QUESTION
The level of criminal sanctions, and the risk of civil action by consumers, do not deter determined rogues who continue to carry on unlawful conduct where the profits outweigh the occasional judicial setback and where they can live with an adverse effect on their reputation.”
(Modern Markets: Confident Consumers (Cm 4410))
In the light of the above statement critically assess the way in which enforcement orders under the Enterprise Act 2002 seek to control the activities of unfair traders.
SOLUTION
Rogue Traders and The Provisions of Consumer Law
Even as we are witnessing the increasing level of criminal sanctions against unlawful conduct and the rising number of civil action by the consumer there are many unscrupulous persons who do not care for the judicial setbacks in their pursuit of higher profits and are also willing to live with a bad repetition in the market. It is widely recognized that prosperity and a fair deal go hand in hand. Consumers always want a fair deal whether they are purchasing goods or services from brick and mortar store or from the internet. In a consumer strategy : modern markets : confident consumers the government has tried to explain how the consumers can achieve a fair deal with help of better information, easier methods of putting things right and stopping cheats. As the global markets opened up and the spread of e-commerce provided opportunities and challenges for business as well as consumers, the new agenda set by the government aims at promoting open and competitive markets and providing skills knowledge and information required by the people to become demanding consumers. It also aims at encouraging the businesses to follow good business practices and at the same time avoids the imposition of unnecessary regulations on these businesses. Another aims is to protect the consumer from series trade mal practices and unsafe products (Ofgem, 2005). It has been acknowledged by Lowe and Woodroffe () in their book Consumer and Practice’ that criminal and civil sanctions play an important role in protecting the consumers, these alone are not sufficient due to the presence of many reasons and administrative control of consumer protection is also required.
Open and competitive markets encourage innovation and guarantee the best deals to the consumers. The aim of the government is to put in place such a frame work that can encourage free and fair competition but at the same time it is tough for the persons and businesses who tried to damage the competitive process. This approach has encouraged the competition authorities to become more competitive. An annual study is going to be launched to see if the prices are higher in UK as compared to other countries like France, Germany and the US. In case major discrepancies in prices are found the competition authorities will investigate if anti competition behavior is responsible for these discrepancies. The consumer need reliable information regarding the quality, safety and price of the products to make informed decisions regarding purchase.
Significant changes have been made by the Enterprise Act 2002 to the competition law in UK. It came into force in 2003 and most of the important provisions enshrined in this Act came into force on 20 June 2003. It abolished the office of the Director General, Fair Trading. In its place the Act has set up the Office of Fair Trading (OFT). The OFT is mainly concerned with the enforcement of competition and consumer protection laws and its aim is to make the markets work smoothly in favour of the consumers. An annual Plan is published by it regarding which the public is also consulted as it does regarding the Annual Report. The details of the meetings of its board are published on the website of OFT where the details regarding the decisions taken by it and the guidance provided by it are also available.
The aim of the consumer protection policy and that of the competition policy is to serve the consumers but some tension was seen between the two. In the present paper we will examine how the framework of new competition policy in UK under the Enterprise Act 2002 proposes remedies to protect consumers and how far it goes with the approach of consumer protection. The welfare of consumer is the main driver behind competition policy and the authorities also feel that only through well functioning markets, good outcomes can be delivered to the consumers. Consumer protection works along with other arms of policy for enhancing consumer well fair like the Enterprise Act, 2002. For competition authorities like the Office of Fair Trading in UK have the dual role of promoting competition and protecting consumers. Sir John Vickers who was the head of OFT until recently has commented that the goal of competition policies and good consumer policies is the same. Both aim at helping the markets in working towards the welfare of a consumer and for all fair dealing enterprises that strive hard to serve consumers in a better way (1). There is a strong pro-active element in the competition regime of UK which is most notably visible through the market investigations and studies conducted by it (Vickers, 2005). A number of these investigations were triggered due to the concerns regarding consumer protection. This shows that there is a close link between consumer protection and competition policy under the Enterprise Act, 2002.
