Consumer Protection: One strike and you’re misleading

27th May 2015

Demonstrating a zero tolerance approach to breach of consumer protection legislation, the Court of Justice of the European Union (ECJ) has ruled that the one-off provision of incorrect information to a consumer is a “misleading commercial practice”. Gwendoline Davies and Louise Power explain that any business dealing with consumers must be keenly aware of its consumer protection responsibilities.

Understanding unfair commercial practices

The Unfair Commercial Practices Directive [1] has been implemented into UK legislation by the Consumer Protection from Unfair Trading Regulations 2008 (the CPRs) [2], to prohibit businesses from engaging in unfair commercial practices in their dealings with consumers.

Unfair practices include:

• giving false or misleading information;
• failing to give material information;
• exerting undue pressure on consumers; and
• engaging in any of the 31 specific banned practices listed at Schedule 1 to the CPRs.

Consumers are any individuals acting outside their trade, craft or profession. Where a commercial practice is aimed at a target market, the definition of consumer will refer to a member of that market and where a group of consumers may be vulnerable in some way, for example first-time buyers or the elderly or infirm, the standards required of the business will be higher. Crucially, consumers are not only those people who actually buy from or pay a business – they also include anyone who is a prospective customer.

It is a breach of the CPRs to give information to consumers that:

• is misleading to a material degree;
• relates to one or more pieces of information which consumers are likely to take into account when reaching a transactional decision (such as the nature of a product or service, specification, price, locality, sales service, terms of sale, incentives or other aspect or characteristic of the product/service); and
• causes or is likely to cause the consumer to make a different transactional decision.

Information might be misleading because it contains false information or because it is deceptive or likely to deceive a consumer even if, strictly, it is factually correct. This can include information which is given verbally, in writing or visually.

Giving false or misleading information under the CPRs also specifically includes any commercial practice or marketing which creates confusion with competitors’ products or services and advertising that you are bound by any code of conduct, but not adhering to that code.

The CPRs require businesses to be proactive. They impose a duty to disclose material information that a consumer needs to make an informed transactional decision. A common trap for the unwary is that liability for misleading by omission cannot be avoided if you do not know the material information, but have taken no reasonable steps to find it out.

The CPRs also prohibit commercial practices which intimidate or exploit consumers; which restrict or are likely to restrict how they act or make choices; utilise harassment, coercion or undue influence; and/or which significantly impair or limit or are likely to impair or limit a consumer’s freedom of choice.

Finally, the CPRs place a general prohibition on commercial practices where a business fails to act in a professionally diligent manner in accordance with honest market practice and/or good faith and they list, at Schedule 1, 31 specific “banned practices”[3].

What is at stake

The reach of the CPRs is wide, as are the enforcement provisions which attract both civil and criminal liability.

• Trading Standards Officers (TSOs) have a right of entry to businesses, along with powers of inspection, seizure, detention of goods and documents (including computer records). TSOs can also require employees to attend interviews under caution pursuant to the Police and Criminal Evidence Act 1984. Disruption to the running of a business under investigation can be significant.
• Obstructing a TSO or making false or reckless statements can incur penalties in the £000s and conviction for breach of the CPRs can result in unlimited fines and/or up to 2 years’ imprisonment.
• As well as The Trading Standards Service, the Department for Enterprise, Trade and Investment and the Office of Fair Trading can investigate and enforce this consumer legislation.
• Additional consequences can include: orders banning from undertaking estate agency work (Estate Agents Act 1979); orders revoking/varying/suspending credit licences (Consumer Credit Act 1974); orders cancelling or varying permission to broker mortgages (Financial Services and Markets Act 2000).
• Consumer redress schemes can require apologies, the payment of compensation of up to £25,000 or even dismissal from the scheme.
• Reputational consequences can also, of course, potentially be devastating.

Finally, although this is not yet law in force, it may not be long before consumers have the right themselves to directly bring legal action against businesses in respect of alleged breaches of the CPRs. BIS has published draft legislation introducing the direct right of redress for consumers. This will mean that the number of CPR investigations and prosecutions is likely to increase many times over and they will not be dependent upon the time, resources and merit-checks of public enforcement bodies, but rather individuals.

