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Comment: Regulators to get tough on consumer law compliance

Fox Williams partner Rhys Griffiths and associate Phyllis Acheampong look at new enforcement powers for UK regulators

The enforcement tools available to UK and EU regulators to punish travel companies for non-compliance with consumer protection laws are about to be radically overhauled.

The EU has already passed laws to give regulators the power to impose fines of 4% of annual turnover. UK regulators are set to be given even tougher sanctions with the government having recently consulted on giving regulators the power to impose fines of 10% of global annual turnover.

These measures are designed to put compliance with consumer law dealing with matters such as package travel, unfair contract terms and misleading practices on a par with the GDPR, where the threat of huge fines has proved to be extremely effective in achieving compliance.

The government and the regulators now think it is time to make compliance with other consumer protection law as business critical as handling customer data lawfully.

In the first of a three-part series, the Fox Williams travel team look at the powers to be given to UK regulators to sanction travel companies for non-compliance with consumer law.

Our second part shall look at specific business practices which are likely to be outlawed in the near future, whilst the third part will look at the laws already introduced in the EU to tackle similar issues.

New enforcement powers for UK regulators

The government thinks the enforcement tools currently available to regulators when dealing with breaches of consumer law are inadequate. The enforcement process is seen as being too slow, cumbersome and expensive.

This is because the enforcers must take a business to court to obtain a remedy, such as a court order to force a travel company to pay refunds. Regulators cannot impose orders or sanctions themselves.

Similarly, the government believes the enforcement toolbox lacks any real deterrence because enforcers are not able to impose fines for breaches of consumer law.

As we have seen with the Competition and Markets Authority (CMA)’s enforcement activities in the light of Covid-19, enforcement usually means obtaining a court order (or undertakings) from travel companies to take certain action. The CMA is not also able to impose fines for non-compliance.

The government has recently consulted on the measures it intends to introduce to address these issues. There are three areas which will be of particular concern to travel companies.

Firstly, the government intends to give the CMA (and potentially other regulators such as the Civil Aviation Authority) the power to enforce consumer law without having to go to court. This would mean that the regulator would have the power to:

  • Decide whether a business has breached consumer law (such as the Package Travel Regulations);
  • Direct the business to stop the infringement and to provide redress to consumers (such as compensation); and
  • Order the business to pay a fine.

The government is considering giving businesses a right to appeal a regulator’s decision to the courts, but it is not yet decided what powers the court would have to interfere with the regulator’s decision (if at all).

This change of approach will give regulators a significant advantage – instead of having to prove to a court that there has been a breach of consumer law before requiring the travel company to take certain action, the regulator will now be able to decide the matter for itself and require the travel company to do what it thinks is appropriate (including the payment of the significant fines described below).

It will be for the travel company to take the matter to court to overturn the regulator’s decision, if the government decides to give this right of appeal.

Secondly, the government intends to give the CMA (and possibly also the CAA) the power to impose significant fines for non-compliance, including:

  • Fines of up to 10% of global annual turnover for non-compliance with consumer law, such as the law on package travel, unfair contract terms and misleading practices.
  • For businesses which fail adequately to respond to requests for information from regulators, fines of up to 1% of annual turnover, with an additional daily penalty of up to 5% of daily turnover whilst non-compliance continues.
  • Where a business has given an undertaking to the regulator, and subsequently breached the undertaking, this may also be punishable by a fine.

Thirdly, the government is looking at making it easier for class actions to be brought against businesses for breaching consumer law. This includes looking at the possibility of allowing private organisations and consumer organisations to bring class actions on behalf of consumers.

The government’s consultation has recently closed and it will soon publish how it intends to proceed. In our view, it is inevitable that the new enforcement tools described above will be introduced, which have long been called for by the regulators and particularly in the light of various consumer law breaches highlighted by the regulators during the Covid-19 pandemic.


The second article in this three-part series will focus on particular aspects of selling holidays which the regulators are seeking to outlaw by the introduction of new consumer protection laws.

 

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