Shift in consumer rights landscape increases risks for retailers
Expanded consumer rights coupled with an increased risk of class action suits mean retailers need to keep on top of compliance
UK retailers have long had to navigate the maze of consumer protection legislation to avoid loss of market share or regulatory censure. However, the expansion of the consumer protection landscape, combined with developments in legal redress, mean the chances for retailers to fall foul of regulators, consumers, or a class action are higher than ever.
GDPR is a key part of this new environment for retailers. Under the GDPR regulators can impose fines of up to up to €20 million (£17.5m in the UK), or 4 per cent of the business' worldwide annual revenue from the preceding financial year, whichever amount is higher. In the three and a half years since GDPR came into force, retailers have incurred fines in the region of €20-30 million for individual failures such as data security breaches, excessive staff monitoring and unlawful marketing.
Aside from the risk of regulatory enforcement, the strengthening of consumer legislation is giving consumers a raft of further rights. In the EU, the Enforcement and Modernisation Directive 2019/2161, more commonly known as the Omnibus Directive, updates rights in a variety of ways, including transparency for online marketplaces, clearer conditions around consumer reviews and clarity on how prices are personalised. In addition to introducing GDPR-style fines for breaches, the Directive also provides consumers with compensation rights when they are affected by unfair commercial practices.
“Retailers need to review their understanding of trade laws,” says Jon Bartley, a retail and ecommerce specialist at leading law firm RPC. “The recent developments in the UK and EU mean retailers are liable to be caught out by the sheer variety of new rules or the potential consequences of breach. If errors are made, there are new risks of fines and new avenues for consumer redress. It's not just regulators enforcing the law. We are seeing a new era for class action lawsuits as consumers seek compensation directly.”
Until recently class action lawsuits were rare in the UK and EU. That is changing. “The government and regulators are clear that they support more class action cases,” says Lambros Kilaniotis, head of RPC's competition practice. “Whilst we won't quite match the United States for frequency of cases, retailers need to understand that the new legislation here and in the EU means we'll see a growing appetite for action.”
Kilaniotis explains that the key change in the UK came with The Consumer Rights Act 2015 and the switch from an exclusively opt-in regime for claims based on competition law infringements to a system that additionally enables opt-out collective claims (where claimants are included in a class unless they opt out) as the previous regime was not considered effective.
At a stroke it became simpler to launch a class action suit to cover those affected. “The new system took time to find its feet,” says Kilaniotis, “but now we are seeing a steady rise in cases. There are three cases that have been certified on an opt-out basis and ten more waiting in the wings.”
The EU is also making class actions easier. The Representative Actions Directive demands member states enable class actions to enforce consumer rights. Whether member states offer an opt-in or opt-out mechanism is up to them. Nevertheless, the new directive will enable class actions for breaches of a huge raft of consumer and data laws.
“Retailers need to understand that the trading environment has changed,” warns RPC's Jeremy Drew. “Any company trading in the EU and UK needs to be aware of the expansion of consumer rights and the enhanced ability of consumers to launch class action suits. Regulators will also be enforcing the new legislation with much greater powers to fine companies that infringe the rules. Retailers need to ensure that they have these developments on their radar and adapt as necessary to avoid costly mistakes.
This article was originally featured in 'The Future of Retail' - a joint publication with Raconteur and The Sunday Times, published on 12 December 2021. You can download the publication in full here.