Do I have to comply with consumer law?
Whether a business needs to comply with consumer law is a question that we get asked by clients regularly. The concerns being that if a business which predominantly sells to other businesses has to comply with consumer law, this will:
- increase the burden and cost of compliance;
- result in some customers changing their minds and requesting refunds;
- lead to customers seeking refunds and redress for faulty or unsatisfactory goods or services (even if this is not really the case); and
- expose them to investigations and sanctions by Trading Standards and other bodies.
When does consumer law apply?
The first question to ask is whether you sell goods or services to consumers. This is a question of fact and the answer will not always be obvious, unless you run a shop on a high street or an online store selling consumer products.
A “consumer” is defined as:“an individual acting for purposes which are wholly or mainly outside that individual’s trade, business, craft or profession”
Conversely, a “trader” is defined as:“a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf”
Unfortunately, you cannot assume that every customer you deal with is a trader because of the appeal that your goods or services have or the way in which you market them. For example, suppliers of plumbing and electrical goods aimed at tradesmen also allow “DIYers” to buy their products online and in-store at industrial parks too.
If a customer seeks to rely on their consumer rights, claiming that they are a consumer for the purposes of consumer law, then it is up to you as the trader to disprove this. Some factors that you may take into account in assessing this could include:
- whether the goods or services were ordered in the name of an individual or a business, for example, a trading name or the name of a limited company – limited companies and other incorporated businesses such as limited liability partnerships can never be consumers because they are not individuals;
- how payment was made, for example, using a personal or business debit or credit card and whether any trade discount was granted to the customer based on information provided by them; and
- historic sales made by the customer which may indicate that the customer is not purchasing goods or services for their own personal use.
But what happens if a customer has a ‘split personality’ and buys goods or services for business and personal use? Would they be a trader or a consumer? This can be particularly difficult to figure out in the case of sole traders, who may fall into either category depending on which ‘hat’ they were wearing at the time they made their purchase.
This is where the words “wholly or mainly” in the definition of consumer come into play. The phrase, which is not used in the European Directive on which the UK law is based, appears to extend the definition of consumer to an individual buying goods or services for mixed purposes. Whether or not a court would interpret the definition of consumer in this way remains to be seen.
So where does this leave you?
You may be tempted to slap a sign on the front door or a banner on your website which says ‘No consumers allowed’ or ‘Trade sales only’, in an attempt to avoid the need to comply with consumer law.
While it is not illegal to discriminate against a customer merely because they are not a trader (though refusing to sell to a consumer for other reasons such as their gender, race or sexual preference would be), this approach could be difficult to enforce and sales to consumers may actually make up a respectable or considerable proportion of a trader’s overall sales.
The burden and cost of complying with consumer law may actually be less than feared when compared with the revenue generated from selling to consumers who are happy with their purchases. Businesses should not forget that even traders have rights under the law in relation to goods or services that are not of satisfactory quality or fit for purpose.
There are no minimum thresholds for compliance with consumer law. If you sell goods or services to a single consumer, you must comply with consumer law. A failure to comply with consumer law can result in enforcement action being taken by regulatory authorities and may even enhance the rights that consumers have under consumer law in the first place. For example, under the distance selling rules which came into force in June 2014, if a trader fails to inform consumers of their cancellation rights, the cancellation period can be extended up to 12 months and 14 days from the date of their purchase.
As we see it, this leaves you with three options depending on the nature of your goods, services and customer base:
- The closed door: Adopt the ‘No consumers allowed’ approach and accept the risk that a customer may claim that they are a consumer and therefore entitled to certain rights under consumer law. As noted above, ignorance of consumer law is no defence where you are unable to prove that a customer was in fact a trader – but some businesses may consider this a risk worth taking;
- The half-way house: Adopt a two-tier approach whereby you have one set of terms and conditions for traders and another set for consumers. For this to work effectively, you would need some way of confirming whether a customer is making a purchase for business, personal or mixed purposes. This approach is most likely to work when there are two distinct sales channels for your products (for example, doorstep selling to consumers and a trade sales catalogue sent to traders). It may also be possible to ask whether a purchase is being made for “personal” or “business” purposes at the time of purchase. This approach has the potential to create confusion for customers, sales agents and management; or
- The open door: Fully embrace compliance with consumer law in your terms and conditions, sales and after-sales processes. Instead of worrying about whether a customer is a consumer instead, if the situation arises, you would need to consider whether a customer is a trader. That way, you will have complied with consumer law if you cannot prove this. You can also, drawing on the second option, include some provisions in your terms and conditions around liability and refunds which only apply to traders.
Often, we find that the question perhaps reflects a lack of understanding about consumer law. While, as you would expect, consumer law is very much written in favour of consumers, a thorough understanding of consumer rights can give you the confidence you need to deal with consumer rights issues.
We advise a wide variety of clients on consumer law issues. In addition to preparing compliant terms and conditions, we can also advise on sales processes, documentation, policies and provide in-house training to sales and management teams.