Strong consumer protection law may be the answer to our digital ills

Competition law is not very good at policing the interaction between firms and consumers, and should not be bent to do so.

Consumer law is exactly the tool to police that line, but at present it is weak and outdated.

The consumer law community is under-resourced. The necessary improvements to consumer law will not happen unless organisations like the CMA, Law Society, Law Commission or BEIS invest further resources in developing proposals for change.

The crisis in competition law

Almost every winning policy over promises and under-delivers. It’s the winners’ curse. Eventually this becomes obvious, and change — perhaps revolution — is called for.

It feels as though this is happening, right now, to the modern antitrust consensus.

Partly this is a problem of evidence. The benefits in productivity and growth that antitrust claims to provide are hard to measure and almost impossible to isolate.

Partly it is suffering collateral damage from the global financial crisis and the associated criticisms of “neoliberalism”, however it might be defined.

And partly it may, indeed, be that change is required.

In any case, it appears that society no longer trusts in laws and agencies that merely maintain the process of competition for the supposed benefit of the consumer. They want intervention that creates tangible outcomes that directly benefit consumers. They want offending firms to be punished or shackled. They want a law which looks after them directly. They want results.

This has, understandably, somewhat twisted the knickers of the antitrust community. There is much debate on what, if anything, should be done.

Consumer protection law to the rescue

But in my view one of the the best suggestions is that consumer protection laws that should be strengthened. This is a suggestion made recently in proposals to reform the UK CMA and supported by the Department for Business, Energy and Industrial Strategy. For three reasons I believe they should.

  • The politics is good: unlike antitrust, consumer protection laws directly protect the consumer. There would be a clearer backstop to prevent “too much” competition leading to sharp practices, and a stronger sense that the laws that control market conduct have the consumer interest manifestly at heart.

The relevance of consumer protection

In brief, consumer protection laws try to ensure that the consumer to a transaction gets what they expect. So the laws cover transparency of the contract, of related marketing, and of redress if standards of transparency are not met.

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The crisis of consumer enforcement in pet shops

Understanding that consumers are not able to read and understand all the terms and conditions attached to a contract, consumer law in the UK also covers whether the contract is fair — a favourite word of the more “romantic” antitrust enforcer.

Broadly, a term in a contract is unfair if it does not cover the core price/service bargain and it causes an imbalance between the rights of parties to the detriment of the consumer. This seeks to preserve freedom of contract while ensuring that consumers do, indeed, get what they thought they contracted for.

In addition, consumer protection laws limit the ability of firms to change the price or quality of a service after a consumer has agreed to it, and limit the ability to apply “encumbrances or charges not known or disclosed”.

These four concepts of transparency, fairness, consistency, and non-encumbrance appear to be highly relevant to, for example, the interaction between consumers and technology platforms:

  • Do technology platforms communicate transparently and in good faith?

What would need to change?

The CMA has set out, at a high level, some of the legal and institutional changes that would be required to reignite consumer protection law. In particular, the creation of deterrent-inducing fines similar to the 10% of turnover seen in antitrust, and increased resources for enforcement.

But if consumer law is truly going to step up to take the weight off antitrust, it will have to be modernised further than that. In particular, it will need to deal with free goods, and with actions that may be harmful to an individual consumer while beneficial to the mass of consumers.

The question of free goods is particularly acute as, at present, much of the law simply does not apply to contracts that do not contain a price — the whole of the Digital Services section of the Consumer Rights Act, for example, requires payment before it can be applied. Further, much of the Unfair Terms legislation and jurisprudence is focussed on the distinction between price and non-price factors when, in the case of many digital services, the currency of the transaction is attention rather than money.

Further, if the consumer law is to support competition then it needs to balance the interests of individual consumers against the mass of consumers, and it will likely need to do so within the context of the assessment of fairness.

Examples of this tension might include restrictions on a consumers ability to post adverts on a social network, harming the consumer but potentially maintaining the financial viability of the platform. If the impact of the law is to be strengthened, areas of uncertainty such as these will need to be resolved to ensure it delivers predictability and deterrence and does not degenerate into a random business tax or a politicised and inefficient feter on innovation and competition.

The challenge for the antitrust community is to consider how we can best share our experience of success and failure to make a super-charged consumer law a success. For example, we should consider whether we can learn from the newly re-written Unfair Competition Law in China which facilitates firms ability to easily sue each other as a result of actions by competitors that treated consumers badly — moving responsibility for litigating the law from the consumers to competing businesses. Or whether there are any lessons from the differing levels of complexity and predictability provided by the practice and precedent of law concerning cartels, vertical agreements, and abuses of a dominant position.

Next steps

I’ve worked on the intersection of consumer and competition policy since leading the UK Office of Fair Tradings consumer-law challenge of Unauthorised Overdraft Charges in 2005.

I’m excited about the proposals for strengthened consumer protection. However, despite their potentially significant impact, they have received a disproportionately small amount of interest from the antitrust and regulatory community. This is understandable, but disappointing.

To ensure that any changes in consumer protection law meet the challenges of 21st century markets, I think more work needs to be done. The CMA should announce a public consultation on reform, or BEIS or the Law Commission or Law Society should commission a report. It would need to answer:

  • What changes in the law would be required to ensure that Consumer law can deal with issues arising in digital markets?

Written by

Economist of antitrust and consumer policy. Dabbler in climate commentary. Jack of a few trades…

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