Welcome To Eversheds' Clean Energy And Sustainability E-Briefing

Welcome to this Eversheds Energy Sector briefing which concerns significant changes to consumer law.

This briefing is relevant to you if you are a supplier/retailer of energy to household customers, a prospective Green Deal provider, a provider of energy efficiency services generally to consumers or a supplier of FIT projects/services/products.

Consumers to receive significant new protection throughout The EU

The EU's Council of Ministers voted to adopt the Consumer Rights Directive on Monday 10th October 2011 following previous approval given by the European Parliament. The Directive will come into force when it is published in the Official Journal of the European Union and member states will have two years from that date to implement the measures into national law, which means English law will need to change before the end of 2013. Businesses in the energy sector, particularly those with an online presence, will need to note the upcoming changes and keep an eye on upcoming developments as to how the Directive will be implemented into UK law.

Click here for the approved Directive

The previous rules

The previous rules on EU consumer protection result from four EU Directives - Unfair Contract Terms, Sale for Consumer Goods and associated guarantees, Distance Selling and Doorstep Selling. These directives contain certain minimum requirements which the 27 Member States have adopted in an ad hoc and inconsistent manner, which has led to an unsatisfactory position for both business and consumers. The  Consumer Rights Directive aims to simplify elements of the existing EU consumer rights directives into one set of rules. The key impacts of this change is greater consistency in consumer law across the European Union and greater protection provided to consumers.

The new Directive

The new Consumer Rights Directive covers contracts for sales of goods and services from business-to-consumer. Generally all contracts are covered, i.e. purchases made in a shop, at a distance or away from business premises. The Directive aims to ensure that consumers, wherever they shop in the EU, will have clear information on price, additional charges and fees before they sign a contract. It will also aim to strengthen consumer protection against late/non delivery, as well as setting out  EU-wide consumer rights on issues from cooling off periods, returns, refunds, repairs and guarantees and unfair contract terms. The Directive targets e-commerce as part of a wide ranging overhaul of existing EU consumer rights in cyber space and on the high street. There is a clear requirement in the Directive for clear information about consumer rights to be displayed at point of sale. Please note that the Directive does not cover financial services (Article 3(3)), eg services of a banking, credit, insurance, personal pension, investment or payment nature, sold at a distance. These are covered by the Distance Marketing Directive.

The key provisions of the Directive are as follows:

  • Cooling off periods (distance sales, e.g. Internet sales, mobile phone, catalogue sales and doorstep sales to energy customers): A cooling off period of 14 calendar days when consumers can change their mind. This is a key change from the doorstep and distance selling laws which previously provided for a 7 day period. The Directive also introduces an EU-wide model form for withdrawing from a sales contract.
  • Pressure Selling: Protection against pressure selling – all direct sales transactions negotiated away from business premises are now covered, not just doorstep sales.
  • Tick Boxes: Ban on "pre-ticked" boxes on websites. Consumers can no longer be required to "untick" boxes to avoid extra services when shopping online. The European Commission cited the example of buying an airline ticket on a website which may also offer extras such as travel insurance or car rental. Under the new rules, online traders must disclose the total cost of the product or service, as well as any extra fees  and customers will be exempt from any costs of which they were not "properly informed" before they placed an order.
  • Credit/Debit Card Charges: When a given means of payment is used (such as a credit card), traders will be prohibited from charging consumers fees that exceed the cost borne by the trader for the use of such means, and, before the consumer is bound, the trader will have to seek the express consent of the consumer to any additional payment.
  • Pre-contractual information. The Directive obliges the trader to provide the consumer with a clear set of information requirements (e.g. the main characteristics of the product, geographical address and identity of the trader, the price inclusive of taxes, all additional freight, delivery or postal charges,) for all consumer contracts to help the consumer make an informed choice.
  • Rules on delivery and passing of risk to the consumer: There will be a maximum of 30 calendar days for the trader to deliver the goods to the consumer from signing the contract under the Directive which includes the time of formation of online contracts. The trader bears the risk and cost of deterioration or loss of the goods until the moment the consumer receives the goods. For late or non delivery, the consumer will have a right to a refund as soon as possible and no later than 7 days from the date of delivery.
  • Repairs, replacement, guarantees. To provide consumers with more certainty there will be a standard set of remedies available to all consumers who have bought a faulty product (i.e. repair or replacement in the first place, followed by the reduction of the price or the reimbursement of money). Previously this was an issue for global businesses as there are different national laws across the 27 jurisdictions in this area.
  • Unfair Contract Terms: a new black list of unfair contract terms which are prohibited across the EU in all cases and an EU wide grey list of contract terms deemed to be unfair if the trader does not prove the contrary. This is a significant change to the present regime of unfair contract terms that is used in the UK.
  • Digital Content: Information on digital content will have to be clearer at the point of sale, including about its compatibility with hardware and software and the application of any technical protection measures, for example limiting the right for the consumers to make copies of the content. This will apply to purchases of digital content, like video or music downloads. However, consumers can only back out up until the downloading process actually starts.
  • Online sales: Under the Directive, customers who make their purchases online will have the right to refuse to pay for the transaction if they weren't appropriately informed of the prices before the purchase.
  • Online auctions: the Directive requires auctions, including e-auction sites like e-bay, to meet the standard information obligations.

Even more changes are to be made to UK Consumer Law

In light of the expected approval of the Directive, plans were announced recently by the Government Consumer Minister Edward Davey to merge all existing UK consumer protection laws and regulations, together with the requirements of the finalised Consumer Rights Directive, into a single new 'Consumer Bill of Rights'. In the UK there are 12 existing laws and regulations relating to consumer protection in the UK which the Government said is "complex and confusing" and bad for both consumers and business.

The proposed Bill will update and clarify the law for:

  • Goods and services
  • Digital content
  • Unfair contract terms
  • Consumer rights (in particular misleading sales practices)

The Bill intends to repeal and replace a number of pieces of legislation, including the Consumer Protection (Distance Selling) Regulations 2000 and the Unfair Terms in Consumer Contracts Regulations 1999.  It also intends to repeal or substantially amend the consumer law aspects of the following statutes, leaving intact those parts that apply to business to business transactions:

  • Misrepresentation Act 1967
  • Sale of Goods Act 1979
  • Sale and Supply of Goods and Services Act 1994
  • Supply of Goods (Implied Terms) Act 1973
  • Unfair Contract Terms Act 1977

Impact on the Energy sector

Article 3 of the Directive specifically states that it will "apply to contracts for the supply of water, gas, electricity or district heating, including by public providers, to the extent that these commodities are provided on a contractual basis." The Directive will also by implication require changes in the laws that apply to prospective Green Deal providers where they deal directly with the consumer / householder.  As businesses supplying to consumers seek further to exploit e-commerce channels to boost sales, close attention will need to be paid to the upcoming changes. Consideration must be given to the extension of the "cooling-off" period to 14 days where the energy provider adopts doorstep sales processes with consumers. Many of the changes to be implemented won't come as too much of a shock to those with well established consumer facing operations,  although businesses should take the opportunity to review their sales practices, both online and offline, to ensure that they will be compliant when the new legislation comes into force.  Particular focus will need to be made to the sales processes and strategies applied to signing new customers up to the energy provider.

The Department for Business Innovation and Skills intends to consult on the Bill in late 2011/early 2012 and we will update you with any developments in due course.

Matthew Gough, head of Eversheds' Consumer Law Group, commented: "These are revolutionary changes, and whilst they are primarily designed to protect the consumer, they will also provide our international clients with greater certainty.  We are constantly being told by businesses that  a key issue for them operating in the consumer field in Europe is the myriad of 27 different laws, which can create a barrier to cross-border trade. We feel that under the new Directive our clients will enjoy far greater clarity in their consumer operations, but will need to be aware of each consumer's stronger position".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.