Consumer Protection: proposed new Law – Green Paper November 2010.

STATES OF JERSEY

CONSUMER PROTECTION: PROPOSED NEW LAW –

GREEN PAPER NOVEMBER 2010

Presented to the States on 2nd November 2010 by the Minister for Economic Development

STATES GREFFE

2010   Price code: C  R.129

Economic Development Department

Green Paper

A  law to protect consumers from unfair trading practices  2nd November 2010 PURPOSE OF CONSULTATION

To seek the views of consumers, consumer organisations, businesses and business representative bodies on the desirability of introducing a new consumer protection law incorporating a general duty not to trade unfairly.

CLOSING DATE: 31st January 2011 _____________________________________________________________________

SUMMARY

In May 2008 the United Kingdom (UK) brought into force Consumer Protection from Unfair Trading Regulations which implemented the Unfair Commercial Practices Directive (UCPD). This Directive was consistent with a well established European Union (EU) harmonisation policy to ensure a high level of consumer protection for EU citizens. The Regulations were hailed in the UK as the biggest overhaul of consumer laws for 40 years.

Their main aim is to prevent business practices that are unfair to consumers. In order to help businesses the Directive and the Regulations list 31 commercial practices which are always considered unfair and therefore, prohibited.

In the last decade the States of Jersey has actively supported the introduction of new consumer protection legislation. Progress has been achieved in areas such as anti-counterfeiting provisions, general product safety, distance-selling and price- marking of goods. Perhaps most significant was the introduction in 2009 of the Supply of Goods and Services (Jersey) Law 2009 which introduced consumer statutory rights' to the Island. To continue this trend, the Minister for Economic Development  is  seeking  views  on  whether  a  new  Consumer  Protection  Law should be introduced based on similar principles to those now operating in the UK and the rest of the EU. This paper sets out proposals for a similar law and seeks comments from stakeholders to assist the Minister in developing future policy.

Public submission – Please note that responses submitted to all States public consultations may be made public (sent to other interested parties on request, sent to the Scrutiny Office, quoted in a final published report, reported in the media, published on a States of Jersey website, listed on a consultation summary, etc.). If a respondent has a particular wish for confidentiality, such as where the response may concern an individual's private life, or matters of commercial confidentiality, please indicate this clearly when submitting a response.

SUMMARY OF QUESTIONS TO CONSIDER

1. Do you believe that the decision taken by the States in 1993 to introduce a fair trading law is still appropriate in today's trading environment? If you do, please give reasons.
2. If a consumer protection law were to be implemented in Jersey, do you think it should  be  based  on  the  principles  laid  down  in  the  Unfair  Commercial Practices Directive? If not, please give reasons.
3. Do you think that any new consumer protection law should, if possible, also be  used  to regulate  some  areas  of  consumer  credit?  Examples  could  be: advertising to include Annual Percentage Rates (APR), compulsory cooling- off periods for consumers after signing a credit contract or standardising early repayment penalties.
4. If a new Consumer Protection law was introduced, do you think it should follow the UK enforcement model of a mix of civil court action and criminal prosecution? If not, please explain why.
5. If  you  believe  that  criminal  prosecution  should  be  part  of  a  consumer protection law, do you think the powers as described above are appropriate? If not, please give reasons.

Further information:

This  Green  Paper  can  be  downloaded  from  the  States  of  Jersey  website  at www.gov.je/consultations.

Please send your comments to:

Trevor Le Roux

Director of Trading Standards 9 to 13 Central Market

St. Helier

Jersey

JE2 4WL

How to contact us:

Telephone –  01534 448160

E-mail –  tradingstandards@gov.je  Fax –  01534 448175

This Consultation Paper has been sent to the following organisations:

The Public Consultation Register

The Scrutiny Office

Jersey Chamber of Commerce

Jersey Hospitality Association

Jersey Consumer Council

Jersey Competition Regulatory Authority

Jersey Citizens Advice Bureau

Jersey Business Venture

Jersey Financial Services Commission

Jersey Motor Trades Federation

Jersey Construction Council

Jersey Law Society

Jersey Law Commission

Jersey Electrical Contractors Association

Jersey Estate Agents Association

Jersey Association of Plumbing & Heating Engineers Jersey Building and Allied Trades Employers Federation Genuine Jersey Products Association

Channel Islands Co-operative Society

Channel Islands Wholesale Group

Hanson Renouf

Sandpiper

Marks & Spencer Jersey

Age Concern

Supporting document:

Appendix – The 31 banned commercial practices in the UCPD

Other supporting documents available on request:

The Unfair Commercial Practices Directive (2005/29/EC)

The Consumer Protection from Unfair Trading Regulations 2008

Guidance on the UK Regulations (May 2008) implementing the Unfair Commercial Practices Directive.

