Distance selling: sale of consumer goods over the internet or telephone etc

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1 Distance selling: sale of consumer goods over the internet or telephone etc Standard Note: SN/HA/5761 Last updated: 23 February 2012 Author: Section Lorraine Conway Home Affairs Section Many people shop at a distance, for instance, they may order goods or services by mail order, over the internet, by telephone, by digital television or fax. In the UK distance selling transactions are generally covered by normal buying and selling legislation, predominantly the Sale of Goods Act 1979 (as amended). In addition, consumer contracts entered into at a distance are also covered by the Distance Selling Regulations All countries in the European Union have had to implement the Distance Selling Directive (EU Directive 97/7/EC). In the UK, this Directive was implemented through the Consumer Protection (Distance Selling) Regulations 2000 (referred to as the Distance Selling Regulations ) which came into force on 31 October 2000 and were subsequently amended by Statutory Instrument (SI 689/2005) on 6 April In a nutshell, the purpose of the Distance Selling Regulations is to: give consumers confidence to buy goods and services where there is no face to face contact with the seller (i.e. a purchase made over the internet or telephone); and ensure that all traders selling at a distance in the normal course of their business meet certain basic requirements The protection includes: the right to receive clear information about goods and services before deciding to buy confirmation of this information in writing a cooling-off period of 7 working days in which the consumer can withdraw from the contract and obtain a full refund The purpose of this note is to provide an outline of the Distance Selling Regulations. It also outlines other related legislation which may also regulate distance selling, including: the Enterprise Act 2002, the Unfair Terms in Consumer Contracts Regulations 1999 and the Consumer Protection from Unfair Trading Regulations This information is provided to Members of Parliament in support of their parliamentary duties and is not intended to address the specific circumstances of any particular individual. It should not be relied upon as being up to date; the law or policies may have changed since it was last updated; and it should not be relied upon as legal or professional advice or as a substitute for it. A suitably qualified professional should be consulted if specific advice or information is required. This information is provided subject to our general terms and conditions which are available online or may be provided on request in hard copy. Authors are available to discuss the content of this briefing with Members and their staff, but not with the general public.

2 Contents 1 Background to the Distance Selling Regulations 2 2 Consumer protection from the Distance Selling Regulations Consumer contracts caught by the Regulations Pre-contract information Additional information Seven working days cooling-off period Enforcement of the Regulations 5 3 Other related legislation Sale of Goods Act 1979 (as amended) Enterprise Act Unfair Terms in Consumer Contracts Regulations Consumer Protection from Unfair Trading Regulations E-Commerce Regulations Financial Services (Distance Marketing) Regulations Private law 8 1 Background to the Distance Selling Regulations Council Directive (97/7/EC) on the protection of consumers in respect of distance contracts was implemented in the UK by the Distance Selling Regulations 2000, which came into force on 31 October On 6 April 2005 the Regulations were amended by Statutory Instrument (SI 689/2005). The Distance Selling Regulations (as amended) give consumers additional rights and legal protection when they purchase goods and services at a distance. Importantly, they ensure that consumers are given certain clear information when they buy from a distance and in most cases are also given the right to a 7 working days cancellation period. The Regulations define a distance contract as: any contract concerning goods or services concluded between a supplier and a consumer under an organized distance sales or service provision scheme run by the supplier who, for the purpose of the contract, makes exclusive use of one or more means of distance communication up to and including the moment at which the contract is concluded. 1 The original Consumer Protection (Distance Selling) Regulations 2000 can be viewed at: and the 2005 amendment can be viewed at: 2

