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Consumer Rights Act 2015: What has changed?

17/09/2015

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United Kingdom

The main provisions of the Consumer Rights Act come into force on 1 October 2015 but what exactly has changed and what should businesses be doing to comply?

The Consumer Rights Act 2015 (the "CRA”) has been billed as the biggest overhaul of consumer rights in a generation.  It is designed to bring together, improve and update UK consumer law and its main provisions will come into force on 1 October 2015.  But what are the main changes and how should businesses selling to consumers prepare for the CRA's implementation?

Overview of the Act

The CRA is split into three parts:

  • Part 1 clarifies the standards that consumers can expect when purchasing goods, services and digital content and the remedies that are available to them when those standards are not met;
  • Part 2 consolidates and updates UK laws on when contract terms and notices can be considered unfair to consumers and therefore unenforceable; and
  • Part 3 contains miscellaneous provisions relating to areas such as regulator enforcement powers, private actions in competition law, letting agent fees, secondary ticketing websites and a student complaints scheme.

This article will focus on the changes introduced by Parts 1 and 2 of the CRA, which will replace either wholly or in part a number of existing statutes that impact on the area of consumer law, including the Sale of Goods Act 1979, the Sale and Supply of Goods to Consumers Regulations 2002, the Supply of Goods and Services Act 1982, the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999.

Importantly, the CRA only applies to contracts between a trader and a consumer.  A trader is defined in the CRA as somebody acting for purposes relating to that person's trade, business, craft or profession whether personally or through another person acting on their behalf.  A consumer is deemed to be somebody acting for purposes wholly or mainly outside of their trade, business, craft or profession.  As such, business-to-business ("B2B") contracts are not caught by the CRA. 

Goods

All supplies of goods to consumers are covered by the CRA (e.g. sale, hire, hire-purchase).  Whilst in general the same rules apply irrespective of the type of transaction, there are a small number of differences in the detail of the rules depending on the nature of the supply.  This article will focus on the rules as they apply to contracts of sale as it is this type of transaction that will be most relevant for the majority of consumer-facing businesses. 

The standards consumers can expect in relation to goods largely reflect those contained in the Sale of Goods Act 1979 ("SGA"), including that the goods will be of satisfactory quality, be fit for purpose and match their description.  However, there are some minor additions:

  • Where goods are supplied by reference to a model seen or examined by a consumer before they enter into a contract (e.g. a car on a showroom floor or a TV in a department store) the goods must match the model, unless the relevant differences are brought to the consumer’s attention before they enter into the contract.  This is similar to the longstanding rule on sale by sample that appears in the SGA and is now reflected in the CRA.
  • Where a trader agrees to install the goods they are supplying, or arrange for them to be installed, that installation must be done correctly.

Undoubtedly, the main impact of the CRA in relation to the supply of goods will be as a result of the new three-tier remedy structure that will usually apply when a trader breaches the standards contained in the Act.  This replaces the current two-tier system available under the Sale and Supply of Goods to Consumers Regulations 2002 ("SSGCRs").

The three-tier structure generally operates as follows:

1.   Short term right to reject

This is a brand new statutory remedy which is available within the first thirty (30) days of the goods being supplied, unless the expected life of the goods is shorter (e.g. in the case of highly perishable goods).  The consumer is entitled to treat the contract as at an end and receive a refund, but must make the goods available for collection by the trader.  The trader is normally responsible for the cost of collecting the goods from the consumer, unless the contract requires the consumer to return the goods to the place where they took possession of them, or the consumer takes the goods there voluntarily.  The short term right to reject does not apply where the only breach relates to incorrect installation.

2.   Right to repair or replacement

This remedy already exists under the SSGCRs.  The trader must provide the repair or replacement within a reasonable time, without causing significant inconvenience to the consumer and at no cost to the consumer.  Note that the consumer cannot choose a replacement over a repair or vice versa if the chosen remedy is disproportionate compared to the other remedy. If the consumer requests a repair or replacement within the first thirty (30) days of the goods being supplied then the short term right to reject is paused.  On provision of the repaired or replaced goods the consumer has either the remainder of the thirty (30) day period or seven (7) days, whichever is the longer, in which to reject the goods if they still do not conform to the contract.  Unlike the SSGCRs, the CRA and associated guidance have clarified that the consumer only has to accept one repair or replacement.  If the goods still do not meet the consumer's rights, whether because the original issue persists or a new one has arisen, the consumer can exercise their right to a price reduction or final right to reject (see below).