The link between competitive markets and consumer protection becomes clear from the belief that well functioning competitive markets can provide the best protection to the consumers. However it is also acknowledge that it will be difficult for competitive markets to achieve distribution aims or protect the socially excluded and vulnerable. The aim of consumer protection policies is to (i) prevent undue pressure on consumers (ii) remedy problems related with pre purchased information (iii) to prevent post purchase surprises in the form of unfair terms (3). On the other hand the aim of effective competition is to provide freedom of choice to the consumers and also to make the companies strive hard provide better services to the consumers which may encourage the consumers to opt for the service of such companies. By providing symmetric information and freedom of contract to the customers higher consumer welfare can be achieved along with increased profits from the business. Therefore competitive markets provide the right kind of incentive to the businesses to not to exploit the customers and in this way both consumer protection and competition can be achieved jointly. These two are also linked when we try to remedy an identified market problem. A customer with poor information cannot make effective choices and regulations regarding consumers’ protections that are designed to reduce barriers of information also facilitate effective markets. In this way competition policy and consumer protection complement each other in offering a fair infrastructure where business can benefit the suppliers as well as the consumers (Competition Commission, 2004).
Even despite the recognize association between competition policy and consumer protection sometimes there can be a tension between these two goals. At the heart of this tension is the recognition that benefit of freedom to contract depends on ‘Caveat Emptor’ (Buyer Beware) principle. The present regulations focus on the smooth functioning of the markets and the availability of tools for making effective choices to the consumers. But the consumers have to bear the consequences of choice made by them and any intervention is resisted by the regulators. In these circumstances the consumers who have made unwise decisions could face unpleasant consequences. Generally these are the consumers who are also vulnerable in some other way like persons with low incomes, poor level of literacy or the unemployed. There is a desire to protect such consumers from the consequences of the choices made by them and this desired leads to a pressure for more intervention. There is a conflict between protecting the vulnerable customers and the competitive markets for those who view with distrust the market discipline. For those holding such a view, these consumers cannot make effective choices. This belief leads to the demand for remedies which are designed to restrict the choices available to the customer and also constrained the behavior of suppliers. An example could be given of the quality standards like the CAT standards for financial products (4), limits on quality and imposing obligations on the suppliers to make choices on behalf of the consumers. An example could be given of the situation where companies are required to ensure that their customers get the best tariff plans according to their usage pattern. But in contrast those who see the competitive markets as the promoters of consumer welfare the choice to restrict the underline freedom of contract are not very appealing. For those holding this view, most of the consumers are in a position where they can best determined their needs and value the product variety. Therefore in their view the intervention should focus on making sure that the consumers are able to make effective choices and the regulations should not restrict the variety of the products available to consumers (Hampton, 2005).
These interventions should not be exceedingly critical of the real choices that are made by the consumers. The remedies available in the present infrastructure basically target the consumer as against the supplier. Their aim is to provide information to the consumers effectively and make sure that the consumers can exercise the choices but ultimately the choice is left in the hands of the consumers. This goes against the instinct of consumer protectionists who generally try to enhance the restriction on the suppliers through constraints on price discrimination or through curtailing the variety of the products that can be offered by a supplier. The regulatory authorities on the other hand are required to make sure that the remedies available to the consumers are proportionate which means that the negative impact of certain obligations imposed on the suppliers should also be considered. These include: (i) regulating the prices can obstruct the entry and expansion of market for many businesses as lower prices are among the main lure behind switching suppliers. If the regulations keep the prices of incumbent suppliers at the low level, the room for new and smaller players becomes considerably lesser. In the same way consumer welfare is also harmed when supply is restricted and costs are increased.
Under the Enterprise Act, OFT has been given the task of promoting the adoption of good practices by businesses in relation to consumers. The OFT has the power to sanction the consumer codes which aim at promoting or safeguarding consumer interests. Any organization that can show the effective and proper working of the code can display a logo approved by the OFT and such an organization will also be listed on the approved codes’ website. Earlier the power to investigate markets vested with the competition commission but these powers have been repealed and the same have been given to the OFT under the Enterprise Act, 2002. OFT along with some other regulators also has the ability to refer a market to the competition commission if reasonable grounds are present that indicate that a particular feature or a amalgamation of features can prevent or distort competition. Such features can either relate to the behavior of the suppliers of that market or to the structure of that market (OFT, 2005).
The legislation regarding consumers is already in a well developed stage and little extension is required. Areas of food safety and financial services, new frameworks for these regulations are designed in the form of Food Standards Agency and the Financial Services Authority. It is believed by the government that a number of burdensome regulations can be removed without endangering the interests of the consumer. At present the laws regarding weights and measures and the present system of credit licensing for consumers is under consideration by the government.
