Home | News & events | Legal updates | Consumer Protection from Unfair Trading Regulations 2008: Impact on the Finance Industry

Consumer Protection from Unfair Trading Regulations 2008: Impact on the Finance Industry

05 August 2008

The new Consumer Protection from Unfair Trading Regulations 2008 have wide-reaching implications for all sorts of businesses. Here, partner and head of asset finance Joanne Davis looks at how they might affect the finance sector.

The Consumer Protection from Unfair Trading Regulations 2008 (the Regulations) came into force on 26 May 2008 for the finance industry. The Act broadens the protection for consumers by providing additional protections alongside the Unfair Relationships Provisions introduced under the Consumer Credit Act (CCA) 2006 which, from 6 April 2008, has retrospective force.

The Regulations introduce a general prohibition against unfair commercial practices. A commercial practice is defined as an act, omission, course of conduct, representation or commercial communication (including advertising and marketing) by a trader, which is directly connected with the promotion, sale or supply of a product to or from consumers, whether occurring before, during or after a relevant transaction.

In essence, the Regulations mean traders have to act in a manner consistent with the reasonable expectations of the average consumer, thereby enabling consumers to make free and informed purchasing decisions. The purpose of the Regulations is to make it easier for businesses to market their goods and services in other EU member states, and should increase consumer confidence to shop across borders, and bring our national law in line with other member states.

Businesses dealing fairly and honestly with their customers may not need to change anything in order to comply with the Regulations. However, as customer awareness increases, they will need to ensure they treat customers fairly and that all staff are trained and understand the Regulations. If a business misleads, behaves aggressively or otherwise acts unfairly towards consumers, it is likely to be in breach of the Regulations and may face action by enforcement authorities.

In essence, there is a general prohibition on misleading practices, actions, omissions and aggressive practices. These are unfair if they cause consumers to take a different decision. Additionally, there is a list of banned practices. A blanket list of 31 blacklisted activities is attached, marked Schedule 1. These all amount to strict liability offences and are banned in all circumstances and will always be unfair.

For the general prohibition to apply, the traders’ practice must be unacceptable when measured against an objective standard and must also have (or be ready to have) an effect on the economic behaviour of the average consumer. The second condition is likely to be met if, for example, because of the practice, the average consumer would buy a product they would not otherwise have bought or would not have exercised cancellation rights when otherwise they would have done so.

Regulation 3 provides that a commercial practice is likely to be unfair if it contravenes the requirements of professional diligence, and it materially distorts, or is likely to materially distort, the economic behaviour of the average consumer.

A commercial practice may be misleading if it contains false information or if it deceives or is likely to deceive the average consumer, and in either case it may cause or is likely to cause the consumer to take a transactional decision he would not otherwise have taken.

A commercial practice is unfair if it is a misleading action, omission, or it is aggressive or if it falls under the list to be found under Schedule 1 of the Regulations.

A commercial practice may be a misleading omission if it omits or hides material information or provides material information in such a manner that is unclear, unintelligible, ambiguous or untimely. The ultimate result being that the average consumer has made a transactional decision that he would not otherwise have made.

A commercial practice can be aggressive if it significantly impairs or is likely to significantly impair the average consumer’s freedom of choice or conduct in relation to the product through use of harassment, coercion or undue influence and it thereby causes or is likely to cause the consumer to take a transactional decision he would not otherwise have made.

Schedule 1 contains a list of practices that are prohibited in all circumstances, including:

• Conducting visits to the consumer’s home and refusing to leave when asked.
• Persistence and unwarranted solicitations by telephone, fax, email or other remote media, unless justified to enforce a contractual obligation.

The Regulations need to be taken into account alongside the unfair relationships provisions introduced under the CCA 2006.

If a lender is in breach of the Regulations it may create an unfair relationship entitling a consumer to raise a court action. Equally, such a breach is actionable under Part 8 of the Enterprise Act 2002 where the business practice harms the collective interests of consumers. Such business practices may relate to any aspect of the business to include the marketing, conclusion or the operation of credit agreements, related Agreements or their enforcement.

