Martin Ward, principal associate, and Patrick Begley, associate at Eversheds Sutherland discuss a possible growing litigation risk to lenders arising from consumer protection regulations.
An increasing number of claimant law firms are relying on the Consumer Protection from Unfair Trading Regulations 2008 (CPUT Regulations) to bring claims against lenders, particularly in the motor finance sector. Should lenders be concerned?
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The CPUT Regulations implement the EU’s Unfair Commercial Practices Directive (UPCD).
The aim of the UPCD is to provide consumers with protection against unfair commercial practices. In an attempt to achieve that aim, in 2008 the CPUT Regulations were enacted and set out five new criminal offences to reflect the five different unfair commercial practices in the UPCD.
Amendments
The CPUT Regulations were amended by the Consumer Protection (Amendment) Regulations 2014 following a Law Commission report in 2012 on consumer redress for misleading and aggressive practices. Most of the Law Commission’s proposals were implemented in 2014 to introduce Part 4A to the CPUT Regulations, containing new provisions entitling consumers to civil redress where they had been subject to aggressive commercial practices. If a consumer can satisfy the three conditions in regulation 27A, they will have a right to redress.
Very broadly, these conditions are:
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By GlobalData- A consumer enters into a contract with a trader for the supply of a product by a trader;
- The trader engages in a prohibited practice in relation to the product, and when the contract is entered into, the trader is aware of the commercial practice that constitutes the prohibited practice or could reasonably be expected to be aware of it, and
- The prohibited practice is a significant factor in the consumer’s decision to enter into the contract or make the payment.
Why would claimant law firms rely on the CPUT Regulations when consumers already have the benefit of myriad protections in consumer credit legislation?
If the consumer has a right of redress, depending on the circumstances, the CPUT Regulations give the consumer a statutory right to: (a) unwind the transaction entirely, (b) a discount, or (c) damages.
It is the right to a discount where claimant law firms have directed their focus. Regulation 27I sets out a prescribed menu of discounts based on the seriousness of the prohibited practices. They range from minor (a 25% discount) to very serious (a 100% discount).
The key is that, as the amount of redress is specified in the statute, consumers will be entitled to redress whether or not they actually suffered a financial loss. The CPUT Regulations therefore have the potential to allow consumers to recover more than they could in other claims, including under consumer credit legislation.
CPUT and Motor Finance
In most situations, the lender will not have actually engaged in any selling practices – let alone prohibited practices. Consumers will, therefore, have to impute liability for the practices of the dealer to the lender.
Claimant law firms often argue that the lender should be liable as the dealer’s deemed principal, and so should be liable for the dealer’s conduct when selling the vehicle. It is an untested area of law, and it is far from certain that a lender can be liable for the statutory liability of its agents under the CPUT Regulations.
We would hope that a court would find holding a lender vicariously liable for the prohibited sales practices of a dealer unattractive for a number of reasons, not least because such a finding is not necessary to provide consumers with protection.
Lenders can point to the genesis of Part 4A for helpful guidance: the Law Commission’s 2012 report remarked that consumers already had adequate protection for sharp sales practices in consumer credit legislation.
Significant Hurdles
The breadth of the unfair commercial practices proscribed by the CPUT Regulations means that they have the potential to be deployed liberally for a wide range of motor issues. That, along with its prescribed penalties, makes it an attractive weapon for claimant law firms looking for windfall claims.
However, there are a number of significant hurdles to overcome before a claim can be made out.
Significantly for lenders, it is not clear how claimant law firms will bridge the gap between the practices of the dealer and the liability of the lender and it remains to be seen whether courts will be persuaded.
by Martin Ward and Patrick Begley