Providing better information to the consumers could also be an effective remedy for consumer protection. Here it should be noted that too much information can also be equally problematic as too little information and the consumers need to be provided with the right amount of information required for making informed purchase decisions. This is especially true in case of certain sections of the most vulnerable consumers where providing information alone cannot ensure that such customers would make the right purchase decisions (Silberstein, 1999). This suggests that there could be a need for more interventionist strategy in case of such consumers. However before resorting to such interventions it should be kept in mind that these interventions should not have an adverse effect on the businesses as well as other consumers. For example any decision which restricts the behavior of the suppliers could have an adverse impact on the overall business. Similarly it should be taken care of that any such decision should not result in the imposition of costs on other consumers. For example any decision which requires that detailed advice should be given to consumers before they make the purchase could result in increasing the cost of the product for all the other consumers also (Competition Commission, 2003).
Rogue traders:
It is the aim of the government to deal sternly with a small number of rogue traders who continuously disregard the consumer protection legislation as the present law fails to deter these rogue traders. The government plans to grant of power to the courts to enable them to grant injunction against specific malpractices that are carried out by certain specified traders. The government also plans to grant a power to the courts which would enable them to ban the traders with history of disregarding legal obligations related to consumers. This ban would be imposed for a specific period of time. Another proposal is to grant power to the Secretary of State, Trade and Industry under which orders can be made by secondary legislation that specify certain trade practices which have been demonstrated as harmful, can be made illegal. These proposed powers for seeking banning orders and injunctions would be granted to the local authorities and the OFT.
Adequate protection should be provided to the consumers and at the same time legitimate businesses also required insurance that they will not be pinned down by their competitors who cut corners. Therefore it becomes important that consumers law should be effective and also be enforced efficiently.
Efficient enforcement:
Rules and regulations are of little value if these are disregarded widely. The task of enforcing statutory regulation falls on the local authorities and also on national bodies like the OFT, the Financial Services Authority and the Food Standards Agency although it is recognized that bodies outside public sector also have a role in taking cases to the courts. The need for enforcement agencies is to educate the traders regarding the consumer law which can encourage compliance and deal firmly with the traders who refused to comply. This game can be achieved by education and persuasion of the traders. Taking recourse to legal powers should be the last resort of the enforcement agencies. It is widely recognized that most businesses are willing to comply with their obligations towards the consumers and look towards the enforcement agencies for assistance in doing so. It has been seen that in recent years the enforcement agencies are increasingly offering advice and guidance to businesses in relation to their legal obligations towards their consumers. The enforcement regime is expected to be fair towards the traders also as it ensures the protection of consumers. To achieve this aim cooperation with businesses need to be encouraged and the adoption of fear and consistent enforcement practices by the local authorities and the central government (Vickers, 2005).
There are always a small number of readers who never respond to education regarding consumer protection and other stronger measures. These traders continue to exploit the consumers, mostly those who are most vulnerable and damage the confidence of the consumers in markets. This is harmful for their business as well as for other businesses also. The present legislation is widely criticized for not being strict enough with such traders who have little regard for consumer protection legislation. There are three main problem areas. These are
- It has been seen that the risk of civil action by the consumers and even criminal sanctions do not deter a small number of rogue who continue with their unlawful conduct. For such traders the lure of profit is more attractive than the occasional judicial setbacks. The problem is aggravated by the time it takes in enforcing the existing legislative provisions regarding the protection of the consumers.
- In areas where there are detailed licensing regimes like financial services and consumer credit, there is no way to prevent rogue traders from continuing with their malpractices as the move from one malpractice to another.
- There are still a number of trading practices which have not been declared illegal and can cause harm to the consumers.
To tackle this problem a clearer identification of rogue traders and unfair trade practices is required. The rogue traders generally operate at local level therefore the new powers need to be granted to the local authorities as well as the OFT which is responsible for taking these cases to the court. The government also believes that the new powers would generally be exercised by the local courts. The exact way of the formulation of these powers also needs careful consideration. While designing methods to catch their dishonest competitors, honest businesses should be given an assurance that they will not become unintentional targets of these measures. This assurance is particularly important for small businesses and traders who may find it more difficult to challenge such action of the enforcement agencies.
To deal with the problem of rogue traders some more groups would be enabled to act on behalf of the consumers. The new regulations provide that statutory regulators, trading standards service and consumer associations will be enabled to take action against continuous use of unfair trade practices under standard consumer contacts. Till now such a power vested with the OFT alone. Even still have to consider the complaints regarding unfair terms unless any authorized body acknowledge to deal with it. The consumer bodies will also have power to seek injunction against the infringement of consumer rights. A wider range of bodies is proposed to be empowered for taking action in courts is the heart of the consumers (Oughton, 1991).
