Consumer Law and Policy

Text and Materials on Regulating Consumer Markets

Iain Ramsay

• Publisher: Hart Publishing
• Year: 2012
• Print ISBN: 9781849462624
• eBook ISBN: 9781782250241
• Edition: 3
• Topic: Law
• Subtopic: Consumer Law
• Index: Law

This new edition continues to provide a critical introduction to the legal regulation of consumer markets, situating it within the context of broader debates about rationales for regulation, the role of the state and the growth of neo-liberalism. It draws on interdisciplinary sources, assessing, for example, the increased influence of behavioural economics on consumer law. It analyses the Europeanisation of consumer law and the tensions between neo-liberalism and the social market, consumer protection and consumer choice, in the establishment of the single market ground rules. The book also assesses national, regional and international responses to the world financial crisis as reflected in the regulation of consumer credit markets. This edition incorporates recent legislative and judicial developments of the law, blending substantial extracts from primary UK, EU and international legal materials.

1

Setting the Context

This book is about contemporary regulation of consumer markets. It analyses the reasons for consumer law and policy and the different approaches to regulation of the price, quality and terms of consumer products and services. It provides an opportunity to assess the role and limits of consumer law and policy in addressing the pathologies of affluent consumer societies such as overindebtedness and to assess whether consumer law is a progressive form of law or merely a subaltern in the onwards march of neo-liberalism. The growth of a regulatory state in the UK and the EU provides the backdrop to current consumer law and we explore the ideas and institutions associated with this new form of state and their effects on consumer law and policy. Regional (EU) and international developments and institutions increasingly structure consumer law and policy. Consumer law is part of the establishment of the ground rules of the EU internal market and the development of transnational private regulation (Cafaggi, 2011).

‘Consumer law’ could be understood as all laws and regulations affecting consumption and the structuring of consumer markets. This would include most of the legal system—competition law, intellectual property, etc, and we focus primarily on traditional areas of consumer law. However, we use these areas—consumer credit, advertising, product safety—to illustrate some of the difficult economic, political and institutional choices that are embedded in choices of legal framework for markets. Consumer law is an instrumental form of law and requires reflection on the relationship of law to behavioural norms in markets, and the complexities of the relationship between these norms.

1. The development of consumer law and policy

Many assume that the ‘consumer society’ is a recent phenomenon, which developed after the Second World War. For the past two decades historians have, however, argued over the ‘birth’ of the consumer society which may date from at least the eighteenth century (Stearns, 1997; Brewer, 2003; Trentmann, 2006). While this should make us wary of associating the consumer society with the contemporary era, this is the focus of this text. But what is a consumer society? Benson offers the following starting point:

[T]hey are societies … in which choice and credit are readily available, in which social value is defined in terms of purchasing power and material possessions, and in which there is a desire, above all, for that which is new, modern, exciting and fashionable. (Benson, 1994: 5)

Avner Offer locates ‘affluent’ societies in the post-Second World War period, noting that since that time ‘the markets of Western Europe and the United States have delivered a flow of novel and compelling opportunities, services and goods. North America and Europe are about three times as rich as they were in 1950. I call that affluence’ (Offer, 2006:1). The changing nature of consumption and consumer markets since the Second World War provides the context for understanding present-day consumer regulation in the United Kingdom. During this period, the consumption of durable goods increased enormously, continuing the growth of the mass consumer markets which had developed during the interwar years (Atiyah, 1979; Stevenson, 1984). Margaret Hall, an economist, wrote in 1960 that the consumer sector during the 1950s was marked by several features, including (Hall in Warswick and Ady, 1962: 429, 457)

growth in consumers’ real income and the emergence of mass ‘middle class’ purchasing power … a rapid growth in the demand for consumer durable goods, such as motorcars, radios and television sets … the development of hire-purchase … [and] an explicit recognition of the consumer’s interest, evidenced, for example, by the formation of consumers’ associations and by legislation against restrictive practices. …[She concluded that] consumption is becoming more of a social force than production.

The growing affluence of the population during this period, coupled with changes in occupational structure, provided a large and stable consumer market which seemed to presage the development of a ‘consumer society’ similar to that which existed in North America. The development of a large middle group of technical and administrative occupations, a characteristic of advanced capitalism, might, it was thought, break down traditional class barriers (Halsey, 1986: 32). Some sociologists developed an ‘embourgeoisement’ argument—that the working class was gradually being assimilated, through consumption of products similar to those of the middle class, to the style and manners of that class (compare Goldthorpe et al, 1969, 1987). Antony Crosland had argued in The Future of Socialism that ‘the sociological significance of the spread of high consumption … must weaken the sense, as of course it lessens the fact, of inferior or unequal standards of life, and of class inequality generally’ (Crosland, 1956: 286), and Michael Young, a founder of the Consumers Association, argued in 1960 that ‘class based on production is slowly giving way to status based on consumption as the centre of social gravity’.

The harnessing of technological developments to large-scale production methods made much more widely available a broad range of relatively sophisticated products which were increasingly marketed through national distribution and retail chains. The growth of nationally branded products advertised through the new mass medium of television changed the nature of traditional consumer markets. The role of the small retailer declined as retailing and distribution became organised in large bureaucratic units in order to take advantage of scale economies. Industry became increasingly concentrated (Hannah, 1976). During this period, a general thrust of government economic policy was to dismantle wartime controls and trade-protection legislation. It was argued that such restrictions hampered the competitiveness of British industry and jeopardised the central post-war goal of full employment (Craig, 1987: 204–05). The Restrictive Trade Practices Act 1956 was a major assault on the traditions of cartelisation which pervaded much of UK industry. These measures aided the transformation of the market into an effective mechanism for meeting consumer demand.

These developments formed the background to the establishment, in 1959, of the Molony Committee on Consumer Protection. The terms of reference of the Committee included the broad mandate ‘to consider and report what changes if any in the law and what other measures, if any, are desirable for the further protection of the consuming public’. The Committee restricted its focus, however, to the situation of ‘one who purchases (or hire-purchases) goods for private use or consumption’, excluding from its purview the interests both of the ultimate user and of the service sector.

Although the Committee’s report was greeted as being ‘not quite sufficiently radically pro-consumer’ (The Economist, 1962: 326), and although its legal recommendations were described as ‘good hearted … unimaginative’ and ‘insular’ (Diamond, 1963: 66; and see Hilton below at 20), it provides an appropriate historical point of entry to present-day consumer regulation. The report, intended to provide ‘a foundation for policy making for the next twenty years’, stands at the beginning of a series of measures that were taken to protect consumers. It provided, for example, the model for the regulation of advertising and for trade descriptions legislation, and was the source for most of the consumer-protection initiatives of the 1960s. The general philosophy of the Committee was that competition and market forces were the best protections for consumer interests. The Committee members were sensitive, however, to the potential dangers of changes in the structure of the marketplace. In the following extract, they outline the arguments expressed to them concerning the potentially detrimental impact of these changes.

Board of Trade, Final Report of the Committee on Consumer Protection (Molony Committee), Cmnd 1781/1962, paras 40–43, 403, 820–21, 869, 891

Alleged inadequacy of system

40. The essence of the views which many have expressed to us is that the old-established balance between buyer and seller has been seriously disturbed in recent years by the emergence of radically different methods of manufacture, of distribution and of merchandising; and that as a result, the existing system of consumer protection has become inadequate in various respects. …

