From October 2015, the Consumer Rights Act will serve to protect consumers against contract terms and notices that give traders an unfair advantage. Businesses should act now to ensure that their practices and consumer T&Cs will comply with the Consumer Rights Act.
The Consumer Rights Act consolidates and simplifies existing law on unfair terms in consumer contracts. New powers will allow regulatory bodies (including The Consumers' Association, 'Which?') to police and take action against traders that use terms in consumer contracts that are potentially unfair. This is a shift in policy from existing legislation, where it is up to the consumer to question the fairness of a provision in a trader's T&Cs.
What is an unfair term?
A term in a consumer contract or notice is unfair if it creates a significant imbalance in the rights of the parties, to the detriment of the consumer, and is contrary to a requirement of good faith. The Act makes certain terms automatically unfair (the 'black list') and provides a number of examples of terms that might be unfair (the 'grey list'). This test applies to all terms except those setting the price or describing the main subject matter of the contract. However, all written terms must be transparent and in plain and intelligible language, to ensure that consumers can make an informed choice about whether or not to enter the contract.
Consequences
Using unfair contractual terms or notices can have a number of consequences for your business. Most importantly, they will not be binding on a consumer. The Competition and Markets Authority (CMA), Trading Standards and other regulatory bodies might apply for an injunction to prevent you from using a term in your T&Cs, even if no complaint has been received. Alternatively, a regulatory body might request an undertaking from you that the term will no longer be used. This poses a reputational risk for traders, as, in both instances, the CMA will publish details of any application for an injunction or undertaking that is accepted.
What should you do?
Whilst the Act does not represent a large-scale shift in consumer law, it is likely to raise awareness of unfair terms as a concept. Regulatory bodies are likely to test the new powers against businesses. Traders should take note and use the summer as an opportunity to review T&Cs to ensure that any potential challenges can be avoided or dealt with swiftly. The CMA is expected to publish its final form guidance on unfair terms shortly, which should be a useful reference point for traders.
The author Chris Lewis is a solicitor in our Commercial team working with partners Brioney Thomas and Helen Scott-Lawler.