It’s been 18 months since regulation of the consumer credit industry was transferred to the Financial Conduct Authority (FCA) and almost two years since the FCA issued its press release setting out how it intended to deal with the industry. At the outset, one of the FCA’s aims was to "provide stronger protection and better outcomes for consumers".
We’ve already seen numerous measures introduced by the FCA to help safeguard consumers. There are rules and guidelines for dealing with vulnerable customers, assessing creditworthiness and how to treat customers in arrears, to name just a few examples.
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It would be fair to say that there’s been a lot of pressure on the consumer credit industry as a result of the FCA establishing itself as the regulator.
While many firms already maintained excellent standards complying with the FCA’s principles and objectives, they were not always documented in formal policies. This has meant a great deal of time and expense has been incurred by firms in order to comply with the FCA’s additional requirements just to remain in business.
The consumer credit industry faces more change when, on 1 October 2015, the Consumer Rights Act comes into force. Clearly, this is intended to be another move towards helping consumers, making the law in this area more transparent and easier for consumers to understand.
The Act brings together three existing pieces of legislation which are key to consumer rights and remedies – the Sale of Goods Act, the Supply of Goods and Services Act and the Unfair Terms in Consumer Contracts Regulations. The Act reinforces that goods which are either supplied or sold must be of satisfactory quality, fit for purpose and as described.
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By GlobalDataIn common with the Sale of Goods Act and the Supply of Goods and Services Act, the Act sets out the factors to be considered when determining if goods are of a satisfactory quality; how to assess the quality of goods; the fact that they must be reasonably fit for purpose and must match their description.
The Act also sets out the three remedies available to a consumer depending on the time that has elapsed since taking possession of the goods. They are described as:
1. The short-term right to reject;
2. The right to repair or replacement; and
3. The right to a price reduction or the final right to rejection.
The short-term right to reject is exactly what it says it is – the consumer is afforded a 30-day window within which to reject the goods (except in cases where the goods are perishable items). The consumer can claim a full refund and be released from any further obligations under the contract.
The right to repair or replacement will come into play if the consumer has lost his short-term right to reject or simply chosen not to reject the goods. The repair or replacement must be carried out within a reasonable time frame at no cost to the consumer and without causing significant inconvenience. For the motor industry, a good approach to this would be to collect the vehicle from the consumer and to provide him or her with a courtesy car for the period during which any repairs are being carried out.
The right to a price reduction or the final right to rejection is available to consumers where the right to repair or replacement is not appropriate, the repair or replacement has been unsuccessful or it has taken more than a reasonable amount of time and has caused the consumer significant inconvenience. If the consumer decides to keep the goods, his or her remedy will be a reduction in the price. This price reduction or refund must be appropriate but could be anything up to the full amount due or paid. If the consumer seeks to reject the goods, there is an entitlement to a refund – with a reduction applied for usage. Significantly, there’s no usage reduction if the goods are rejected within the first six months – except in the case of motor vehicles. While the motor vehicle exclusion seems an obvious exception, its specific distinction will no doubt be a relief for the industry.
In addition to the remedies above, under the Act the consumer can also bring a claim for compensation for losses suffered.
Another key provision in the Act relates to unfair contract terms and the need for greater clarity in consumer contracts. Prior to the Act, the main provisions of the contract (including price and charges) were required to be ‘legible’. The Act improves on this, requiring that main provisions must now be brought to the consumer’s attention through transparency and prominence. One important point is that a contractual term will be considered unfair if, "contrary to the requirements of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer".
What amounts to an unfair contract term can be an area of mystery for many people, but the Act provides welcome clarification. It helpfully includes a schedule setting out a list of non-exhaustive terms that may be considered unfair, including:
A term which requires consumer to fulfil all of his or her obligations where the supplier has not performed his or her obligations;
Disproportionately high charges when a consumer cancels a contract; and
Giving the supplier the power to vary the price when the consumer has already agreed to be bound.
At first sight, the Act appears to be yet further regulation on an already heavily regulated industry. On closer inspection though, it’s clear that there’s some new ground covered (a key issue, though not appropriate to cover in this article, is digital content) and updating the consumer framework where some of the relevant legislation is nearly 40 years old.
Primarily, the Act appears to be consolidating a number of existing pieces of legislation so that they are codified in one place. It provides a welcome one-stop-shop to consumers on their rights and remedies and the industry needs to make sure it is ready so as not to fall foul of the provisions of the Act which could lead to further action from the FCA.
Katherine Clark is a solicitor at Weightmans
