The Consumer Rights Act 2015 (CRA) came into force on 1 October 2015, and will apply to contracts made between businesses and consumers. Greg Standing reviews the key changes that are likely to have the most impact upon the automotive and asset finance industries.

For the most part, the CRA aims to simplify and consolidate existing legislation but it also provides new rights and remedies to consumers in respect of faulty or mis-described goods, services and digital content which businesses need to be aware of.

Two key areas of change relevant to the automotive and asset finance industry are in relation to consumer remedies where goods supplied (including under a hire or hire-purchase contract) are not of satisfactory quality, not fit for purpose or not as described at the time of delivery, and unfair terms.

Some new definitions to be aware of

The CRA brings in some new definitions and in particular:

Consumer

The CRA defines consumers as individuals "acting for purposes wholly or mainly outside that individual's trade, business, craft or profession". This is a wider definition of consumer than previously in use and businesses should be aware that the definition may include individuals who enter into a contract for a mixture of business and personal reasons. The burden of proof in showing that an individual is not a consumer will be on the trader.

Trader

The term trader replaces the term seller used in the Sale of Goods Act 1979 (SGA). Trader is defined as "a person acting for purposes relating to that person's trade, business, craft or profession, whether acting personally or through another person acting in the trader's name or on the trader's behalf". This definition expressly clarifies that a trader's agent, whether acting in the trader's name or on its behalf, is liable for proper execution of the contract, rather than leaving the position to be implied.

Consumer remedies for non-conforming goods

In brief, from today (1 October 2015), consumers will have a tiered system of remedies if goods are not of satisfactory quality, not fit for purpose or not as described at the time of delivery. This includes two rights to reject - a short term right and a final right, as set out in Chapter 2 Part 1, sections 20 to 24 of the CRA. These rights are in addition to the consumer's common law remedies. The rights are:

  • A short term right to reject within the first 30 days and seek a full refund
  • The right to a free repair or free replacement - this applies both during and after the first 30 days, and
  • The final right to reject or the right to a price reduction after the first 30 days if the repair or replacement referred to above is ineffective or unavailable.

Points to note

  • The short term right to reject arises without the need for the consumer to first accept a repair or replacement. This will mean that, during that period and at the consumer's election, the consumer can reject without giving the retailer the opportunity to repair. This has obvious implications for dealers, suppliers and finance companies.
  • Where the consumer opts to seek a free repair or replacement within the 30 days following delivery, the early rejection period stops running until the repair or replacement is provided. The consumer has the remainder of the 30-day period, or seven days (whichever is longer) after repair has been attempted to exercise their short term right to reject if the goods are still not satisfactory, fit for purpose etc, either because of the same or a further issue.
  • The 30-day period can be extended by agreement between the trader and consumer but cannot be reduced. The short-term right to reject can only be lost by failing to exercise the right before the expiry of the 30 days (or longer period if so agreed).
  • After the short-term right to reject has expired, the right to a reduction in price or the final right to reject arises only after the trader has had one opportunity to repair or replace and that repair or replacement proves unsuccessful, is impossible to provide or cannot be provided within a reasonable time or without causing significant inconvenience to the consumer, or further faults appear after repair or replacement. Unfortunately, no definition of 'reasonable time' or 'significant inconvenience' has been provided in the CRA.
  • The consumer can agree to give the trader more than one opportunity to resolve the problem but the trader cannot insist on repeated attempts at repair or replacement.
  • Whenever exercising the right to reject, the consumer must make it clear to the trader that s/he is rejecting the goods and treating the contract as at an end. Rejection does not have to be in writing but must be made clear either by something the consumer says or does.
  • The burden of proving that the goods are non-conforming lies with the consumer when seeking to exercise the short term right to reject. Thereafter, if the issue with the goods occurs within six months from delivery there is a presumption that the goods failed to meet the requirements at delivery and the trader must show otherwise. After six months, the onus is reversed - the consumer must show the goods failed to meet the requirements when delivered.
  • It is for the consumer to choose repair or replacement but if that choice is impossible or disproportionately expensive to the trader, the consumer cannot insist on its choice but must accept the alternative remedy so long as it is equally effective and does not cause significant inconvenience.
  • When exercising the final right to reject within six months of receiving the goods, the refund will be in full, save, importantly for the automotive industry, where the item in question is a motor vehicle. Where that is the case a reduction for the actual use the consumer has had from it can be made. If rejection is more than six months after supply, a reduction for use can be made for all goods.
  • The CRA does not set out how the reduction for use in the refund is to be calculated. Although the deduction for use concept is intended to achieve a balance between the interests of traders and consumers, where motor vehicles are concerned, the reduction is unlikely to be the full diminution value of a new car that occurs once it leaves the showroom. It is envisaged that this area is one that is likely to lead to further disputes with disgruntled consumers.
  • Refunds (and price reductions) must be paid within 14 days after agreement is reached and must be made by the same means as the payment. In hire-purchase agreements or conditional sales contracts, if the contract is terminated before the whole price has been paid, the entitlement to a refund extends only to the part of the price paid. No fee can be charged for making the refund.
  • Consumers may enforce their right to a repair or replacement for up to six years from delivery if they can show the goods did not meet the statutory requirements at the time of delivery.

Delivery of goods

S28 CRA provides that goods are to be delivered at the agreed time or within the agreed period, or, in default of agreement without undue delay and in any event within 30 days of the contract.

If delivery is late, the consumer has the right to treat the contract as at an end in some cases or to set a new time for delivery. If that new date is missed, the consumer then has the right to treat the contract as at an end and receive a refund of all payments made without undue delay.

The right to terminate immediately following late delivery arises where the trader refused to deliver the goods or delivery by a certain time was made essential.

