A guide to distance selling
Distance selling will be uncharted territory for many retailers. But in light of the coronavirus (COVID-19) outbreak, it’s one of the few options retailers have to continue operating. But what exactly is it? And are your current contract terms ready to operate in this way? Our webinar host, Stu Leatherbarrow, caught up with Trading Standards expert, Peter Stonely, to discuss the rules and regulations around distance selling.
Q. What are distance selling regulations? Is that even the correct term?
We used to have distance selling regulations until they were replaced by The Consumer Contracts Regulation, or to give them their full title, ‘The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. These came into play in the middle of June 2014, and were the result of the European Union pulling together the separate rules on distance selling and the rules on doorstep selling. The logic, as far as the consumer was concerned, was that they were pretty much the same thing. Previously, these rules had different requirements, cancellation periods and information so it's all about standardising these requirements and making it simpler for consumers.
Q. So these regulations only apply to consumers?
Yes, these regulations deal with consumers only, so any business-to-business activity will be excluded. In a business to business contract, you can write your own terms and conditions. For those selling both types of vehicles, it’s good to make this very clear in your terms and conditions. If the person is a consumer, you’ll respect the requirements of the regulations. If they're not a consumer, then it's helpful to make clear that they don't have any rights to cancellation.
Q. So, in relation to the Consumer Contracts Regulation, we have on-premises, off-premises and distance contracts. Could you explain what a distance contract means?
Put simply, a distance contract is when people buy online, over the phone or similar means. The regulations simply refer to it as an ‘organised means of distance selling’. The important point is the whole deal is done at a distance. So, the parties have never ever together, up to the point where the deal is made. It’s what you do if you were to buy on Amazon or something like that, where the whole deal is done through distance communications - possibly by more than one means. At the end of the deal, they've never been together, the contract is made, and they're both committed to seeing it through.
In this instance, if I look at a retailer’s website and then went to the dealership - that wouldn’t be distance. Likewise, if I went to the dealership, we talked about the deal, and I went away to think about it and then completed rest of the paperwork electronically - that wouldn't be distance either because we've been face to face at some point. So it’s purely organised distance contracts that we're talking about here. It’s not as relevant on a one-off occasion. But if you're finding as a business you're doing more and more one-offs, then you’ll need to cover the rules to protect yourself.
Q. So if it becomes a regular mainstream offering in your business, then you need to be belt and braces on this regulation?
Absolutely, and yes, it is a pain putting the documentation or the website together. But that pain keeps you protected because, the bottom line is that - if you don't do it right - the 14-day cancellation period extends to a year and 14 days, and you really don't want to give a person free use of a vehicle for that long so it's in your interest to get it right.
Q. What are consumer rights with a distance contract?
Well, with a distance contract, the consumer has rights to information. This is where the regulation looks really heavy as there's a long list of things that might need to be given. Once applied to your business though, it usually cuts down.
So the basics include:
who you are;
what it's going to cost;
what they're going to get;
Other key information includes:
their right to cancel;
how to cancel;
important conditions e.g. fair usage policies;
their responsibilities e.g. returning the vehicle themselves
This information is critical. If you don't include it, it can really cause you problems. Alongside this, there is a 14-day cooling-off period. This period starts the day after they get in the vehicle and ends 14 days later. This gives the consumer a chance to test drive, in the same way as they would at your dealership. And that's the whole essence of distance selling - you're buying something you've never seen, so you've got to have a chance to look at it and try it out.
So basically, the key here is a look at it in its simplest terms. It's a 14-day test drive, so once those 14 days have passed, you've covered everything in terms of your requirements?
Yes, you are. I think what businesses need to be aware of, is that there is a risk people will cancel. And if that was a brand new vehicle, they will be getting back a registered vehicle which has now got one owner and there's no way around that. So, there are benefits of the model, but some retailers will need to be aware of that.
When I've talked about information, something very relevant to the automotive sector is around unreasonable use of the vehicle whilst it’s with the consumer. The consumer should do no more than give it a test drive, the same sort of test drive they would get if they went to a dealership. So, if you get a car back that’s got hundreds of miles on it - you would have a right to deduct something, as they’ve misused it, providing your terms and information are correct.
An example I heard a while ago, was a Range Rover that was sold at a distance. They only had it for a couple of days and exercised their right to cancel. When it came back, they found confetti in it - which would suggest that the consumer has been misusing it somewhat. So, you know, it's a bit of an advanced variation of getting a suit for a wedding from Marks and Spencers, and then taking it back the next week - but some consumers will try it!
Thinking like a retailer, a lot of the sales that take place involve a part-exchange. What is the requirement here – do they have to hold it for 14 days in case the car comes back?
No, they don't. But they either have to give it back or they have to give the value that they gave for it. So they can dispose of it. But of course, if someone’s being a bit creative with the paperwork to perhaps make a finance proposal look a bit better or something - then you are bound by the figure you've put. So be very careful on that, or perhaps if a part-exchange is being split into two elements, make clear what they are. So when doing your actual contract of sale, where possible, make sure that the price you're offering for part exchanges, is as close to the true value as you possibly can.
It’s now on the minds of lots of our customers who may have not considered offering this type of sale previously, but it may become the new normal. It could well be that consumers may prefer to buy their next cars this way - so what other advice would you give retailers?
Well I think I’d go back to the basics - good information. It is a pain to comply in terms of the information you have to give but selling online is perhaps an easier medium to do it. This is where the all-important terms and conditions are absolutely crucial.
