Consumers' attitudes to Terms and Conditions (T&Cs)

The European Commission has published a study on "Consumers' attitudes to Terms and Conditions" conducted by a consortium consisting of Ecorys, Tilburg University, University of Amsterdam and GfK. The legal expertise was provided for this study by Marco Loos (CSECL, University of Amsterdam) and Joasia Luzak (CESL, University of Exeter; CSECL, University of Amsterdam). Within the study experiments were conducted to, among other things, examine how quality cues impact consumer attitudes to standard terms and conditions, whether the length and complexity of text of disclosure matters etc. The Commission announces that the results of this study will inform the ongoing review of EU consumer and marketing law, as they are relevant both for the revision of Unfair Contract Terms Directive and the Digital Single Market proposals. No specific plans have yet been announced though.

The final report is available here.

Abstract:

Previous research has shown that when buying products and services online, the vast majority of consumers accept terms and conditions (T&Cs) without even reading them. Although by not reading the T&Cs consumers are disempowering themselves, this behaviour can be viewed as rational from a cost-benefit perspective. As such, it would be unrealistic but arguably also unnecessary to expect all consumers to read and comprehend all T&Cs that they encounter: In most cases these T&Cs will not have an impact on the performances of the parties. On the other hand, even in such cases consumers may want to have a short look at the T&Cs in order to assess the reliability of the trader with whom they are about to conclude a contract. Therefore, this research took on a dual approach as to how to help consumers assess the substantive quality of the T&Cs.

The first approach was to increase readability. We investigated whether readership and understanding would be increased by shortening and simplifying the T&Cs. The assumption was that some consumers are motivated to be informed about (specific parts of) the T&Cs before making a purchase. If consumers are motivated to read the T&Cs, they should be able to understand this information. This approach is in line with the case-law of the Court of Justice pertaining to the requirement in Article 5 of the Unfair Contract Terms Directive (UCTD) that terms and conditions must be drafted in plain and intelligible language. According to the Court, this requirement implies that terms must be drafted in such language that the average consumer can foresee, on the basis of clear, intelligible criteria, the economic consequences which derive from these terms for the consumer. Shorter and simpler T&Cs could contribute to the readability of the T&Cs and therefore to better consumer decisions regarding whether or not to conclude the contract with a particular trader.

The second approach was to create effortless awareness. This approach was not focused on increasing the share of consumers who read the T&Cs per se. Rather, it investigated how consumers can be made more aware of the content of the T&Cs, or at least of the quality thereof, without them spending much more effort. To that extent, we investigated whether trust in the T&Cs and purchase intentions would be increased by adding a quality cue to the online store, such as the presence of a logo of a national consumer organisation accompanied by the statement “these terms and conditions are fair”. The assumption was that when the T&Cs were accompanied by such a statement, consumers would trust the content of the T&Cs more and would therefore be more willing to conclude a contract with that trader compared to traders that did not accompany their T&Cs with such a statement. Again, this may then contribute to better decision-making by consumers regarding whether or not to contract.

 

On the basis of our findings, we have made the following policy recommendations:

1. To improve readership, T&Cs could be presented in a default exposure format.

- The study shows that where consumers can access the T&Cs by clicking on a link, only a small percentage of consumers (9.4%) opened the T&Cs in the absence of a quality or reading cost cue. When the T&Cs were directly provided on the screen and consumers had to scroll through them, only 22.1% indicated that they did not read the T&Cs at all, compared to the 90.6% in the voluntary exposure experiment. How much readership can be improved by this measure needs to be investigated in further experiments that directly compare free and default exposure conditions on the same outcome measure.

2. To improve readership and understanding, T&Cs could be standardised and presented in a simple and short format, containing no more than the most relevant information.

- From the perspective of general consumer law and product-specific regulations, certain information must be disclosed to consumers by traders. Standardised forms for providing this information may facilitate reductions in length. This study suggests that T&Cs do not need to be long and complex, and traders actually have a commercial and legal interest in keeping T&Cs short and simple.

- When the T&Cs were simplified and shortened, more consumers indicated that they had read the T&Cs. For example, when the T&Cs were extremely short and simple, 26.5% reported to have read the whole T&Cs compared to only 10.5% in the standard long and complex T&Cs condition. Consumers also understood the T&Cs better when they were short and simple. This was found on an objective comprehension test about the content of the T&Cs as well as on consumers’ self-report on how easy or difficult it was to comprehend the T&Cs.

