Revised guidance is being drawn up by the Department of Trade and Industry to help Web traders -- and price comparison sites in particular -- avoid costly breaches of consumer protection rules.
The Code of Practice for Traders on Price Indications, which sets out practical guidance on complying with the Consumer Protection Act 1987 (CPA), is being updated to cover the Internet and other distance selling methods. The review also aims to address some "sharp practices", particularly in relation to sales promotions such as "free" offers. Rather than creating stricter sanctions or rules, the proposed changes clarify the application of existing law to the online environment. Although the Code is not legally binding, e-tailers would be well-advised to adhere to its benchmarks, since the penalty for giving a misleading price indication (including an out of date Web page) can be a fine of up to £5,000.
Why is the Code important to e-tailers?
The Code provides guidance for businesses on how to comply with the relevant provisions of the CPA. The CPA makes it a criminal offence to give consumers a misleading price indication about goods, services, accommodation or facilities. The offence is punishable by a fine of up to £5,000. The Code is not mandatory, but a trader's compliance or non-compliance with the Code will be taken into account by a court in deciding whether an offence has been committed under the CPA. Although the provisions of the CPA apply generally to price indications given in any context -- whether in-store, in a TV or press advert, a catalogue or on a Web site - the current version of the Code -- issued in 1988 -- does not specifically address online sales. In March the DTI published a consultation on proposed updates to the Code to reflect relevant new legislation and the changing market place. The review is one of a package of measures announced as part of the government's 1999 White Paper "Modern Markets: Confident Consumers".
The potentially unlimited audience, coupled with the speed with which news of such unintended "bargains" spreads, makes mis-pricing a far bigger issue on the Web than in the high street. Whether measured in financial or PR terms, pricing errors can be expensive, as a number of leading brands have learnt to their cost over the past few years. High-profile pricing error cases involving Argos, Kodak
and, more recently, Amazon
have made the headlines, although in all these cases attention centred on the issue of whether or not the retailers in question were bound to fulfil the orders at the erroneous price, rather than on whether the CPA had been breached. Nevertheless, with the OFT and Trading Standards showing ever-increasing vigilance over e-commerce sites, and with potential fines of up to £5,000 for breaching the misleading price rules, this is a practical issue which no e-tail business -- even one with expertly drafted terms and conditions -- can afford to ignore. The changes in more detail
Specific proposed changes to the Code include the following:
E-commerce: Various amendments and additional definitions, such as 'distance contracts', make it clear that the guidance applies equally to Web sites and "other innovative selling mechanisms." The term 'outlet' has been substituted for references to "shop".
Price comparison: The most significant changes relate to price comparison, and in particular the need for clarity and transparency in making price comparisons with previous prices or another trader's prices. The main basis for price comparisons should be "like for like" situations. Where prices compared are not like for like this must be clearly specified -- e.g. Internet outlets as opposed to shop outlets. There is also additional guidance on applying the "28 day rule" to statements about price reductions.
Status of the Code: The revised introduction clarifies the relationship between the Code and compliance with the legislation, i.e. that although the Code is not mandatory it is the benchmark against which a court is likely to judge a trader's compliance or otherwise.
The wider legal context
For the sake of completeness, it should be stressed that compliance with the requirements of the CPA and the guidance in the Code is not the end of the story. E-tailers also need to comply with a range of other legislation relating to pricing and information including the Distance Selling Regulations, and the E-Commerce Regulations, general consumer-protection rules such as the Unfair Contract Terms Regulations 1999 and other sector-specific rules where appropriate. As mentioned above, care also needs to be taken when structuring ordering procedures and drafting Web site terms and conditions to make it clear at what point the contract with the consumer is formed, in order to minimise the risk of being bound to fulfill uneconomic orders in an Argos/Kodak-type scenario.
Business have until 27 June to respond to the DTI's proposals. The revised version of the Code is expected to be finalised before the end of the year. In any event, e-tailers should keep pricing information under constant review, ensure that out of date pages can no longer be accessed, and implement an "early warning system" to draw attention to unusual site traffic.