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

Ofcom 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”?

"Life is not fair; get used to it."

Yesterday for the first time the handing down of a Supreme Court judgement was a major news event.  The outcome of OFT -v- Abbey National & ors was eagerly awaited.  Many bank customers had hoped for some good news and some cash back from their banks – always handy just before Christmas.  Sadly, the Supreme Court appears to have played Scrooge or the Grinch, and in today’s press the Court is given a rough ride for seeming to side with the banks.  This is slightly unfair, but as Bill Gates is often quoted as saying, “Life is not fair.  Get used to it.”

Fairness was not, as many reports wrongly assume, the central issue for the Supreme Court.  They did not rule that the banks’ charging mechanisms for unauthorised overdrafts were fair.  Instead, the Supreme Court decided that the banks charges for unauthorised overdrafts  (and other bank charges at issue) were part of the banks’ price and remuneration for providing retail banking services.  On that analysis, given that Regulation 6(2)(b) of the Unfair Terms in Consumer Contracts Regulations 1999 (the “Unfair Terms Regulations”) states that the assessment of the fairness of a term in a contract “shall not relate . . .to the adequacy of the price or remuneration, as against the goods or services supplied in exchange”, it was clear that the Office of Fair Trading did not have jurisdiction to assess whether the banks’ unauthorised overdraft charges are fair using its powers under the Unfair Terms Regulations.

So how did this case reach the Supreme Court?  A crude summary suggests that at High Court the overdraft charges were considered not to be “in exchange” for any service, so fell outside the scope of Regulation 6(2)(b).  In the Court of Appeal, the charges were considered to be part of an overall package of services provided by the banks, but were considered to be “incidental or ancillary” and not part of the “core or essential bargain” between the banks and their customers.  As “incidental or ancillary”, the charges were ruled not to be within the scope of Regulation 6(2)(b). This meant that the OFT had power to assess the fairness of the charges.  Clearly, the banks thought otherwise and have been vindicated in their appeal to the highest court.

So is this the end of the battle for repayment of unauthorised overdraft charges?  As the Supreme Court were at pains to make clear, they were only called upon to make a ruling upon a narrow point of law.  It remains open for the OFT to consider if the terms governing the banks’ overdraft charges are unfair “if, contrary to the requirement of good faith, [they cause] a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer” (Regulation 5(1)), as in almost all cases consumers accept banks’ standard terms and do not negotiate their retail banking services agreements.

Disgorgement of ill-gotten gains

Thanks to a twitter lead (HT @clarinette02), we were alerted rather late in the day to the action being taken by the Federal Trade Commission in the US against a Californian mail order company that had misused .co.uk domain names to deceive UK consumers that the company was based in the UK.  In addition, the company had claimed on its websites to be registered on the Department of Commerce Safe Harbor list, the list of US entities self-certifying compliance with the Safe Harbour scheme agreed between the FTC and EU Commision. EU entities can, under the terms of the scheme and Art 25(6) of the Data Protection Directive 95/46/EC, export personal data to Safe Harbor entities without the need to take any other adequacy steps.

The FTC has been granted a temporary injunction until 25 September 2009, pending a full hearing of the case.  The FTC has applied for a permanent injunction against the company, together with “such relief as the Court finds necessary…including…restitution and disgorgement of ill-gotten gains”.

We will keep track of the case to see what the Court decides to do in respect of the data protection/Safe Harbor breach.

Are bank charges fair?

This is the question the Office of Fair Trading (OFT) would like to ask, particularly in relation to unauthorised overdraft fees and associated charges imposed by leading banks on personal current accounts.   The OFT has jurisdiction to enforce the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs).  In a test case brought in July 2007 against a number of banks and one building society, the OFT sought a court declaration that it had jurisdiction under the UTCCRs to review the relevant bank charges. In both the High Court and Court of Appeal it was ruled that the OFT had the necessary jurisdiction.

The dispute concerns whether the unauthorised overdraft facilities and services provided by a bank are proper services for which the fees and charges are payment, or whether the fees and charges are punitive in nature and potentially unfair.

A great deal of the legal arguments surround the interpretation of Regulation 6(2) of the UTCCRs, which reads:

(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.

The legal arguments are complex, requiring the courts to review the European Union directive that gave rise to the UTCCRs, including the directive’s drafts and associated opinions circulating between the European Union institutions before it was made (the so called “travaux préparatoires”). It is therefore no surprise that the case has now reached the House of Lords, who began hearing the arguments today.

Please may I have my ball back?

The Football Association made an admirable offer to refund ticket holders who were unable, as a result of a widespread Tube strike, to go to the England -v- Andorra World Cup Group Qualifier on Wednesday, 10 June 2009 (for the record, a comfortable 6 – 0 win for England).  There was no question of the FA hiding behind any terms and conditions to deny refunds, even though it could easily have claimed that it was not at fault.  57, 897 England fans were, after all, able to get to Wembley to see the match.

This contrasts very favourable with the attitude of some of the clubs.  In particular, Tottenham Hotspur were brought to task by the Office of Fair Trading for including in its terms and conditions a term that stated that tickets would not be refunded or exchanged in any circumstances.  Not surprisingly, as soon as the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) were brought to bear on this term, then this term was ruled unfair.  The OFT took particular exception to the possibility that a fan unable to attend a match that had been postponed or rescheduled would not be able to claim a refund for a ticket to that match.

This is not an isolated case.  Premiership clubs seem to have a problem remembering that they are not above the UTCCRs.  Most recently, Man United were required by the OFT to amend their season ticket terms and conditions.

As an aside, we wonder if a competition law analysis could be applied to these facts.  Certain fans appear to have a particular loyalty to their own football club.  There is arguably not much cross-elasticity between clubs.  It should be possible to define a relevant market as narrowly as, say, the retail market in tickets to matches of a particular Premiership club.  A SSNIP test on an increase of season ticket prices, especially for the Big Four (Manchester United, Liverpool, Chelsea, Arsenal) could easily show dominance.  Would unreasonably refusing refunds be an abuse of dominance?

The only reason this might be interesting is that under competition law the OFT can fine up to 10% of turnover.  That’s a few millions for most Premiership clubs.  However, under the Unfair Terms in Consumer Contracts Regulations, OFT can only apply to a court for an injunction to prevent a person using an unfair term.