Impact of New Consumer Contracts Regulation in the United Kingdom on Internet Sales

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The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (the “New Regulations”) will come into force on 13 June 2014 in the United Kingdom, revising the way that many traders will have to interact with consumers. The New Regulations include provisions relating to “distance contracts”, “on-premises contracts”, “off-premises contracts” and “inertia selling”. This update focuses on the implications for “distance contracts” and specifically those made with consumers over the internet. This area is currently governed by the Consumer Protection (Distance Selling) Regulations 2000 (the “Existing Regulations”), which will cease to apply once the New Regulations come into force. The New Regulations to a large extent mirror the content of the Existing Regulations, although there are some key changes for internet traders to consider.

A “distance contract” within the meaning of the New Regulations is a contract between a trader and a consumer made using an “organised distance sales or service-provision scheme” where the trader and consumer are not simultaneously physically present. Examples of “distance contracts” include selling goods or services to consumers through websites, telesales or mail order. It also includes making music, video or software available to consumers to download or stream on websites or through “app stores”.

The New Regulations include provisions which relate to the supply of goods, services and digital content. This is the first time consumer legislation has dealt specifically with digital content (such as downloads) and distinguished the supply of digital content from the supply of goods and services.

Summary

Below we look in detail at the main changes. However, by way of summary they are:

 

Current Law

New Regulations

Digital content covered expressly

No

Yes. Digital content is expressly included and certain rules apply specifically to digital content.

Trader must provide prescribed information before the consumer concludes the contract

Yes

Yes. More detailed information will be required than under the current law.

Prescribed cancellation form to be provided to consumer

No

Yes

Explicit acknowledgement of obligation to pay required

No

Yes. In addition, if the consumer must click a button to conclude the contract, that button will have to be clearly labelled with wording such as “order with obligation to pay”.

Express consent required for additional payments

No

Yes. A consumer will not be obliged to pay for optional extras included automatically.

Cooling off period

Seven business days from the date of the contract

For services or digital content contracts, 14 calendar days from the date of the contract

For goods contracts, the cooling off period starts on the date of the contract and finishes 14 calendar days after the goods are delivered to the consumer.

Responsibility for returning goods on cancellation

Consumer can require the trader to collect goods (unless otherwise agreed – which is the normal default of a trader)

Consumer obliged to return the goods within 14 days of cancellation.

Timescale for refund

Within 30 days (even if goods not yet returned)

For goods, 14 days after goods returned.

For services or digital content, 14 days after the consumer informs the trader of the cancellation.

Refund of price

Full amount

Full amount less diminution in value through any use by the consumer or excessive removal of packaging.

Refund of delivery charges

The full amount should be refunded.

The trader must refund the cost of the “standard” delivery method, but need not provide a full refund if the consumer chose a premium delivery option.

Help-line charges

Traders can charge premium rates provided they comply with the general rules that regulate premium numbers.

Basic rate charges only

Scope

Some distance contracts (notably, certain contracts for land and financial services) are expressly excluded from the scope of the New Regulations since they are regulated by other statute. The types of contract to which the New Regulations will apply differ from those to which the Existing Regulations apply. For example, auctions are outside the scope of the Existing Regulations but will be affected by the New Regulations. On the other hand the New Regulations will not apply to gambling and residential lettings, unlike the Existing Regulations.

The website must provide certain information

The New Regulations set out information which traders will have to provide to a consumer before the consumer enters into a distance contract. Some of this must be shown directly before the consumer places the order. The trader must provide the information in an appropriate, clear and comprehensible manner. Similarly, the New Regulations require traders to provide a confirmation of the contract accompanied by certain information within a reasonable time once the contract has been entered into (and before the trader delivers goods or starts to perform a service under the contract). The information required by the New Regulations is more extensive than that required by the Existing Regulations.

Some of the information which the trader must provide to the consumer relates to the consumer’s obligations. If the trader fails to inform the consumer of these obligations, the trader may be precluded from enforcing the obligation, for example the obligation to bear the cost of returning goods or the time limit for cancelling the contract.