Consumer’s shopping problems

41. The contention that the consumer now stands in need of greater protection is put forward in this way. Whereas the consumer of fifty years ago needed only a reasonable modicum of skill and knowledge to recognise the composition of the goods on offer and their manner of production, and to assess their quality and fitness for his particular purpose, the consumer of today finds it difficult if not impossible to do so because of the development of complicated production techniques. … The job of ascertaining and soundly assessing the wide range of alternative choices open to him is more, his supporters aver, than the consumer can possibly be expected to do. It is further argued that the increased sale of branded and nationally advertised goods has tended to reduce the retailer’s function to that of handing over what the customer has already been persuaded to buy before entering the shop; and that partly for this reason, partly because it is almost as difficult for him as for his customer to sort out the merits and shortcomings of the goods he stocks, the retailer is far less able to perform his special and essential function of giving expert advice to the individual customer. This trend is seen in its most advanced form in self-service retailing. For all these reasons, it is said, the further protection of the consumer has become at once more necessary and more difficult to achieve.

Complexity of goods

42. Moreover, the ordinary consumer now spends a good deal of money on appliances and equipment of types unknown, or known only to a favoured few, thirty years ago. His car or his motor-scooter, his radio or television set, his vacuum cleaner, washing machine or refrigerator are relatively expensive and complicated assemblies of components, the precise working of which is imperfectly understood by the vast majority of buyers. The quality and relative merit of each can be assessed (if at all) only by a qualified expert using special equipment. Their useful life will depend, to marked extent, on the manner in which they are used and serviced, as well as on their initial quality. The failure of a single small component may put the whole machine out of action. When confronted with the need to make a choice between different models of such goods the consumer is incapable of intelligent discrimination; even price will not provide a sure signpost to the degree of satisfaction he is likely to achieve.

Vulnerability of consumer

43. In such a maze, the contention runs, the consumer finds it beyond his power to make a wise and informed choice and is vulnerable to exploitation and deception. On the extent to which the consumer is in fact exploited or deceived, witnesses have expressed or implied divergent views, ranging from those who think such an occurrence to be disgracefully widespread to those who see it as little more than a potential danger. Even if no advantage is taken of his ignorance, his ill-informed approach to the shopping problems arising in an era of plenty and prosperity is likely, it is said, to lead him into purchases unsuited to his needs. At the hands of the advertiser, the artful shop assistant or the ingratiating door-to-door caller, he is liable, it is suggested, to fall victim to the wiles of salesmanship. …

Reluctance to pursue claims

403. There was widespread recognition that the ordinary consumer—devoid of technical knowledge, lacking ready access to independent technical advice, uncertain of the strength of his case, a stranger to the law and its ways—must be reluctant to incur the considerable trouble and appreciable cost of pursuing what he regards as his legitimate complaint. This reluctance is deepened if the outlay on expert investigation and legal proceedings is disproportionate to the price paid for the goods, and especially if satisfaction cannot be obtained short of bringing his case to trial. The consequences are that the less reputable retailer, knowing that the challenge is not likely to be maintained, is not disposed to canvass the idea of a settlement. In the result, it is, said, the rights which the law give[s] to the consumer too often go by default. …

Consumer unorganised

891. The business of making and selling is highly organised, often in large units, and calls to its aid at every step complex and highly expert skills. The business of buying is conducted by the smallest unit, the individual consumer, relying on the guidance afforded by experience, if he possesses it, and, if not, on instinctive but not always rational thought processes. The capacity of sales staff in shops to help the consumer has deteriorated. The manufacturer and the distributor, in a country dependent on exports, speak with a well-organised and powerful voice in national affairs. The interests of the consumer are sometimes overlooked because he is voiceless. The need for consumers to organise themselves was first expressed in the genesis of the Co-operative movement. When traders combine, or a single trader buys on a large scale, there is no doubt about the capacity of the purchaser to protect himself.…

Call for redesign

820. … through many of the submissions reaching us there ran the theme that piecemeal improvement would not ensure that a proper balance between buyer and seller would be wholly restored and permanently maintained; and that this purpose could only be achieved by a fundamental alteration in the structure of the system.