Contents of this Paper

1 – Background

2 – The Unfair Commercial Practices Directive 3 – The Case for Fair Trading Legislation

4 – Enforcement Issues

5 – Next Steps

1. BACKGROUND

1. Introducing a law in Jersey to deal with unfair trading practices is not a new concept. In 1991 the Chairman of the National Consumer Council (NCC), Lady Judith Wilcox, was invited to the Island by the Policy and Resources Committee  to discuss  consumer  protection  issues  which  affect  small jurisdictions.
2. In June 1992, the NCC provided a report to the Committee entitled Consumer Protection  in Jersey'  which  contained  a  number  of  proposals  for  the introduction of legislation. A total of 24 organisations were consulted on the proposals and, in general, the responses were supportive.
3. In February 1993 the States agreed in principle that a Fair Trading Law should be drafted and the then legal adviser to the NCC was engaged to assist in its development.
4. Drafting work was carried out during 1994 and 1995, but by November 1995 the Law Officers expressed concerns that the draft Law contained certain fundamental flaws and had moved away from the original concept of a simple means of protection from unfair practices and a mechanism for quick, cheap and informal resolution of disputes.
5. During 1996 and 1997 further substantial amendments were made to the draft until, in an effort to prevent conflicts, the single draft Law was split into 2 separate drafts – a Business Malpractices Law and a Supply of Goods and Services Law. The separation attempted to clarify how the proposed Business Practices Tribunal would sit within the existing court structure.
6. In  July1998  the  Public  Services  Committee  decided  not  to consider  the 2 drafts but preferred to look into the possibility of introducing a Fair Trading Ombudsman. Discussions with the Law Officers continued through into 1999; and then in December of that year responsibility for consumer protection policy transferred to the newly created Industries Committee.
7. In 2000 the Committee considered the problems which had surfaced in the attempt to develop a minibus' Fair Trading Law and decided to wipe the slate clean. Several stakeholder meetings were held and Professor Alastair Sutton, an expert in EU consumer protection law, was invited to the Island to advise the Committee.
8. In early 2001 a consultant with strong Jersey connections, Mr. Mark Boleat, was  commissioned  to review  consumer  protection  in Jersey  and  make recommendations for an appropriate way forward. In July 2001 the Committee published a report entitled Review of Consumer Protection in Jersey' and subsequently set out its strategy to implement the recommendations.
9. In  2003  the  Industries  Committee  was  replaced  by  the  Economic Development  Committee and  a new  emphasis  was  placed  on  moving  the strategy forward. Consultations were carried out on proposals for a Distance Selling Law, a General Product Safety Law and finally a Supply of Goods and Services Law. All proposals received wide support and by 2009 all 3 Laws

were in force. Regulations on unfair contract terms were also introduced in 2010.

10. The implementation  of  the  Supply  of  Goods  and  Services  Law  was  a particular milestone as it introduced clear consumer statutory rights' for the first  time  instead of reliance  on  the  somewhat  obscure customary  law  of contract.

Question 1: Do you believe that the in principle' decision taken by the States in 1993  is  still  relevant  in  today's  trading  environment?  If  you  do,  please  give reasons.

