Red flags when transacting with consumers

If, as a tech startup, you are dealing only with consumers, or your customer base includes consumers, it’s key to ensure that your offering doesn’t fall foul of the (onerous) regulatory landscape that exists to protect consumers. There are some potentially costly pitfalls to avoid, ranging from how you promote goods and services to what happens if you don’t inform consumers about their cancellation rights in good time.

The consumer protections apply not just to the supply of goods and services but to digital content too - the law defines digital content as data that is produced and supplied in digital form, which includes ringtones, software, computer games, apps, online journals, e-books, and digital media such as music, film and TV.

The core UK consumer legislation is found in the following:

Consumer Rights Act 2015 which regulates contracts between businesses and consumers. It is pretty comprehensive and states for example that goods or digital content must be of satisfactory quality, as described and fit for the purpose for which they are sold. Services have to be carried out with reasonable skill and care and within a reasonable timeframe (if you don’t stipulate one). If you are providing goods, you need to comply with specific rules about delivery.
Consumer Protection from Unfair Trading Regulations 2008. These Regulations are, as the name suggests, designed to ensure that businesses do not treat consumers unfairly or mislead them, whether in advertising, entering into contracts, performing contracts or aftersales care or handling complaints. It contains a long list of practices that are always considered to be unfair, and almost all of these also criminal offences, and one example includes falsely claiming that a product is “free”.
Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. A key requirement of consumer law is to ensure that consumers are provided with comprehensive information before they enter into a contract so that they can make an informed decision. It must be clear, legible and understandable, and appropriate for the method of communication. Also, providing clear information to consumers about their right to cancel a contract for convenience (the so-called cooling off period) is important. Failure to do so can mean the 14 day clock does not start ticking for up to one whole year.

The CMA continues to look into loyalty penalties. Unacceptable practices may include:

making it more difficult to leave a contract than it is to sign up
rolling over customers onto new contracts without sufficient warning (auto renewals)
imposing ‘stealth’ increases in price on renewal year after year, which can lead to price increases without making consumers aware.

In addition, where a contract is completed electronically and also places the customer under an obligation to pay, you must make sure that they are aware of this obligation - for example, by using 'pay now', 'buy now' or similar wording at the point where they click to pay. If you don't do this, the contract may not be legally binding.

If you are entering into a longer term contract with the consumer, you need to ensure that you include information about how long the contract is, how it renews, and termination rights – e.g. under what circumstances may a consumer cancel a longer term contact and how much notice do they have to give you? Be careful not to tie customers in for years, such tie-ins won’t be enforceable. Also make sure that if you change the terms of the contract, such as the price, that you allow the consumer to exit the contract before the changes take effect. Avoid legal and other jargon and explain things in clear, plain English!

A final issue to note is the remedies that a consumer is entitled to if products are faulty or services not provided to a requisite standard. Consumers can return goods for a refund, ask for a repair or replacement, or reduction in price or ask for services to be performed again. If you supply digital content that causes damage to the consumer's equipment, device or other digital content the consumer is entitled to have the damaged equipment etc repaired by you or receive compensation from you. If you work with suppliers who provide guarantees, don’t confuse the rights that the customer has under the contract against you with the additional rights they have under any guarantee, and make sure your contracts with your suppliers dovetail (so far as possible) with the protections afforded to your customers.

We can advise startups on all aspects of compliance including how to structure your route to market, your sales process, your terms and conditions and promotional material. We can also help you comply with sector-specific requirements, including in specifically regulated sectors where additional compliance obligations exist (such as with the FCA or Ofcom).

Back to all posts

Red flags when transacting with consumers

LATEST COMMUNITY POSTS

I’m calling security

Employee competition: top tips for start-up businesses

IP support and funding

SEIS investment guide

Key People