How the new Consumer Rights Act affects franchises

Whether they’re operating services or selling products, Emer O’Kelly, Associate outlines how franchises can operate within the bounds of the new Consumer Rights Act

No franchise wants to alienate its customers or fall foul of regulation, which is why reading up on the latest changes to consumer rights regulation is valuable for franchises of every stripe. Coming into force on October 1, the new Consumer Rights Act 2015 forms the centrepiece of the recent consumer law reforms and applies to contracts with consumers for the sale of goods, digital content and services.

The act has the potential to impact directly upon the trading operations of franchisees who deal with consumers and indirectly upon the policies and practices of their franchisors. It restates many of the consumer protections under the previous law but also introduces some notable changes.

Rights and remedies for goods

As previously required, goods sold to consumers must be of satisfactory quality, reasonably fit for purpose and match any description and sample provided. But the new Consumer Rights Act also introduces a new requirement that goods must match any model seen or examined by the consumer – unless the consumer is informed about specific differences before purchase. This will be particularly relevant to franchisors and franchisees whose sales practices allow consumers to try out models, for example in a showroom.

The consumer has the following options when they have purchased defective goods:

Within 30 days from delivery the consumer can choose to reject the goods and claim a full refund or request a repair or replacement. Here the choice is the consumer’s unless one option is disproportionately expensive for the seller.

If they choose repair or replacement, the seller has only one chance to repair or replace the goods. In addition, the 30-day period for the short-term right to reject is paused until return of the repaired or replaced goods. If the goods are still defective on return, the consumer has the remainder of the 30 days – or, if longer, seven days – to reject them again and claim a refund.

After 30 days from delivery the consumer can either request repair or replacement. But, if repair / replacement does not work, is impossible, is not provided or cannot be provided within a reasonable time or without significant inconvenience to the consumer, they can reject the goods and claim a refund or retain the goods but receive a price reduction.

Within the first six months, any refund should be a full refund, except in the case of a motor vehicle. Once this period has ended, the seller can make a deduction for the use that the consumer has had of the goods.

Rights and remedies for digital content

The Consumer Rights Act 2015 introduces new specific rights for ‘digital content’, essentially data that is produced and supplied in digital form such as computer games, TV programmes, computer software or apps. The act requires digital content to be of satisfactory quality, reasonably fit for purpose and match any description provided.

When digital content is defective, the consumer has the right to repair or replacement or – if repair or replacement is not possible or does not resolve the fault – the right to a price reduction. This reduction in price should reflect the difference in value between what the consumer originally paid for the content and what they actually received.

For franchisors and franchisees, it’s worth noting that if goods contain defective digital content, then the goods as a whole can be considered defective and a consumer can exercise the remedies for defective goods rather than digital content.

Rights and remedies for services

Services must still be provided using reasonable skill and care and in line with any information provided about the service and seller. However, information provided about the service and the seller can be provided on behalf of the seller. This could therefore potentially include information that a franchisor provides about its franchisees and the services that they offer, for example online or in marketing materials.

The remedies available to the consumer for defective services depend on which right has been breached.

The consumer can require a price reduction if the service is not performed within a reasonable time or is not performed in line with information given to the consumer about the seller. The price reduction should normally reflect the difference in value between the service the consumer paid for and the value of the service actually provided by the seller.

A consumer can request repeat performance if the service is not performed with reasonable skill and care or is not performed in line with information given to the consumer about the service. If repeat performance is not possible, cannot be done within a reasonable time or without causing a significant inconvenience to the consumer, then the consumer is entitled to a price reduction.

Ultimately, a failure to comply with the Consumer Rights Act 2015 can result in sales terms being unenforceable, financial penalties and reputational damage. Both franchisors and franchisees should therefore review their trading practices and policies and all marketing materials, sales terms and other relevant materials to ensure continued compliance with consumer protection law.

First published in Elite Franchise Magazine, December 2015

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