CMA publishes response to 'super complaint' - is it a bang or a whimper?

CMA publishes response to 'super complaint' - is it a bang or a whimper?

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Author: Phil Ryan

Applies to: UK wide

The Competition and Markets Authority (CMA) has completed its initial investigation into consumer confusion over promotions offered by supermarkets.

In April 2015, consumer group Which? complained to the CMA about hundreds of examples of instances of 'misleading and confusing pricing tactics' in a 'super complaint'. This wasn't a new issue - such instances had been highlighted several times by consumer programmes, such as the BBC's Watchdog.

Following a three month investigation, the CMA found some examples of 'pricing and promotional practices that have the potential to confuse or mislead consumers and which could be in breach of consumer law' which, if supported by evidence, could lead to enforcement action.

Crucially, the CMA concluded despite the volume of problems investigated, 'these problems are not occurring in large numbers across the whole sector and that generally retailers are taking compliance seriously to avoid such problems occurring.'

Criminality

Misleading consumers is a criminal offence under the Consumer Protection from Unfair Trading Regulations 2008 (Regulations). Traders are prohibited from using unfair commercial practices towards consumers which prevent them from making free and properly informed decisions in relation to the promotion, sale or supply of consumer products.

While most prosecutions under the regulations have been against small businesses and individuals, in 2013 Birmingham Trading Standards successfully prosecuted Tesco for a misleading discount on strawberries resulting in a fine of £300,000, after a two year investigation brought following a single complaint from a pensioner. The additional reputational cost of misleading consumers is unquantifiable.

Transparency

Transparency is key, not just because of bad press and the potential of a criminal prosecution, but because of the Consumer Contract (Information, Cancelation and Additional charges) Regulations 2013 which require certain pre contract information to be provided to the consumer - traders that fail to do so are also at risk of cancellation rights being extended by up to a year.

This also could have an impact for traders regarding their sales and returns figures and amendments may be needed to be made to their internal policies to deal with complaints over a prolonged period. In addition, as this pre contract information will now be regarded as an implied term, if a trader fails to comply with their obligations they could be in breach of contract and face claims by consumers.

BIS Pricing Practices Guidance 2010

The Department for Business Innovation and Skills' guidance for traders on good practice in pricing is clear on how to establish prices, to communicate them clearly to consumers and to advertise discounts and promotions. Although it is guidance (currently being reviewed), it does refer to and reflect the regulations in terms of promoting transparency to consumers in retailer pricing and promotions. The basic rules are as follows:

Price Establishment

Prices from which a discount is stated are normally established by a reasonable number of sales of the product over 28 days: what is reasonable is not defined and the 28 day period can be reduced or extended for a variety of reasons. We are aware of a case where 100 sales of a camera over 45 days was insufficient for a genuine price to be established, so the sale price was deemed misleading.

Price comparisons

Traders must be able to justify that their price comparisons are accurate and valid - price advantages must be real. Generally, comparisons should be like with like (e.g. the same or very similar). The meaning of the price comparison must be clear to the customer.

Comparisons with previous prices

Generally, when comparisons with one's own previous prices should be made against the immediately previous price (available for a period of 28 days or more). If an earlier price is used, it must be within 6 months and the basis of the comparison should be explicitly stated.

What can retailers do?

It is important to remember that the BIS Guidance applies to all retailers, not just supermarkets. Several furniture retailers were investigated in 2014 by the Office of Fair Trading for misleading pricing practices.

While findings in the report appear to be more of a whimper than a bang - ultimately, the CMA found no evidence of widespread bad practices - retailers should look at the way they price their products and advertise discounts, as well as keeping unit pricing simple to make it easier for consumers to make comparisons.

In the short term, retailers may see increased consumer awareness, complaints and escalation in terms of requests for refunds and compensation, so they should be careful to follow the guidance. The CMA has committed to 'continue to work with businesses and government to improve pricing and promotional practices in the groceries sector'. In the longer term, a tougher stance is likely in the revised guidance and we may see more rigorous enforcement of the regulations by Trading Standards.

About the Author

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Philip Ryan

Partner

03700 86 8915

Philip is a partner in the regulatory and compliance team advising businesses on complying with the UK's increasing regulatory burden. He has experience in the retail & leisure, FMCG and manufacturing sectors. He has worked in house at major retail brands, advising on the full spectrum of consumer trading law issues. He provides advertising and marketing compliance advice and sign off to several retail clients.

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