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UK Consumer Law Reform and its Effect on Businesses

What the new legislation will mean for UK businesses

by Fatima Freifer

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As it currently stands, the murky world of UK consumer law is laden with pitfalls and vague legislation. This harbours a breeding ground for businesses to avoid certain codes of conduct in the comfort of knowing that very little can be actioned to bring companies to court for various misdemeanours. The fact that a new reform is being considered heavily implies that it is greatly needed, and the research corresponds accordingly.

What the current legislation says

Currently, if a corporation is to be challenged, it must be taken to court in order to action anything. This is a lengthy, drawn-out process which is also costly and even when there is a result in favour of the opposition, the business or corporation is not obligated to pay out. So, the incentive rarely exists. The court also possesses no powers to impose any civil monetary penalty for breaches of consumer law. The government states in their own words that the process is “lengthy, complex and costly and even if they [i.e. regulators] are successful there are no financial sanctions for civil breaches of consumer protection law and few civil sanctions for frustrating the enforcement process.”[1]

Given the difficulties of going to court, regulators prefer – wherever feasible – to seek a negotiated settlement with firms, generally backed up by voluntary pledges. Those commitments, however, are not directly enforceable. This implies that if a company fails to keep its pledges, the regulator’s sole choice is to file a lawsuit – the exact thing it was attempting to prevent.

The suggestions signal that the government is willing to take significant action to expand the powers of the UK Competition and Markets Authority (CMA) now that it has reclaimed control of domestic consumer protection law following Brexit. If enacted, the proposed reforms would be the most significant overhaul of the UK consumer protection framework since the establishment of the CMA in 2014.

What does the new legislation say?

The magnitude of the potential changes to the consumer law enforcement regime is perhaps most striking. The CMA strengthening its consumer law enforcement toolkit allows them to directly institute corporate fines of up to 10% of worldwide turnover in an attempt to instil renewed confidence within consumers.

The proposals would bring the CMA’s consumer protection enforcement powers closer to those available for violations of competition law, resulting in a significantly increased concentration of power in the CMA at a financially demanding moment in British economics post-Brexit.

The proposed new consumer enforcement framework will be more consistent with the CMA’s and other sectoral regulators’ authority to enforce competition law. Instead of going to court, the CMA (and perhaps other sectoral regulators as well) will be able to investigate and make an early judgement that will be binding on the firm in issue. This ruling may include an order to cease the irregular behaviour. It may also involve a civil monetary penalty of up to 10% of worldwide sales, with the goal of correcting the illegality and discouraging others from participating in similar patterns.

If the regulator thinks that a firm has failed to comply or give adequate information during an inquiry, it will be entitled to levy a civil penalty of up to 1% of yearly turnover, with an additional daily penalty of up to 5% of daily sales if non-compliance persists (again, without having to go to court). Such penalties might be applied in addition to the greater fines indicated above for violations of consumer law. The government is also contemplating making it possible to directly enforce voluntary commitments or imposing civil fines when a firm fails to comply.

In theory, the new legislation looks imposing, but will it hold true to its word in the implementation?

What we can deduce is that businesses will, of course, be entitled to challenge judgments by regulators determining that they have violated consumer legislation, just as they may appeal decisions made under the competition system. However, by eliminating the need to go to court, the proposed amendments will considerably strengthen the CMA’s hand, as well as the hands of other sectoral regulators with consumer enforcement powers, such as the Financial Conduct Authority. The government states that the policy aims to be “transforming our competition and consumer policies to make it best in class”. [2]

Will it happen – and if so, when?

The two major concerns are whether the government will pass legislation to enact these reforms and, if so, when they will go into effect. Concerning the first point, it is worth noting that previous governments’ track record of delivering on apparent pledges to increase the enforcement powers of consumer regulators has been irregular. For example, the UK government established provisions in the Regulatory Enforcement and Sanctions Act 2008 to empower consumer regulators to levy civil monetary penalties. However, these provisions were never utilised for that purpose; they were used instead to allow civil fines to be imposed for various other purposes, such as breaches of environmental law.

Overall, it is believed that these reforms are more likely than not to be implemented in some form – and that consumer-facing firms should be prepared for a tighter regulatory environment (bolstered by additional reforms – see further below). However, this might take several years.

Has Brexit affected consumer rights?

With the UK having now officially left the EU, the UK’s consumer protection regime (which derives partly from EU law and partly from UK-specific law) continues to align with that in place across the EU.

As a result, it is doubtful that UK consumers and/or companies have seen any immediate impact on consumer rights legislation and safeguards in the UK as a result of Brexit. It is crucial to emphasise, however, that Brexit has significant consequences for UK law.

The UK government is awaiting further developments on the potential reforms that are due to come to a conclusion by the 1st of October 2021, and the results remain to be seen until then. Whether or not there will be any implementation depends largely on the results. Should the go-ahead be given, there will also be framework development to attempt efficient implementation of the new proposals.

REFERENCES

[1] UK consumer law reform: will the tough talk be matched by action?, 2021
https://www.traverssmith.com/knowledge/knowledge-container/uk-consumer-law-reform-will-the-tough-talk-be-matched-by-action/

[2] UK Government consults on major shake-up of competition and consumer law regimes (part 2), 2021
 https://riskandcompliance.freshfields.com/post/102h3ks/uk-government-consults-on-major-shake-up-of-competition-and-consumer-law-regimes

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