New consumer protection laws that marketers should know about

LONDON - Consumer protection law is on the brink of a radical and wide-ranging transition. Marketing law experts Nick Johnson and Stephen Groom from Osborne Clarke assess the critical changes and what they mean for marketing campaigns.

The sweeping changes to the rules designed to protect consumers from misleading advertising and unfair selling techniques are the biggest shake-up to consumer protection laws in the past 20 years. The Consumer Protection from Unfair Trading Regulations 2008, which are due to come into force on 26 May, will relegate the Trade Descriptions Act, Control of Misleading Advertisements Regulations and large sections of the Consumer Protection Act to the pages of history.

Not surprisingly, many businesses assume that the new law is not relevant to them, but this is not the case. It will also have significant practical implications for many businesses, with marketing directors and other senior staff facing potential criminal sanctions if they slip up.

There are a number of areas of ambiguity in the legislation. One example is the prohibition on offering a prize in a promotion without actually awarding it. The wording suggests this could catch many kinds of instant-win promotions, as not all prizes offered will in fact be claimed. Although it is unlikely that the authorities would enforce the legislation in this way, the lack of a transitional period means that marketers need to take a view on these ambiguities and ensure they are fully compliant with the rules from the outset.

Punishments for non-compliance are potentially high; they include fines of up to £5000 per offence in the Magistrates' Court and even imprisonment. These penalties can be imposed on companies or individual directors and other senior individuals who 'consented or connived' in the offence.

In practice, the key enforcement bodies - the Office of Fair Trading and Trading Standards officers - are obliged to have due regard to 'established means' of enforcement. This means that many of the new criminal offences will be exercised only for matters outside the scope of the ASA, or where its adjudications have not dealt effectively with a problem - and for that reason, many expect the Committee of Advertising Practice (CAP) to amend its codes in response to this legislation.

However, even if no prosecution is brought, a practice deemed illegal under the regulations could lead to other practical consequences. Insurers may disclaim liability for any related losses. Suppliers may argue that they have a right to walk away from particular contracts. Bodies such as the Financial Services Authority and the Consumers' Association also have statutory powers to apply for injunctions to enforce this law.

Given the potential ramifications of the new regulations, marketers would do well to liaise with their legal departments to review the legislation and assess its impact on their businesses and marketing campaigns.

Regulatory highlights:

  • Ads that include product details, price and a response mechanism, enabling consumers to make a purchase, must now also include certain compulsory disclosures.
  • 'Buy now while stocks last' will be a high-risk promotional message if stock availability is in fact likely to remain good. The new regulations make it a criminal offence to state falsely that a product will be available for only a limited time to elicit an immediate decision from consumers. 
  • Product placement in made-for-internet programmes will be unlawful unless disclosed. UK equivalents of lonelygirl15 will need to be transparent about placement arrangements.
  • Presenting consumers' existing statutory rights as a distinctive feature of your product or service will be a criminal offence. So ecommerce sites, telephone and catalogue ordering services will need to be very careful how they describe consumers' cancellation rights.
  • Other areas where the law is likely to have an impact include comparative advertising, commercial blogging, advertising to children and web content.
Transparency threat

Falsely representing yourself as a consumer is one of 31 practices illegal under the new law. This could have a devastating effect on viral advertising, commercial blogs and word-of-mouth marketing.

A recent ASA adjudication demonstrated some of the risks in this area under the current regime. A talkSPORT radio employee had posted messages on football-related online message boards in the guise of a consumer. 'Fellas,' he wrote. 'Have you heard what talkSPORT radio are doing this season? They are recruiting a fan from every club in the Premiership and Football League, 92 fans in total who will become the voice for their club on their station.' The ASA held this to be a breach of the CAP Code, which requires that all marketing communications be clearly identifiable as such.

