New consumer landscape: potentially disruptive consequences for the automotive industry

The Consumer Rights Bill, which is currently in the final stages of its passage through Parliament, is intended to “bring together, improve and update consumer law.”+ Once passed, it will bring about considerable changes to consumer rights and remedies, which may prove to be costly and disruptive for suppliers generally and particularly those in the automotive industry where the resultant obligations may exceed those traditionally provided for in manufacturers’ warranties.

The Bill in overview

The Bill is a keystone of the UK government’s consumer law reform programme and will implement the Consumer Rights Directive 2013. Its stated purposes are to:

• clarify the standards a consumer can expect when they buy something 
• set out what to do when goods, services or digital content don’t meet those standards 
• clarify when terms and conditions can be considered unfair 
• simplify enforcement powers 
• make it easier to deal with rogue traders
• make it easier for consumers and small businesses to take legal action against bigger companies breaking competition laws 

It will apply not only to sales contracts, but also to hire contracts, hire-purchase agreements and contracts for transfer of goods.

What are the new consumer rights and remedies?

Whilst the Bill consolidates existing legislative provisions as to implied terms (which broadly will remain the same) and pre-contractual information rights into a single piece of legislation, it also introduces new remedies which will create greater certainty for consumers. For example, a consumer will have a specified period in which to reject goods which are defective or in breach of the implied terms. There will also be a ‘one shot’ regime for the repair of faulty goods.

In summary these new rights are:

• ‘Short term’ right to reject: Within the first 30 days after purchase, a consumer has a ‘short term’ right to reject the goods if they are faulty. The consumer is entitled to treat the contract as at an end and receive a refund. The consumer is not obliged to give the trader the opportunity to repair or replace the goods (though he/she may elect to do so).
• Right to repair or replacement: During the first six months after delivery, the consumer can require the trader to repair or replace the goods (as any fault or defect arising during this time is presumed to have existed at delivery, unless the trader can show otherwise (i.e. prove that the fault has arisen as a result of the consumer’s actions, or another external factor)). The trader must provide the repair or replacement, at its own expense, within (i) a reasonable time and (ii) without significant inconvenience to the consumer. The consumer cannot, however, insist on repair where this would be disproportionate to the costs of providing a replacement, or vice versa (the latter being particularly relevant to complex products such as motor vehicles).
• Right to a price reduction or final right to reject (the ‘one shot’ rule): Where goods have been repaired or replaced and are still non-conforming (or where repair or replacement is not possible or achievable within a reasonable time), the consumer has the right either to keep the goods and insist on a price reduction of an appropriate amount (e.g. to reflect the decreased value of the goods as attributable to the fault) or to reject the goods and obtain a full refund. The trader must bear the cost of returning the goods. The legislation does not provide for any express time limit on these remedies, however after six months they are likely to be less attractive as the consumer must show that the fault existed at delivery (since the presumption above falls away) and he/she may not, in any event, be entitled to a full refund (as the trader is also permitted make a deduction for use).

Corresponding remedies apply in relation to provision of services. These ‘new’ rights are in addition to any other relevant consumer remedies (e.g. to claim damages and the new compensatory remedies in respect of any breach of any pre-contractual information obligations).

What will this mean for the automotive industry?

The consequences for the motor industry are potentially wide-ranging. Examples of common scenarios and relevant considerations may include:

Repair processes

• Multiple repairs: A consumer request/agreement for repair may apply to one fault or more than one fault; however the trader only has ‘one shot’ at the repair process. Consequently, if one component of a vehicle is repaired or replaced but then later fails again or, seemingly, if a second unrelated component fails, then the ‘escalated’ rights to price reduction or final right to reject are automatically triggered. This ‘one shot’ regime, coupled with the rights to reject or to a refund are a key concern for vehicle manufacturers. The Bill defines “repair” as “making [the goods] conform” but includes no greater detail on this point. Consequently the motor industry body SMMT has been lobbying for the definition to refer to a “process of repair” (to indicate that within a repair the consumer may have to make the goods available to the trader on more than one occasion); however this wording has not been adopted in the amended Bill. The SMMT further lobbied for amendment to the restrictive reference in draft BIS guidance to a “single attempt at repair”; however it is increasingly looking like their efforts have proved fruitless as BIS has consistently stated that the rationale behind the rule is to provide a clear cut off point and prevent consumers being locked in a cycle of (failed) repairs (BIS is expected to publish its final guidance on the Bill in April 2015). Businesses are therefore likely to have to provide more expensive forms of redress at an earlier stage than previously, unless the consumer chooses to accept additional repairs before moving to the escalated remedies.
• Consumer convenience: Repair processes must not cause significant inconvenience to the consumer raising the prospect that it may be unreasonable for a trader to expect the consumer to transport a faulty vehicle to a garage/dealership that is located at some distance from their location or home. This may have onerous implications as regards the necessary levels of service when conducting repairs. 

Refunds and deductions 

• Exposure for refunds: The obligation to refund the consumer where they reject the goods clearly has significant potential consequences for high-value goods such as motor vehicles. Generally reductions to the refund given (e.g. to reflect the consumer’s use of the goods) are not permitted within the first six months after the consumer acquires the goods, however, as a concession unique to motor vehicles, such reductions are permitted from the outset. 
• ‘Forecourt value’ calculations: Any deduction to a refund may only take account of the use that a consumer has had of the vehicle; the latest BIS guidance suggests that this is not necessarily linked to the second-hand value of the goods. This creates an inherent tension between the drop in value of a new car once ‘driven off the forecourt’ and the fact that the consumer’s ‘use’ may not amount to much more than driving the vehicle a few miles from the showroom to his home. 
• Part-exchanges: as part of the right to reject, the consumer has the right to receive back in its original state whatever they transferred for the goods. In the context of part-exchange vehicles this will often not be possible operationally, creating great uncertainty as to how this right will be implemented in practice. As yet no guidance has been issued on this point. 

Car sales

• Manufacturer’s warranty: The implied terms and remedies cannot be excluded and as such the traders will need to ensure that their terms comply with the new law to avoid being invalidated by it. There is no obligation to explain the new rights and remedies to the consumer; however any guarantee must state that the consumer’s statutory rights are not affected by that guarantee. 

Next steps: How should the automotive industry prepare for the new law?

Subject to parliamentary approval, BIS intends the Bill to come into force on 1 October 2015. In advance of that date, traders operating in the motor industry should: 

• review existing policies and procedures internally and at all levels of the supply chain to ensure the new consumer rights and remedies will be accommodated and observed; 
• review and update standard consumer terms and conditions to ensure existing provisions (e.g. regarding liability, exclusions of refunds etc) will not be invalidated by the new law; 
• assess communications with suppliers and customers at all levels of the supply chain for consistency with the new law; and 
• train their employees in the new consumer rights and remedies.

*This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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+ Department for Business, Innovation & Skills (Consumer Rights Bill website).