2. THE UNFAIR COMMERCIAL PRACTICES DIRECTIVE

1. Unfair trading practices can harm consumers. Whether through misleading pricing, prize scams, high-pressure selling techniques, misleading advertising or  falsely  described  goods,  most  consumers  will  have  had  first-hand experience of unscrupulous and sharp marketing practices.
2. Tackling deceptive and dishonest practices is key to reducing consumer harm. It is also good for honest businesses that lose out if the activities of their less honest competitors are left unchallenged. However, itis recognised that while there is a need to protect consumers, this should be done within a competitive and fair trading framework.
3. Most businesses are honest and wish to treat their customers fairly. For these businesses, the States of Jersey's role is to set the right legal framework, ensure appropriate compliance with the law and that it does not introduce additional and unnecessary burdens on traders. It should also make sure that non-compliance is handled consistently, transparently and proportionately.
4. The Unfair Commercial Practices Directive is designed to achieve this and had  2  major  consequences.  It  harmonised  unfair  trading  laws  in all  EU member states and introduced a general prohibition on traders not to treat consumers  unfairly.  This  prohibition  was  intended  to act  as  safety-net' consumer protection legislation.
5. Harmonisation is achieved by making the same rules apply throughout the EU, without allowing individual member countries to exceed the protections contained in the Directive. This is called maximum harmonisation and it had important consequences for the UK as existing laws which conflicted with the Directive had to be amended.
6. The UK  authorities  actually  used  this  as  an  opportunity  to consider  the simplification  and  rationalisation  of  a  range  of  consumer  protection legislation. It led to some notable changes, for example the repeal of much of the long-established Trade Descriptions Act.
7. Simplification had the added benefit of reducing burdens on business where possible without reducing the protection provided to consumers. Generally, the  Directive  has  not  introduced  new  burdens  on businesses.  It  has  been

framed as a general duty not to trade unfairly. It does not contain positive obligations that businesses would need to demonstrate to prove that they are trading fairly.

8. So what is the scope of the UCPD? It applies to any act, omission and other conduct by businesses directly connected to the promotion, sale or supply of a product to or from consumers, whether before, during or after a commercial transaction. It is important to note that it does not apply to private sales of goods where both parties are consumers.
9. What then determines whether a commercial practice is unfair? The UCPD sets out rules that determine when commercial practices are unfair. These rules fall into 3 categories –

1. there is a general prohibition which is intended to act as safety-net' consumer protection legislation;
2. there are provisions on misleading' and aggressive' practices that are intended to function independently of the general prohibition;
3. there is a list of 31 specific practices which are always considered to be unfair and therefore prohibited.

10. The first 2 types of prohibition share the feature that they apply only if the effect of the trader's practice is to materially distort consumers' decisions in relation to products. For the last one there is no need to consider the effect on consumers. A commercial practice can still be unfair within the general clause if it is neither  misleading'  or  aggressive'  nor  falls  within  one  of  the 31 specific practices. (See attached Appendix for the 31 banned practices in the UCPD.)
11. The Regulations also offer protection to consumers who may be particularly vulnerable to a commercial practice and whose economic behaviour may, as a result of the commercial practice in question, be distorted. The commercial practice will be assessed from the perspective of an average member of that group whose vulnerability the trader could reasonably be expected to foresee. Vulnerability  is limited  to  infirmity  (mental  or  physical),  age  (older  or younger)  and  credulity  (groups  who  more  readily  believe  specific  claims without good evidence).
12. The deliberately flexible provisions and wide scope means that it is intended to plug gaps in existing EU consumer protection legislation and set standards against which new practices will automatically be judged. The adoption of similar principles into Jersey law will provide a more comprehensive new tool for tackling unfair practices and should place the Island in a situation the States voted for some years ago.

Question 2: If a consumer protection law was to be implemented in Jersey, do you  think  it  should  be  based  on  the  principles  laid  down  in  the  Unfair Commercial Practices Directive? If not, please give reasons.

3. THE CASE FOR FAIR TRADING LEGISLATION

1. As mentioned in section 1, in 1992 the NCC produced a report for the Policy and Resources Committee titled Consumer Protection in Jersey'. The preface to the report  was  written  by  the  Chairman,  Lady Judith Wilcox,  and the following is an extract –

"What Jersey wants and needs is a law that ensures that consumers do not have to put up with business practices that were ruled out of court decades ago in the United Kingdom and Europe. The Islanders deserve – and its tourists expect – no less."