Under the new regime, marketers and agencies engaged in such activity may also face criminal sanctions. This could make life tough for buzz marketing agencies, as staff would need to disclose their commercial interest. Even seeding viral films online could be risky, if the person doing so is effectively posing as a consumer.

Website content risks

The CAP Code expressly states that it does not cover website content, other than sales promotions and ads in paid-for space.

So, to date, the ASA has been unable to adjudicate on advertising claims that a brand makes on its own website.

However, the new regulations are media-neutral. So even if website content remains outside the scope of the CAP Code, advertisers could face action from Trading Standards or the Office of Fair Trading if claims made on their site are misleading or contrary to any of the regulations' other requirements.

In fact, the CAP Code's specific requirements could even be applied through the criminal courts in these cases. This is because compliance with the Code might be argued to be one of the requirements of 'professional diligence' under the regulations. So failure to comply (such as by using excessively violent material that would contravene the CAP Code's taste and decency rules) could amount to an illegal 'unfair commercial practice' if it would be likely to lead to a material distortion of consumers' economic behaviour.

Pester power banned

Any marketing activity that includes a 'direct exhortation' to children to buy advertised products, or to persuade their parents or other adults to buy advertised products for them, will give rise to a criminal offence under the new legislation. 

The rule does not mean that advertising to children generally is prohibited, but the use of lines such as 'Ask Mummy to buy X' will not be permissible. This broadens considerably the scope of the current 'pester power' ban in the CAP Code, which applies only to food and drink marketing, and will provide a further weapon in the armoury against pester-power advertising.

Substantiation requirements

For the first time, UK laws governing advertising and marketing activities will include specific protection for 'vulnerable' consumers. 

In considering whether a claim or omission may be misleading, advertisers will now have to consider not just its impact on the average consumer generally - the 'man on the Clapham omnibus'. They will also have to take into account its impact on consumers who may be particularly vulnerable in a way that the advertiser could reasonably be expected to foresee, by virtue of mental or physical infirmity, age or credulity. 

This means that marketers and compliance teams will, in many cases, have to ask themselves how particular material will be understood by people such as children and the elderly. This may make it much more difficult to rely on footnotes and small print, for example, given that people with poor eyesight may be said to be a clearly identifiable group of vulnerable consumers.

The regulations may also result in marketers having to dedicate even more of their advertising space to disclaimers.

Comparative ads

The UK has not implemented the directives behind this legislation in a way that allows businesses to bring direct civil action against each other. Only the OFT, Trading Standards officers and certain officially designated bodies can bring enforcement action.

So if the European Court of Justice follows the guidance of its advocate-general in the expected judgment in the O2 vs 3 case, which is likely, we will have an overall regime where the risks associated with aggressive comparative advertising campaigns will be considerably lower than they are at present.

Broadly speaking, aggrieved advertisers will be able to challenge comparative ads in the courts only if they can show that they amount to a 'malicious falsehood' (a high evidential burden) or

if copyright material has been used without consent. Challenges under trademark law will generally no longer be possible. While complaining to the ASA will remain an option, the typical time-scales for processing adjudications, and the lack of any financial sanction, may mean that this is often not a significant deterrent.

European harmonisation?

The new law reflects an EU initiative to harmonise consumer protection law across Europe through implementation of the Unfair Commercial Practices Directive. 

That sounds like good news for marketers running pan-European campaigns. But, as ever, the detail of implementation varies by country, and some (such as Italy) have used the legislation as an excuse to introduce significant increases to the levels of fines that can be issued to advertisers who fall foul of the rules. 

Further, some of the legal discrepancies that cause the biggest headaches for marketers across Europe remain unaffected by the new law. In particular, key differences regarding prize draws and competitions remain in place, including whether official filings and deposits are required, restrictions as to prizes that may be offered and rules on what promotion mechanics are permitted.

While EU member states were supposed to have brought their laws into line with the directive by 12 December 2007, the UK is by no means the last country to get its house in order.

Too many new rules on marketing? Have your say

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