- Moreover, consumers’ attitudes towards the T&Cs were influenced by the length and complexity of the T&Cs. Simple and short T&Cs were trusted more than long and complex ones. Consumers were also more satisfied with the content of the T&Cs, felt less frustrated while reading them, and felt that reading them was more worth their time when the T&Cs were simplified and shortened. It should be emphasised that in this part of the experiment the length and complexity of the T&Cs differed but their substance did not. This suggests that it is indeed the length and complexity of the texts as such that influence the trust that consumers have in the fairness of the T&Cs, irrespective of the content.

- Importantly, consumers indicated that they did not miss relevant information in the short and simple T&Cs. Thus, despite shortening them, the T&Cs appeared to contain all relevant information of the longer version, at least from consumers’ viewpoint. This suggests that the shorter T&Cs were at least equally effective in providing the necessary information as the longer and more complex T&Cs.

- The effects did not depend on whether the online store was domestic or foreign (meaning that the effects were present on both types of online stores), and hardly differed between countries.

- Shortening the T&Cs is in line with other European legislative instruments. In this respect it is important to note that under the Consumer Rights Directive (CRD) traders need to present a list of information items in a clear and comprehensible manner before the consumer is bound by the contract. This information needs to be actively presented to consumers and cannot be buried in the T&Cs. Similarly, relevant practical information could possibly be included in the FAQ section at a website instead of in T&Cs, thus further enabling traders to shorten the T&Cs.

3. To improve readership of T&Cs, a statement with an estimation of the time it takes to read the T&Cs could be added (a reading cost cue). If providing such a reading cost cue is made mandatory it may also work as an incentive for traders to reduce the length of their T&Cs.

- Experiment 2 showed that readership of the T&Cs was influenced by the presence of a reading cost cue. In one condition, we added the message that “reading the terms and conditions takes less than five minutes” next to the link by which the T&Cs could be accessed. This reading cost cue increased the number of consumers opening the T&Cs from 9.4% to 19.8%. Moreover, the time spent on the T&Cs indicated that when a reading cost cue was present, respondents who opened the T&Cs also spent, on average, more time on that page than respondents who opened the T&Cs when no such reading cost cue was present.

4. To increase effortless awareness of the T&Cs, quality cues may be helpful. Customer feedback, national consumer organisation endorsement, and European consumer organisation endorsement cues can be used, as they positively influence trust and purchase intentions. The most positive effects are achieved with a national consumer organisation endorsement cue on domestic online stores, and with a European consumer organisation endorsement cue on foreign online stores.

- Adding a quality cue indicating that the terms and conditions are fair had an effect on consumers’ trust in the T&Cs and their purchase intentions. Adding a customer feedback quality cue, an endorsement by a national consumer organisation, and an endorsement by a European consumer organisation increased trust and purchase intentions. These positive effects were found on domestic as well as foreign online stores (though more pronounced on domestic stores) and on existing as well as non-existing online stores.

- The quality cues were not all trusted to an equal extent. Although all cues had positive effects, a positive customer feedback cue was trusted the least, indicating that (supposed) endorsement by customers is trusted less than (supposed) endorsement by a consumer organisation. Which of the consumer organisation endorsement cues was trusted the most depended on the type of online store. On domestic online stores, a national consumer organisation endorsement cue was trusted the most. On foreign online stores, a European consumer organisation endorsement cue was trusted the most.

- A promise-to-be-fair by the seller and expert endorsement sometimes decreased trust and purchase intentions. This study therefore does not find evidence to support the promotion of such quality cues.

– Adding a quality cue seems to be effective on both familiar and unfamiliar online stores, although the effects appear to be larger on familiar online stores. Preliminary study 2 highlighted that the positive effects of adding a quality cue are more pronounced on existing (familiar) than on non-existing (unfamiliar) online stores. A similar result was found with subjective familiarity. The main study did, however, also find positive effects on non-existing (unfamiliar) online stores (experiment 3). Taken together, these findings suggest that the effects of adding a quality cue are present on existing (familiar) and non-existing (unfamiliar) online stores, although the effects are sometimes more pronounced on existing (familiar) online stores.

- When deciding on whether to add a quality cue to an online store, differences across Member States do not appear to be so large as to warrant that they be given much weight.

5. Policy may also focus on raising general and specific awareness, thus making consumers more aware of their basic rights.

- Both preliminary studies demonstrated that consumers’ knowledge of consumer rights (general awareness) is limited. Interestingly, consumers' self-reported knowledge is not equally low, indicating that consumers are generally unaware of their lack of knowledge.

- In order to raise general awareness, one can think of information campaigns initiated by governments, consumer authorities, or consumer organisations through media channels or at the point-of-purchase (e.g. when entering a mall).

- Finally, policy may focus on raising specific awareness. An example is that information about the delivery period and length of the right of withdrawal and commercial guarantee must be mentioned on the first page/screen of the order form, as this is typically the type of information consumers need before they can make their decisions.