Consumer Law in England and Wales - Article Example

The evolution of the Internet and online growth has facilitated novel business opportunities through the ad hoc evolution of electronic commerce, thereby creating a new business model (Reed, 2004). Directly correlated to the internet business model is the EU driven wave of legislative proposals geared towards consumer protection to address the challenges of the digital trading medium, which has directly impacted consumer law in England and Wales. The focus of this analysis is to critically evaluate the impact of European legislation on consumer law in England and Wales. It is submitted at the outset that the nature of consumer driven measures from the EU has been multifarious addressing issues such as consumer credit, defective products and food labelling safety on one side of the spectrum to electronic commerce and contractual rights on the other. Accordingly, in this paper I shall adopt a focused approach and particularly consider the e-commerce driven consumer measures and their concomitant impact on consumer law in England and Wales. The rapid pace of online business activity has fuelled piecemeal responsive legislative measures in an attempt to balance the interests and protection of consumers whilst simultaneously facilitating market growth. It is submitted at the outset, that ad hoc responsive EU legislative measures have been insufficient to cover the multifarious consumer transactions covered by the "e-commerce" umbrella. Moreover, the underlying weakness in such measures has been the fact that effective online business is clearly dependent on effective consumer protection as opposed to being mutually exclusive. If we consider this contextually, within England and Wales the primary issue impacting consumer protection under the e-commerce paradigm has been effective consumer protection vis-'-vis optimum market facilitation. Lloyd comments that traditional business models cite "location, location, location" as the critical factor for commercial success, however within the e-commerce paradigm, issues of location in the physical sense are not relevant (Lloyd, 2004). As such, the concept of "location" has created an internal paradox within this new business model, resulting from the evolution of novel legal issues, where "location returns very much to the forefront" (Lloyd, 2004). Additionally, in order to commercially exploit the new e-commerce business model, the key to growing a successful online business is to ensure compliance with legal requirements regarding the selling of goods and services to consumers, work with reliable internet service providers and programmers and utilise effective marketing tools to promote business (Alexiou, 2002). As such, the central consumer protection legal issues raised by this are as follows: 1) The use of online terms and conditions - Standard commercial agreements need to consider the protection against unfair commercial practices and unfair contract terms (Singleton, 2003). Moreover, consumer contracting on online terms and conditions raises jurisdiction and applicable law issues; and 2) Data protection compliance needs to be addressed both in respect of collecting information on online users, selling customer lists and monitoring e-mail and viral marketing. Businesses must be registered with the Information Commissioner for processing and implement an online privacy policy and marketing and detailed internal policies on employee monitoring (Smith, 2001). Furthermore, the e-commerce business model involves the provision of goods and services online in the course of business to consumers at a distance and as such, raises issues as to applicable law and enforceability, which is further compounded by borderless frontiers in enforcement (Smith, 2001). The global nature of transacting online has fuelled a number of international e-commerce initiatives (Lloyd 2004). However, the rhetoric of these proposed models focus solely on the regulatory aspect of e-commerce, which is arguably one element of wider issues raised by e-commerce from a consumer perspective (Todd, 2005). Indeed, the European Commission communication entitled "A European Initiative in Electronic Commerce" in 1997 highlighted the need to consider general principles in online commerce such as data protection, electronic payments and privacy (COM (97) 157). The main EU initiatives geared towards consumer protection have been the Distance Selling Directive (Directive 97/7/EC), Electronic Commerce Directive (Directive 2000/31/EC) and the E-Money Directive 2001, which applies to e-money institutions and was implemented in the form of the Financial Services and Markets Act 2002. Under UK law, in addition to complying with the standard implied warranties under the Sale of Goods Act 1979 provisions, online business providers' terms and conditions must also comply with the provisions of the Electronic Commerce (EC Directive) Regulations 2002 ("the Regulations") and the Consumer Protection (Distance Selling) Regulations 2000 ("The DS Regulations") (available at www.opsi.gov.uk). These both implement the Electronic Commerce Directive and Distance Selling Directive respectively. If we consider the DS Regulations, the market for distance selling online has proliferated at a staggering rate in order to increase customer base and grow business profits. As such it has been argued that "one of the most important European legal instruments is the Directive on "the protection of consumers in respect of distance contracts" (Lloyd, 2004). Whilst the DS Regulations apply to all forms of distance selling it is cited as being important in including provisions specifically addressing e-commerce (Lodder et al, 2002). The DS Regulations further define a distance contract as "any contract concerning goods or services concluded between a supplier and a consumer under an organised distance sales or service provision scheme run by the supplier" (Regulation 3(1)). The provisions of the DS Regulations come into play at the point of advertising online in an attempt to seek consumer solicitation online based on the information requirements (Lodder et al, 2002). As such, the DS Regulations are drafted in a way intended to ensure consumer protection through the provision of clear information online. Moreover, the information requirements are cited as the cornerstone of consumer protection in the DS Regulations (Lodder et al, 2002). For example, when contracts are concluded there are detailed information requirements that must be provided to a consumer online particularly relating to the identity of the supplier, cost and delivery arrangements (Regulation 7(1)). Additionally, customers must also be notified of their cancellation rights and a cooling off period seven days before they buy any goods or services online (Regulations 7-12). Details must also be given of any after-sales guarantees in relation to the goods or services being provided and an address to which complaints can be issued (Regulation 8). Whilst the objective of the DS Regulations was to create transparency in online contracting, the primary deficiency is lack of substantial levels of sanctions for non-compliance with the recommendations in relation to the obligations and liabilities of the parties to the contract (Chissick & Kelman, 2002). Furthermore, in practice it has been observed that many card issuers have not complied with the procedure in the DS Regulations regarding theft, liability for notification and information, which is further compounded by the burden of proof on the consumer to proof the same (Singleton, 2006). Moreover, consumer confidence is further knocked by the lack of effective dispute resolution. On the other hand, it is argued that the E-money Directive brought to a greater extent the desired result intended in the Regulations and "put and end to the dichotomy between the financial and non-financial regarding supervisions, redeemability, capital requirements and investments" (Bohm et al, 2000), which is undoubtedly a step towards enhancing consumer confidence in e-payments and e-commerce (Bohm et al, 2000). However, as Alexiou observes, there are "grey areas" in this E-Money Directive (Alexiou, 2004). For example, the scope of organisations and value of transactions which fall within the Directive's provisions appear to be limited. For example, paragraph IV of the definition in the Directive provides that e-money may "be issued on receipt of funds on an amount not less in value than the monetary value issued." As such, it is questionable whether large value payments fall within the ambit of the Directive which would suggest that comments hailing the Directive as an effective compromise between business and consumer interests online are premature (Alexiou, 2002). Indeed, in order to address the issues of consumer protection, the European Commission published proposals in October 2008 for the revision of the E-Money Directive to reconcile the E-Money Directive provisions with the Payment Services Directive that was agreed in 2007. The consultation period is currently being undertaken (www.hm-treasury.gov.uk) Alternatively, the 2002 Regulations attempt to bolster consumer protection whilst clarifying problematic issues such as ISP liability and choice of law in online contracts. Similar to the Regulations, the focus of the consumer protection provisions in the Electronic Commerce Regulations is based on detailed information provisions (Singleton, 2003). Firstly, the Regulations have imposed additional administrative requirements on UK businesses and address the issue of jurisdiction and provide that UK established service providers must comply with UK law even if the recipients are not based in the UK. Additionally, in order to comply with the Regulations, businesses have to provide online users with the following information: 1. The Company name, country and address; 2. Contact details; 3. If registered for VAT, the VAT number must be stated; and 4. If registered with any trade registers then, details of where the register can be accessed must also be on the website (Regulation 6, 7 and 9). UK Businesses are also required to provide the following information to consumers before they enter into any contract: 1. Description of technical steps to conclude online contract; 2. Technical means to enable end users to correct any inputting errors; and 3. Languages in which the contract must be concluded (Regulation 9). As businesses will invariably collect personal information about consumers when they purchase the products, this constitutes "processing" for the purposes of the Data Protection Act 1998 (DPA), which was another piece of UK legislation implementing an EU Directive in the form of Directive 95/46/EC on the Protection of Individuals with regard to the Processing of data. Accordingly, online businesses must be registered with the Information Commissioner for data processing and there must be a section on the trading medium website notifying customers that personal information is being collected and the purpose for which it is being collected (DPA 1998). These legal requirements are further compounded by the technological machinations of the digital arena with the use of cookies, hyperlinks and metatags, which are vital to online marketing strategies, yet raise privacy issues. For example, "cookies" are a vital tool in monitoring user preferences when purchasing goods and services, however they constitute use of private data and the DPA requires businesses to inform users of this and give users an option to opt-out of this. The sale and purchase of customer lists again raises data protection issues. Businesses must be registered for this and ensure consents are obtained from customers to the release of this information to other traders (Schedule 1 of the DPA 1998). Moreover, as the central purpose of acquiring the customer lists is for marketing, however, there are strict legal obligations to comply with when marketing requiring companies to incur costs in training the marketing department on this and monitor compliance when sending out marketing communications as the DPA, Electronic Commerce Regulations, DS Regulations and Privacy and Electronic Communications Regulations set out clear requirements in relation to permissible marketing techniques (Lloyd, 2004). As such, the contemporary method of consumer marketing raises data protection issues in relation to unsolicited marketing emails (Singleton, 2006). The Regulations affect anyone involved in the processing of personal data over publicly available electronic communication services and therefore impact UK businesses where compliance is imperative (Singleton, 2006). Furthermore, the Regulations require providers of electronic communication services to make both technical and organisational measures