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UK mulls blanket ban on unfair commercial practices

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The Government has asked retailers to comment on draft legislation that will force them to "deal fairly" with customers and other businesses.

Two new regulations are proposed, scheduled to come into force on 6 April 2008.

The new rules implement an EU Directive, the Unfair Commercial Practices Directive (UCP). That directive is designed to outlaw unfair practices across the business spectrum, replacing current sector-specific laws.

The Department of Trade and Industry (DTI) has announced a 13 week consultation on its plans to implement the directive.

"Consumers ought to be dealt with fairly by business – whether they shop at home, online or in the high street," said the DTI's consultation document. "Sharp marketing practices not only harm consumers but also respected companies who lose out if the activities of their unscrupulous competitors are left unchallenged. They also affect consumer confidence in markets."

The government intends to create two new sets of regulations, one protecting consumers from unfair business dealings and the other protecting businesses from misleading marketing.

A breach of the rules will in most cases be a criminal offence. In addition to a fine, directors and managers could be sentenced to up to two years in prison.

The rules make it an offence to mislead through omission as well as commission and outlaw aggressive practices.

"The UCP Directive seeks to stamp out unfair selling and marketing methods in a simpler and more effective way than the current sector specific laws," said the DTI's consultation document. "It will put in place a comprehensive framework for dealing with sharp practices and rogue traders who deliberately set out to exploit the loopholes in existing legislation."

The business-specific rules will replace the Control of Misleading Advertisements Regulations. They implement an older EU law, the Misleading and Comparative Advertising Directive, which itself has been superseded by the UCP Directive. Numerous other laws are amended by the proposals.

Consumer Protection from Unfair Trading Regulations

The draft Consumer Protection from Unfair Trading Regulations 2007 impose a blanket ban on unfair commercial practices. They state that a misleading action or misleading omission will amount to an unfair commercial practice.

A commercial practice becomes a misleading action, and therefore a criminal offence, if it:

  • "Contains false information and is therefore untruthful […] or if it or its overall presentation in any way deceives or is likely to deceive the typical consumer […], even if the information is factually correct; and
  • causes or is likely to cause the typical consumer to take a transactional decision he would not have taken otherwise."

Numerous examples of what may constitute false information are listed in the draft rules. Wrong information about availability and geographic origin of a product and even the seller's "awards and distinctions" can fall foul.

Displaying a trust mark without authorisation or falsely claiming an endorsement from another body will be considered unfair. Advertorials that fail to make clear that a trader has paid for media promotion will also be considered unfair.

Business Protection from Misleading Marketing Regulations

The draft Business Protection from Misleading Marketing Regulations 2007 seek to control the circumstances in which comparative advertising is permitted. They criminalise misleading adverts or "indications".

Under the draft rules, an indication is misleading:

  • "If in any way, including its presentation, it deceives or is likely to deceive the trader to whom it is addressed or whom it reaches; and
  • if, by reason of its deceptive nature, it is likely to affect his economic behaviour or, for those reasons, injures or is likely to injure a competitor."

The new laws could have an effect on ecommerce practices. The fact that they apply to "indications" and not just traditional advertising is thought likely to mean that fake reviews will caught by the rules.

A number of businesses have been caught posing as customers to hype their business on online forums, exploiting the fact that more and more consumers make their choices based on the reviews of past customers whom they do not know.

The regulations will be enforced by the Office of Fair Trading, Trading Standards officers, and media regulator Ofcom.

Copyright © 2007, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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