3 For the purposes of the Regulations, a business includes a trade or a profession and a supplier means any person who is acting in a commercial or professional capacity. A consumer means any natural person who is acting for purposes which are outside his/her business. The Regulations do not apply to business to business contracts. 2 Consumer protection from the Distance Selling Regulations 2.1 Consumer contracts caught by the Regulations The Distance Selling Regulations impose requirements on suppliers to provide the consumer with: pre-contract information, written and additional information, the right to cancel the contract within 7 working days, and the obligation on the supplier to carry out the contract within a maximum of thirty days The Regulations apply if goods or services are sold by a business to a consumer without face to face contact using an organised scheme, for example, via: the internet text messaging phone calls faxing interactive television mail order catalogues mail order advertising in newspapers or magazines However, the Regulations do not apply to: Contracts for the sale of interests in land, for example, the sale of freehold or leasehold interests. (But it should be noted that the Regulations do apply to shortterm tenancy or leasehold agreements (i.e. rental agreements) provided the contract is with a consumer and has been concluded by distance means). Contracts for the construction of a building where the contract also provides for a sale of an interest in land on which the building is constructed. (But it should be noted that the Regulations do apply where a consumer already has rights over the land and enters into a distance contract with a builder to construct a building on the land). Contracts relating to financial services to consumers. (Financial services are already regulated by the Financial Services Distance Marketing Regulations 2004). Products bought from vending machines or automated commercial premises. Contracts for goods or services concluded at an auction including online and interactive TV auctions. Use of a public pay phone. Transport, accommodation, and leisure services. 3

4 Food, drink or other goods for everyday consumption delivered by a regular roundsman, such as a milkman. 2.2 Pre-contract information To comply with the Distance Selling Regulations, the supplier must give certain information to the consumer before he/she agrees to buy. This pre-contract information includes: the name of the business (including sufficient detail for the customer to be able to identify the legal person they are dealing with) an honest description of the goods or services the full price of the goods or services on offer, including all taxes for how long the price or any special offers remain valid details of delivery arrangements or performance of the service details of any delivery costs details of payment arrangements and if payment is required in advance, the business address if customers are to use a premium rate telephone number the cost of the call must be specified before charges are incurred for the call the minimum duration of the contract in the case of contracts for the supply of goods or services to be provided either permanently or recurrently if the supplier intends to supply substitute goods or services of equivalent quality and price in the event of goods or services ordered by the consumer being unavailable whether the supplier will bear the cost of his customers returning the substitute products where they do not want them, and details of a customer s right to cancel their orders This pre-contract information can be given by any method appropriate to the form of distance communication being used to agree the contract, providing it is clear and comprehensible. It follows, therefore, that the information can be provided on a website if goods are being sold over the internet, or in a mail order catalogue or over the telephone if goods are sold by mail order or over the telephone. However, if pre-contract information is provided in a form that does not allow it to be stored or reproduced by the consumer then the supplier must confirm the pre-contract details in writing (or another durable medium ). 2.3 Additional information The supplier must also give the consumer additional written information on when and how to exercise the right to cancel the contract within 7 working days, including: for goods whether the supplier requires the goods to be returned by the customer and if so who pays for their return for services the consequence of agreeing to a service starting before the end of the usual 7 working day cancellation period Other additional information which the supplier must give to the consumer includes: the identity of the business the geographical address of the business to which the consumer may address any complaints the main characteristics of the goods or services being offered for sale 4

5 their price (including any taxes) payment arrangements delivery arrangements details of any guarantees or after-sales services if a contact lasts more than a year or is open-ended, the contractual conditions for cancelling it This pre-contractual information must be confirmed in writing or another durable medium. Under the Distance Selling Regulations, a contract must be carried out within the time limits agreed with the customer as stated in the supplier s terms and conditions. If no period has been agreed, the statutory time limit is within a maximum of 30 days from the day after the day the consumer sends the order to the supplier. If the contract is not performed within 30 days, then unless the parties have agreed to a longer period, the consumer is entitled to his money back. 2.4 Seven working days cooling-off period The Regulations give consumers the unconditional right to cancel an order within 7 working days - whether or not the good is faulty. A supplier can, of course, offer a consumer a longer cancellation period under its own contract terms. The need and purpose of the cancellation right is explained by the previous Government as follows: Unlike buying a product from a shop, the first time that a consumer will have an opportunity to examine goods purchased by distance means is on receiving the item(s). The purpose of the Distance Selling Regulations is to give the consumer, at the very least the same rights as when considering a purchase in a shop. 2 The cancellation period starts when the contract is concluded and the consumer has received the written information. On cancelling a contract a consumer is entitled to get a refund of any sum paid in relation to the contract. This means the full price paid for the goods including the cost of delivery must be refunded. Who pays for returning the goods if an order is cancelled will depend on what was agreed when the goods were ordered. 2.5 Enforcement of the Regulations It is fair to say that the requirements to provide pre-contractual information, written and additional information, the right to cancel without obligation within 7 days and the obligation on the supplier to carry out the contract within a maximum of 30 days apply to the majority of consumer contracts. The Office of Fair Trading (OFT) and Trading Standards Services have a duty to consider complaints about possible breaches of the Distance Selling Regulations. Both bodies have the power to apply to the court for an injunction, including an interim injunction, against the non-complying business. Alternatively, a business may be permitted to give an undertaking to comply in future with the Regulations. 2 Department of Trade and Industry (now BIS), draft Guide for businesses on home shopping, August 2005, can be viewed at: 5

6 3 Other related legislation Protection under the Distance Selling Regulations does not affect consumer rights under other legislation. Consumer contracts agreed at a distance are normally covered by normal buying and selling legislation, predominantly the Sale of Goods Act 1979 (as amended). In addition, the Enterprise Act 2002, the Unfair Terms in Consumer Contracts Regulations 1999 and the Consumer Protection from Unfair Trading Regulations 2008 all increase the range of enforcement tools available to the OFT and other designated enforcers. 3.1 Sale of Goods Act 1979 (as amended) If a consumer buys a good or service at a distance (e.g. online or by telephone) from a seller in the UK, they are protected by the same laws that apply to goods and services bought over the counter from shops or other local suppliers, predominantly the Sale of Goods Act 1979 (as amended). This means that consumers have a legal right to a refund, repair or replacement if an item they purchased: does not match the description is not of satisfactory quality; and is not fit for purpose Each of these circumstances would mean that the item does not conform to contract and therefore it can be described as faulty. If the goods do not conform to contract, consumers can exercise their rights to reject them and have a full refund. If the goods develop a fault within the first 6 months of being sold, it will be assumed that the fault was there when it was sold unless the supplier can show otherwise. However, it should be noted that if the seller points out a fault to a consumer and they are able to inspect that fault before they make a purchase, their purchase means they have accepted the fault and they cannot claim their legal right (outlined above) in relation to that particular fault. 3.2 Enterprise Act 2002 Enforcement action under Part 8 of the Enterprise Act 2002 can be taken against: Domestic infringements - a breach of UK laws by a business that harms the collective interests of UK consumers. These cover a wide range of trading activities, including: misleading advertising; lotteries; credit; underage sales; sale of goods; estate agency; misleading health claims; trade descriptions; and mock auctions. Community infringements - a breach of laws by a business which harms or is likely to harm the collective interests of consumers under the UK laws which transpose certain EC Directives. These UK laws cover activities such as distance selling; timeshare, unfair terms in consumer contracts, doorstep selling; package travel and holidays and consumer credit. Part 8 of the Act, which came into force on 20 June 2003, gives the OFT, local authority Trading Standards services, and certain other designated bodies stronger powers to take enforcement action through the courts against businesses for domestic or community infringements. This enforcement action could include: undertakings (either to the OFT or the court); Enforcement Orders; or action for contempt of court. In practice, before taking court action (e.g. seeking an Enforcement Order), the OFT or other enforcement bodies will usually invite the trader concerned to respond to the allegations 6

