external environment - consumer protection
Richard Bowett summarises the important area of consumer protection. What is it? And how does Government act to protect the interests of consumers?
Introduction
In the old days, people said ‘caveat emptor’ or ‘let the buyer beware’ ie ‘if you are silly enough to buy duff goods that’s your own fault’. Nowadays, a different attitude prevails. Government and the law give great protection to consumers who fear they might be take advantage of by businesses.
Consumer protection limits what business can and can’t do. It adds to business costs. Businesses may need to produce more carefully to avoid making dangerous products, they will need to spend time and money understanding all the rules and regulations, and they may end up in court with expensive lawyers and facing a large fine.
What has caused this big change over the last 100 years or so?
Factors leading to Greater Consumer Protection
1. Increasing Complexity. Products today are simply much more complex than they used to be, and it is unreasonable to expect consumers to really understand everything they buy.
2. Increased Competition. There are so many different sellers it is unreasonable to expect consumers to know enough about them all to judge if it safe to buy from them; it is not as though we do all our shopping at the village shop anymore.
3. Higher Incomes. Consumers simply buy so much more stuff than they used to.
4. Science & Technology. This means all sorts of new materials are available which may not be entirely understood, and may have, for example, unforeseen effects on customers’ health.
5. Changing Social Attitudes. As a society, we are less tolerant of individual misfortune which is someone else’s fault. There is an issue of attitude to risk involved here. Increasingly, people are unwilling to accept the risks involved in their own actions. A mistake is seen as someone else’s fault. Consumers are increasingly willing to take businesses to court for damages which can be quite large (although nothing like as big as in the US). Businesses now have to be very careful indeed, and take out insurance (some of which they have to by law) against this danger. The price of this insurance is rising sharply, which all adds to business costs. There is also the issue of consumer-protection media stories (eg ‘Watchdog’ on BBC) and even if a business has done nothing wrong (at least legally) they can be badly damaged by adverse publicity and lost sales.
See http://news.bbc.co.uk/1/hi/world/americas/2151754.stm
Consumer Protection in the UK
The result of all this is a large number of laws saying how businesses must behave in order to protect consumers. The EU is active in this area, as well as the UK government.
The main laws relating to consumer protection are as follows:
Weights & Measures Act 1951
This says sellers must measure/weigh goods correctly or face fines from the local Trading Standards Officer. More recent changes have made it compulsory to use metric measures. Sellers now also have to give per unit (per kg or per litre) prices so sellers can’t confuse buyers with odd-shaped packaging. You can see this if you look at the prices carefully next time you go to the supermarket to buy white cider.
Trades Descriptions Act 1968
This is about how goods are described. If it says ‘washes white than white’ then it must, in fact, wash whiter than white or the business can be prosecuted.
Unsolicited Goods Act 1971
This stops you having to pay for goods that are sent to you even though you didn’t ask for them
Consumer Credit Act 1974
Selling goods on credit (HP, loans, deferred payment) can be complicated, and this law makes sellers tell buyers clearly what is involved, especially the true cost of repayment (APR) which it is easy to disguise with clever calculations.
Consumer Safety Act 1978
Businesses can’t sell goods which might harm consumers eg soft toys with staples sticking out.
Sale of Goods Act 1979
Goods for sale must meet three conditions.
- ‘Merchantable Quality’ ie without obvious flaws or problems.
- Fit for the purpose they are sold for.
- Goods must be as described.
Supply of Goods & Services Act 1982
This widens previous laws to include services as well as goods.
Consumer Protection Act 1987
This brought UK law into line with EU law. This whole area of consumer protection is increasingly run by the EU, not by the UK. The reason for this is so all EU businesses meet the same standards, and goods produced in any one country can be sold freely in any other EU country. This is an example of the ‘Single Market’.
Food Safety Act 1990
Forces food businesses to make sure food is safe to eat
Sale & Supply of Goods Act 1994
This brings the Sales of Goods Act (goods) and the Sale of Goods and Services Act (services) together into one law. It also adds the right of rejection and refund to the buyer if products are not satisfactory
Food Labelling Regulations 1996
Businesses must tell consumers exactly what is in food.
Examples of EU Regulations
EU Directive Unfair Terms in Consumer Contacts 1993 (Unfair Terms in Consumer Contracts Regulations 1994 in UK)
Allows consumers to cancel any contract deemed unfair
EU Directives 88/314 & 88/315 (Price marketing Order 1991 in UK)
Businesses must put all selling prices in writing.
See, for example http://news.bbc.co.uk/1/hi/business/2055804.stm
And this isn’t all of them!
There is an important issue here. On the one hand, consumers need some degree of protection. On the other hand, all these laws and regulations add to business costs.
Consumer protection regulation can add the following to business costs:
• The costs of reading, understanding and complying with the laws (time and money).
• The costs of employing specialists to deal with the laws and their consequences.
• The costs of changing business practices eg re-training sales staff or re-designing labelling and packaging.
• The costs of dealing with complaints, especially if they end up in the courts.
• The costs of fines.
• The costs of a damaged reputation and image with customers.
These costs are especially difficult for small businesses which lack the time, money and expertise to deal with it all. New small businesses sometimes become the big businesses of the future; growth and employment depend on new business start-ups. If entrepreneurs are discouraged by too many regulations and don’t start new businesses, then future growth and employment may suffer.
It could be argued that at least all UK businesses face the same costs, even if they are high. But many UK businesses are in competition with foreign businesses, either in the UK market for imports or in the world market for exports. So higher costs can damage UK competitiveness, and this can damage growth and employment. This is one reason why the EU sets common standards for all EU businesses, so competition is fair and equal. But this doesn’t cover other countries such as the US and Japan. So the government has to strike a very careful balance between protecting consumers and not burdening business with too many costs. At present the Confederation of British Industry (CBI, which acts on behalf of all UK business) is complaining vigorously that the Labour government has added a huge number of new regulations (not just to do with consumer protection) and this is damaging UK business; they want the government to cut down on this.
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