Confidential
Consumer Rights Bill Update - Briefing
The NFDA has actively participated in the consultation process relating to the Consumer Rights Bill, the purpose of which is to consolidate, simplify and improve UK consumer protection law.
Other groups involved in the consultation process include a wide range of interested industry bodies (ranging from the Association of British Insurers to the British Vehicle and Rental Leasing Association) as well as consumer bodies, such as Which? and Citizens' Advice.
Background
Last June, the Government published the draft Consumer Rights Bill. In some respects, the proposed legislation represented a positive development for businesses in the motor retail and after-sales sector (notably enhancing the ability of representative bodies to bring stand-alone claims on behalf of groups of members prejudiced by anti-competitive behaviour); in other respects, the proposed legislation had the potential to expose dealers to greater commercial risk.
That said, the changes there were most problematic were tempered by certain mechanisms which balanced the interests of consumers and dealers; in other words, improving consumer rights, without imposing excessive and disproportionate risk on traders.
Since June, a House of Commons BIS Committee report (published on 23 December 2013) has proposed removing some of the balancing mechanisms in favour of ceding wider ranging rights to consumers.
Without detailing every BIS Committee recommendation (in particular those relating to digital content and competition matters), the BIS Committee report proposed the following changes to the draft Bill:
- extending the definition of 'consumer' to cover small businesses;
- extending the 30 day period for the 'early right to reject goods' in certain circumstances, namely, where it is reasonably foreseeable that a longer period would be needed for a consumer to inspect and test the goods;
- removing the ability of a retailer to make deductions for use (taking into account the proven second hand value of the relevant goods) when the goods are validly rejected; and
- applying an additional outcomes-based ('satisfactory quality') liability standard to the provision of services (as well as goods).
Following the BIS Committee report, the Government has now published the Consumer Rights Bill. While the Government has not adopted all of the BIS Committee's recommendations, it has adjusted the bill to reflect some of the Committee's proposals.
We have summarised below how the Government has responded to the BIS Committee recommendations and the potential consequences.
- Extending the definition of 'consumer' to small businesseshas notbeen adopted by the Government in the Consumer Rights Bill, notwithstanding the BIS Committee's proposal.
The NFDA believes that this is the right outcome, as extending the definition of 'consumer' to small businesses would disproportionately enhance the rights of redress that such customers have against dealers, many of which are SMEs themselves.
It would have placed dealers between the (invariably unfair and onerous) trading terms of very powerful suppliers on the one hand, and legislation weighted disproportionatelyin favour of customers, not all of whom are true 'consumers', on the other. The BIS Committee proposal wouldhave complicated the sales process and confused retailers and customers alike (ie when is a business a 'small business' and thus a 'consumer'?).
According to Sue Robinson, NFDA director: "We are please that the Government has not adopted this BIS Committee recommendation, so far at least. Until such time as the Government throws its weight behind measures, whether regulatory or self-self regulatory, designed to support fairer and more transparent trading relationships between dealers and powerful manufacturers, any proposal which exposes dealers to disproportionate risk in dealings with customers will be unwelcome. The Government needs to stand up for the retail sector as well as protecting proper consumers. The BIS Committee proposals would have only served to complicate and unbalance the relationship between dealers and consumers that currently works."
- The BIS Committee proposed extending, in certain circumstances, the 30 day period for the early right to reject goods. This would, as regards the motor retail sector, have reinforced a problem that has already been identified in respect of the bill. This is that a time limited (30 day) rejection period fails to recognise usage in that period (and, thus, diminution in value). Put simply, a car can travel 20 miles in its first 30 days on the road, or 2,000.
As part of the recently published bill, the Government has rejected the BIS Committee proposal to extend the 30 day rejection period.
Sue Robinson observes: "There is ongoing failure by the Government to appreciate the issues faced by the motor retail sector given the complexity and value of the products they supply. Aside from concerns as to the right to reject (as opposed to granting the dealer an opportunity to repair), the absence of any right for the dealer to make a deduction for use in the first 30 dayshas the potential for significant detriment to dealers. It follows that while the Government's decision not to extend this 30 day period in the Bill is welcome, we still need to work to address the potentially significant adverse impact on dealers of the vehicle being rejected in the first 30 days, notwithstanding the fact that the fault prompting the rejection is remediable."
NB: The 30 day period will not run during any repair or replacement (the waiting period). Based on the Bill's current drafting, on return of the goods to the consumer, the consumer will have the remainder of the 30-day period, or 7 days (whichever is longer), within which they can still exercise any short-term right to reject.