2. If this was the case in 1992 it is reasonable to ask the question – isit still the same today? It is clear that from a legislative point of view the Island isin a much stronger position than in 1992. However, the need to introduce a general duty on businesses not to trade unfairly is still evident.
3. So where is this evidence? The Trading Standards Service has a statutory duty to enforce  various  consumer  protection  laws.  Its  officers  also  identify practices which, although dealt with informally, need to be backed-up by legislative powers to give teeth to any action, where necessary.
4. The following are just some actual examples of trading practices identified locally  which  were  detrimental  or  unfair  to consumers  but  for  which, ultimately, legislative action was not possible –

• Trader  falsely  claiming  to  be  a  member  of  a  recognised  trade association and therefore covered by its code of conduct – misleading action.
• Trader falsely claiming to be an authorised installation engineer for a large satellite television company – misleading action.
• Trader displaying discounted and cash price for road fuel in a manner that would deliberately mislead consumers to entice them onto the forecourt – misleading action.
• Car  salesman  failing  to  advise  a  consumer  that  the  car  being purchased  had  a  known  problem  with  its  Diesel  Particulate  Filter (DPF) due to low road speeds in Jersey – misleading omission.
• Consumer purchased return ferry ticket. Outward leg was cancelled due to bad weather, so consumer found alternative route but used the return leg. Tour operator refused a 50% refund for unused portion treating the return leg as a single fare. The condition was not clear and unfairly weighted against the consumer. Refund was a fraction of what it should have been – unfair practice.
• Hotel supplying smoking room to non-smoker who could not sleep in the room due to smell. Failure to ask/tell customer it was a room used previously by smokers – misleading omission.

• New jewellery trader opens with "sale price" and "50% off marked price". The marked selling price has never been charged – misleading action.
• Visiting  fair  displays  advertising  boards  in  various  locations indicating prices – "all rides only 99p" – prices 30th July. The prices were increased the next day and the fair ran from 30th July to 15th August.  The  overall  presentation  would  deceive  or  be  likely  to deceive the average consumer – misleading action.
• Retailer deliberately double pricing goods where the higher price has never  been  charged.  Equivalent  to  a  "was  and  now  price" – misleading action.
• Trader arranges home demonstration of domestic appliance to elderly vulnerable lady who pays £1,500 for an item she did not want or need just to get rid of the salesman. This could amount to undue influence (persistence,  timing  and  possible  exploitation  of  the  consumer's specific misfortune or circumstances) – aggressive practice.
• Online trader calculating a percentage saving for their goods based on a manufacturer's Recommended Retail Price (RRP), when the RRP is rarely, if ever, charged in the market, and they could not show that the goods were "generally sold" at this price. Therefore the percentage was not representing a genuine saving for consumers – misleading action.
• Travel business advertised day trip to French market. Clients arrived shortly before the Market closed at 1 p.m. Failure to supply material information  (closing  time  of  Market)  which  would  have  affected consumers' decision to purchase – misleading omission.
• Internet trader advertises an unusually low price for a well-known product "while stocks last". In truth, no items were available at that price  and  they  are  offered  at  the  same  prices  as  other  traders – misleading action.

5. It has been said by at least one politician that Jersey consumers would benefit from some form of Consumer Credit regulation. Fortunately, those of us who obtain  and  use  credit  cards  from  UK-based  providers  do  enjoy  some protection thanks to the Consumer Credit Act 1974. Although the Act does not extend to Jersey, the contracts which are signed to obtain the cards make many references to the Consumer Credit Act so there is a strong argument to support the view that its provisions are contractual liabilities.
6. The main benefit comes in the form of the statutory joint liability of the card provider with the supplier (called connected lender liability) for breach of contract or misrepresentation provided the goods or services are valued over £100 and not more than £30,000. So, for example, if someone pays up-front for goods to be delivered in the future with a credit card and the business goes bankrupt before delivery, the consumer can obtain a full refund from the card

provider. It is evident that for these provisions, the card providers extend the protection to Jersey-based users.

7. The Consumer Credit Act is a large and complex piece of legislation which would be inappropriate for a jurisdiction like Jersey. However, there would be some  useful  benefits  for  consumers  if some  basic  legislation  existed  to regulate  such  things  as  annual  percentage  rates,  early  settlement  rebates, advertising  of  credit  facilities  and  credit  agreements  signed  on  traders' premises. If a Consumer Protection Law was introduced, it may be possible to include a Regulation-making power to address specific matters of concern as and when required.