3.   Right to a price reduction or final right to reject

This remedy also already exists under the SSGCRs and is available where a repair or replacement is unsuccessful, impossible or not provided within a reasonable timeframe or without significant inconvenience to the consumer.  Essentially, the consumer chooses either to keep the goods and claim a reduction in price or return them and claim a refund.  The reduction in price must be an appropriate amount taking into account all of the circumstances and can usually take into account any use that the consumer has had from the goods.  However, no deduction for use can be made where the goods are rejected within six (6) months of supply except in the case of motor vehicles.

In the case that the trader breaches the requirement that it has the right to supply the goods, a longstanding requirement under the SGA that has been imported into the CRA, the consumer is entitled to reject the goods for a full refund.

It is worth bearing in mind that the statutory remedies in the CRA (whether relating to goods, services or digital content) do not prevent the consumer from seeking other remedies, such as suing for breach of contract, but there can be no double recovery.

Digital Content

The CRA introduces a new regime specifically for digital content – defined as data which is produced and supplied in digital form – and offers some welcome clarity as previously it was often unclear as to whether digital content should be categorised as goods or services in certain contexts.

Digital content will often be supplied in tangible form (e.g. music on a CD), but is increasingly being provided in intangible form (e.g. an mp3 music download).  It can even include virtual goods in computer games where they have either been bought with real money or with virtual currency that the consumer has paid real money to obtain.  The CRA also makes it clear that digital content can be provided for a one-off payment or ongoing subscription.

The standards which apply to digital content, which are clearly inspired by the goods standards, are that it must be of satisfactory quality, fit for purpose and as described.  A two-tier statutory remedy structure has been introduced in the event that those standards are breached:

1.   Right to a repair or replacement

As with the goods provisions, the trader must provide the repair or replacement within a reasonable time, without causing significant inconvenience to the consumer and at no cost to the consumer.  Again, the consumer cannot choose a replacement over a repair or vice versa if the chosen remedy is disproportionate compared to the other remedy.  However, unlike with goods, there is no cap on the number of repairs or replacements that the trader can provide before the consumer is entitled to a price reduction (see below).

2.   Right to a price reduction

This remedy is only triggered if repair or replacement is impossible or not provided within a reasonable timeframe or without significant inconvenience to the consumer.  The reduction in price must be an appropriate amount taking into account all of the circumstances and can be anything up to the whole price paid.

The above rights and remedies will not apply where digital content is genuinely being supplied for free.  However, the CRA does include a special right for consumers to receive either a repair or compensation where digital content supplied under a contract (whether free or paid-for) causes damage to a device or other digital content they own that would not have occurred if the trader had exercised reasonable care and skill.  It is also worth noting that digital content will not be considered free where it is: (a) supplied with goods, services or other digital content for which the consumer pays a price; and (b) not generally available to consumers unless they have paid a price for it or for goods, services or other digital content.

The CRA also imposes a term that the trader has the right to provide the digital content.  In the event that this term is breached the consumer is usually entitled to a full refund unless only some of the digital content supplied is affected (e.g. certain tracks on a music streaming service).

In the event that the digital content is provided in tangible form (e.g. music on a CD) then it will be subject to the digital content standards.  However, traders should be aware that if those standards are not met then the consumer can avail themselves of the statutory remedies relating to goods under the CRA.  This is important as the goods remedies are more favourable, particularly as they offer the option of the short-term right to reject.

Services

When it comes to the provision of services, the CRA largely reflects the relevant provisions of the Supply of Goods and Services Act 1982.  Services must be carried out with reasonable care and skill, which in effect means a trader must work to the same standard as any reasonably competent person in that trade.  If a price has not been agreed, the service must be completed for a reasonable price.  Similarly, if a timescale has not been agreed, the service must be carried out within a reasonable timeframe.