Examples of business practices applicable to lending that are likely to be regarded as unfair or improper are caught by the Regulations are as follows:

• Using false or misleading statements in order to induce consumers to enter into a contract. 
• Hiding important details of credit deals in the small print. 
• Requiring consumers to sign Credit Agreements that are not easily legible and are difficult to understand. 
• Failing to comply with the requirements of the Consumer Credit Act 1974 and 2006 or the Advertising Regulations and laws on advertising credit and hire agreements. 
• Carrying on a consumer credit business that appears to the OFT to involve an irresponsible lend. Lenders should take reasonable care in making loans or advancing credit having regard to the interests of the borrower by undertaking proper and appropriate checks on the borrower’s credit worthiness and ability to repay the loan and comply with the terms of the Agreement. Credit checks to be proportionate, taking account of the type of agreement, amounts involved, nature of the lenders relationship with the consumer and degree of risk to consumer. 
• It is worth noting that consumer Hire Agreements defined by CCA 1974 are now regulated by these Regulations and not the CCA 2004 Advertising Regulations.

A lender must pay due regard to the interest of its customers and treat them fairly and take heed of and regard to the information needs of its customers, communicate information to them in a way in which is clear, fair and not misleading. A Lender must also deal with any conflicts of interest fairly both between itself and its customers and between a customer and another client.

You must make your customers feel as if they are being treated fairly and that the products and services that you are marketing and are being sold are designed to meet their needs that they have identified. You must provide them with clear information and you must keep them appropriately informed before, during and after the point of sales. If you provide any advice to your customers the advice should be suitable and take account of their individual circumstances.

The advantage of the Regulations to businesses is that they will no longer have to face unfair competition from traders who use underhand practices. The changes also simplify consumer protection in the UK and across EU boarders. Hopefully the Regulations will make clear which commercial practices are and are not allowed.

The civil sanctions if you do not comply with the Regulations are through the community infringements in Part 8 of the Enterprise Act 2002. The OFT, Trading Standards and other bodies can apply to the courts for enforcement orders under Part 8. There are also criminal sanctions for breaches of the Regulations, with a few limited exceptions. A trader must knowingly or recklessly engage in a commercial practice which contravenes the requirements of professional negligence.

So in summary what kind of things should a lender be doing in order to ensure they comply with these new regulations?

• Make sure that the consumer has all material information that they need to make a decision that an average consumer would have made. 
• Do not do any of the 31 prohibited practices shown in the attached Schedule. 
• Ensure the information provided to the consumer must be clear and readily available. 
• You must not harm the collective interests of consumers. 
• Do not contravene any legislation. The Regulations are wide enough to cover any breach of laws and practices. 
• Have regard to all relevant matters in particular the circumstances of the individual borrower and the nature of the relationship between the parties. 
• Avoid omissions including failure to provide information in a clear and timely manner or to disclose material facts. 
• Check your terms and conditions regularly to ensure that they are not unfair or contain any misleading terms. 
• Enforcement action should be proportionate and reasonable - do not expect consumers to pay disproportionately high sum in compensation. 
• Do not alter terms of the contract unilaterally without a valid reason. 
• Avoid excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy. 
• Be fair and open in all dealings, including drafting contracts, to respect consumers legitimate interests. 
• Avoid varying the price after the consumer has become bound by the terms as this is considered unreasonable unless the consumer is given the right to terminate the contract without penalty. 
• Ensure default sums charged are fair and reasonable and do not amount to a penalty. 
• Do not use false or misleading statements in order to entice consumers to enter a contract. 
• Do not hide important details about credit deals in the small print. 
• Do not allow any signing of the agreements that are not legible to the consumer. 
• Do not fail to comply with advertising regulations or agreement regulations. 
• Fail to perform with contractual obligations or any adequate redress where a breach of duty to the consumer. 
• Marketing or targeting loans explicitly at consumers in debt is prohibited. 
• Avoid using unacceptable high pressure selling techniques or engaging other aggressive commercial practices. 
• Do not mislead the form, nature, purpose or long term implications of loan agreements. 
• Be transparent in all dealings. 
• Lend responsibly. 
• Do not engage in any unfair business practices. 
• Always disclose status and potential conflicts of interest. 
• Refrain from any unreasonable pressure to force consumer to sign, misrepresenting or concealing terms of the contract. 
• Avoid irregular or incomplete documentation, knowingly allowing the consumer to provide false income information. 
• Failure to check information provided by consumer. 
• Failure to deal with arrears sympathetically. 
• Do not misrepresent legal position or authority to act. 
• Do not contact debtors at unreasonable times.  