“Durable medium”

Either pre-contract or with the contract confirmation, the trader will have to provide all the required information on a “durable medium”. Although the Existing Regulations use the term “durable medium”, it is defined for the first time in the New Regulations which make it clear that the term encompasses email and text messages as well as paper.

Cancellation form

Consumers often have a right to cancel a distance contract (see below). When such a right exists, the online trader will have to make a prescribed cancellation form available to the consumer.

Clear signposting of obligation to pay

Although existing legislation requires websites to set out the steps required to complete a contract online, the New Regulations introduce specific requirements concerning the obligation to pay. Under the New Regulations websites will have to clearly signpost that making an order implies an obligation to pay so that the consumer explicitly acknowledges this. Otherwise the consumer will not be bound by the contract. If the consumer is required to click on a button to complete an order, the website must make sure that the button is clearly labelled “order with obligation to pay” or with similar wording such as “pay now”.

Additional payments

Under the New Regulations traders will need express consent from the consumer if the consumer is to be bound to make an additional payment (on top of the basic sum). The consumer’s failure to change a default option for an additional payment (e.g. failing to uncheck a pre-ticked box on a website for optional extra) is not sufficient for the additional payment to be binding. If the consumer then makes the additional payment, the trader must refund it. Currently the law does not require such express consent.

Right to cancel

Consumers have a statutory right to cancel many distance contracts without having to give a reason. This right when exercised ends both parties’ obligations under the contract with neither party incurring any liability for breach of contract. The right does not exist in relation to some contracts such as those for made-to-order/personalised products and products which deteriorate quickly or contracts made at public auctions (although online auctions are affected).

Cooling off period

Under the existing law there is a seven working day cooling off period which starts on the day the consumer enters into the contract. For services contracts and contracts for the supply of digital content, the New Regulations will extend this to 14 calendar days. For goods contracts, the cooling off period will start at the same time (i.e. the date of the contract) and continue until 14 calendar days after the trader has delivered all the goods to the consumer (unless the contract is for periodic delivery of goods, in which case the 14 days begin once the first goods are delivered).

The New Regulations require traders to provide certain information to the consumer about the right to cancel. If this is not provided or it is provided late, the New Regulations will extend the cooling off period by up to 12 months. The maximum extension is currently 3 months.

Exercising the right to cancel

To use his right to cancel, a consumer must either use the prescribed cancellation form (which the trader should have provided) or make any other clear statement of his decision to cancel the contract (this need not be in writing). If the consumer uses a form on the trader’s website for notifying it of a decision to cancel a distance contract, the trader must acknowledge receipt to the consumer on a durable medium and without delay.

Under the New Regulations, a trader must not begin to supply a service under a distance contract during the cooling off period unless the consumer has expressly requested that he does so. If the consumer has made such a request but subsequently cancels the contract during the cooling off period, he will have to pay the trader pro-rata for any service it supplied pre-cancellation. However, if the trader failed to properly inform the consumer about the right to cancel or about the obligation to make a pro-rata payment, the consumer will not have to pay for any service provided.

If the contract is for the supply of digital content (e.g. a download), the trader can only start supplying the digital content during the cooling off period if the consumer has (i) expressly consented, and (ii) acknowledged that he will lose the right to cancel.

If the consumer cancels a contract for digital content during the cooling off period, he will not have to pay for any digital content supplied (unless (i) he consented to an earlier supply and acknowledged that he would lose the right to cancel, and (ii) the trader confirmed this consent and acknowledgment with the consumer).

Returning goods

If a consumer cancels a distance contract, (unless the parties have agreed to the contrary) the New Regulations will oblige that consumer to return any goods to the trader within 14 days. Under the Existing Regulations the consumer has no such obligation and must merely take reasonable care of the goods and make them available for collection by the trader.

The New Regulations provide that the consumer will bear the cost of returning goods unless (i) there is an agreement to the contrary, or (ii) the trader failed to inform the consumer that the consumer is obliged to meet such costs (the trader is required to provide this information before the contract is made).

