Time to redress the balance

Date: 20 May 2011
Authors: David Hertzell
Issue: Vol 161, Issue 7466
Categories: Opinion

Victims of scams deserve a clear & easy route to redress, says David Hertzell

When a consumer buys faulty goods, they know they can get their money back. By contrast, their position when they have been duped or pressured into making a purchase is much less clear. The remedies consumers can rely on when rogue traders lie about the products they sell, or use aggressive tactics, lie at the heart of our current consultation, launched last month in collaboration with the Scottish Law Commission (Consumer Redress for Misleading and Aggressive Practices).

Key areas of the proposals

Misleading practices such as fake “wins”; “free” goods which are not; falsely claiming to be members of a trade association; or selling “miracle products” which falsely claim to cure illness or restore youth.
Aggressive sellers using persistent sales calls; salespersons who ignore requests to leave; threats to damage the consumer’s credit rating unless they pay a disputed debt; aggressive wheel-clamping; or “presentations” where intimidating doormen made it difficult for consumers to leave.
New remedies. The Commissions suggest two tiers. Tier 1 remedies use the purchase price as a benchmark. If the consumer acts quickly they may be entitled to a full refund or otherwise a discount. The tier 2 remedies are more like conventional damages but make express provision for distress and inconvenience.

Both aggressive and misleading practices are criminal offences under the Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) (the 2008 regs). However, even when a trader is found guilty consumers have no direct right to claim compensation under the 2008 regs. Consumers have to rely on existing civil law. The current law is out of date, complicated and too narrow.

Where a consumer has been misled, they might have a contractual claim. But it will often be hard to tell whether the misrepresentation became a contract term. Alternatively, the Misrepresentation Act 1967 might apply. However, it is far from straightforward, with its “fraud analogy” and complex case law about how damages should be calculated.

The current law on aggressive practices raises more fundamental problems. If the same consumer has suffered an aggressive sales pitch, advising them about their legal rights and what they are entitled to is very difficult. Doctrines like duress and claims under the Protection from Harassment Act 1997 are often ill-suited to consumer transactions.

Consumer groups also claim that vulnerable consumers such as the elderly and disabled are particularly ill-served by the current law. Abuses in the mobility aids sector—such as inflating prices by 400% in door-step sales to house-bound individuals—illustrate some of the worst practices. The Office of Fair Trading is also making an independent investigation in this area.

Liability

The Law Commissions propose a new Act to protect consumers from misleading and aggressive practices. The proposals use the 2008 regs as a starting point in defining liability. Businesses have to comply with the 2008 regs already. From consumer groups’ perspective they provide a single scheme addressing the more problematic practices in the market place. However a blanket right of redress based on the 2008 regs may be too broad and ultimately unhelpful to consumers. For example, the Commissions do not propose there should be liability for misleading omissions. Land transactions and financial services would be excluded.

The proposals do not include a significant change to the current law of misrepresentation although the Commissions hope to make the rules on damages clearer. The proposals on aggressive practices would, on the other hand, extend the scope of consumer protection from pressure selling by clarifying the rules on liability and damages.

Instead of the concept of “transactional decisions” used by the 2008 regs the Commissions propose that consumers must have entered a contract or made a payment following the misleading or aggressive practice in order to make a claim. Like the 2008 regs the misleading or aggressive practice must have been capable of influencing an average consumer. Consumers should not always be rescued from a bad bargain.

Consumer remedies

The main innovation in the Commissions’ proposals involves remedies. They propose that consumers’ main remedy should be a right to “unwind” the transaction. If it is possible to return the item the consumer may be entitled to a refund provided they act within three months. If not (and this will often be the case with services) the consumer would be entitled to a discount on the purchase price. The Commissions suggest four bands of discount, from 0% to 100% depending on factors such as the residual value of the product or service, the trader’s behaviour and the time that has passed.

Consumers could also recover losses beyond the purchase price as tier 2 remedies. These are similar to traditional damages where the consumer must prove actual loss. The Commissions make specific recommendations in respect of damages for distress and inconvenience, with remedies ranging from an apology, to £1,000 plus in exceptional cases.

Tier 1 remedies are not fault-based and consumers would have the right to unwind regardless of whether the trader was at fault. This reflects the current position for rescission in cases of misrepresentation and duress. However traders would have a due diligence defence to tier 2 damages. The liability of businesses that take due care would effectively be capped at the purchase price under the new Act.

David Hertzell is a law commissioner.
The full consultation paper is available at www.lawcom.gov.uk

Bookmark this article with: