1

UNFAIR RELATIONSHIPS PROVISIONS IN THE CONSUMER CREDIT ACT 1974

1. The theme of this evening‟s seminar is expanding the horizons of fairness, and the area of

expansion which I am going to be talking about is the unfair relationships provisions in sections

140A to 140D of the Consumer Credit Act 1974.

2. Our theme of expanding the horizons of fairness assumes some point of reference from which the

expansion is to be measured. While it would no doubt be possible trace the story back at least as

far as Lord Mansfield, and probably well before that, what we had in mind in planning this seminar

was the more modest objective of looking at some of the areas in which the Unfair Terms in

Consumer Contracts Regulations 1999, and their predecessors the 1994 Regulations, have since

been supplemented by other fairness regimes in the consumer protection field. Some of these

regimes are statutory, some are regulatory and some are based on voluntary codes. My topic is

one of the statutory regimes, and so is the one chosen by Mark Fell who will be talking about the

Consumer Protection from Unfair Trading Regulations 2008. Elizabeth Ovey will be looking at

two of the regulatory mechanisms, the FSA‟s TCF initiative and the Financial Ombudsman

Service.

3. One of the frustrating features of this area of law is that its piecemeal development over the past

15 years or so has produced a series of separate, but overlapping, fairness mechanisms. That

has produced a framework which is complex, fragmented and inflexible. Those are not my words,

but those of the last government in its white paper, A better deal for consumers: delivering real

help now and change for the future.1 The government envisaged at that stage that negotiations

on the Consumer Rights Directive might provide an opportunity for a fundamental modernisation

of the UK‟s consumer law framework. However, the European Commission‟s original proposal for

the Directive proved highly controversial. The watered-down version of the Directive finally

adopted by the European Parliament on 23 June 2011 looks unlikely to be the stimulus for any

thoroughgoing overhaul of UK law in this area.

4. Turning, then to the specific subject-matter of my talk, the unfair relationships provisions, these

were inserted into the Consumer Credit 1974 Act by the Consumer Credit Act 2006. Generally

speaking, the new provisions take effect from 6 April 2007. They replaced the earlier provisions

on extortionate credit bargains which were more limited in scope and produced only a small

handful of decisions in favour of debtors. They were widely seen as ineffectual and in need of

replacement by a regime with more teeth.

5. The unfair relationships apply where there is a “credit agreement” – which in this context is

defined as any agreement between an individual and a creditor, under which the creditor provides

1 July 2009, Cm.7669.

2

the debtor with credit of any amount.2 There are two preliminary points to note about the scope of

the provisions:

(a) The first is that they are not limited to credit agreements which are regulated under the

Consumer Credit Act.

(b) The second, however, is that they have no application to a credit agreement which is a

regulated mortgage contract – that is to say, a mortgage contract which is regulated by the

FSA under the Financial Services and Markets Act 2000.3

6. Where they apply, the unfair relationships provisions give the court wide powers to grant relief if it

considers that the relationship arising out of a credit agreement is unfair to the debtor by reason

of one or more of three factors set out in section 140A(1):

(a) The first factor is “any of the terms of the agreement of the agreement or of any related

agreement”.

(b) The second is “the way in which the creditor has exercised or enforced any of his rights under

the agreement or any related agreement”.

(c) The third is “any other thing done (or not done) by, or on behalf of, the creditor (either before

or after the making of the agreement or any related agreement)”.

A “related agreement” is defined for these purposes to include a mortgage or guarantee securing

the agreement, and also an earlier credit agreement which has been “consolidated” by a later

one.4 One example of an earlier agreement being “consolidated” by a later credit agreement is

where the later one refinances it.

7. The width of section 140A(1) is emphasised by section 140A(2), which provides that, in deciding

whether to make a determination that the relationship is unfair, the court must have regard to all

matters which it thinks relevant, including matters relating to the creditor and matters relating to

the debtor.

8. Where the court finds that the relationship is unfair, it has very wide powers to grant relief under

section 140B. These powers include:

requiring the creditor to repay (in whole or in part) any sum paid by the debtor or a surety;

reducing or discharging any sum payable by the debtor or surety;

ordering the return of any property provided by the surety;

setting aside any duty imposed on the debtor or a surety; and

altering the terms of the agreement or any related agreement.

2 Consumer Credit Act 1974, s.140C(1).

3 Consumer Credit Act 1974, ss.140A(5) and 16(6C)(a).

4 Ss.140C(4)-(7) and 189(1).

3

Contrasts with the Unfair Terms in Consumer Contracts Regulations 1999

9. If we go back for a moment to our point of reference for this evening‟s seminar, the Unfair Terms

in Consumer Contracts Regulations 1999, a comparison with the unfair relationships provisions

reveals some important differences:

(a) The 1999 Regulations are wider than the unfair relationships provisions in that they are not

limited to credit agreements but are generally capable of applying to terms in any contract

between a seller or supplier and a consumer.5

(b) On the other hand, there is nothing in the unfair relationships provisions which corresponds to

the so-called „core terms exemption‟ in the 1999 Regulations. So there is nothing in principle

to stop the court finding that the relationship arising out of a credit agreement is unfair to the

debtor because the court assesses the interest rate or other remuneration payable to the

creditor as being too high.

(c) The court‟s task under the unfair relationships is not confined, as it is under the 1999

Regulations, to assessing the fairness of the terms of the contract by reference to the

circumstances at the time when the contract was made. Under the unfair relationships

provisions, the court can look not only at the terms of the contract, but also at the creditor‟s

conduct, including its acts or omissions after the agreement was made as well as during the

negotiations which preceded it.

10. Just picking up on that last point, while it is true that the court is not limited under the unfair

relationships provisions to considering the fairness of the terms of the contract, it would certainly

be open to the court under to find the relationship unfair purely by reason of its terms: see section

140A(1)(a). The OFT says in its recently updated guidance on unfair relationships6 that it “has no

reason to suppose that the courts will give a meaning to the concept of unfairness in relationships

arising from contract terms which is fundamentally different from that given in the context of the

UTCCRs”.7 But it also expresses the view that a term may be unfair under the 1999 Regulations

without giving rise to an unfair relationship – one example being that “the term may be

insufficiently central to the relationship between the parties as to make the relationship as a whole

unfair to the borrower”.8 Perhaps in recognition of that, the OFT says later in the guidance that, in

the case of unfair relationships, it may be more straightforward in terms of legal argument and

procedure to demonstrate that a particular term of practice is an infringement of the 1999

Regulations or the Consumer Protection from Unfair Trading Regulations 2008 than to show that

it gives rise to an unfair relationship.9

5 1999 Regulations, reg.4.

6 Unfair relationships – Enforcement action under Part 8 of the Enterprise Act 2002, May 2008 (updated August 2011).

7 Para 3.16.

8 Para 3.7.

9 Para 5.20.

4

Temporal scope of the unfair relationships provisions

11. It may be helpful at this point to say something about the temporal scope of the unfair

relationships provisions: how far back can you go when considering whether the relationship

arising out of a credit agreement, and any related agreement, is unfair?