to safeguard security. It is unclear what level of security is required and relevant factors to be taken into account are risk assessment and the cost of implementation (Singleton, 2006). Accordingly, a service provider who uses standard technology available at the time to prevent unauthorised access may satisfy the criteria (Singleton, 2006). Additionally, if a particular risk security breach arises, service providers will be required to inform online consumer users. With regard to the problem of SPAM emails, in summary, explicit prior consent to SPAM is required and therefore an opt-out register is not sufficient for compliance (Singleton, 2006). However, the rules are more relaxed in respect of marketing to existing customers. In order to aid compliance, it is advisable for companies to include a specific direct marketing consent box in their online terms and conditions and website order forms (Lloyd, 2004). As stated above, a vital marketing tool for online businesses in e-commerce are cookies. Cookies are small packets of data that track online user activity and can act as a useful marketing tool in identifying consumer preferences. The Regulations opted for a compromise on the controversial debate over this issue by permitting their use subject to specific mechanisms to prevent abuse (Lloyd, 2004). Online consumers must be made aware that cookies are being used; the purpose for which they are being used and be given the right to refuse. Overall, whilst the Regulations are clearly a welcome measure in seeking to acknowledge consumer protection and issues as to applicable law, these Regulations still fail to implement effective enforcement measures, compounded by the inherent difficulty of regulating borderless frontiers (Singleton, 2006). The EU sought to redress this imbalance which led to the implementation of the Stop Now Orders (EC Directive) Regulations in 2002. These enable local authorities and industry regulators such as OFTEL to apply for orders known as "Stop Now" orders against traders in breach of consumer protection regulations. However, it is argued that this has resulted in another example of form over substance as many online traders appear to view such stop orders as a necessary business cost and ignore them as an incentive to change online business conduct (Martin & Turner, 2005). Additionally, the measures implemented to address consumer protection online ignore the fact that consumer activity is not merely limited to business to consumer transactions (B2C) (Smith, 2001). A prime example is the proliferation of online auction sites such as Ebay, which has highlighted the need "for systems which allow the transfer of value between consumers, rather, than only between consumers and business" (Alexiou, 2002). These new online models for consumer purchase also raise novel issues as to liability. Whilst Ebay can remove online auctioneers for misconduct and breach of its terms and conditions, Ebay's liability to the end user is excluded in respect of rogue traders online and as such, exposes a consumer who would be protected under the Regulations in a B2C transaction. This is further compounded by the increasing risk of fraud caused by online commerce, which is "one of the most pertinent risks in the online marketplace that inhibits consumer's confidence in electronic commerce", due to the inherent risk of financial loss due to fraudulent credit card transactions (Martin & Turner, 2005). Moreover, notwithstanding the Unfair Terms in Consumer Contracts Regulations 1999, which protect the consumer from being bound by terms which are unfair, the term "unfair" is defined as any contractual term "which has not been individually negotiated and is contrary to the requirements of good faith" and as such, causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of the consumer. However, this again suffers from the same problem of indifference and difficulty of effective sanction for failure to comply. The unequal bargaining power online effectively forces a customer to accept online terms and conditions and they are unlikely to have the funds or inclination to bring a claim for failure to comply with the Unfair Terms in Consumer Contracts Regulations (Martin & Turner, 2005). Alternatively, the Consumer Protection from Unfair Trading Regulations 2008 came into force in 2008 implementing the EC Unfair Commercial Practices Directive with the aim of protecting consumers from unfair, misleading or aggressive marketing practices. In particular, these Regulations address some of the previous loopholes and prohibit false advertising in social media site, fake blogs, and pretending a blogger is consumer. It remains to be seen how these Regulations will impact consumer protection measures in practice, however the same problems of unequal bargaining power are likely. Accordingly, effective alternatives need to be considered to develop the relatively new Internet business model, which are broad in scope as opposed to focusing on piecemeal consumer protection legislation. Once such alternative, which could operate in parallel to existing consumer geared legislation is the implementation of industry self regulating codes of conduct and guidelines facilitating effective dispute resolution. It is submitted that a drive towards self regulation would go further in addressing global issues faced by businesses in e-commerce whilst working in conjunction with consumer representative bodies to facilitate effective protection of consumer objectives (Lloyd, 2004). BIBLIOGRAPHY M Alexiou (2002). Enhancing Consumer Confidence in Electronic Commerce: Consumer Protection in Electronic Payments. Available at www.bileta.ac.uk Baird., Z., (2002). Governing the Internet. Foreign Affairs. Volume 81(6). 15 Batalia E., J., (2001). Electronic Commerce: Online Payments. 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Council Directive 2002/38 EC 2002 UK Legislation Data Protection Act 1998 Unfair Terms in Consumer Contracts Regulations 1999 Consumer Protection (Distance Selling) Regulations 2000 Stop Now Orders (EC Directive) Regulations 2002 Electronic Commerce (EC Directive) Regulations 2002 Consumer Protection from Unfair Trading Regulations 2008 Reports European Commission Communication to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions. COM (97) 157: "A European Initiative in Electronic Commerce". Available at www.europe.eu.int Read More