Question 3:  Do  you  think  that  any  new  consumer  protection  law  should,  if possible, also be used to regulate some areas of consumer credit? Examples could be advertising to include Annual Percentage Rates (APR), compulsory cooling-off periods  for  consumers  after  signing  a  credit  contract  or  standardising  early repayment penalties.

4. ENFORCEMENT ISSUES

1. If itis appropriate to implement a new law which aims to prevent unfair trading practices, then it is obvious that to give that law teeth, it must have some penalties for non-compliance.
2. The UCPD gives direction to member countries that they shall ensure that adequate and effective means exist to combat unfair commercial practices in order  to enforce  compliance  with  the  provisions  of  the  Directive  in  the interests of consumers'.
3. It goes further in stating that it shall be for each member state to decide how enforcement is carried out, but at the least there should be a means for a court to order the prohibition of a particular unfair practice.
   4. Importantly, the UCPD prescribes that member states shall lay down penalties for infringements of national provisions adopted and shall take all necessary measures to ensure that these are enforced. These penalties must be effective, dissuasive and proportionate.
4. It  is appropriate  to look  at  how  the  UK  dealt  with  enforcement  in the Consumer  Protection  from  Unfair  Trading  Regulations  2008,  which transposed  the  UCPD  into  UK  law.  The UK  government's  aim  was  to establish an enforcement regime that was capable of tackling rogue and unfair practices effectively while minimising burdens on compliant businesses.
5. The result was that enforcers have been provided with a wide range of tools which includes both civil (injunctive) action as well as criminal prosecutions for serious offences. Some offences require what is called mens rea' which means that enforcers would have to show that a business had engaged in an unfair practice knowingly or recklessly.

7. However, some offences are classed as strict liability, which means that it need only be shown that there has been a prohibited act or omission, not that is was done knowingly or recklessly. To balance this, a business always has available a due diligence defence' (taking reasonable precautions to prevent breaches).

Question 4: If a new consumer protection law were introduced, do you think it should  follow  the  UK  enforcement  model  of  a  mix  of  civil  court  action (injunction) and criminal prosecution? If not, please explain why.

8. If enforcement isto be carried out effectively then it is normal practice to prescribe powers to, for example, Trading Standards Officers to –

• inspect goods and enter business premises to find out whether a breach has been committed;
• require traders to produce any documents relating to their business if there is reasonable cause to suspect that a breach has been committed;
• seize and detain goods and documents if there is reason to believe they may be required as evidence in any subsequent proceedings.

Question 5: If you believe that criminal prosecution should be part of a consumer protection law, do you think that powers as described above are appropriate? If not, please give reasons.

5. NEXT STEPS

1. This  Green  Paper  sets  out  a  proposal  for  possible  consumer  protection legislation based on the UCPD and seeks views on specific options as well as general comments. The closing date is 31st January 2010.
2. All responses will be analysed and evaluated and a summary report will be published in the second quarter of 2011.
3. If the Minister decides to proceed with introducing a Law, a bid for allocation of drafting time will be made in the programme of work for 2012. Should this be  successful,  drafting  instructions  will  be  provided  from  within  existing resources.
4. A second consultation will then be undertaken – a White Paper – seeking comments on the proposed draft Law. It is hoped this could happen in the first quarter of 2013 or possibly earlier.

How to Respond

All respondents should indicate the capacity in which they are responding (i.e. as an individual, company or representative body).

If you are responding as a company, please indicate the nature of your business.

Representative bodies should indicate the methodology used to gather the opinions of their members.

APPENDIX

COMMERCIAL PRACTICES WHICH ARE IN ALL CIRCUMSTANCES CONSIDERED UNFAIR

Misleading commercial practices

1. Claiming to be a signatory to a code of conduct when the trader is not.
2. Displaying a trust mark, quality mark or equivalent without having obtained the necessary authorisation.
3. Claiming that a code of conduct has an endorsement from a public or other body which it does not have.
4. Claiming that a trader (including his commercial practices) or a product has been approved, endorsed or authorised by a public or private body when he/it has not or making such a claim without complying with the terms of the approval, endorsement or authorisation.
5. Making  an  invitation  to purchase  products  at  a  specified  price  without disclosing the existence of any reasonable grounds the trader may have for believing that he will not be able to offer for supply or to procure another trader to supply, those products or equivalent products at that price for a period that is, and in quantities that are, reasonable having regard to the product, the scale of advertising of the product and the price offered (bait advertising).
6. Making an invitation to purchase products at a specified price and then –

1. refusing to show the advertised item to consumers; or
2. refusing to take orders for it or deliver it within a reasonable time; or
3. demonstrating  a  defective  sample  of  it, with  the  intention  of promoting a different product (bait and switch).