Refunding payment

Under the New Regulations, if a consumer cancels a contract, the trader will have to refund without undue delay all payments made by the consumer. If the cancelled contract was for the supply of goods, the trader will have the right to withhold a refund:

  • until the consumer returns the goods; or
  • to the extent of any reduction in value of the goods as a result of any unnecessary handling of the goods by the consumer. Consumers will be allowed to inspect goods in the same way as they would in a shop, but should not use the goods or remove packaging unnecessarily.

For cancelled sales contracts, the refund will have to be paid within 14 days of the trader receiving the goods back or evidence that the goods have been sent back (unless the trader has offered to collect the goods). In all other cases, the 14 days runs from the day on which the trader is informed of the consumer’s decision to cancel the contract.

In contrast, the Existing Regulations do not provide for a refund to be withheld until the consumer has returned the goods or if the consumer has reduced the value of the goods. In addition, the Existing Regulations allow the trader 30 days after the contract is cancelled to reimburse the consumer.

Refunding delivery costs

The trader will be obliged to refund the cost of delivery to the level of the cheapest generally acceptable type of delivery offered by the trader. A consumer is unlikely to be entitled to a full refund of the cost of a premium delivery option. There is no such restriction on the reimbursement of delivery costs in the Existing Regulations.

Cancellation of ancillary contracts

If the consumer cancels the contract with the trader, any ancillary contracts (such as credit agreements, warranties and guarantees) will automatically also be cancelled and the trader will have to inform any other party to the ancillary contract. Similar provisions currently exist in relation to related credit agreements; however the New Regulations will automatically cancel a wider range of contracts (e.g. insurance, warranties and guarantees). Although financial services contracts are on the whole excluded from the New Regulations, the rules on ancillary contracts do affect ancillary financial services contracts.

Help-line charges

If the trader operates a help-line for consumers who have entered into contracts with it, the consumer will not be obliged to pay more than the basic rate for the phone call. By contrast, under the current law, subject to usual controls of premium call lines (such as registration with PhonepayPlus and compliance with PhonepayPlus’s Code of Practice, including acting fairly and transparently), the consumer can be charged premium rates.

Delivery of goods and risk

Under the New Regulations the trader is responsible for delivering goods to the consumer within 30 days unless the parties agree otherwise. In some circumstances, if the trader fails to do so, the consumer can treat the contract as having come to an end, in which case the trader must refund the consumer. This is substantially the same as the current law.

The New Regulations provide that goods will be at the trader’s risk until delivered to the consumer unless the consumer chooses and arranges the method of delivery. The current law on this area also states that goods are at the seller’s risk until delivered to the consumer, but does not deal with circumstances where the consumer arranges delivery. In practice, situations where the consumer chooses his own carrier are rare.

Recommended next steps

  1. Operators should undertake a thorough review of their website to bring it into line with the new law.
  2. Operators should check websites to ensure that they make completely clear to a consumer the point at which proceeding further with an order will oblige the consumer to pay. It is advisable to explicitly use the word “pay” rather than “register” or “subscribe” to avoid ambiguity.
  3. Operators should check that websites do not include optional extras as a default and make sure that consumers are required to expressly elect to include any supplementary options.
  4. Operators should check what is said on pre-contract information screens and post-order confirmations to ensure that they provide all the information required by the New Regulations at the right time and to ensure that they supply the required information at some stage (either pre-contract or in the confirmation) in a durable medium (e.g. by letter or email).
  5. Operators should check procedures for providing refunds and ensure that from 13 June 2014 they will be able to provide refunds within the shorter time frame of 14 days.
  6. Ensure that calls to any help-line that deals with concluded contracts are charged at the basic rate. This may involve creating a separate help-line in relation to concluded contracts if an operator wants to charge at a higher rate for other help-line services (such as technical support).

Topics:  Commercial Contracts, Distance Contracts, Internet Retailers, New Regulations, UK

Published In: General Business Updates, Consumer Protection Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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