12. The decision in Patel v Patel10

is relevant here. In that case, the court rejected a claim by the

creditor that the debtor‟s right to apply for relief under s.140B was time-barred because more than

12 years had elapsed since the date when the credit agreement was entered into (12 years being

the appropriate period for an action on a specialty, which includes a statutory provision). The

court held that the question is not whether the credit agreement is unfair, but whether the

relationship arising out of it is unfair. That question has to be answered at the time when the

relationship comes to an end or, if it is still ongoing, at the date of trial. This means that the

debtor can make his application at any time up to 12 years after the date on which the relationship

ends (shortened to six years after that date for claims for the recovery of money paid to the

creditor). However, in deciding whether the relationship is unfair to the debtor, the court is

entitled to have regard to the entire history of the relationship arising out of the credit agreement,

and any related agreement, even if that involves considering matters which occurred more than

12 years before the debtor‟s application for relief was made.

13. The somewhat quirky transitional provisions in the Consumer Credit Act 2006 are also relevant in

determining the temporal reach of the unfair relationships provisions. Generally speaking, a credit

agreement will be within the scope of the unfair relationships provisions if it was entered into on or

after 6 April 2007. By virtue of the transitional provisions, however, a credit agreement will also

be within scope if was made before that date and did not become a “completed agreement”

before 6 April 2008.11

An agreement becomes “completed” for these purposes once there is no

money which is or can become payable under it.12

14. An added complication here is that, under section 140A(1), the court has to look at the

relationship arising out of the credit agreement, taken with any related agreement – which, as we

have seen, includes an earlier agreement “consolidated” by the credit agreement. So what

happens if the court is looking at a credit agreement which consolidated an earlier, related

agreement and the earlier agreement became a completed agreement before 6 April 2008? The

transitional provisions make it clear in a case of that kind that the court cannot grant any relief in

relation to the earlier agreement.13

But can it take account of the earlier agreement when

considering, as it has to under section 140A(1), the relationship arising out of the later credit

agreement “taken with any related agreement”? The decision in Patel v Patel assumed, though

without discussion, the earlier related agreement can be taken into account for this purpose.

10

[2009] EWHC 3264 (QB).

11 Consumer Credit Act 2006, Sch.3, para 14.

12 Consumer Credit Act 2006, Sch.3, para 1(2).

13 Consumer Credit Act 2006, Sch.3, para 16(4) and (5).

5

Dicta by Judge Langan QC in the later case of Soulsby v FirstPlus Financial Group plc14

were

thought to have cast doubt on this. However, the court recently looked at the question in detail in

Barnes v Black Horse Ltd,15

where Judge Waksman QC concluded that the assumption made in

Patel v Patel was correct. So the upshot is that, where a credit agreement has consolidated an

earlier related agreement which was “completed” before 6 April 2008, the court‟s consideration of

the history of the relationship should include both the later and the earlier agreements – but the

court can only grant relief in relation to the later one.

Some trends in the decisions on unfair relationships

15. The test for an unfair relationship was deliberately formulated in broad terms, so as to ensure that

the courts would have the widest possible discretion in using their new powers. So the

developing case law on unfair relationships is clearly important in gauging the extent to which the

unfair relationship provisions have expanded the horizons of fairness in this area. In practice,

however, it tends to be difficult to derive principles of general application from the cases, because

they are so sharply focused on the facts of the particular case. Judge Waksman QC drew

attention to this feature of the unfair relationships jurisdiction in Harrison v Black Horse Ltd,16

where he said this:

“While it would be wrong to describe the exercise undertaken by a Court in determining whether there was [an unfair relationship] as the exercise of a discretion, the very broad terms in which section 140A is couched “provide the courts with the maximum flexibility in considering unfairness” – see paragraph 3.12 of the OFT Guidance on Unfair Relationships, May 2008. The process involves an assessment of facts and the balancing and weighing of different factors which is classically an exercise for a Judge at first instance. ... It follows that, save where clear issues of principle are involved, a decision as to [unfair relationships] in one particular case based on one particular set of facts is unlikely to be of any real assistance in another”.

16. While bearing that warning carefully in mind, there are two broad trends which I think can fairly be

extracted from the developing case law on this subject.

17. The first is that the courts will not generally be prepared to base a finding of an unfair relationship

merely on the fact that that the interest rate or other charge for credit payable by the debtor is

high, where the rate can be justified by reference to the risk which the creditor runs in providing

the credit. Let me give some illustrations of that:

(1) First, there is the decision of Blair J. in Khodari v Al Tamimi where he had to consider a series

of short term loans, each at a fixed charge of 10%, to finance the borrower‟s gambling. He

rejected a claim that the relationship arising out of the credit agreement was unfair, saying

that “the size of the charge is plainly very large compared to the short period of the loan, but

this has to be seen in the light of the credit risk assumed in making the loan”. The Court of

Appeal agreed.

14

QB, unreported, March 5, 2007.

15 [2011] EWHC 1416 (QB).

16 [2010] EWHC 3152 (QB), paras 50 and 51.

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(2) Another example of the same approach is the county court decision in Nine Regions (T/A

Logbook Loans) v Sadeer,17

where the APR was 384.4%, but the court rejected the

borrower‟s claim that the relationship was unfair, given that the risks to the lender were also

high – this being a „last resort‟ loan made to a borrower with a poor credit record and secured

only on a second hand car which would depreciate over time.

(3) To the same effect is Shaw v Nine Regions Ltd,18

where the High Court held that the county

court recorder had been entitled to find, when considering a similar „logbook‟ loan agreement

in the sub-prime market, that an interest rate of 119.16% (producing an APR of 341%) was

fair.

18. Moving outside the sphere of high risk lending, the second trend that I think one can detect is that

a high price may, however, contribute to a finding of an unfair relationship where the creditor‟s

conduct has some additional feature of unfairness about it – such as where the creditor takes

advantage of the debtor, or misleads him in some way.

(1) One illustration of this is Patel v Patel, which I mentioned earlier in the limitation context. The

decision in that case was that an unfair relationship had arisen where interest on a loan

between two friends (not involving any particular degree of risk to the lender) was payable at

an annual rate of 20%, compounded at monthly interest. The case was unusual in that the

loan was repayable on request by the creditor, with no provision for the debtor to make any

payments in the meantime. The creditor allowed the loan to remain outstanding without

providing the debtor with any calculation of the amount owing and without requesting any

significant payments to be made to reduce the amount owing. As a result the sum owing

increased from around £207,000 in 1992 to over £4½m at the time when proceedings were

issued in 2008. The effect of the creditor‟s inactivity over such a lengthy period was to lull the

debtor into a false sense of security, giving rise to a reasonable hope that the creditor would

not insist on payment in accordance with the terms agreed in 1992.

(2) The recent cases dealing with unfair relationships claims in the context of PPI sales are, I

think, consistent with a general rule of thumb that a high charge on its own will not make the

relationship unfair, but may do so when combined with some specifically unfair feature of the

creditor‟s conduct. Where a PPI policy is sold in connection with a loan agreement, it is

common for the creditor to benefit from the sale of the policy in two ways: first, because the

amount of the loan (and hence the interest payable by the debtor) is increased to fund the

payment of the PPI premium and, secondly, because the creditor receives a commission from

the insurer on the sale of the policy. The following points can be made about these cases.