Schedule: Blacklisted activities

1. Faking credentials - claiming to be a member of a body when you are not. 
2. You are not who you say you are - displaying a trust mark or quality mark that you have not necessary obtained.
3. Your endorsement is not real - i.e. claiming that the Office of Fair Trading have agreed to something perhaps they have not.
4. Not being true to the terms of the endorsement - i.e. a product has been endorsed or approved when it has not.
5. Special offer - not in stock claiming that a product is on offer and then not having any available.
6. Limited time only - claiming that a product will only be available for a number of weeks when it is actually available for months at a time.
7. Illegally selling goods - stating the products can be sold legally when they cannot.
8. It’s not right - presenting rights given to consumers as a statutory right and using them as a feature of the trader’s offers.
9. Over promised, under delivered - falsely claiming that a product can do something when it can’t.
10. Promoting a product you don’t want to sell - promoting a product and then not allowing people to use it - refusing to take orders - demonstrating it as an effective sample.
11. Scare tactics - making an inaccurate claim concerning the nature or extent of risk to the personal security of a consumer for his or her family if the consumer does not purchase the product.
12. Creating extra paperwork - creating unnecessary paperwork in order for a consumer to make an insurance claim, for example. 
13. Being honest about editorials - making it clear that adverts are adverts and not editorials.
14. Faking goods - promoting a good similar to a high street brand. 
15. Closing down sale - claiming that you are closing down when you are not.
16. Pulling the wool over their eyes - passing on materially inaccurate information on market conditions.
17. Forcing the deal - sending the consumer documentation that implies they have already ordered the goods when they have not.
18. A wolf in sheep’s clothing - falsely claiming or creating the impression that the trader is not acting for purposes relating to his or her trade.
19. Advertising to children - must not advertise to children so they try and persuade their parents or other adults to buy the products for them.
20. Pyramid schemes - operating or promoting a pyramid promotional scheme where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction from other consumers into the scheme.
21. You cannot promise a win - claiming that products are available if facilitate winning in games of chance.
22. Winner takes nothing - you must award the prizes described and they must not be fake.
23. Is it truly free - ensuring that all products that are advertised as free or without charge are actually so.
24. No win situations - creating a false impression that consumer has already won when there is no prize or taking action in relation to claiming the prize would be subject to the consumer paying money.
25. Forcing the sale - making the customer feel they have to buy the goods before they can leave the premises.
26. Overstaying your welcome - if you conduct your business in the consumers home you must not outstay or welcome and must not ignore the consumers request for you to leave and not return.
27. Pestering the consumer - you must not make persistent or unwanted solicitations by telephone, fax, email or other remote media unless they are to enforce a contractual obligation.
28. Using guilt to make sales - making out to the consumer the sales persons job could be on the line if you do not buy the product or service.
29. Asking for payment when they didn’t ask for the product - demanding immediate or deferred payment for or return safe keeping products supplied by the trader.
30. Talking the same language - advertising after sales service to consumers but only providing it in one language.
31. Misleading after sales information - creating a false impression that after sales services are available anywhere in the EU other than the one in which the product is sold.

---

Are any of the issues in this article giving you a headache? If so, we want to know

Name *
Email *
Telephone
Comments*
I agree to Shoosmiths holding information about me in accordance with its privacy policy.* To subscribe to our news updates click here.

 

Email this page

Search the site

Enter the keywords below to search:

Related links

• Consumer credit regulation
• Lender services
• View our consumer credit podcast

Get in touch

Joanne Davis

Partner
T: 08700 86 4171
I: +44 (0)121 625 4171
E: joanne.davis@shoosmiths.co.uk