- In its original form, thedraft Consumer Rights Bill allowed the retailer, where there is a clear (and independently evidenced or accredited) second hand value for the goods[1], to take this value into account when granting any refund to the consumer. Rejections taking place within the first 30 days were carved out of this concession (see above).
However, the BIS Committeereport proposed removing this concession altogether, so that retailers would not be permittedto make deductions for use of the goods following their rejection by the consumerat any time in the six months following purchase.
At the same time, the BIS Committee put forward an alternative proposal, which was to permit a deduction. but only based on use and taking into account the expected lifespan of the goods. Such a proposal simply does not work in motor retail because it is based on the (incorrect) assumption that cars depreciate on a linear basis, which they do not (certainly in the context of new cars).
Although the Government has, as part of the published Consumer Rights Bill, stopped short of removing the ability of retailer to make deductions altogether, its latest proposal leaves a sting in the tail. The Government has said that deductions made should not be linked to the second hand value of the goods; rather, they should only take account of the use the consumer has had. Aside from the difficulty this presents in evidencing the deduction (in terms of evidencing a notional value for use), it exposes dealers to undue risk around residual values (and, in turn consumers, who may have to shoulder the burden of higher prices to reflect increased retail costs and insurance)
Even in its original form, the draftConsumer Rights Billpresented a difficult situation for dealers. In particular, it did not recognise a feature common to the motor industry (and complex products generally), which is that more than one repair may be necessary to identify and resolve a particular problem or that more than one fault may arise in respect of a vehicle in the six months after its purchase.
The effect of any right of rejection in the case of an unsuccessful repair or subsequent defect were, in some respects, mitigated by the dealer's ability to make a deduction. The fact that the dealer would at least have been able to deduct from any refund an amount to reflect the then residual value of the vehiclemay, in itself, have brokered an amicable resolution. The Government's decision to reject the more radical BIS Committee proposal (to remove the right of deduction) is sensible; however, limiting the measure against which the dealer can calculate the deduction is disproportionate and will give rise to adverse consequences.
The NFDAcontinues to oppose the proposed 'one repair or replacement' rule. It will also continue to lobby for a fairer and clearer right of deduction. The right for a dealer to make a deduction from any refund to reflect a car's second hand value is vital. This is because it is the only way to mitigate the risk of the dealer suffering a disproportionate loss (taking into account residual values) where the consumer is unwilling to allow the dealer a fair opportunity to resolve a complex problem or to resolve a related or second defect in the six months following purchase.
According to Sue Robinson: "Any proposal concerning deductions for use in the context of rejected goods must reflect the commercial realities of motor retail. Imposing tough standards on retailers is one thing; indeed, it is something that franchised dealershave embraced with the launch of NFDA Trusted Dealer and its associated consumer-facing standards; however, rules which would impose disproportionate risks on retailers without allowing them adequate opportunity, in good faith, to satisfy their customers through the provision of a less costly solution is short-sighted in the extreme. It will significantly increase retail costs and drive up prices to the detriment of consumers as well as retailers."
- Finally, the BIS Committee recommended that the draft Consumer Rights Bill should apply an additional outcomes-based liability standard, which requires that any services providedshould achieve a stated result, or one which could reasonably be expected (similar to the 'satisfactory-quality' standard for goods).
The main concern raised by the BIS Committee as regards services was that the current fault standard of liability (that the service was provided without'reasonable care and skill') did not provide sufficient consumer protection.
At the same time, the inclusion of a 'satisfactory-quality' guarantee would not necessarily take into account fundamental differences in the provision of services as against goods, nor does it address unrealistic expectations as to the 'outcome' of any service or consider the legal and administrative costs involved in modifying terms and business practices to accommodate any such change.
Sue Robinson comments: "While the BIS Committee perceived that flexibility and reasonableness might be incorporated into any 'satisfactory quality' standard for services, this would have simply increased complexity and compliance costs for retailers and consumers."
It is therefore welcome that the Government has proposed retaining the 'reasonable skill and care standard' in the published Bill for services (although digital content will move to a satisfactory quality standard)
While motivated by good intentions, the BIS Committee's recommendations were largely ill-conceived as regards business to consumer sales and, in attempting to achieve a consumer-biased one-size-fits-all approach across all sectors, risked doing more harm than good.
The Government's response has, in most instances, been sensible; however, much more needs to be done to ensure that dealers (and, indirectly, consumers) do not, as a result of certain disproportionate elements of the legislation in question, suffer undue harm (particularly on the issue of residual values)
NFDA
30/01/2014
[1] Which may, in itself, present a challenge for new cars where published residual values might not, currently, be available for vehicles which are less than six months' old.