Government will not demand expanded consumer protection in new EU Directive

The Commission is conducting negotiations on a new Consumer Rights Directive and the Government asked businesses, consumer groups and individuals whether existing protections for consumers from terms in contracts that courts deem unfair should be extended to elements of a deal that are at its periphery.

Charges such as extra fees for luggage, package holiday surcharges or refuelling charges for hire cars are 'ancillary' or 'contingent' to a consumer contract, they are not the focus of a deal struck with a retailer.

The Government consulted on whether these should be covered by the same consumer protection laws as a contract's main provisions following a ruling by the Supreme Court that charges levied by banks on consumers were not unfair.

"The Supreme Court judgement in the OFT v Abbey National plc case has led to concern in some quarters as to how UK legislation on unfair terms in consumer contracts applies to charges that are 'contingent', or 'ancillary' to the core of the contract," said the Government consultation (10-page / 64KB PDF).

It wanted to know what position it should adopt with the Commission in negotiations over the scope of the proposed Consumer Rights Directive.

Businesses claimed that extending the protection was unnecessary because competition in the market operated on these prices just as it did on main prices. They also argued that if ancillary prices were more tightly regulated then headline prices would have to rise.

"Many business respondents anticipated that pricing models would need to be re-evaluated to avoid the uncertainty of not knowing if any of the charges might be subject to a claim for unfairness," said the consultation. "They argued that the 'Waterbed' effect – where suppliers seek to recover lost revenues from all consumers through, for example, higher retail prices – could lead to increases in headline prices to cover all contingent costs. They also claimed that additional regulation could restrict competition and opportunities for innovation."

Businesses told the Government that pricing transparency was the best way to ensure fairness for consumers.

Consumer groups disagreed, arguing that consumers are most influenced by 'headline' prices, and that they pay less attention to charges that may not become due for many years.

Consumers should be protected from unfairness in those charges just as they are in main prices, the groups argued.

"Consumer group respondents argued that many of these charges may well be unfair because they create a significant imbalance of power between the consumer and the business," said the Government response. "The charges exploit the consumers’ inability or failure to fully understand the terms of their contract. Some also argued that there is a proliferation of charges that are about making additional money out of contracts in a less than transparent way."

The Government has opted not to lobby in Brussels for the extension of the proposed Directive to ancillary charges. It said that the Directive will order only minimum harmonisation of rules on unfair terms, leaving Government with the ability to legislate at a national level to protect consumers.

"It is likely that only parts of the Consumer Rights Directive will be adopted on a full harmonisation basis," the Government's response said. "Recent discussions have indicated that the relevant provisions on unfair contract terms will be adopted on a minimum harmonisation basis which would enable Member States to apply their own rules. This means that the UK would still be free to regulate this matter internally in domestic law, even if the present text of the Directive remains unchanged."

"Waiting to decide on a possible change to the legislation at a domestic level will allow more time to decide on whether the change is desirable, and more time to assess the potential impact of the change," it said.

The proposed Consumer Rights Directive has provoked controversy, with the European Parliament opposing Commission plans for full harmonisation of consumer protection law because that would reduce protections in countries with strong existing laws.

The Commission admitted earlier this year that it had given up on the idea of full harmonisation, and a Committee of the Parliament said last week that the Directive still did not offer consumers enough protection.