Here's another example of how regulation of online business is getting tighter and tougher.
The UK has recently introduced laws which provide increased protection for consumers from 'unfair trading.' Viewed another way, these laws have increased the level of compliance which traders across the board must observe, whether their business is conducted or advertised online, door-to-door or on the high street.
Failure to comply with these regulations carries some really nasty consequences - fines and even imprisonment. So all online businesses need to take note and act accordingly.
In this post, I will look at why this legislation was introduced and how it operates. I will then focus specifically on how it may apply in an e-commerce environment in that it seeks to capture previously unregulated (at least, in this specific sense) online marketing techniques.
Implementation of EU Directive
The Consumer Protection from Unfair Trading Regulations 2008 (the "Regulations") came into force last month (on 26 May). The Regulations implement in the UK the EU's Unfair Commercial Practices Directive. The aims of this Directive are:
- to strengthen consumer protection by introducing a general prohibition on traders against treating consumers unfairly; and
- to harmonise unfair trading laws protecting consumers in all EU member states.
The Regulations replace previous consumer protection legislation (which was a bit patchy and piecemeal), such as the majority of the Trade Descriptions Act 1968, closing loopholes in the process, and have been described as "the biggest change in advertising regulation in...40 years" (FT.com, 26 May 2008)
The Department for Business, Enterprise & Regulatory Reform has stated that the Regulations will "create a modern, simplified consumer protection framework" and "put in place a comprehensive framework for dealing with sharp practices and rogue traders who deliberately set out to exploit loopholes in existing regulation."
So there's the "why?"...here follows the "how?"...
What the Regulations Cover
The Regulations prohibit "unfair commercial practices." These are grouped into 3 categories:
- Misleading actions
- Misleading omissions
- Aggressive practices
The Regulations also include a Schedule setting out a "blacklist" of 31 commercial practices which are considered unfair in all circumstances.
Misleading actions refer to, amongst other things, false information or deceptive presentation as to the nature, characteristics, price, sponsorship, or approval of the product, or the motives for the commercial practice. In addition, in order to constitute a misleading (and therefore unfair) commercial practice, it must cause or be likely to cause the average consumer to take a transactional decision he would not have taken otherwise.
Misleading omissions refer to the concealment or omission of material information (such information as the average consumer needs, according to the context, to take an informed transactional decision), or the provision of material information in a manner which is unclear, unintelligible, ambiguous or untimely. As above, such misleading omission is an unfair commercial practice if it causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise.
Aggressive practices are where, in the factual context, taking account of all circumstances, the average consumer's freedom of choice or conduct in relation to the product concerned is significantly impaired (or likely to be significantly impaired) through the use of harassment, coercion or undue influence. As above, this constitutes an unfair commercial practice if it causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise.
Schedule 1 covers such practices as "bait advertising" (where a trader advertises a product without fully believing that he can supply it in the quantities which can be reasonably expected to be demanded in light of the price, scale of advertising, etc), "bait and switch", perpetual "closing down sales", using editorial content in the media to advertise the product without identifying it as advertorial, false claims as to the healing properties of a product, describing a product as free if there are in fact hidden costs, and "spamming".
Application of Regulations to Online Marketing and Trading
So, what impact are these Regulations going to have in an online context? Of course, e-commerce businesses will need to be familiar with the general prohibitions in order to avoid the risk of fines of up to £5,000 and/or imprisonment for up to 2 years. Online traders are affected by the Regulations in the same way as traditional traders from door-to-door salesmen to the shop on the high street. They must be sure that their commercial practices do not constitute misleading actions, omissions, or aggressive or blacklisted activities. Here follow some examples:
The director of a company who anonymously posts flattering comments about his business on blogs, social forums, or wikis --> potentially guilty of misleading actions.
The pro-animal-testing company which conceals its identity as seller of a range of vegan products on a beauty website --> potentially guilty of misleading omissions.
The loan provider who emails respondents to a online questionnaire with emails and telephone calls with hard-sell tactics, playing on the respondent's vulnerability and lack of financial awareness --> potentially guilty of aggressive commercial practices.
The sole trader who falsely holds himself out on his professional social networking profile as a signatory to a code of conduct --> potentially guilty of blacklisted activities.
The advertiser who initiates a viral email advert which creates the false impression that the recipient has/will/on doing a particular act will win a prize --> potentially guilty of blacklisted activities.
The e-tailer who falsely states that a product is only available for a very limited time, in order to elicit from consumers an immediate decision which is not based on informed choice --> potentially guilty of blacklisted activities.
As you can see, the effect of the Regulations will be far-reaching. All traders, whether operating in an online or offline context, need to be aware of the prohibitions in order to avoid being found guilty of unfair commercial practices.
It will remain to be seen to what extent the Regulations will change the online experience for consumers - could it be that they spell the end for spamming and the more irresponsible types of viral marketing? Will new advertising methods spring up as companies adapt to the new regulatory landscape? Will there be more corporate accountability for blog postings and wiki entries made by the company?
Only time will tell. Watch out for our future posts on this important subject.
Laurie Kaye/Yasmin Joomraty