Argument for redesign

821. The argument supporting this theme was, in broad terms, that there existed on the side of the manufacturers and distributors effective organisation, providing mutual assistance and potent representation. Their approach to the difficulties of the consumer was one of indifference. The idea of a ‘consumers’ sovereignty’ was fallacious. In truth, it was said, the producer easily prevailed over the welfare of the consumer; and would continue to do so until the consumer was provided with an organisation of equal weight to protect and represent him. …

Attention to enforcement

869. Acts and regulations are of little value unless they are observed. A major cause of consumer weakness in the past has lain in the inadequate enforcement of the many laws in his favour. …

A major thrust of consumer policies during the early 1970s was to redress the apparent imbalance of power between producers and consumers through the introduction of public regulation and the subsidisation of consumer organisations. These initiatives drew on such documents as the Crowther Committee’s report on consumer credit (1971) and on the broad political support for consumer protection that existed in the early 1970s. Public regulation to protect consumers against economic losses was often justified by the diffuse nature of such losses, which although very large in total, were such that any one individual found it uneconomical to seek to redress her own loss through traditional methods. New agencies such as the Office of Fair Trading (1973) and the National Consumer Council (1975) were created. According to Lord Borrie, ‘during the main period of advance in consumer protection in the 1960s and 1970s, the common law did not contribute very much’ apart from cases such as Jarvis v Swans Tours Holidays (1973) which seemed to recognise the distinct nature of experiential loss in consumer contracts for services (Borrie, 1984: 7, 9).

In the area of health and safety, public regulation had existed since Victorian times to protect consumers against adulterated food (Paulus, 1974). The use of complex new technology in the production and distribution process posed new and uncharted risks. The Thalidomide disaster in the early 1960s symbolised the potential dangers of technology and drew attention to the limited public regulation of drug distribution in the United Kingdom. In addition, scientists were beginning to discover the long-term carcinogenic effects of certain food additives, and smoking was being clearly linked with lung cancer. The reduction in Western countries of the risks of being affected by natural diseases and disasters focused greater interest on potential man-made health-and-safety risks.

The period from 1964 to 1979 is viewed by many as the ‘heyday’ of consumer legislation throughout the Western capitalist world (Reich and Micklitz, 1980: 1–12). Lizabeth Cohen described the postwar US economy as a ‘consumer’s republic’ where exanded access to credit for male wage-earners, along with substantial government subsidies to the housing industry, promised the democratic ideal of equal citizenship through greater equality of consumption—rather than through an increased welfare state. This focus on consumption, including equal access to safe consumption, created a growing political constituency (see also Aaker and Day, 1971; Nadel, 1971). In 1960 John F Kennedy made a promise during his presidential campaign that ‘the consumer is the only man [sic] in our economy without a high-powered lobbyist. I intend to be that lobbyist’ (quoted in Cohen, 2004: 345). In 1962 Kennedy introduced to Congress a consumer bill of rights (the right to know, to be safe, to choose and to be heard) and a (modest) agenda of consumer bills. This ‘consumer rights’ agenda was an inspiration for developments in other parts of the world and the later international principles of consumer protection (see below at 39).

Cohen (2003) argues that consumerism during this period in the US had three demands: the passage of laws that protected consumers better in the marketplace; a reorientation of regulators towards the public interest rather than industry, reviving the New Deal model of the independent regulatory agency serving the public interest; and giving consumers a permanent voice in government. Public agencies such as the Fede...

Table of contents

• Cover
• Title
• Copyright
• Preface to the Third Edition
• Acknowledgements
• Contents
• Table of Cases
• Table of Legislation
• 1 Setting the Context
• 2 Rationales for Consumer Law and Policy
• 3 Frameworks and Forms of Regulation of Consumer Markets
• 4 The Regulation of Deceptive and Unfair Commercial Practices
• 5 Implementation and Enforcement of Unfair Commercial Practices Law
• 6 Standard Form Consumer Contracts and the Search for Fairness
• 7 Regulation of Consumer Credit Markets
• 8 Quality Regulation and Post-Purchase Quality Problems
• 9 Product Safety Regulation
• References
• Index