7. Falsely stating that a product will only be available for a very limited time, or that it will only be available on particular terms for a very limited time, in order to elicit an immediate decision and deprive consumers of sufficient opportunity or time to make an informed choice.
8. Undertaking to provide after-sales service to consumers with whom the trader has communicated prior to a transaction in a language which is not an official language of the Member State where the trader is located and then making such service available only in another language without clearly disclosing this to the consumer before the consumer is committed to the transaction.
9. Stating or otherwise creating the impression that a product can legally be sold when it cannot.
10. Presenting rights given to consumers in law as a distinctive feature of the trader's offer.

11. Using editorial content in the media to promote a product where a trader has paid for the promotion without making that clear in the content or by images or sounds clearly identifiable by the consumer (advertorial). This is without prejudice to Council Directive 89/552/EEC [1].
12. Making a materially inaccurate claim concerning the nature and extent of the risk to the personal security of the consumer or his family if the consumer does not purchase the product.
13. Promoting a product similar to a product made by a particular manufacturer in such a manner as deliberately to mislead the consumer into believing that the product is made by that same manufacturer when itis not.
14. Establishing, 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 of other consumers into the scheme rather than from the sale or consumption of products.
15. Claiming that the trader is about to cease trading or move premises when he is not.
16. Claiming that products are able to facilitate winning in games of chance.
17. Falsely  claiming  that  a  product  is  able  to cure  illnesses,  dysfunction  or malformations.
18. Passing on materially inaccurate information on market conditions or on the possibility of finding the product with the intention of inducing the consumer to acquire  the  product  at  conditions  less  favourable  than  normal  market conditions.
19. Claiming in a commercial practice to offer a competition or prize promotion without awarding the prizes described or a reasonable equivalent.
20. Describing a product as "gratis", "free", "without charge" or similar if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item.
21. Including  in marketing  material  an  invoice  or  similar  document  seeking payment which gives the consumer the impression that he has already ordered the marketed product when he has not.
22. Falsely claiming or creating the impression that the trader is not acting for purposes  relating  to his  trade,  business,  craft  or  profession,  or  falsely representing oneself as a consumer.
23. Creating the false impression that after-sales service in relation to a product is available in a Member State other than the one in which the product is sold.

Aggressive commercial practices

24. Creating the impression that the consumer cannot leave the premises until a contract is formed.
25. Conducting personal visits to the consumer's home ignoring the consumer's request to leave or not to return except in circumstances and to the extent justified, under national law, to enforce a contractual obligation.
26. Making persistent and unwanted solicitations by telephone, fax, e-mail or other remote media, except in circumstances and to the extent justified under national law to enforce a contractual obligation. This is without prejudice to Article 10 of Directive 97/7/EC and Directives 95/46/EC [2] and 2002/58/EC.
27. Requiring a consumer who wishes to claim on an insurance policy to produce documents which could not reasonably be considered relevant as to whether the  claim  was  valid,  or  failing  systematically  to  respond  to pertinent correspondence,  in order  to dissuade  a  consumer  from  exercising  his contractual rights.
28. Including  in an  advertisement  a  direct  exhortation  to children  to buy advertised products or persuade their parents or other adults to buy advertised products  for  them.  This provision  is without  prejudice  to Article 16  of Directive 89/552/EEC on television broadcasting.
29. Demanding immediate or deferred payment for or the return or safekeeping of products supplied by the trader, but not solicited by the consumer except where the product is a substitute supplied in conformity with Article 7(3) of Directive 97/7/EC (inertia selling).
30. Explicitly informing a consumer that if he does not buy the product or service, the trader's job or livelihood will be in jeopardy.
31. Creating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact either:

– there is no prize or other equivalent benefit,

or

– taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost.