Updated Regulations Affecting Consumer Contracts

New regulations coming into force on 13 June 2014 will change the way many businesses enter contracts with their clients. In many cases, businesses will have to update their standard terms and conditions and other pre-contract documentation. If they do not, they will risk being unable to recover payment for goods and services or even face criminal prosecution.

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations will come into force on 13 June 2014. These new regulations require traders to provide consumers with certain information prior to entering the contract and also impose certain terms in contracts with consumers.

The regulations will apply to three types of contracts entered into after 13 June 2014. The regulations define the three types as ‘distance contracts’, ‘off-premises contracts’ and ‘on-premises contracts’ (see below). The regulations only apply to dealings between traders (essentially any person acting in their usual business) and consumers (individuals acting wholly or mainly outside their usual business). There are certain exceptions to the contracts affected by the regulations. These include construction, residential letting and package travel contracts, for example.

There are several important changes of which traders must make note.

Traders must provide consumers with certain detailed information before the contract is entered. The extent of this information will depend on the type of contract. Contracts which are entered face-to-face away from the trader’s premises or are concluded after discussions away from the trader’s premises will be ‘off-premises contracts’. Contracts concluded under organised distance sales or a service provision scheme (e.g. mail order, online sales or telesales) will be ‘distance contracts’. All other contracts will be ‘on-premises contracts’. The information required to be provided is set out in Schedules 1 and 2 to the regulations.

In relation to on-premises contracts, the requirements for the provision of information do not greatly differ from previous legislation. Nevertheless, Schedule 1 should still be checked. Note that the Schedule 1 information does not have to be provided if it is obvious in the circumstances or if the transaction is of a day-to-day nature, completed immediately (e.g. buying a pint of milk).

Schedule 2 sets out the information requirements for distance and off-premises contracts. These are more detailed than Schedule 1, particularly in relation to cancellation rights (see below).

Traders should also note Schedule 3 which provides that, where cancellation rights exist, distance and off-premises traders will need to provide a specific cancellation form to consumers.

Cancellation rights will always apply to distance contracts and off-premises contracts. It should be noted that the regulations make it a criminal offence to fail to inform consumers of their right to cancel off-premises contracts. Consumers will have 14 calendar days to cancel such contracts for any reason. They would then have to return any goods within a further 14 days. Traders would then have to refund the consumer within 14 days of receipt of the goods or, in the case of service contracts, 14 days of cancellation.

The cancellation period can be extended to as much as 12 months if the trader has not supplied the required information about cancellation (and, until the information has been provided or the cancellation period has expired, the trader cannot recover payment for the goods or services supplied). If a consumer wishes the services to commence within the 14 day cancellation period, they should give their explicit consent and must pay for any services delivered prior to any subsequent cancellation.

Consumers will only be liable for charges of which they were made aware before the contract was entered. Traders will not be entitled to charge consumers hidden extras – all payments (such as charges on a return of goods) will require the consumer’s active prior consent (e.g. a box ticked by the consumer). For distance and off-premises contracts, traders must make absolutely clear to consumers the point at which the consumer incurs a liability to pay.

The suggestion is an online ‘Order Now’ button should be amended to read ‘Order Now (incurs obligation to pay)’. Traders must ensure that, where there are telephone helplines for consumers, there is an option to use a number that is charged at the basic rate (rather than premium).

Business owners and managers should consider whether the regulations will affect them. The guidance provided by BIS should assist with this (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/310044/bis-13-1368-consumer-contracts-information-cancellation-and-additional-payments-regulations-guidance.pdf).

Readers are recommended to consult this guidance, together with the regulations themselves, for a thorough understanding. If you have any queries or want to ensure your documentation is compliant with the regulations, please contact Stone Rowe Brewer LLP’s Company Commercial department on 020 8891 6141.

The following is a link to the new regulations: