Consumer contracts market study Q&As

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Q: Are we going to take any enforcement action as a result of this study?

A: The OFT is actively monitoring the use of consumer contracts and if necessary, will take targeted enforcement action against firms using terms that we consider result in significant consumer detriment and which constitute serious breaches of the law. We are currently pursuing a number of possible cases, but cannot comment on specifics at this stage in our investigations.

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Q: But will any of them change their behaviour? Surely, they aren't just going to stop?

A: We are confident that the information provided in the report clarifying the OFT's approach to assessing consumer contracts will be enough to encourage some traders to change their behaviour. Others we may need to take enforcement action against.

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Q: This is poor timing - in the middle of a recession, this is the last thing traders need.

A: An even playing field makes it easier for consumers to distinguish good deals from bad and the more efficient fair dealing traders reap the benefits of this. Moreover, in a recession consumers have an increased focus on good deals and value.
Furthermore, this report does not change the law in any way, and therefore should not increase compliance costs. The report does clarify our approach to enforcing existing regulations, and this should be helpful to firms.

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Q: So what advice would you give consumers?

A: This study does not say that the onus should lie solely on traders, but acknowledges that consumers have a responsibility to seek and assess the key information about and requirements of any given deal. In general, we would advise consumers to think about the key elements of the deal, [gather opinions] and look at third party reviews, and shop around and compare offers.

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Q: Isn't this a bit paternalistic? Consumers aren't stupid; surely it is up to them to read the contract?

A: Consumers aren't stupid. It may be rational for them to focus on understanding a deal, and looking for best value on the main elements of it, rather than spending time reading the small print.

The motivation for protecting consumers is not paternalistic - there are important economic efficiency arguments for doing so. If consumers fear that small print contains nasty surprises, they will divert effort into scrutinising terms and conditions, or may be reluctant to buy at all. Transaction costs will be higher and trust in markets will be undermined.

This is not to say consumers don't have any responsibilities with respect to understanding terms and conditions. Consumers need to be reasonably observant and seek out and assess the key information about the deal.

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Q: What action have you already taken on these issues?

A: The OFT has taken a range of cases with regard to unfair terms and conditions. Most recently, cases relating to renewal fees charged by letting agents unclear credit agreements and cancellation rights in gyms membership, overdraft fees, extended warranties etc.

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Q: There is already guidance on the UTCCRs and the CPRs. Isn't it confusing for retailers to add another layer? Isn't this regulatory overkill?

A: This report is about the OFT's approach to enforcement, it is not an explanation of the legislation. Therefore it does not replace existing guidance and should be read alongside it. The aim of the report is to provide more transparency to consumers and traders and more consistency in our own approach to assessing contract terms, which should make things clearer for traders.

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Q: You did five case studies as part of this study. Are these sectors particularly problematic? You identified some potential problems; will you be taking enforcement action on these issues now?

A: Not necessarily. The samples for the case studies were small and only looked at a small number of issues. They did not assess in full issues around the potential benefits of contract terms, the possibility that markets may self-correct, and wider market effects. We may consider some of the issues identified in the case studies in more detail to see if there is evidence of significant consumer detriment in the future.

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Q: Nobody ever reads the terms and conditions on websites - everyone just ticks the 'read' box - are you saying that's ok? If so do traders even need to show them?

A: The evidence suggests that most consumers never read t&c in detail (if at all) and that this may often be an entirely rational decision. However, that does not mean that the trader does not need to provide clearly drafted t&c in a timely fashion, both for those consumers who do want to read them either in their entirety or to pick out a particular term that is relevant to them, or for consumers who wish to consider the contract in more detail at a later date, for example to find out what the contract covers when something goes wrong.

Where terms and conditions are unfair and are found to breach the regulations, they are not enforceable just because people have ticked the box.

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Q: The OFT assessment framework seems to go further than the law - this doesn't seem fair to businesses?

A: The assessment framework is not legally binding and in order to take enforcement action we would still need to prove a trader's terms or practices were legally unfair. The framework will allow businesses to see in a more consistent and transparent way how we intend to assess terms for consumer detriment, particularly when we are choosing which cases to pursue. This should actually help traders better understand what they need to do in order to treat consumers fairly.

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