OFT launches market study into consumer contracts

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The OFT has launched a market study to examine when, how and why contracts may cause difficulties for consumers.

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Re: OFT launches market study into consumer contracts

Press releases 2010


OFT launches market study into consumer contracts

10/10 4 February 2010
The OFT has today launched a market study to examine when, how and why contracts may cause difficulties for consumers.
The OFT intends to look at how well consumers understand typical contracts and how this varies when contracts are, for example, presented online, over the phone, or during a face-to-face sales pitch.
The OFT will also look at how firms approach consumer contracts, and any practices which deliberately or unintentionally disadvantage consumers. The results should be of benefit to firms who are trying to make important terms and conditions clear to consumers buying their products and services.
Heather Clayton, Senior Director of OFT's Consumer Market Group said:
'Today consumers are offered a range of complex contractual arrangements, particularly for goods and services offered online. We often see situations in many different markets where people lose out as a result of not understanding contracts. We want to understand the cause of these problems and look for remedies that will not only protect consumers, but also help those businesses that are trying to provide clarity to their customers.'
The OFT would welcome views and evidence on when and how contracts cause problems for consumers or firms. It will be contacting key parties directly, including Government departments and consumer bodies. Others who wish to make a submission should visit www.oft.gov.uk/consumer-contracts or email consumercontracts@oft.gsi.gov.uk.
The study is expected to be completed in Winter 2010.
NOTES
1. For more information about the market study go to www.oft.gov.uk/consumer-contracts.
2. Market studies are conducted under the OFT's general function under section 5 of the Enterprise Act 2002, which includes the functions of obtaining information and conducting research.
3. Market studies involve an analysis of a particular market with the aim of identifying and addressing any aspects of market failure from competition issues to consumer detriment and the effect of government regulations. Possible results of market studies include: enforcement action by the OFT, a reference of the market to the Competition Commission, recommendations for changes in laws and regulations, recommendations to regulators, self-regulatory bodies and others to consider changes to their rules, encouraging firms to take voluntary action, campaigns to promote consumer education and awareness, 'a clean bill of health' for the industry.
4. The OFT is unable to provide advice or resolve individual complaints for consumers. Consumers can seek advice from Consumer Direct (tel: 08454 04 05 06, www.consumerdirect.gov.uk).

[Amethyst]

Re: OFT launches market study into consumer contracts

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1. What has prompted this study?

The OFT is looking to clarify and update the understanding of harms that arise when contracts do not work well for consumers.
The OFT encounters a range of issues with contracts in different markets. We would like to understand more about the nature and severity of these problems. We would also like to update our understanding to take account of developments such as the increasing number of contracts entered into online, which may change how contracts are used and understood.
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2. What will the scope of the market study be?

We aim to update our understanding of why contracts sometimes do not work well for consumers. We will consider practical remedies aimed at making markets work better.
To update our understanding, we will explore:

• The range of difficulties that consumers experience with contracts. We will look at how consumers interpret contracts, for example difficulties reading, understanding, calculating or predicting. We will consider if these problems are influenced by behavioural biases or other consumer characteristics.
• The terms, features or types of contract with which consumers have particular difficulties. This will include exploring problems that arise both in the small print and upfront terms.
• Factors affecting consumers' difficulties with contracts. For example we will look at the difference between contracts completed face-to-face, online, over the phone or at home. We will also consider the influence of independent advice.
• How firms use contracts. We will look at why firms sometimes use contracts that do not work well for consumers, for example when firms set out to exploit consumers and when firms act in good faith but themselves make mistakes, or are trying to protect themselves from uncertainty, follow the market or pursue other motivations. We will consider when competition or consumer learning resolve problems and when not.

This study excludes contracts that people do not make as consumers, such as contracts relating to employment or setting up a business.
Practical responses that we will consider could include:

• Consumer education, consumer guidance and guidance to firms about terms, features or types of contract that cause particular problems.
• Clarity for firms about what is likely to cause significant detriment and possibly breach consumer protection legislation.
• Developing clear theories of harm which will help focus enforcement action on areas where consumers suffer significant harm.
• Working with partners, such as Trading Standards and Consumer Direct, as well as the sector regulators, to address particular problems with contracts or issues that cut across markets.

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3. How long will the study last?

We expect to complete this study in Winter 2010.
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4. What are the possible outcomes of the study?

We will consider the practical measures set out above.
In general, other possible outcomes of a market study include:

• giving the relevant market a clean bill of health
• publishing information to help consumers
• encouraging firms to take voluntary action
• encouraging industry codes of practice
• making recommendations to the Government or to sector regulators
• investigation and enforcement action against companies suspected of breaching consumer or competition law
• a market investigation reference to the Competition Commission.

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5. What statutory powers does the OFT have to undertake this study?

OFT market studies are carried out under section 5 of the Enterprise Act 2002 which allows a market-wide consideration of both competition and consumer issues.