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| Financial Law Update | Back to article summary. |
| Financial services firms need not fear Consumer Protection Act | ||
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| The Consumer Protection Act, 2007 aims to provide a new protection regime for the consumer across all sectors, including the domestic financial services sector. The main purposes of the legislation is to establish a powerful new National Consumer Agency and to give effect to the Unfair Commercial Practices Directive. The act replaces much of the existing body of consumer law, repealing and replacing nine existing statutes, creates a blacklist of misleading and aggressive commercial practices and continues a trend of criminalising certain commercial behaviour. | ||
| Financial Service Providers; are they affected? The Act's definition of a service includes all services (save contracts of employment) for gain and explicitly includes "…banking, insurance, grants, loans, credit and financing." This is not intended to be an exhaustive list therefore one should assume that all financial services are within the scope of the Act. The Act only applies to "consumers" which is defined in terms similar to that of the Consumer Credit Act 1995, as "a natural person who is acting for purposes unrelated to the persons trade, business or profession". All corporate entities and SMEs are therefore excluded.
National Consumer Agency The functions of the Director of Consumer Affairs transferred to the new National Consumer Agency ("NCA") (which was put on a statutory footing) on 1 May 2007. The establishment of the NCA as an independent, statutory body was the main recommendation of the Consumer Strategy Group set up by the Minister for Enterprise, Trade and Employment in 2004 to advise and make recommendations for the development for a national consumer policy strategy. Ms Ann Fitzgerald is the Executive Chair of the NCA. The NCA has additional powers and functions in the areas of consumer advocacy, research, educational awareness, information and enforcement. In terms of enforcement, the NCA's authorised officers have the power to enter and search a premises in which there are reasonable grounds to believe that records in relation to any trade, business or activity are kept. They can inspect and take copies or extracts from any such records and, if necessary, conduct interviews. Co-operation with the Financial Regulator The Act affords the Financial Regulator the same functions as the NCA; to promote and protect the interests of consumers, to enforce the relevant statutory provisions, to encourage compliance, to investigate suspected offences and at it's discretion to refer cases to the DPP. The Financial Regulator will also have the ability to serve compliance notices on traders, accept a written undertaking from traders, keep a consumer protection list and publish this information in relation to offending traders. The Financial Regulator can also apply to the Circuit or High Court for an order prohibiting a trader engaging in a prohibited act. In order to ensure a sensible allocation of effort the Act provides for co-operation agreements to be entered into between the NCA and certain prescribed bodies, including the Financial Regulator. At a Consumer Protection Conference 2007 hosted by IBEC, held on 31 May, both Ann Fitzgerald and Mary O'Dea (Consumer Director, IFSRA) noted that both agencies were committed to co-operate and to ensure that duplication of activities does not occur. It was also acknowledged, especially given its experience and dept of knowledge, the Financial Regulator was best placed to continue to focus on consumers of financial services. This clear intention to co-operate is a very welcome reassurance that the Act will not lead to confusing enforcement regimes from competing state agencies. Blacklisted Activities under the Act Part III of the Act deals with the prohibition on unfair commercial practices and details those prohibited practices. It includes a general prohibition on unfair, misleading and aggressive commercial practices. A commercial practice is deemed unfair if it is contrary to the requirement of professional diligence and the principle of good faith in the trader's field of activity. If the commercial practice would be likely to impair the average consumer's ability to make an informed choice or cause the average consumer to a make a transactional decision that the average consumer would not otherwise make, the practice is deemed unfair. This is particularly vague prohibition and may explain why a criminal sanction is not imposed for its breach. While one could imagine that some financial products might meet these criteria we would expect that firms which adhere to the Financial Regulator's current requirements under the Consumer Protection Code ("CPC") or other similar requirements are unlikely to commit an offence under the Act. Nevertheless we suggest that firms make themselves aware of the prohibitions in the Act and consider their current practices against the Act just in case. Also training regimes for staff including customer facing staff will need to be updated to take the Act into account. Name and Shame The NCA and the Financial Regulators will be permitted to "name and shame" firms who breach the Act. The Regulators (both) are empowered to issue compliance notices and impose on the spot fines (NCA only); they will also be able to accept undertakings of compliance with the law as an alternative to court proceedings and are also required to publish details of traders who have faced enforcement action. The Act's "name and shame" provisions may have an adverse effect on the consumer of financial services and possibly lead to a decrease in consumers reporting breaches in consumer protection because if a trader is named then natural justice would require that the complaining consumer is also named. The attendant publicity may deter complainants from coming forward. The "name and shame" power in the Act is at odds with the practice of the Financial Services Ombudsman of not naming firms. The extent to which this power will be used and the overlap and inter-relationship between the NCA and the Ombudsman will be tested over time. Defence The Act basically reverses the normal burden of proof providing that the firm must prove the truth of a representation at issue. It is a defence for the accused to prove that the commission of the offence was due to mistake or to act or default of another, an accident or some other cause beyond the accused's control. Also, the accused must prove he or she acted in due diligence and took all reasonable precautions to avoid the commission of the offence. Traders found guilty of engaging in a prohibited commercial activity may be guilty of a criminal offence and will be liable to significant fines and/or terms of imprisonment. Both the NCA and consumers will be able to obtain an injunction to prevent traders from continuing to engage in such practices. Damages may also be awarded to consumers. If a trader is convicted of an offence, the NCA can seek a compensation order on behalf of aggrieved consumers. Alternatively, consumers have a right of action against a trader and if the trader is a company, against it's directors and officers. Exemplary damages can be awarded against a trader or it's directors and the trader can be forced to publish "corrective notices". Payment Charges Provision Not Commenced The Minister for Enterprise Trade and Employment has commenced almost all of the provision of the Consumer Protection Act 2007 with effect from 1 May 2007. The provisions not commenced from that date are sections 48 and 49 of the Act which relate to the imposition of additional charges for use of particular means of payment. The Minster has indicated that he is likely to commence these provisions by next October and the additional time was being provided to assess the impact of the measure. Summary The Act will afford consumers a new level of protection involving service providers and traders in all industries including financial services. Only time will tell if the confusion surrounding the appropriate authority to investigate and prosecute traders in different sectors will be successfully clarified through co-operation agreements. Although the name and shame provisions are likely to be a deterrent to non-compliant traders they may also have the opposite effect and become a deterrent for consumers with a valid claim. In relation to financial services, the Act will apply and though it should not add significantly to a firm's regulatory burden, the creation of new criminal offences does reinforce the importance of compliance particularly in respect of all consumer related activities. |
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Author Details: Joe Beashel is a Partner in the Banking and Financial Services Department and Head of the Regulatory Risk Management and Compliance Group at Matheson Ormsby Prentice. He can be contacted by phone: +353 1 232 2000 or by email: joe.beashel@mop.ie. |