In the local authorities the enforcement of consumer protection legislation is mostly in the hands of trading standards services. The radical approach adopted by the government towards local authorities is expected to deliver considerable enhancement in the level of services provided by the authorities in the areas of consumer protection. The major strength of the trading standards and services lies in the fact that they operate at local level where they are nearer to the issues concerning the consumers as well as the businesses. It is also acknowledged that a number of pressures are faced by these services in some cases there is a risk that trading standards services operating in smaller authorities serving a small population will have lesser opportunities to nurture the expertise required for dealing with certain specialized areas of consumer protection. These services may even face problems in providing training to the staff which will become imperative in the future. The local authorities have been trying to tackle these issues for the last several years. Another major problem faced by almost all the Trading Standards Services is the continuous pressure on their budgets. This problem is shared by almost all the services in all local authorities regardless of their size and is common in local as well as the central government.
The government wants to develop long-term measures for increasing consumer confidence as well as business satisfaction and also encourage the authorities to make full use of the tools available for assessing and improving their performance. Similarly it vast range of duties that the trading standards services are expected to perform along with the pressure on the resources requires that new methods of collaboration and cooperation would have to be developed and in some cases it even means the sharing of services. Even otherwise coordination and good communication is necessary for the consistent enforcement of consumer protection laws across the country and thereby provide a certainty to the businesses and at the same time reduce burden on them. It is believed that these agencies can learn a lot from each other through cooperation between them. The areas of cooperation between different agencies include Trading Standard Services, OFT which is responsible for enforcement in the areas of unfair contract terms, consumer credit and misleading advertisements. The other areas of cooperation include HM customs and excise while dealing with import of counterfeit or unsafe products. It is believed by the government that these agencies can learn much from cooperation with each other (Department for Education and Skills, 2003).
In a framework where effective competition is treated as an important tool for consumer protection, the focus is always the on the remedies that are associated with improving the choices available to the consumers and will have very limited interest in intervening in the choices that might can be made by the consumers. The OFTI has been provided the responsibility of consumer protection as well as maintaining effective competition. This means that the present position of policy will continue in future also therefore there could be a conflict between market-based solutions and the protection of the consumers especially the most vulnerable ones who continue to make inappropriate choices despite the availability of better information for making the right purchase decisions. Any intervention by overzealous consumer protectionists can ultimately harm the consumers by resulting in an increase in the cost of the products and in some cases the risks associated with certain products even though such intervention was primarily aimed at protecting the consumers.
References:
Competition Commission, ‘Extended Warranties on Domestic Electrical Goods: A Report on the Supply of Extended Warranties on Domestic Electrical Goods within the UK: Volume 1,2 and 3’, reports (2003)
Competition Commission, ‘Store Cards Market Inquiry: Notice of Possible Remedies under Rule 11 of the Competition Commission Rules of Procedure’, current inquiries (2004)
Department for Education and Skills ‘The Skills for Life Survey: A National Needs and Impact Survey of Literacy, Numeracy and ICT Skills’, RB490. (2003),
Hampton, P., ‘Reducing Administrative Burdens: Effective Inspection and Enforcement’, March, the Stationery Office, paras 4.47 et seq. (2005)
Leder Malcolm, Shears Peter, Consumer Law, 4th edition, M and E Pitman Publishing, 1996
Lowe Robert and Woodriffe, Geoffrey, Consumer law and practice, 5th ed. London: Weet and Maxwell, 1999. 447p.
Ofgem ‘Ofgem’s Response to the Super-complaint on Billing Processes made by the Gas and Electricity Consumer Council’, decision document, Office of Gas and Electricity Markets, (July 2005).
OFT, ‘Care Homes for Older People in the UK’, market study (2005).
OFT, ‘The Private Dentistry Market in the UK’, market study (2003),
Oughton David W. Consumer law: text cases and materials. London: Blackstone Press, 1991. 436p.
Silberstein Sandra. Consumer law in a nutshell. London: Sweet and Maxwell, 1994. 103p.
Sir John Vickers, Chairman, OFT, Opening remarks at the European Competition and Consumer Day Conference London, (September 15th 2005).
Vickers, J. (2005), ‘Abuse of Market Power’, The Economic Journal, 115:504, pp.244–61.
JH09
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