Misleading offers: too profitable to quit

A recent article in the Guardian nicely points out that even though certain unfair commercial practices may be prohibited in Europe, even if such a prohibition is then enforced by national consumer protection agencies and courts against a particular trader, this may not discourage other traders to continue using such practices. (OFT crackdown on dodgy deals won't stop retailers from cashing in) No. 7 on the blacklisted unfair commercial practices by the Directive 2005/29/EC is to falsely create an impression that a particular product will be sold only for a limited time or that it will be available at a specific price for a limited time. I'm sure many of our readers were confronted with signs in shops stating 'Final sale', '70% off everything', etc. Often the 'final sale' sign is displayed for weeks, and prices showed as discounted are rather original goods' prices (since they often apply to goods for longer than the 'original' price). Such practices are used to mislead consumers into thinking that they have to buy a product rather than miss on a really good deal and unfortunately consumers tend to be very easily led into such a reasoning. The Office of Fair Trading in the UK had a few successful cases against traders making such misleading claims, e.g., recently Tesco was fined for displaying strawberries' price as half-priced, while these strawberries were sold at original price for only two weeks, and at a discounted price for more than three months (Plucky pensioner costs Tesco £300,000 in victory from beyond the grave). Unfortunately, often the profit made from such controversial sale practices will be much higher than a potential fine placed on a trader by the authorities. In the Tesco case it is estimated that the profit the company made from the sale of 'not-really-discounted' strawberries was 8 times higher than the fine. It seems, therefore, that we may have reached a stalemate in consumer protection. Unless the enforcement agencies and courts would control more of the market for such practices and be willing/ have authority to take away all of their profit (if not more), it is hard to see why the traders would start complying more with unfair commercial practices rules.

Flight tickets' price transparency

The European Consumer Organisation, BEUC, sent two letters this April regarding price transparency of airline tickets to Association of European Airlines and European Low Fares Airline Association. The letters are based on the UK Office of Fair Trading decision regarding surcharges in the air transport sector. The OFT considers separation of compulsory charges from the headline prices as misleading to consumers (which is in accordance with Art. 23 of the Regulation 1008/2008). Moreover, the OFT decided that if surcharges for the use of debit cards (standard online payment mechanism) are added to the final price, this would pose a serious obstacle to any price comparison that consumers were making. The OFT informed the airlines operating from the UK that they had till December 2012 to comply with price transparency guidelines and most of them adapted their policies. The BEUC argues now for the Associations to recommend these guidelines to all their members, so that all consumers across the EU were confronted with the same price transparency rules.

Pay in order to pay - EU intends to ban fees for paying by credit/debit cards

One of the changes that the new Consumer Rights Directive will hopefully bring into the European consumer law (according to the text of Recital 54 of the draft by the European Parliament of the 23rd of June 2011) is a prohibition for the traders to put excessive surcharges on consumers for making payments by use of debit or credit cards online. Recital 54 points out that according to art. 52(3) of Directive 2007/64/EC on payment services in the internal market the traders could only put such fees on consumers that would compensate them their own cost for enabling such payment methods to consumers.

Introduction and enforcement of this rule would be a welcomed change by all consumers, consumer and fair trading organizations. Anyone who ever tried booking a ticket for a flight online or a train/ bus ride knows that at one point in your booking process you come to a website that adds more to your final price due to the consumer choosing to make a payment via a debit or a credit card. However, consumer's 'choice' is illusory, since often the service provider makes debit/credit card payment an only viable option. If the service provider charged the consumer for use of a debit/credit card accordingly to the cost that it had to make himself, that would be an understandable and reasonable addition to the price of the service (though, still, it could be indicated to the consumer at the beginning of the purchase process). However, the service providers often charge consumers amounts that are not reflecting the actual cost of payment by the financial means being used. As a result, service providers benefit additionally from these extra fees, and consumers are being misled as to the final price they would have to pay for the service. Hopefully, the new European regulation would lead to the introduction of a ban of such practices in all Member States.

More on such practices and problems with their regulation in UK can be found in recent articles on the OFT website (OFT to take action over passenger travel sector payment surcharges after the consumer rights group Which? logged a complaint about these practices with OFT earlier this year), in the Guardian (Debit and credit card surcharges under OFT microscope), Mail Online (Budget airlines told to stop 'unfair' fees on debit cards by OFT), Sky News (Travel Firms Ordered to Scrap Charges). As you can see it's quite a 'hot' subject at the moment.

OFT v Purely Creative: the English High Court on unfair commercial practices

Last month the English High Court handed down the first decision addressing the substance of the English implementation of the Unfair Commercial Practices Directive. The defendant, a company called Purely Creative, sent letters and scratch cards to a large number of addressees throughout the UK. While prizes could indeed be claimed, Purely Creative made money by charging consumers costs to win the prizes – costs that generally exceded the value of the prizes.

The High Court addresses the trade practices from different angles within the Consumer Protection from Unfair Trading Regulations, which implement the Unfair Commercial Practices Directive in the UK. Apart from examining the practices in the light of the general prohibitions of misleading trade practices and misleading omissions, the court also investigates whether the practices are in breach of paragraph 31 of the black list. This paragraph specifically addresses giving consumers the false impression that they have won a prize, while they have to incur costs to claim the prize (see the judgment for interesting interpretation issues on this provision). The result: the court finds many of the trade practices of Purely Creative unfair, both on the basis of the general prohibitions as on the basis of the black list.

Click here for the full judgment, available on the OFT website. Alternatively, click here for an exclusive chance to become a millionaire.

OFT publishes research on consumer contracts and small print

Yesterday the Office of Fair Trading (UK) published a report on how consumer deal with contracts and in particular with small print. The main aim of the investigation was to develop a systematic approach for determining the effects of consumer contracts, in order to be able to better identify the priorities for enforcement.

As could be expected, one of the findings was that consumers rarely read small print in contracts. The reasons consumers give is that they do not expect the terms to be negotiable, that they rely on the reputation of the company they are dealing with, or that they simply do not have enough time. But the report also goes into questions regarding e.g. the understanding of contract terms by consumers and to what extent consumers learn from bad experiences in the past.

For more background information and the report, click here.