contract (or if of indeterminate duration, the conditions for terminating the contract);
- the business's complaint policy (if it has one); and
- the consumer's cancellation rights (if they exist – see below "cancellation rights").
Any pre-contract information provided to the consumer required by the Regulations automatically forms a term of the contract, and any change to that information (made either before entering into the contract or at a later stage) will not be effective unless it has been expressly agreed between the parties.
Consumers entering into distance contracts will have the right to cancel the contract and receive a full refund up to 14 calendar days after the date they received the goods, or for contracts for services or digital content, the 14 calendar days will run from the date the contract was concluded. This is known as the "cooling-off period", and it has been increased from the 7 working days currently provided for in the Distance Selling Regulations.
A significant change under the Regulations is that a seller can only start providing services during the cooling-off period if a consumer makes an "express request", and acknowledges that they will lose their right to cancel if the contract is fully performed. Even if the consumer makes such an express request, they will not lose their right to cancel the contract during the cooling-off period unless it is fully performed; however, they will be required to pay (normally on a pro-rata basis) for the services they received up until the point at which they gave notice of cancellation. Similar provisions apply to digital content, with consumers losing their right to cancel once the supply of digital content has begun with the express consent and acknowledgement of the consumer.
The Regulations also require that a model cancellation form is made available to the consumer.
Failure to inform about cancellation rights
If the consumer is not informed about their cancellation rights before the contract is concluded, then the cooling off period can potentially be extended by up to 12 months (i.e. up to a maximum of 12 months and 14 days). In addition, the consumer will not be obliged to pay for any services that are provided during that period, which could result in huge losses for the supplier.
Online order process
Although important, updating terms and conditions to include the required pre-contract information will not be sufficient in all cases. So that consumers are able to fully read and understand the main elements of the contract before placing an order online, the Regulations require that certain pre-contract information (including the pre-contract information set out at a – f above) is displayed clearly and prominently, close to where the consumer confirms the order. Also any delivery restrictions and applicable means of payment must be highlighted at the latest by the beginning of the ordering process.
It must be clear to the consumer that the order confirmation will result in an obligation to pay. This means an order confirmation, if it entails activating a button, will need to be labelled "order with obligation to pay" or with words which are similarly unambiguous ("buy" would probably be sufficient, but "continue" or "confirm" will not be). If the seller fails to comply with this requirement, the consumer will not be bound by the contract.
If a consumer has elected to withdraw from the contract during the cooling-off period they are entitled to be reimbursed for all payments received by the business. This includes the cost of delivery (normally based on the cheapest method of delivery offered). The seller will also be obliged to pay for the return of the goods, unless otherwise specified in the contract.
Once the goods have been returned, or proof of their dispatch is provided, the business has 14 days (reduced from 30 days) to reimburse the consumer.
Businesses can withhold an amount, up to the contract price, if the consumer's handling of the goods results in a reduction in the value of the goods, and such handling goes beyond what is necessary to establish the "nature, characteristics and functioning of the goods" (i.e. handling that goes beyond the sort of handling that might reasonably be allowed in a shop).
If a contract is silent on the time for delivery, the Regulations will imply a term that the delivery of goods must take place without undue delay, and in any event, within 30 days (currently it is simply a "reasonable time").
Consumers are not required to make any payments in addition to the price agreed for the main contract goods or services, unless the consumer has provided "express consent" for those additional payments prior to the conclusion of the contract. This would preclude the use of pre-ticked boxes for the provision of additional goods or services by the business – the consumer needs to decide whether to tick the box or not.
Telephone call costs
Where a business operates a telephone line which consumers use for contract queries, the consumer must not be bound to pay more than the basic rate for such calls.
Before supplying digital content ("data … produced and supplied in digital form") businesses are required to provide information on the functionality and compatibility of the digital content, including information relating to region coding and digital rights management (DRM) restrictions.
All businesses that deal with consumers will have to make significant changes to their terms and conditions, business practices and ordering processes before the deadline of 13th June 2014. The Regulations are complex and need careful and accurate implementation. Businesses should start planning now and not find themselves in a rush to implement. Failure to get it right could easily result in contracts being unenforceable and also expose businesses to significant costs.