(a) The mere fact that the creditor has received a substantial commission on the sale of the

policy and has failed to disclose the commission to the debtor has not generally been

regarded as sufficient to make the relationship arising out of the loan agreement unfair to

17

[2008] GCCR 8501

18 [2009] EWHC 3514 (QB).

7

the debtor. Harrison v Black Horse Ltd19

is a good illustration of this. The commission in

that case represented 87% of the PPI premium and the creditor did not disclose either the

fact or the amount of the commission to the debtors. Nonetheless, Judge Waksman

rejected a claim that the relationship was unfair. The decision in that case has since

gone to the Court of Appeal, and judgment is due shortly: I gather that counsel for the

creditor are optimistic (though of course they may be wrong!) that the Court of Appeal will

uphold Judge Waksman‟s decision.

(b) On the other side of the line are cases where receipt of a high and undisclosed

commission has been combined with an element of misrepresentation or sharp practice

on the part of the creditor:

(i) While the point did not arise for decision because the agreement was unenforceable

in any event, an unfair relationship claim would have succeeded in Wollarton v Black

Horse Ltd20

where, without prior discussion with the debtor, the creditor included a

term in the loan agreement purporting to record the debtor‟s agreement to take out

PPI.

(ii) Similarly, in Yates v Nemo Personal Finance Ltd,21

the relationship was held unfair in

circumstances where the broker who arranged the sale the policy falsely represented

that the policy had to be taken out as a condition of the loan, and where neither the

broker nor the creditor had disclosed to the debtor the fact that the broker (as well as

the creditor) was receiving a substantial commission on the sale of the policy, so

giving rise to a potential conflict between the interests of the broker and those of the

debtor.

19

Above. See, too, Vernalls v Black Horse Ltd, Mercantile Court, unreported, December 1 2010.

20 Northampton County Court, unreported, March 21, 2010, referred to in Black Horse Ltd v Speak [2010] EWHC 1866 (QB), at [65].

21 Manchester County Court, unreported, May 14, 2010.

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Enforcement

19. The court‟s powers to grant relief under section 140B can only be invoked by the debtor or a

surety: section 140B(2). However, the OFT and other enforcers (such as local authority trading

standards services) have power under Part 8 of the Enterprise Act 2002 to take enforcement

action where there has been a breach of the unfair relationships provisions which harms the

collective interests of consumer. Section 140D places a duty on the OFT to indicate, in the advice

and information which it publishes under the 2002 Act, how it expects the unfair relationships

provisions to interact with Part 8 of the 2002 Act. That is the role performed by the OFT guidance

which I mentioned earlier. The guidance points out that, while the unfair relationships provisions

apply to individual relationships between a creditor and a debtor, the creditor may enter into such

relationships with more than one borrower and, in doing so, may have an adverse effect of a

number of them by virtue of acts and omissions giving rise to unfairness.22

Thus, in considering

whether there is a call for enforcement action under Part 8, the OFT will consider whether there is

a common factor (such as the use of standard terms, or the adoption of a common manner of

operation) which is likely to make a number of individual relationships unfair and so harm the

collective interests of consumers.23

22

Unfair relationships: Enforcement action under Part 8 of the Enterprise Act 2002, para 4.13.

23 Paras 4.14-15.

9

“FAIR AND REASONABLE”:

THE FINANCIAL SERVICES AUTHORITY AND

THE FINANCIAL OMBUDSMAN SERVICE

Introduction

1. It is now nearly 10 years since the Financial Services and Markets Act 2000 came fully into

force, and perhaps this is an appropriate time to consider the extent to which considerations of

fairness have now become fundamental to the system of regulation and redress in the financial

services world, even in contexts not expressly governed by legislation such as that being considered

this evening by Malcolm and Mark. Let me then take as my starting point two short statements which

have proved pivotal in this context and which I am sure will be instantly recognised:

(1) “A firm must pay due regard to the interests of its customers and treat them fairly”

(Principle 6 of the FSA‟s Principles for Businesses (PRIN 2.1R))

(2) “A complaint is to be determined by what is, in the opinion of the ombudsman, fair

and reasonable in all the circumstances of the case.” (s.228(2) of the Financial

Services and Markets Act 2000).

2. The recent decision of Ouseley J. in the Administrative Court, R. (British Bankers’

Association) v. Financial Services Authority and Financial Ombudsman Service [2011] EWHC 999

(Admin.), [2011] A.C.D. 71, shows how, acting in conjunction and building on those two short

statements, the FSA and FOS have in effect been able to impose on the banking industry very

substantial obligations to pay compensation to customers who took out payment protection insurance

policies in circumstances which were regarded by the FSA and FOS as unfair, even where there was

no failure to comply with any of the detailed provisions for the conduct of insurance business.

Further, the obligations extend to customers who have not complained to FOS if the firm in question

finds recurrent shortcomings in its own sales process, as a result of root cause analysis of the

complaints which are made.

3. It is a theme of Ouseley J.‟s judgment that the PPI strategy adopted by the FSA and FOS did

not really involve anything new but was rather a making explicit of what could already be perceived

from the outset. I hope this evening to give a brief reminder of some of the signposts along the road,

to offer some reflections on the present position and to note some proposals for the future.

Principle 6 and the FSA’s Treating Customers Fairly initiative

4. I wonder if I am alone in seeing at least a fleeting resemblance between TCF in its early days

and the Big Society. I say that because when TCF first emerged as a defined initiative in 2004 it

seemed to me to have some of the elusiveness which I now tend to regard as associated with the Big

10

Society. Yes, senior management were to embed TCF into the firm‟s corporate strategy and make it

part of the firm‟s culture, but what did that mean? The concept became more concrete in 2006, with

the statement of the six TCF outcomes which now appear on much of the FSA material about TCF

(and which in fact are said to draw on some of the other Principles as well):

(1) consumers can be confident that they are dealing with firms where the fair treatment

of customers Is central to the corporate culture;

(2) products and services marketed and sold in the retail market are designed to meet

the needs of identified consumer groups and are targeted accordingly;

(3) consumers are provided with clear information and are kept appropriately informed

before, during and after the point of sale;

(4) where customers receive advice, the advice is suitable and takes account of their

circumstances;

(5) consumers are provided with products that perform as firms have led them to expect,

and the associated service is both of an acceptable standard and as they have been

led to expect;

(6) consumers do not face unreasonable post-sale barriers imposed by firms to change

product, switch provider, submit a claim or make a complaint.

5. In the popular phrase, then, this is not rocket science; indeed, one might wonder whether

firms really needed, for example, to be told that customers should be kept appropriately informed and

if they are given advice, the advice should be suitable – or one might wonder until one reads some of

the examples of bad practice given by the FSA.

6. Presumably having dealt with the outcomes to be achieved by corporate strategy, in 2007 the

FSA produced guidance on TCF culture. An appropriate culture is to be achieved through leadership,

strategy, decision-making, controls, recruitment, training and competence and finally reward. At a

time when reward in the form of bankers‟ bonuses is still so much in the headlines, it is worth noting

the importance in the TCF context of a reward framework which is not based solely on volume of

sales regardless of whether the products sold are best suited to the individual customer, but one

which recognises the significance of quality.

7. By December 2008 firms were expected to be able to demonstrate to themselves and the

FSA that they were consistently treating customers fairly. (That task was no doubt particularly difficult

for the firms who demonstrated poor practice by having managers who were unable to explain what

fair treatment of customers meant for themselves and their staff.) As a result, from 2009 firms‟

compliance with TCF became subject to assessment as part of the core supervisory process.

8. It follows that TCF has teeth. In a speech given in March 2009 by Nausicaa Delfas, Head of

Retail Policy and Conduct Risk, it was made clear that the FSA had not abandoned its concerns with

conduct of business issues in favour of prudential issues, despite the tricky prudential waters through

which it was navigating. The issue of the mis-selling of PPI products was already being treated as a

11

failure in TCF and had led to fines. Where management information was inadequate and the firm

seemed unable to put in place procedures to obtain the necessary information, a skilled persons‟

report was commissioned. Another firm was fined where it had clearly put its own financial interests

above the interests of customers when cancelling incorrectly-priced policies. And two directors of a

mortgage broking firm had been censured for shortcomings in their business which put financially

vulnerable customers at risk.

9. Significantly in the context of this evening‟s talk, the FSA regards good complaints handling

as important to embedding TCF in the firm‟s culture. One of its examples of good practice is

conducting an analysis of the root causes of complaints, which may reveal, for example, a training

need or an unsuitable incentive scheme. By contrast, the FSA refers to a firm with no complaints

procedures and zero tolerance of complaints, leading to complaints being “buried”. Perhaps even

more significantly, in 2010 the FSA reported on its review of complaint handling in banking groups. In

general the results did not make happy reading. In most banks, the quality of front-line complaint

handling was found to be poor, with inadequate investigations and poor decision-making. Quality

assurance was not focused in assessing the substantive quality of the response. Five of the banks

assessed in detail had agreed to make changes as a result of the review and two of those banks had

been referred to the Enforcement division as a result of their poor complaints handling.

10. Finally, in January this year it was announced that the FSA had fined Royal Bank of Scotland

and National Westminster Bank £2.8 million for multiple failings in the way they handled complaints,

responding inadequately to more than half the complaints received. Of the complaints files reviewed:

53% showed deficient complaint handling

62% showed a failure to comply with FSA requirements on timeliness and disclosure of rights

of referral to FOS

31% failed to demonstrate fair outcomes for consumers.

11. It may be noted that the banks in effect pleaded guilty, and so qualified for a 30% reduction in

penalty. While we may suppose that the fine will not tip RBS and Nat West into insolvency, the

combination of the fine, the financial consequences of having to give redress to complainants and the

adverse publicity will clearly impose pressure for change.

The courts and FOS

12. What developments have there been with FOS? It may perhaps be suggested that in dealing

with FOS the courts have one arm tied behind their backs, since, unlike, for example, the Pensions

Ombudsman, FOS is only obliged to take into account, and is not bound by, the law in making

determinations: see DISP 3.6.4R. The practical effect of this is illustrated by R. (IFG Financial

Services) Ltd. v. Financial Ombudsman Service [2006] 1 B.C.L.C. 534. The complainants were

advised to make what was found to be a high risk investment, although their requirement was for

medium risk. Unforeseeably, the investment was dishonestly managed and the complainants

suffered substantial loss. They were awarded compensation for losses including the unforeseeable

12

loss arising from the dishonest management, although such loss would not have been recoverable in

a claim for professional negligence based on negligent advice. Since the Ombudsman‟s reasons

made clear he had considered the point but decided that the limitation would not fair and reasonable

in the circumstances of the case, the advisers‟ challenge by way of judicial review was unsuccessful.

FOS is thus an alternative to the courts which has power to grant more generous remedies than the

courts could do, and one which is about to see, from 1st January 2012, an increase in the limit on the

compensation it may award from £100,000 to £150,000.

13. Generally, and perhaps not surprisingly given that background, the track record of applicants

in judicial review proceedings involving FOS is on the whole poor, although it does not follow that all

the contentions advanced by FOS have been successful. In R. (Bruce) v. Financial Ombudsman

Service [2007] EWHC 1648 (Admin.), an application for judicial review was brought by a former

member of a partnership in respect of a determination about which the applicant knew nothing in spite

of her potential liability, although her partners knew of and had had plenty of opportunity to participate

in the investigation. Her application failed.

14. The applicant was again unsuccessful in R. (Williams) v. Financial Ombudsman Service

[2008] EWHC 2142 (Admin.) in a challenge based on the fact that the Ombudsman had reached his

conclusion on the basis of his own knowledge and without proper regard to contemporaneous

literature and the contemporary views of industry. The applicant‟s case may, of course, have been

weakened by the fact that the contemporaneous article in the financial press on which he relied in

support of his advice was written by the managing director of the company selling the relevant

products.

15. In R. (Cook) v. Financial Ombudsman Service [2009] EWHC 426 (Admin.) the applicants

were successful complainants who were dissatisfied with the level of compensation thought

appropriate by FOS. They complained to their M.P., who suggested that they should obtain an expert

report. The Ombudsman declined to consider the report and FOS contended that under s.228(5) of

the Financial Services and Markets Act (which provides that if the complainant accepts the

determination it is binding on the respondent and the complainant and final) the determination could

not be reopened. Irwin J. accepted that the decision could not be said to be unreasonable in the

Wednesbury sense or to disclose an error of law, so the application was unsuccessful, but he did not

decide the s.228(5) point.

16. I have of course already referred to the unsuccessful application by the British Bankers‟

Association.

17. The highlight (if that is the appropriate word) of this line of authority, however, is the Heather

Moor & Edgecomb litigation. The firm seems, perhaps understandably, to have been on something of

a crusade against FOS in its outrage at awards made against it. Its initial move was not to comply

with the awards. That, however, had the disadvantage that the FSA then proposed to cancel its Part

IV permission on the ground that it was not a fit and proper person to carry on its regulated activities.

The firm appealed to the Financial Services and Markets Tribunal, which decided (Heather Moor &

Edgecomb, 28th May 2008) that the firm‟s conviction that the manner in which the awards had been

13

reached was unlawful was irrelevant, and ordered that its permission be cancelled unless the amount

of a particular award in issue was paid within 28 days. The effect was in practice to enforce an award

which the complainants had tried unsuccessfully to enforce in the county court, having withdrawn from

the enforcement proceedings apparently through concern about their costs liabilities when they saw

the firm‟s proposed defence.

18. Separately, the firm had brought judicial review proceedings challenging two awards which

got to the Court of Appeal: see R. Heather Moor & Edgecomb v. Financial Ombudsman Service

[2008] EWCA Civ.642, [2008] Bus. L.R. 1486. With a considerable degree of courage, the firm

argued that on its true construction s.228 of the 2000 Act required FOS to make its determinations in

accordance with English law. Given that that was a difficult argument on the face of s.228, it was

argued that s.3 of the Human Rights Act 1998 required such a construction to avoid the result that the

Ombudsman might determine cases arbitrarily or unpredictably. That contention failed on the basis

that the requirements of the scheme, including the obligation to give reasons, meant that the rules

were sufficiently consistent and predictable to avoid any breach of Convention rights.

19. At the heart of the firm‟s discontent seems to have been the refusal of the Ombudsman of its

request for an oral hearing, and it further argued that that refusal constituted a breach of its rights

under art. 6 of the European Convention on Human Rights. Oral hearings appear to be something

close to anathema to ombudsmen of various kinds, since they tend to take time, cost money, require

a considerable degree of formality and, worst of all, encourage the parties to have legal

representation. The Court of Appeal considered the purpose of the request, which was to allow

cross-examination of the complainants, and found that the Ombudsman had reasonably considered

that cross-examination was not necessary. There is clear European authority, discussed by the Court

of Appeal, that, in the light of the jurisdiction in question, the art. 6 right to a public hearing may be

limited to cases in which such a hearing is necessary to deal fairly with the dispute in question. If the

documentary evidence is sufficient to enable a fair decision to be made, there being no relevant

dispute of fact, an oral hearing is not necessary.

20. Earlier this year, the European Court of Human Rights dismissed the firm‟s complaint as

manifestly ill-founded, saying (A/1550/09, 14th June 2011):

“As the Court has indicated previously, the key consideration is the overarching

principle of fairness embodied in Article 6 (Jussila, cited above, § 42). The fact that

proceedings are of considerable significance for an applicant, as is the case here, is

not decisive for the necessity of a hearing (ibid. § 44). The applicant was afforded

ample opportunities to present its case and to know and respond to the arguments

put forward by L, and to make final representations on the basis of the Ombudsman‟s

provisional decision. The Court therefore accepts the Government‟s argument that

the relevant issues of fact and law could be adequately addressed in, and decided on

the basis of, written submissions. It finds that the requirements of fairness were

complied with and did not necessitate an oral hearing before the Ombudsman.”

14

21. It is thus clear that challenging FOS in the courts is not easy. Moreover, in certain

circumstances, the FSA will indirectly do the courts‟ work for them by taking steps which will strongly

encourage compliance with any award.

Some reflections

22. As is referred to in the British Bankers’ Association case, and as is mentioned in the current

Memorandum of Understanding between the FSA and FOS (last updated on 6th April 2007), there are

arrangements between the two organisations (and also the Office of Fair Trading) which allow FOS to

identify trends in complaints and to inform the relevant regulator that the complaints have “wider

implications”. That was the process followed in the PPI case and the outcome shows the scope for

tackling such issues in a very wide-ranging manner.

23. Statistics recently published by FOS illustrate the potential consequences by reference to the

PPI complaints. There was a doubling of complaints to FOS in the first six months of the year of the

calendar year, very largely accounted for by PPI complaints. The extent of the issue can be seen

from the following figures relating to the firms with the largest number of complaints:

Firm Number of complaints Number of PPI complaints

Bank of Scotland 13,021 9,945

Barclays 16,864 12,862

Capital One (Europe) 7,160 6,752

HSBC 10,072 8,791

Lloyds 19,569 16,965

MBNA Europe 12,500 8,551

National Westminster 5,628 4,234

Royal Bank of Scotland 5,863 5,225

Santander 6,434 1,659

Complaints about PPI therefore make up some 75% to 90% of the complaints against the major

banks in all cases with the exception of Santander. (Interestingly, of the Santander total, 4,038

complaints related to banking and credit.)

24. These figures are enormous and no doubt generated in part by recent publicity. What they

conceal, however, is a significant fall in the period April to June 2011 (in which 56,025 PPI complaints

were received) in the number of complaints upheld. The rate is now 55%, down from 66% in the full

year 2010-2011. This is only the eighth highest success rate for consumers, the highest being 74%

for credit broking. It seems likely that the volume of complaints and the success rate will both now

decline, as firms respond to the package put in place by the FSA and FOS. Nevertheless, it is clear

that very large numbers of people have been affected by this issue and will similarly be affected by

the redress that is being offered.

15

25. It is to be noted, in relation to any such action in wider implications cases, how limited the

constraints are on what may be done by the FSA and FOS. Even where legislation prescribes a

fairness test, the existence of legislation generally means that there are some parameters and a body

of case law will be built up which will be binding in accordance with the doctrine of precedent. The

operation of TCF and the determinations of FOS are not subject to similar restraints. In this context, it

is interesting to contrast the success of the FSA and FOS in the British Bankers’ Association case

with the ultimate failure of the Office of Fair Trading in Office of Fair Trading v. Abbey National plc

[2010] 1 A.C. 696, in which the OFT was unable to bring its challenge to the fairness of bank charges

(widely perceived as unfair, in some quarters at least) with the scope of the Unfair Terms in

Consumer Contracts Regulations 1999, S.I. 1999 No. 2083.

26. It is also clear that wider implications cases are effectively an invitation to claims

management companies to get involved. In issue 94 of Ombudsman News (June July 2011) it was

said that over half of all complaints are brought on behalf of the consumer by a third party and 45% of

complaints are brought by claims management companies. Issue 94 contains some interesting case

studies (read about the young man whose mother said he had been insulted by his credit card

company‟s suggestion that he had used his card at a gentlemen‟s club), which range from examples

where a claims management company provided an effective service for a complainant who would

otherwise have felt unable to bring a complaint, to the example of a company which cold-called the

complainant, assured him that it was highly likely he was entitled to compensation before finding out

whether he even had PPI insurance and went on to bring the claim without first discovering, since he

had repaid the loan and could not remember, that he never had had PPI insurance.

27. Claims management companies are not popular with banks, for obvious reasons, and are not

particularly popular with FOS, which thinks it is able to help people make complaints without

assistance and does not like to see part of their proper compensation go to the claims management

company. But the better ones do provide a service for those who lack the confidence to make their

own complaint. One of the other lessons to be learnt from the case studies is that a sympathetic and

helpful response at the first stage of the complaints handling process is more likely to encourage the

complainant to feel he or she can indeed manage alone, whereas an aggressive response in

technical language may be counter-productive.

28. On a different tack, it is ironic to note that both the FSA and FOS are sometimes on the

receiving end of allegations of unfairness. In general, these seem to be procedural. In 2005 the FSA

had to rewrite some of its enforcement procedures following criticism in an appeal brought by Legal &

General against a very substantial fine for the mis-selling of mortgage endowment products.

Previously there had been confidential communications and undisclosed contact between the

Enforcement Division and the Regulatory Decisions Committee which, as its name implies, makes

regulatory decisions. The instinct for procedural fairness seems to have been absent. The reports of

the Complaints Commissioner who deals with complaints against the FSA also show that the FSA

itself is not immune from the occasional problem of poor record-keeping, unreasonable delay, failure

to recognise a complaint and poor complaints handling.

16

29. Similarly, the independent assessor of FOS notes in his reports some justified complaints of

delay and failure to keep the parties properly informed. In an interesting report for 2008-2009 he

encouraged full disclosure of the response to the complainant where practical, to avoid the suspicion

that something was being concealed or that the response was inaccurately summarised. Again that

certainly seems a requirement of procedural fairness to those of us brought up in a more adversarial

system. Finally, he sounded a gentle warning note about oral hearings, expressing the view that the

system would be the poorer if the provisions for oral hearings fell into disuse.

30. One may reasonably hope to see root cause analysis by the FSA and the FOS of the

complaints made and a careful survey of their respective systems.

The future

31. In February 2011 the FSA published its Retail Conduct Risk Outlook 2011, which draws

attention to currently recognised areas in which there have been failings in fair treatment of

customers, including the PPI area. It also identifies areas of emerging risk, which include the

implementation of the Banking Conduct of Business Sourcebook. The FSA remains concerned at

what it describes as “widespread disengagement with the regime”. The FSA is also examining

reward policies and practices. Finally, the FSA has turned its attention to “potential concerns”, such

as products intended to replace PPI and the risks associated with bundling and cross- selling. Time

prevents an exhaustive consideration of the various risks identified, but it appears likely that there is

ample material to ensure that fairness as assessed by the regulator and FOS will continue to be a

highly influential matter in the next few years.

32. In conclusion, in FS11/2, Consumer Complaints - Emerging Risks and Mass Claims, the FSA

published a feedback statement on its discussion paper DP10/1, which had proposed a new Co-

ordination Committee of the FSA, the OFT and FOS to deal with cases of a kind previously dealt with

under the wider implications procedure. The proposal was largely supported and will proceed, subject

to such variations as are necessary to reflect the fairly imminent demise of the FSA and its

replacement, in this context, by the proposed Financial Conduct Authority.

33. So watch this space!

Elizabeth Ovey

21st September 2011

17

CONSUMER PROTECTION FROM UNFAIR TRADING REGULATIONS 2008

Introduction

1. The Consumer Protection from Unfair Trading Regulations 2008 (“the CPRs”) came into force

on 26 May 2008. The CPRs implement Directive 2005/29/EC on Unfair Commercial Practices

(“the Unfair Commercial Practices Directive”) into English law. The CPR‟s prohibit unfair

commercial practices from being applied to consumers.

Sources of guidance

2. There are various sources of guidance on the CPRs. Two useful sources are as follows.

2.1 The European Commission has issued guidance on the Unfair Commercial Practices

Directive entitled Guidance on the Implementation/Application of Directive 2005/29/EC

on Unfair Commercial Practices (2 December 2009).

2.2 The Office of Fair Trading (“the OFT”) and the Department for Business, Innovation and

Skills have issued joint guidance on the CPRs entitled Guidance on the Consumer

Protection from Unfair Trading Regulations (OFT 1008).

3. The recent decision of Mr Justice Briggs in Office of Fair Trading v Purely Creative Ltd [2011]

EWHC 106 (Ch) is also a useful resource. That decision was not appealed, although a

subsequent decision of Mr Justice Briggs in the same litigation has been appealed to the Court

of Appeal and is currently the subject of a reference to the European Court of Justice: Purely

Creative Ltd v Office of Fair Trading [2011] EWCA Civ 920. The cases of Office of Fair Trading

v Ashbourne Management Services Ltd [2011] EWHC 1237 (Ch), Tiscali UK Ltd v British

Telecommunications Plc [2008] EWHC 3129 (QB), and McGuffick v The Royal Bank of

Scotland PLC [2009] EWHC 2386 (Comm) also contain useful decisions regarding the CPRs.

4. The Unfair Commercial Practices Directive is a useful source for resolving interpretative

difficulties with the CPRs. The CPRs implement the Unfair Commercial Practices Directive into

English law. The Unfair Commercial Practices Directive is a so-called maximum harmonisation

directive, and issues of interpretation of the CPRs therefore depend essentially upon EU law.24

Scope

5. The CPRs apply to traders carrying out commercial practices directly connected with the

promotion, sale or supply of a product to or from consumers. The concepts of “trader”,

“commercial practice”, “product” and “consumer” therefore define the broad scope of the CPRs.

24

See paragraph 10 of Purely Creative Ltd v Office of Fair Trading [2011] EWHC 106 (Ch) and paragraph 86 of McGuffick v The Royal Bank of Scotland PLC [2009] EWHC 2386 (Comm).

18

5.1 “Trader” is defined in regulation 2(1) of the CPRs as: “any person who in relation to a

commercial practice is acting for purposes relating to his business, and anyone acting in

the name of or on behalf of a trader”.

5.2 “Commercial practice” is defined in regulation 2(1) of the CPRs as: “any act, omission,

course of conduct, representation or commercial communication (including advertising

and marketing) by a trader, which is directly connected with the promotion, sale or supply

of a product to or from consumers, whether occurring before, during or after a

commercial transaction (if any) in relation to a product”.

5.3 “Product” is defined in regulation 2(1) of the CPRs as: “any goods or service and

includes immovable property, rights and obligations”.

5.4 “Consumer” is defined in regulation 2(1) of the CPRs as: “any individual who in relation to

a commercial practice is acting for purposes which are outside his business”.

6. The CPRs therefore apply to financial services and consumer credit related activities of

financial institutions and other related operators, provided they involve an individual acting for

purposes outside his business. Importantly they apply to conduct of the trader before and after

sale of the product.

The prohibition on unfair commercial practices

7. Regulation 3 of the CPRs imposes a prohibition on unfair commercial practices by traders. In

particular the following unfair commercial practices are prohibited:

7.1 contraventions of the requirement of professional diligence which materially distort the

economic behaviour of the average consumer;25

7.2 misleading actions;

26

7.3 misleading omissions;

27

7.4 aggressive commercial practices;

28 and

7.5 commercial practices specified in Schedule 1 of the CPRs.

29

25

Regulation 3(3) of the CPRs.

26 Regulation 3(4)(a) of the CPRs.

27 Regulation 3(4)(b) of the CPRs.

28 Regulation 3(4)(c) of the CPRs.

29 Regulation 3(4)(d) of the CPRs.

19

8. After discussing certain key concepts in the CPRs below, I discuss these various categories of

unfair commercial practice.

Transactional decision and average consumer

9. The concepts of “transactional decision” and the “average consumer” play important roles in the

CPRs. I discuss these key concepts below.

9.1 “Transactional decision” is defined in regulation 2(1) of the CPRs as: “any decision taken

by a consumer, whether it is to act or to refrain from acting, concerning (a) whether, how

and on what terms to purchase, make payment in whole or in part for, retain or dispose

of a product; or (b) whether, how and on what terms to exercise a contractual right in

relation to a product”.

9.2 The assessment of commercial practices under the CPRs is carried out by reference to

the “average consumer”.

9.2.1 The Regulation 2(2) of the CPRs provides that in determining the effect of a

commercial practice on the average consumer where the practice reaches or is

addressed to a consumer or consumers, account shall be taken of the material

characteristics of such a consumer including his being reasonably well informed,

reasonably observant and circumspect.

9.2.2 Regulation 2(4) of the CPRs provides that in determining the effect of a

commercial practice on the average consumer where the practice is directed to a

particular group of consumers, a reference to the average consumer shall be in

read as referring to the average member of that group.

9.2.3 Regulation 2(5) of the CPRs provide that in determining the effect of a

commercial practice on the average consumer where a clearly identifiable group

of consumers is particularly vulnerable to the practice or the underlying product

because of their mental or physical infirmity, age or credulity in a way which the

trader could reasonably be expected to foresee and where the practice is likely to

materially distort the economic behaviour only of that group, a reference to the

average consumer shall be read as referring to the average member of that

group.

Contravening the requirement of professional diligence

10. Regulation 3 provides that a commercial practice is unfair if: (1) it contravenes the requirements

of professional diligence; and (2) it materially distorts or is likely to materially distort the

economic behaviour of the average consumer with regard to the product. Regulation 2(1) of the

CPRs defines “professional diligence” as the standard of special skill and care which a trader

may reasonably be expected to exercise towards consumers which is commensurate with

either (1) honest market practice in the trader‟s field of activity, or (2) the general principle of

good faith in the trader‟s field of activity. Regulation 2(1) of the CPRs defines “materially distort

the economic behaviour” as appreciably to impair the average consumer‟s ability to make an

20

informed decision thereby causing him to take a transactional decision he would not have made

otherwise.

Misleading acts and omissions

11. Regulation 5(2) of the CPRs provides that a commercial practice is a misleading action if: (1) it

contains false information and is therefore untruthful or if it in its overall presentation in any way

deceives or is likely to deceive the average consumer in relation to various specified matters;

and (2) it causes or is likely to cause the average consumer to take a transactional decision he

would not have taken otherwise. The various specified matters are set out in regulation 5(4)

and (5) of the CPRs, and include the existence or nature of the product, the main

characteristics of the product, the motives for the practice and the price.

12. Regulation 6 of the CPRs provides that a commercial practice is a misleading omission if: (1) it

omits, hides or provides material information in a manner which is unclear, unintelligible,

ambiguous or untimely or fails to identify its commercial intent; and (2) it causes or is likely to

cause the average consumer to take a transactional decision he would not have taken

otherwise. The material information is the information the consumer needs to take an informed

transactional decision. Where the commercial practice is an invitation to purchase, certain

information is deemed to be material by regulation 6(4), including the main characteristics of

the product and the price.

13. The causation test in regulations 5 and 6 of the CPRs has been interpreted as a sine qua non

test, which turns on whether, but for the misleading action or omission of the trader, the

average consumer would have made a different transactional decision from that which he did.30

The combined effect of all relevant misleading acts and omissions must be ascertained and

then subjected to the test of whether, taken in aggregate, they would probably cause the

average consumer to take a transactional decision which he would not have otherwise taken.31

Aggressive commercial practices

14. Regulation 7 of the CPRs defines aggressive commercial practices as those which: (1)

significantly impair or are likely to significantly impair the average consumer‟s freedom of

choice or conduct in relation to the product concerned through the use of harassment, coercion

or undue influence; and (2) thereby cause or are likely to cause him to take a transactional

decision he would not have taken otherwise.

Practices caught by Schedule 1 of the CPRs

30

Office of Fair Trading v Purely Creative Ltd [2011] EWHC 106 (Ch), paragraph 71.

31 Office of Fair Trading v Purely Creative Ltd [2011] EWHC 106 (Ch), paragraph 72.

21

15. Schedule 1 of the CPRs contains a list of commercial practices which are, in all circumstances,

considered unfair. The unfair practices include:

15.1 falsely claiming to be a signatory to a code of conduct;

15.2 displaying a trust mark or quality mark without authority;

15.3 falsely claiming a code of conduct, product or trader has endorsement from a body;

15.4 making an invitation to purchase a product at a specified price without disclosing

reasonable grounds for believing it will not be possible to supply the product at that price;

15.5 making an invitation to purchase a product at a specified price and then refusing to take

orders for it or deliver it within a reasonable time;

15.6 falsely stating a product will only be available for a short time to illicit an immediate

decision from consumers and deprive them of sufficient opportunity or time to make an

informed choice;

15.7 presenting rights given to consumers in law as a distinctive feature of the trader‟s offer;

15.8 making a materially inaccurate claim concerning risk to the personal security of the

consumer or his family;

15.9 passing on materially inaccurate information on market conditions with the intention of

inducing the consumer to acquire the product at conditions less favourable than normal

market conditions; and

15.10 describing a product as “gratis”, “free”, “without charge” or similar if the consumer has to

pay anything other than the unavoidable cost of responding to the commercial practice

and collecting or paying for delivery of the item.

Enforcement action

16. As regards enforcement action, enforcement authorities are under a duty to enforce the

CPRs.32

The provisions regarding enforcement contained in the CPRs are expressed to relate

to “enforcement authorities”, defined in regulation 2(1) to include the OFT, as well as local

weights and measures authorities and the Department of Trade and Investment in Northern

Ireland. Enforcement authorities have various powers to make test purchases and enter and

investigate.33

However in practice the primary enforcement route for the CPRs is via an

application under Part 8 of the Enterprise Act 2002 for an order under section 215 of the

Enterprise Act 2002 to prohibiting the unfair commercial practices from continuing. This is the

32

Regulation 9 of the CPRs.

33 Regulations 20 to 23 of the CPRs.

22

form which the OFT‟s enforcement actions took in Office of Fair Trading v Purely Creative Ltd

[2011] EWHC 106 (Ch) and Office of Fair Trading v Ashbourne Management Services Ltd

[2011] EWHC 1237 (Ch).

17. The Financial Services Authority (“the FSA”) is not an enforcement authority for the purposes

of regulation 2(1) of the CPRs. However the FSA is a designated enforcer for the purposes of

Part 8 of the Enterprise Act 2002 – the OFT is lead enforcer. The OFT and the FSA have

agreed a Concordat to co-ordinate enforcement action and cooperate with regard to the

delivery of consumer protection in relation to unfair commercial practices under the CPRs.34

Under this Concordat: (1) the FSA considers fairness within the meaning of the CPRs of

commercial practices in the financial services of authorised firms and appointed representatives

when they are undertaking a regulated activity specified in Part II of the Financial Services and

Markets Act 2000 (Regulated Activities) Order 2001 and payment service providers when

providing payment services specified in Schedule 1 of the Payment Services Regulations 2009;

and (2) the OFT considers complaints about unfair commercial practices in financial services

contracts where activities are governed by the Consumer Credit Act 1974. Under the Concordat

the FSA and OFT also agree to pass cases to each other insofar as they consider the other is

best placed to deal with them. The FSA‟s stated policy is to take forward cases under the CPRs

where there has been a breach and the FSA considers it is right to act, given its risk based

approach and the range of regulatory tools available.35

In practice where it identifies unfair

commercial practices, the FSA will probably be more likely to use its powers under the

Financial Services and Markets Act 2000.36

Criminal liability

18. As regards criminal liability, it is an offence for a trader to knowingly or recklessly engage in

commercial practices which contravene the requirements of professional diligence and which

materially distort or are likely to materially distort the economic behaviour of an average

consumer with regard to the product.37

It is also an offence to engage in a commercial practice

which: (1) is a misleading action (otherwise than by reason of a failure to comply with a

commitment in a code of conduct the trader has undertaken to comply with); (2) is a misleading

omission; or (3) is aggressive. 38

It is also an offence to engage in the commercial practices set

out in Schedule 1 of the CPRs (other than paragraphs 11 and 28). There are defences to

prosecutions for such offences: (1) where the offence was committed due to the default of

34

http://www.fsa.gov.uk/pubs/other/concordat_fsa_oft_08.pdf

35 http://www.fsa.gov.uk/Pages/About/What/International/ucp/index.shtml

36 See the FSA and OFT‟s Delivering better regulatory outcomes – December 2009 final update, page 10.

37 Regulation 8 of the CPRs.

38 Regulations 9, 10 and 11 of the CPRs.

23

some other person; (2) where all reasonable precautions and due diligence were exercised to

avoid committing an offence; and (3) where an advertisement was innocently published.39

Further consequences of contravention

19. The main direct consequences of contravention of the CPRs for a trader are therefore an

exposure to a risk of regulatory enforcement action and criminal liability.

20. A further important potential consequence of a contravention of the CPRs is that evidence

tending to show a person has contravened the CPRs can be taken into account by the OFT in

determining whether that person is a fit person to hold a consumer credit licence under section

25 of the Consumer Credit Act 1974. Evidence tending to show that an enactment regulating

the provision of credit or other transactions between individuals has been contravened may be

taken into account by the OFT in assessing the fitness of a person to hold a consumer credit

licence.40

The OFT will take into account contraventions of the CPRs in this regard.41

Evidence

tending to show a breach of the CPRs could result in the OFT refusing an application for a

consumer credit licence, refusing to renew a consumer credit licence, revoking an existing

consumer credit licence or imposing requirements on the holder of a licence.42

21. A contravention of the CPRs will not render an agreement void or unenforceable.43

The CPRs

do not confer any private law remedies on consumers. The Unfair Commercial Practices

Directive left it to Member States to decide whether to provide individuals with any private law

redress in respect of unfair commercial practices. It is clear from the Explanatory Memorandum

to the CPRs prepared by the Department for Business, Enterprise and Regulatory Reform (as it

then was) that the UK deliberately excluded any civil law remedies from the CPRs. In McGuffick

v The Royal Bank of Scotland PLC [2009] EWHC 2386 (Comm) Mr Justice Flaux held that the

CPRs did not confer any private right of action on individuals and that individuals had no locus

to seek relief under the CPRs.44

22. It is nonetheless possible that a contravention of the CPRs may have consequences for the

private law rights of two private parties in circumstances where a claim is pursued for

interference with a business by unlawful means. In such circumstances it may be possible to

rely on a contravention of the CPRs as the “unlawful means”.45

39

Regulations 16, 17 and 18 of the CPRs.

40 See section 25(2A)(b)(ii) of the Consumer Credit Act 1974.

41 See the Annex to the OFT‟s Consumer credit licensing – General guidance for licensees and applicants on

fitness and requirements (January 2008).

42 See sections 25, 29, 32 and 33A of the Consumer Credit Act 1974.

43 Regulation 29 of the CPRs.

44 See paragraphs 86 to 97.

45 See Tiscali UK Ltd v British Telecommunications Plc [2008] EWHC 3129 (QB).

24

Conclusions as to the nature of the CPRs

23. The CPRs may, in broad terms, be understood as seeking to ensure that consumers are not

prevented from exercising a free and informed choice as regards products on offer in the

market. This is reflected in the prohibition of misleading actions and omissions, failures of

professional diligence which impair consumers‟ ability to make an informed choice, and

aggressive conduct which impairs consumers‟ freedom of choice.

24. The CPRs reflect the approach taken in other recent consumer protection measures, such as

the Unfair Terms in Consumer Contracts Regulations 1999, in requiring more of traders to

ensure informed consent than the common law would require of them left to its own devices.

The CPRs represent a departure from the common law principle of caveat emptor. However

they do not impose an obligation of utmost good faith on traders,46

and the average consumer

is assumed to be reasonably observant and circumspect. The precise line between an average

consumer that is reasonably observant and circumspect, and one who is not, is not an easy

one to judge. This is particularly so, given that in determining the effect of a commercial

practice on the average consumer where a clearly identifiable group of consumers is

particularly vulnerable to the practice because of mental or physical infirmity, age or credulity,

references to the “average consumer” are to be construed as references to a member of that

group. This leaves significant scope for litigation in particular cases.47

25. The comments of Baroness Hale of Richmond JSC in Office of Fair Trading v Abbey National &

Ors [2009] UKSC 6 regarding the nature of consumer law in the UK hold good as a description

of the CPRs.

As a very general proposition, consumer law in this country aims to give the consumer an informed choice rather than to protect the consumer from making an unwise choice.

Baroness Hale of Richmond JSC went on to comment on the difficulties involved in such a

project, and possible alternative approaches not based on informed choice.

We buy all sorts of products which a sensible person might not buy and some of which are not good value for the money. We do so with our eyes open because we want the product in question more than we want the money. Should financial services be treated differently from other goods and services? Or is the real problem that we do not have a real choice because the suppliers all offer much the same product and do not compete on some of their terms? This is the situation here. But it is not clear to me whether the proper solution is to find some way of forcing the suppliers to compete with one another in the terms they offer or whether the solution is to condemn one particular model of charging for those services.

26. The provisions in the CPRs regarding the “average consumer” do enable the Courts to take into

account infirmity and credulity of consumers in certain circumstances, and may therefore be

46

See the comments of Briggs J at paragraph 74 of Office of Fair Trading v Purely Creative Ltd [2011] EWHC 106 (Ch).

47 See Verein gegen Unwesen in Handel und Gewerbe Koln eV v Adolf Darbo AG Case C-465/98 and paragraph

67 of Office of Fair Trading v Purely Creative Ltd [2011] EWHC 106 (Ch).

25

argued to reflect, to a limited extent, the alternative approach suggested by Baroness Hale.48

The absolute prohibitions in Schedule 1 included in the CPRs may also be regarded as

representing a movement in the direction of outright bans on certain practices. Although many

of the items in Schedule 1 of the CPRs may be justified as for inclusion on the footing that they

impair informed consent.

27. The approach of English consumer law after enactment of the CPRs can still be broadly

regarded as one based on informed consent, although with an increasing emphasis on the

consent being informed.

Mark Fell

Radcliffe Chambers

Lincoln‟s Inn

20 September 2011

48

The common law also makes allowance for particularly vulnerable parties: see, for example, Fry v Lane (1889) 40 Ch. D. 312 and, more recently, Hurstanger Limited v Wilson & Anor [2007] EWCA Civ 299. However these

allowances are more limited in scope than those which appear to be made by the CPRs.