Big Brother or big benefit?

The EU Regulation on Consumer Protection Co-Operation (the regulation) came fully into force in England and Wales on 8 January 2007. The regulation seeks to create a network of enforcement bodies throughout EU Member States which have responsibility for enforcing consumer protection legislation across the EU.

But is this matrix of enforcement more Big Brother or big benefit for consumers? Lawyers for consumer groups and business alike need to be aware of the new regime and the effect it may - or indeed may not - have on their clients.

Much of the structure for enforcement provided for under the regulation was already in place in the UK in one shape or form before the January implementation. But it is important to understand that the new powers - essentially, provisions about powers to conduct on-site inspections - provide a comprehensive and largely comprehensible system whereby the authorities have an obligation to take appropriate action on behalf of consumers in enforcing consumer protection legislation.

It is worth recognising, from the start, that these powers encompass far more than legislation in relation to defective or unsafe products but, instead, deal with a much broader vision of consumer protection. Matters such as package holidays, telecommunications, unfair contract terms, timeshare schemes and advertising all fall within the regulation's remit.

The key player, from a UK perspective, will be the Office of Fair Trading (OFT) which is the prime enforcement body or 'Single Liaison Office' for the UK. OFT will work with other 'competent authorities' which have specific responsibilities for safeguarding consumer interests, such as the Financial Services Authority, Civil Aviation Authority, Department of Health and so on.

The regulation is brought into force under Part 8 of the Enterprise Act 2002 (the Act) which grants powers to obtain court orders against businesses which are failing to comply with their legal obligations to consumers. The court has a wide range of orders available to it, including enforcement orders to force businesses to cease breaching legislation.

Critically, nothing in the Act or the regulation brings any of these duties into play in respect of any individual seeking redress. The scheme is expressly designed where an infringement of legislation affects, or has the potential to affect, either consumers generally or consumers forming part of a group. This provision will almost certainly act as a gate-keeping provision, addressing the concerns of industry and business groups that the regulation would provide a mischief making charter for vexatious or frivolous complaints about minor breaches of consumer legislation.

New powers

However, business should not be complacent about the new powers, which the OFT welcomed in a press statement on 10 January 2007 saying it had given it power 'to deal with traders who con or mislead customers and try to get away with it by hiding behind borders'. And that is a key message of the regulation.

The EU wide scheme does provide a matrix of enforcement, through which an infringement identified in one member state can be pursued by the OFT and its equivalents in such other member states as may be necessary. Certainly, the legislative framework in place provides the machinery for enforcement across the EU which is consistent, prompt and effective.

The new powers under the regulation allow the OFT to:

• carry out on-site inspections of premises without a warrant;
• compel the production of documents and goods and to explain themselves in relation to such documents and goods;
• seize goods and documents; and
• enter and search premises with a warrant.

The threshold for using these powers is that there must be a 'reasonable suspicion' that an infringement has been committed or where it is necessary to investigate whether an infringement is likely to occur. The OFT's powers allows it to take with it anyone whom it considers it needs to assist. One can readily see how such parties will include accountants, forensic IT technicians and experts with relevant technological expertise. The OFT is also empowered to apply whatever equipment it considers it needs to conduct its inspection. The regulation allows for an inspection to be carried out under a warrant and, where that is the case, material may be removed.

Whilst all of this may sound somewhat draconian, there are several important safeguards. Most importantly, the officer conducting the search must provide a written notice setting out various rights and duties associated with the search.

Those on the wrong end of the OFT's new powers are entitled to legal advice, but should note that, since there is a two day notice period (unless a warrant has been issued), the inspectors will get straight to work immediately whether the lawyers are there or not. Lawyers have an important role to play, not least in ensuring that the limitations on the power of investigation are properly observed. The OFT must respect legal privilege, for example, and those being inspected have rights against self-incrimination.

Fines

The regulation introduces a new criminal offence, attracting a fine not exceeding level 5, where a person without reasonable excuse intentionally obstructs or fails to co-operate with an authorised officer exercising his powers.

The OFT is keen to allay fears that this is all big brother at work and, certainly, its experience of similar activities under the Competition Act 1998 would indicate that the approach will be firm and fair. The OFT's aim is stated to be to uncover unscrupulous traders and protect legitimate businesses from rogues. Both are worthy aims and the OFT will be closely observed to see how well the powers work.

The OFT has published a consultation document which goes into useful detail about the regulation and the OFT's proposed approach to implementation (www.oft.gov.uk/News/Press+releases/2007/3-07.htm)