In the terms and conditions, you will include quite detailed wording about explaining how someone can cancel and what that means. You’re also telling them that, for example, we will allow you to do 50 miles for the test drive, but beyond that would be considered unreasonable use and we may deduct something for that. So, if that getting all that information together.
Good terms and conditions will be much wider than consumer contracts, but they should be there. Just a tip on the side here, an important term you should have in any online contract, is about when the deal is done. If you go and look on the likes of Amazon or Tesco websites, they'll have a lovely explanation that when consumers press the ‘buy now’ button - they're making an offer to pay. They will then say we will accept, when we deliver the goods, to take your money - or something like that.
It’s really important for retailers to explain that when the deal is done when we’re talking about the fatal combination of humans and computers. It has been known for the wrong price to be put up when goods are on sale, and of course, it's usually the decimal point in the wrong place. So if you don't want to sell at a hundredth of what it should be, and if you've got a well worded and simple term to say ‘you’ve made an offer to buy, but we don't agree until we've said yes and told you it's ready for collection’ or something like that.
I'm going to sound the boring legal person here but, plainly written terms and conditions give you a really useful income stream. You’re also accepting that you are giving people the chance to change their minds later on in the deal, perhaps when they’ve placed the deposit.
You mentioned the word deposit there. I've heard different opinions as to whether you should actually call it a deposit or a reservation fee. Is there something in that?
I like the term ‘reservation fee’. That's just about clear that we're just going to hold that car on one side until you've looked at it, and then that money will go towards the deposit or give it back. But it should be clear that it is a mini contract in its own right.
To me, a deposit is an advance payment towards actual payment of the vehicle. So if I've given £200 to hold it for the weekend, so I can get it on Monday, then probably on the sales documents we'll see words like advance payment or deposit, which is my partial payment towards this main contract - which is the purchase of the vehicle.
Just one last question on the distance contract, how does this work in relation to the existing 30-day right to reject under the Consumer Rights Act 2015? Do they work in tandem?
They don't work in tandem at all, they're completely different. The Consumer Contracts Regulations are for consumers who have just changed their mind and decided they don’t want it. They don't have to give you a reason for it – it could be as light as ‘I've decided the colour doesn't quite go with my garage doors’ - it doesn't matter, they can just change their mind. And of course, some people may well think ‘I really wish I hadn't made that commitment’, so it's their way to get out.
The Consumer Rights Act deals with faulty or misdescribed goods and services. In this case, it's a completely separate issue. As they’ve effectively broken their rights in the contract, the consumer will have remedies, which will include a full refund in the first 30 days. But that is because there's something wrong with the goods, not because they've just changed their mind. So they’re different tests, which need to be treated differently.
So, moving on from distance contracts, what is an off-premises contract?
It's simply a contract made in someone's home or somewhere away from your business premises.
It's quite okay to do deals at trade shows and things like that - but it's when you've come to my house. I spoke to a dealer who was doing that, he would happily go to a consumer’s home and do the deal on their drive.
If you do that, it's exactly the same as a distance contract in that you've got to have really good written information and a proper contract with all these rights on it. They've also got 14 days from when they take delivery to actually change their mind if they want to.
The extra bit to watch out for on off-premises contracts is that it is potentially a criminal offence to not give that cancellation information in an off-premises deal. That reflects both the EU and the UK’s views that we are terribly vulnerable as consumers in our homes. Therefore, you've got that extra sanction in – there are still the risks if you don't get it right.
That’s always a sort of a tougher one to deal with, to go to someone in their home. Just make sure you get it all right. Also, in the nicest way, just check you're not dealing with the vulnerable consumers, perhaps someone who’s quite confused or something like that. My colleagues in Trading Standards are very jumpy about premise contracts in homes. It's really important that a business that wants to do off-premises gets the proper paperwork and talks to their salespeople about being cautious if they've got someone vulnerable.
So even an off-premises contract, where you might only be meeting the person for the first time to finalise the deal, still comes with the same consumer rights and they still get the 14-day cooling off period?
Yes, the rules are exactly the same. The one exception is that off-premises contracts must be a paper document.
So, what is an on-premises contract?
Essentially, it's anything that's not the above. We would say, going to the retailers’ premises is ‘on-premises’. It also covers the situations we mentioned earlier, where you go to the dealership, leave to think about it, then agree to buy over the phone and sign any contract by post. So, the signing part was done at a distance, but it wasn't exclusively by that means - so that becomes an on-premises contract. Now, there are no cooling-off periods, unless you want to give them. I know some manufacturers occasionally have promotions doing that.
However, there is still a requirement to give information. It's not as formal, but when I walk into a dealership, I would expect to see the vehicles on display with prices on them with clear indications whether additional extras are included. All these things are still about giving clear information, but you don't have to sort of rush around to customers, giving them a sheet of paper every time they look at a vehicle. I know it's good practice in your sector that you would end up with a contract to finalise the deal for your own protection as well as theirs.
There will be a lot of sales that take place during the lockdown, but not yet delivered, what advice can you give to retailers in this position?
Communicate, communicate, communicate. I feel really sorry for everyone in business at the moment, it’s just an unprecedented time. Whilst it’s easier to hide away from it, even telling customers that you don’t know what will happen next is better than telling them nothing. Consumers will naturally worry during these times, so we have to reassure them and keep them up-to-date.
Most disputes I’ve seen throughout my time at Trading Standards, have been down to poor communication. So that upfront honesty and letting consumers know that you will keep them informed on any developments is vital.