7 against them. Instead of going to court, it may be possible for the trader to give a binding commitment (undertaking) to refrain from a certain trading practice. 3.3 Unfair Terms in Consumer Contracts Regulations 1999 Directive 93/13/EEC was implemented in the UK by the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs), as amended by the Unfair Terms in Consumer Contracts (Amendment) Regulations The purpose of the UTCCRs is to set a framework within which firms must work when drawing up their contact terms and conditions. Under the Regulations a consumer is not bound by a standard term in a contract if it is unfair. A standard term is one that the consumer has not negotiated. For the purposes of the Regulations, a contractual 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 consumers. 'Good faith' is taken to mean that traders must deal fairly and openly with the consumer. Examples of unfair contract terms include: those that stop a consumer from holding back any part of the payment where the seller or supplier seriously breaches its obligations; those that prevent a consumer from withdrawing from the contract if the trader does so; those that try to prevent the consumer from going to court Certain qualifying bodies (for example, the OFT) are authorised to challenge firms when they think a particular term is unfair. A fairness test is outlined in the Regulations, but ultimately it is for the court to decide questions of fairness. In practice, a term is open to challenge if it could put the consumer at a disadvantage because he/she is not clear about its meaning - even if its meaning could be worked out by a lawyer. If there is doubt as to what a term means, the court will apply the meaning most favourable to the consumer. However, it should be noted that any exclusion of liability, whether in a contract term or on a notice, is always void if it is used for the purpose of evading liability for death or personal injury caused by the supplier s negligence. Whilst terms in consumer contracts that set the price or define the product or service being supplied, known as 'core terms', are exempt from the test of fairness as long as they meet the plain language requirement. 3.4 Consumer Protection from Unfair Trading Regulations 2008 The Consumer Protection from Unfair Trading Regulations 2008 (CPRs) came into force on 26 May They implement the Unfair Commercial Practices Directive in the UK, and replace several pieces of consumer protection legislation that were in force prior to 26 May In a nutshell, the CPRs consist of: a general prohibition of unfair commercial practices - for a practice to be unfair, it must harm, or be likely to harm, the economic interests of the average consumer; 3 SI 1999 No and SI 2001 No A guide to the Regulations can be viewed at: 7

8 prohibitions of misleading and aggressive practices; and 31 practices prohibited in all circumstances (as outlined in Schedule 1 to the Regulations) In effect, the Regulations introduce a general duty on all traders not to trade unfairly and seek to ensure that traders act honestly and fairly towards their customers. The CPRs apply to any act, omission and other conduct by businesses directly connected to the promotion, sale or supply of a product to or from consumers (whether before, during or after a commercial transaction, if any). Included within the thirty-one specific trading practices banned outright in the Regulations (Schedule 1) are the following practices: faking credentials for instance, a trader claiming to be a signatory to a code of conduct when he is not; a trader pestering the consumer, by making persistent and unwanted contact by telephone, fax, or other remote media; using guilt to make sales, explicitly informing a consumer that if he/she does not buy the product or service, the trader s job or livelihood will be in jeopardy; asking for payment when the recipient didn t ask for the good; providing misleading after sales information, and so on The Regulations repeal provisions in a number of overlapping laws, including most of the Trade Descriptions Act 1968 and Part 3 of the Consumer Protection Act 1987 (misleading price indications), they are replaced by this general ban on unfair trading. Traders must now act in a manner consistent with the reasonable expectations of the average consumer, enabling such consumers to make free and informed purchasing decisions. A wide range of sanctions are available for a breach of the Regulations, depending on the seriousness of the offence, from guidance and codes of conduct to unlimited fines and prison sentences. However, there is a defence of due diligence and innocent publication of advertisements. 3.5 E-Commerce Regulations The Electronic Commerce (EC Directive) Regulations 2002 (known as the E-commerce Regulations) implements the EC Directive on E-commerce into UK law. Amongst other things the Directive requires Member States to ensure that contracts can be concluded electronically. UK businesses that sell goods or services electronically, (for instance over the internet or via mobile phone texts) are regulated by the Regulations. They also apply if a business markets or sell goods or services via interactive TV or phone texting. 3.6 Financial Services (Distance Marketing) Regulations 2004 The Distance Marketing of Financial Services Directive establishes a set of EU-wide rules on the information that must be supplied to consumers when financial services are sold at a distance. The Financial Services (Distance Marketing) Regulations 2004 which implement the Directive in the UK came into force in October Private law Provisions of private international law (PIL) are also relevant to e-commerce in relation to cross border transactions and disputes. 8