However, the CRA also introduces a new provision under which the trader is contractually liable for any statements it makes, whether about the service or the trader, that are taken into account by the consumer when deciding whether to enter into the contract or when making any decision about the service after entering into the contract.

The CRA also establishes a new two-tier statutory remedy system which applies when the services standards are breached:

1.   Repeat performance

This remedy is available where the trader fails to exercise reasonable care and skill or has not complied with information they have given about the service and requires the trader to repeat the service to the extent required to complete it properly.  The work must be done within a reasonable time, without causing significant inconvenience to the consumer and at no cost to the consumer.

2.   Price reduction

A price reduction can be claimed where repeat performance is impossible or cannot be done within a reasonable time or without significant inconvenience to the consumer. It is also available if the service is not performed within a reasonable time or in line with information given about the trader.  The amount of the price reduction will depend on the seriousness of the breach and can be anything up to the whole price paid.

Interaction with the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 ("CCRs")

Traders should note that the pre-contractual information that the trader must supply to the consumer under the CCRs is expressly included as terms of the contract between the trader and consumer under both the CCRs and now the CRA.  This applies regardless of whether the contract is for goods, services or digital content. 

The statutory remedy for breach of these terms under the CRA is usually a right to recover costs incurred as a result, up to the whole price paid.  There are exceptions for information which describes the main characteristics of goods or digital content, or the functionality and compatibility of digital content, breach of which would entitle the consumer to pursue the tiered remedies set out in the relevant sections above.  This is because compliance with description is a core standard for both goods and digital content.

Another point to note is that the provisions in the CCRs regarding delivery and transfer of risk under sale of goods contracts have been transferred to the CRA, on the basis that the CRA seemed like a more logical home for them now.

Unfair contractual terms

The CRA merges the various rules under the Unfair Contract Terms Act 1977 ("UCTA") and the Unfair Terms in Consumer Contracts Regulations 1999 (the "UTCCRs") which give consumers protection against contractual wording that could be used to give traders an unfair advantage. Whilst much of the law remains the same, the CRA has also introduced some limited changes.

Unlike the UTCCRs, but broadly in line with UCTA, the CRA applies to notices as well as terms, blacklists certain terms and notices (e.g. those that try to restrict certain rights guaranteed under the CRA) and covers both negotiated and non-negotiated terms.

A requirement of prominence has been added to the main exemption in the UTCCRs relating to price setting and main subject matter terms.  The exemption allows such terms to escape from the usual fairness test, which has been imported from the UTCCRs.  A term is unfair if "contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer".

The "Grey List" of terms that may be unfair that is provided in the UTCCRs has three new additions and appears in Schedule 2 of the CRA.  The three new additions to the Grey List are terms which have the object or effect of: (a) allowing disproportionate charges or requiring the consumer to pay for services which have not been supplied, if the consumer ends the contract; (b) allowing the trader to decide the characteristics of the subject matter of the contract after the consumer is bound; and/or (c) allowing the trader discretion to set the price after the consumer is bound, where no price or method of determining the price is agreed when the consumer is bound.

There are certain aspects of EU legislation or case law that are now made more explicit via inclusion in the CRA.  For example, the CRA sets out that the courts must consider the fairness of terms in consumer contracts even where the parties to a case do not raise it as an issue, so long as the court has sufficient information to allow it to do so.

What should businesses do?

In order to prepare for the implementation of the CRA, most consumer-facing businesses should be:

  • reviewing their standard terms and conditions of sale, including those provided on retail websites and mobile apps, for compliance with the CRA;
  • examining the provisions of any other sales contracts they enter into with consumers;
  • evaluating contracts and arrangements with suppliers and distributors to ensure that the consumer rights and remedies provided for in the CRA will be observed and accommodated and that there are no potential liability gaps;
  • updating statutory references in all relevant documentation;
  • reviewing pre-contractual information that is supplied to consumers, including notices, advertisements and announcements;
  • updating cancellation, returns and complaints handling policies; and
  • training relevant staff on the new consumer rights and remedies.

Businesses with queries about the Consumer Rights Act or that require assistance with any of the tasks outlined above are welcome to get in touch using the contact details provided.

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