Under the SGA the only requirement was that delivery be within a reasonable time and there were no statutory remedies for breach. The position is much clearer under the CRA and traders therefore need to ensure that any slippage in delivery time is dealt with and a new agreement is put in place with the consumer.

Unfair terms

Part 2 of the CRA (s62) consolidates and replaces the Unfair Contract Terms Act 1977 (UCTA) in so far as it relates to business to consumer contracts and the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) in their entirety.

The aim of the changes is to afford protection to consumers and to ensure that consumers can make informed choices. It will apply to both negotiated and non-negotiated consumer contracts.

The requirement of fairness

The CRA requires consumer contract terms to be fair. A term will be unfair if, contrary to good faith requirements, it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer. The subject matter of the contract and all the circumstances existing when the term was agreed (including other terms in the contract) will be considered in determining whether a term is fair.

Importantly, the CRA extends the fairness test to consumer notices to the extent that such notices

  • relate to rights and obligations between a trader and a consumer
  • purport to exclude or restrict a trader's liability to a consumer.

Consumer notices do not have to be in writing but include any communication or announcement as long as it is reasonable to assume it is intended to be seen or heard by a consumer. The CRA applies to both contractual and non-contractual consumer notices.

If a term is found to be unfair it is not binding on the consumer although the consumer can still choose to rely on the term or notice. The contract will continue, so far as practicable, to have effect in every other respect. If a term could have different meanings, the meaning most favourable to the consumer will prevail.

The requirement of transparency

Any written terms in a consumer contract must be transparent i.e. legible and in plain and intelligible language. Ordinary language should be used in its ordinary sense and should be easily understood, not vague or misleading or refer to legal concepts that non-lawyers would not be familiar with.

All rights and duties should be set out in a clear and comprehensible manner so the consumer can see how the terms relate to each other and can evaluate the consequences of the contract s/he is entering into.

Exceptions

There are exceptions to the fairness test in relation to certain terms which

  • specify the main subject matter of the contract, or
  • relate to the price of the goods

so long as such a term is transparent (legible and in plain and intelligible language) and prominent.

To be prominent, the term has to be brought to the consumer's attention in such a way that an average consumer would be aware of it. An average consumer is one who is reasonably well informed, observant and circumspect.

The grey list of indicative unfair terms

Schedule 2 of the CRA sets out the indicative, non-exhaustive 'grey list' of terms that may be regarded as unfair. The list largely replicates the grey list contained in UTCCR but there are some important additions being

  • terms that require the consumer to pay disproportionately high charges where the consumer decides to cancel or not to continue the contract
  • terms that allow the trader to determine the characteristics or subject matter of the contract after the contract has been agreed with the consumer
  • terms allowing the trader to determine the price after the consumer is bound.

It remains the position under the CRA that certain terms in consumer contracts, and now notices, are blacklisted and automatically unenforceable. This includes terms limiting the liability for death or personal injury resulting from negligence and those seeking to exclude or restrict the consumer's statutory rights and remedies.

Comment

Although the CRA is largely a consolidating exercise, it does bring a number of subtle, and some not so subtle, changes that all businesses involved in supplying and financing goods and services to consumers need to be aware of.

The short-term right to reject and the 'one-shot' at repair will be among the most contentious changes under the Act for the automotive industry.

The right to reject can arise within the first 30 days. The consumer can reject without having to give the trader the opportunity to repair. The consumer is then entitled to a refund of the money paid or to the part of the price paid if the contract is a hire-purchase agreement or to receive back goods transferred.

We have long been of the view that there has been a misconception held by many, particularly at the point of sale, about the extent of the consumer's right to reject and have previously written on the subject. This is particularly so where vehicles or assets are supplied brand new and can be described as 'premium brand' or high value. We are not, therefore, convinced that the consumer's rights under the CRA are any stronger than they have always been although they do make the right to reject clearer.

Ironically, however, after the 30-day short-term right to reject has expired, dealers and suppliers are arguably in a stronger position under the CRA than previously. Now, the consumer is obliged (subject to the exceptions referred to elsewhere in this alert) to allow the trader the opportunity to repair or replace before exercising the final right to reject. The trader now gets 'one shot' at repair or replacement which is helpful as it is quite common for problems particularly with new cars to arise after 30 days. This was not mandatory before. The rationale behind the 'one-shot' at repair or replacement is that a clear cut off point is required to prevent consumers being locked into a cycle of continuous, failed repairs.

How will refunds and deductions from price be calculated? Although a concession for motor vehicles has been given in that a deduction for use can be made from day one, just how the deduction is to be calculated is yet to be seen. It is likely to be easier to calculate where a finance agreement is in place where the monthly payment is commonly taken as a measure for the reduction for use. However, with the increasing popularity of PCPs (personal contract purchase), the monthly payment will not necessarily equate to a proportionate sum.

Businesses should:

  • remember that this legislation is all about consumer contracts and that the SGA is unaffected by the CRA in relation to business to business contracts. Indeed the SGA will continue to apply in some respects in relation to business to consumer contracts such as in determining when ownership of goods is transferred.
  • remind themselves of any additional, freestanding regulatory obligations for treating customers fairly that they may be subject to as, for example, in the FCA handbook
  • ensure they and their staff are fully familiar with the changes brought into effect by the CRA and will wish to ensure that their terms and conditions and relevant notices are audited for compliance in terms of both fairness and transparency

And as if the changes brought about by the CRA weren't enough, the ADR Directive for Consumer Disputes (Competent Authorities and Information) Regulations 2015, has also come into force. Traders who are obliged to use ADR services (by law or their trade association or contract) must provide consumers with details in their terms and conditions and on their websites of a certified ADR provider in their sector.