ARC: “automatically renewable contract” or “another regulatory/regulation cock-up”?

Handcuffs Vector ImageOfcom is clearly unhappy about communications providers who seek to handcuff customers to existing service contracts by ensuring that these contracts automatically renew – so called automatically renewable contracts (ARCs).  They set out their proposals to address ARCs in a consultation paper in March 2011.  However, these contracts are not new, which begs the question, why is Ofcom only dealing with these contracts now?

By Ofcom’s own admission, they first considered ARCs in the context of their review of additional charges in December 2008.  A cynic mights suggest that if they identified a problem at the end of 2008, why did it take over 2 years to suggest a solution?  Have Ofcom failed to use their powers of enforcement under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs)?  Note the date of these regulations – 1999.  Were Ofcom negligent in failing to address ARCs even earlier than December 2008?  Is this a case of “another regulatory cock-up”?

To be fair to Ofcom, even if they had identified that ARCs were a problem at an early stage, then they would have needed the evidence and research to show that the automatic renewal of contracts was unfair, using the test at Regulation 6(1) of the UTCCRs:

“the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent.”

The necessary preliminary work was clearly undertaken, as shown by the annexes to the March 2011 consultation paper.  However, a quick route to dealing with ARCs has proved impossible as a result of a difficulty in the UTCCRs and the originating European Union Directive.  This difficulty surrounds the scope of the regulation/directive.  Put simply, regulators cannot address terms in consumer contracts that deal with price, even indirectly, as a result of Regulation 6(2):

“In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate–
(a) to the definition of the main subject matter of the contract, or
(b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.”

Ofcom have set out how they would address ARCs under the UTCCRs in their guidance on enforcement of UTCCRs (see paragraphs 97 – 103).  Although this suggests that there are plenty of grounds for Ofcom to intervene, the picture can easily be confused by the introduction of price discounts for consumers taking ARCs.  After the Supreme Court decision concerning the Office of Fair Trading and bank charges (Office of Fair Trading v Abbey National), these discounts put these ARCs outside of the reach of the UTCCRs.  This is the inevitable result of the wording of Regulation 6(2), from the 19th recital of Directive 93/13/EEC.

So, from a consumers point of view, this “price or remuneration” loophole is a significant gap in the consumer protection directive/regulation.  Shall we say “another regulation cock-up”?

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