13 June 2014: Landmark shift in consumer protection

13 June 2014: Landmark shift in consumer protection

How will new regulations on consumer protection affect relationships between lawyers and their clients? Kerry Underwood, senior partner at Underwoods Solicitors, says new regulations giving consumers greater contractual rights mark a significant shift in the world of consumer and client protection.

Original news

Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, LNB News 16/12/2013 52

Contracts between traders and consumers will be subject to more stringent rules on the information required to be provided to consumers and countering hidden costs from 13 June 2014. The changes combine with the draft Consumer Rights Bill for a fundamental reform of UK consumer rights, making more effective markets.

What is the significance of these new Regulations?

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (the Regulations), which come into effect on 13 June 2014, impose very considerable obligations on lawyers even in relation to contracts made in the solicitor’s office—rather than just those made away from the office or distance selling when there has been no physical meeting with the client at all.

What are the key elements of the Regulations that lawyers need to be aware of?

The key exception is that the Regulations only apply where the client is a consumer therefore if the client is a business there is no need to comply with the Regulations. However lawyers need to check that the work they are doing is really for the business. For example, where a solicitor is preparing a will for the managing director of a business will come within the Regulations.

The key changes are that on-premises contracts are now covered and the Regulations list extensive information that must be given to a client before the client is bound by the contract. An on-premises contract is where the solicitor and client are simultaneously physically present together in the solicitor’s office when the contract is made. The Regulations are badly worded and some people take the view that the information has to be given before the client is bound by the contract and that if it is not given then the client is not bound—in other words it is a condition precedent of the contract.

Others take the view that this is simply Parliament stating when the information needs to be given and if it is not given then that does not of itself void the contract. However it is likely to result in a finding of inadequate professional service and it is of course a breach of a statutory instrument and therefore for lawyers the consequences are likely to be the same—no compliance with the Regulations—no fee.

When simultaneous physical presence occurs off the premises that is an off-premises contract and when there is no such simultaneous physical presence that is distance selling.

In relation to off-premises contracts and distance selling, in addition to all of the information being given to the client in advance of the contract, the client has the right to cancel and that notice must be served by the solicitor on the client. This has been the case for some time now, but the period of cancellation goes up from seven days to 14 days and is now calendar days and not working days.

Furthermore the client no longer has to cancel in writing—the contract is cancelled if the client makes it ‘clear’ that they wish to end the contract.

What are the practical implications of these changes?

In relation to off-premises and distance selling contracts the wording of the right to cancel has changed and is much more extensive. The Regulations themselves give standard wording and a standard letter and the Law Society recommends that this is followed and I agree entirely.

In practice all the client care letters need to be changed so they contain all the extensive information that now needs to be given whether that is for on-premises, off-premises or distance selling. This has the effect of extending the client care letter by around three pages.

It is important to remember that the Regulations do not come into effect until 13 June 2014 so no existing client care letters, conditional fee agreements or existing clients need to be changed. However for all contracts entered into on or after 13 June 2014 there needs to be a new client care letter and a new conditional fee agreement. The conditional fee agreement cancellation period needs to be changed from seven to 14 calendar days wherever it appears and Sch 3 of the Regulations needs to be completely redrafted and again will become much longer. The Law Society Practice Note gives guidance.

Are there any aspects of the Regulations that are a cause for concern?

Many of the new aspects of the Regulations are to be welcomed, for example it is no longer legal to use:

  • premium telephone numbers, and
  • pre-ticked boxes

In other words clients must opt in and not opt out.

Solicitors need to be very careful that a contract has actually been made and my advice is that the client care letter containing the terms and conditions of business, and the funding agreement (whether that is a conditional fee agreement, a damages-based agreement or whatever should be signed by the client in the solicitor’s office), should be witnessed by two members of staff and can include the solicitor dealing with the matter.

The burden of proof is on the solicitor to show that they have complied with the Regulations and this should put it beyond doubt. If the contract is made in the office then there is no need to give the right to cancel, and that is of crucial importance, especially as the time period is now 14 days and not seven days.

Where there is a right to cancel the client does not now have to do this in writing, so firms must have a procedure for logging every call—because if a client phones up and cancels and that is not picked up, the firm may end up doing a huge amount of work for which they will not be paid.

The Law Society suggests that shortly after the end of the cancellation period the solicitor positively contacts the client for confirmation that they have not cancelled the contract. If the client agrees that they have not cancelled the contract, and it is after the period for cancellation, then there should be no problem.

Should lawyers be considering amending their practices in light of these Regulations?

Clearly the trend is towards making it difficult for lawyers to act for clients without seeing them and the end is in sight for distance selling for lawyers in my view. It is obviously good practice to see every client, for a whole host of reasons. Firstly, the solicitor can make an assessment of the client and the case which avoids fraud etc and it also builds a relationship and helps in cross-selling and building up the reputation of the practice. It is the factory firms that are going bust and their days are numbered.

What are the key dates for lawyers?

The key date is 13 June 2014. In relation to existing cases there is no need to make any changes to client care letters, conditional fee agreements and funding agreements. However for every new case or new agreement from 13 June 2014 onwards, the Regulations apply and the new client care letter and the new conditional fee agreement should be used.

Lawyers need to be careful about cases taken on before 13 June 2014 where no agreement has been reached, or where the client has not returned the client care letter. If the contract is made on or after 13 June 2014 then the new wording and new forms must be used.

For more guidance on the new regulations, why not attend our free Cancellation Rights online training session. Reserve your place now by visiting our booking system and following the on-screen instructions.

Interviewed by Evelyn Reid. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

First published on Lexis®PSL Dispute ResolutionClick here for a free one week trial of Lexis®PSL. 

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