A recent case: One strike and you’re misleading

A recent case heard in the ECJ [4] demonstrates that the courts take consumer protection very seriously and that their approach will be tantamount to zero tolerance for businesses who mislead consumers.

A Hungarian customer was switching TV cable companies and wished to coordinate expiry of his existing service with commencement of service from a new provider. The existing supplier provided incorrect expiry date information and the customer incurred subscription charges from both providers for a short time.

Confirming the approach taken by the Court of Appeal in a case heard in 2013 [5] and going even further, the ECJ ruled:

• A single act (here, provision of a piece of incorrect information) to a single consumer can constitute an unfair commercial practice.
• A misleading commercial practice need not also be contrary to the requirements of professional diligence in order for it to be unfair.
• It is not relevant to commission of an offence that a business’ conduct was unintentional.
• It is not relevant to commission of an offence that any loss suffered by the consumer was insignificant.
• It is not relevant that a consumer could himself have obtained the correct information.
• A member state court may, however, take into account factors such as the frequency of the practice complained of, whether or not it was intentional and the degree of harm caused, when considering the appropriate sanction.

How businesses can protect themselves

If faced with prosecution under the CPRs, it may be possible to raise a defence if the offence was committed because of a mistake, reliance on information supplied by another, another person’s act or default or because of some other accident or cause outside your control; and if all reasonable precautions and due diligence were undertaken to try to avoid commission of the offence in the first place.

It will not be possible to raise the due diligence defence if you knowingly or recklessly allow your/your employees’ conduct to fall below honest and professionally diligent standards.

There are some sensible, reasonable steps that businesses can take to avoid commission of CPR offences. Following these should also provide businesses with evidence to support a due diligence defence if and when any complaint, investigation or prosecution is instigated:

• Providing training to all your staff involved, directly or indirectly, with the sales and marketing (including production of hard and soft copy materials) of your services/products and retaining records and evidence of such training achievements.
• Taking care that all information, in all forms, that you gather and present to consumers (potential and actual) is accurate, fair, not deceptive or misleading and does not leave out material facts. Having safeguards in place as to the accuracy and security of all such information.
• Updating (or introducing) policies and procedures regarding the review/maintenance/correction and updating of marketing material and other consumer-facing information.
• Investigating further where changes, inaccuracies, gaps or queries come to light.
• Assessing and, where necessary, verifying the validity of information provided to your business by others.
• Acknowledging clearly to the consumer any necessary or unavoidable gaps in information provided by your business.
• Signposting consumers to any publicly available information which might affect or assist with their transactional decision.
• Maintaining a comprehensive audit trail of all your efforts.

There are also some simple practical tools that you can deploy to defend yourself:

• Firstly, is the complaint actually time-barred? There is an applicable limitation period which provides that no prosecution can be brought more than three years after an offence was committed or one year after the discovery or report to the TSO, whichever is the earlier.
• Secondly, can a complaint be negotiated away? (If it can, note that negotiating a settlement with a consumer complainant may not of itself prevent a prosecution, and it may not guarantee confidentiality.) Seek specialist legal advice to assist with any settlement negotiations and to make sure that any agreements are properly documented and include confidentiality obligations.
• Treat every customer and potential complainant fairly, politely and professionally, and be honest and open in all your dealings, so as to foster good relationships. Good customer relations can avoid or quickly resolve complaints and can help to avoid reports to the TSOs.
• Finally, can you raise the “due diligence” defence?

For further advice or information, for assistance with the drafting or updating of appropriate policies and procedures, or to enquire about Walker Morris’ CPRs training for businesses, please contact Gwendoline Davies or Louise Power.

____________________

[1] 2005/29/EC
[2] SI 2008/1277
[3] http://www.legislation.gov.uk/uksi/2008/1277/schedule/1/made
[4] Case c-388/13: Nemzeti Fogyasztóvédelmi Hatóság v UPC Magyarország Kft
[5] R v X Ltd [2013] EWCA Crim 818