What has been the impact of the increased role for alternative dispute resolution (ADR) in consumer disputes? Commercial partner Kerry Gwyther considers the regulatory changes designed to encourage the use of ADR and their effect on businesses and consumers.
What process do consumers and businesses need to follow and what, in particular, do businesses need to be aware of?
Consumer rights law within the EU is undergoing reform. As part of this, retailers now have new obligations regarding their commitment to alternative dispute resolution. These changes were brought about by the European Directive on Alternative Dispute Resolution, Directive 2013/11/EU (the ADR Directive) and the European Regulation on Online Dispute Resolution for commercial disputes, Regulation (EU) 524/2013 (the ODR Regulation). They will affect nearly all businesses selling goods and services or digital content to consumers within the UK.
The regulatory changes do not make it mandatory for traders to participate in ADR. But, they do mean that, from 1 October 2015, most businesses offering goods and services directly to customers will need to provide consumers with certain information relating to ADR.
Businesses will be required to direct consumers to certified ADR providers where disputes cannot be resolved in-house and provide confirmation of whether they intend to use that ADR provider as a means of resolving the dispute.
Online traders will be required to provide this information on their websites. From January 2016, businesses selling goods online will also be required to provide a link on their website to the EU Commission's online dispute resolution platform.
What is the government and industry doing to promote ADR?
The reforms are aimed at making ADR more readily available to consumers. The government hopes that greater access to an effective ADR system, where matters cannot be resolved by businesses internally, will increase consumer confidence and encourage them to engage with retailers they have not purchased from before.
Under the new regulations, certified ADR providers were made accessible to all businesses selling goods and services to consumers within each sector from 9 July 2015. By imposing an obligation on businesses to provide information about ADR and the contact details of ADR providers to their customers, it is also hoped that consumers will gain greater awareness and understanding of ADR.
The fee that ADR providers can charge under the legislation is also limited to a nominal fee by the regulations in order to encourage parties to use it as a method of dispute resolution.
What has been the take up to date in the industry given that ADR is not obligatory?
Within the UK, the use of ADR in resolving customer disputes is already mandatory within certain sectors, eg. financial services, energy etc, due to pre-existing statutory requirements. Many businesses have also already committed to using ADR as members of voluntary ADR schemes. For the remainder of businesses, the impact of the regulatory changes outlined above will depend on whether or not they intend to use ADR for disputes that cannot be dealt with internally. Businesses will need to give careful consideration to both the financial implications of committing to ADR and the message that this will send to their customers.
To date we have noticed little change in the use of ADR within the consumer industry. That said, the requirement for businesses to provide confirmation to customers as to whether they intend to use ADR has not yet come into force. We anticipate that there will be an increase in businesses committing to using ADR, however this is less likely to be the case for lower value disputes.
Do customers understand what ADR is?
In our experience, customer understanding and awareness of ADR has been fairly limited to date. While consumers are fairly familiar with ombudsman schemes, which normally produce a directed outcome, ADR is much more about reaching a compromised and negotiated settlement and does not involve a directed settlement by the ADR provider.
Do you think that the creation of numerous ombudsmen, ie ADR approved bodies will be confusing for customers?
Consumers are used to traditional ombudsman schemes and may find this confusing but the new requirement for businesses to provide the contact details of a certified ADR provider on their websites should help to direct consumers to the relevant ADR approved body.
The increase in ADR providers also has the advantage of creating ADR mechanisms that are specifically set up to deal with consumer disputes in the relevant industry. This makes the system much easier to navigate for consumers.
To what extent are such ombudsmen sharing best practice among each other?
The Chartered Trading Standards Institute (CTSI) has published guidance on its website, which sets out the criteria that must be met in order to become an ADR approved body and provides a useful indication to ADR providers of what is expected of them.
How will ADR work in practice?
The ODR Regulation is directly applicable within the UK and applies to online sales and services arising within the EU. The ADR Directive has been implemented through two UK regulations. The majority of requirements imposed by the ODR Regulation and the UK regulations came into force on 9 July 2015 with the exception of some business information requirements which will take effect on 1 October 2015 and in January 2016.
The regulations will be enforced by CTSI, which has the power to apply to the court to make an order for compliance. Failure to comply with the court order could result in criminal sanctions.
Where businesses have committed to using ADR, consumers must be informed of this and directed to the relevant certified ADR provider once internal dispute resolution procedures have been exhausted. There is no obligation for consumers or the business to use ADR, but if both parties agree to proceed and the complaint is accepted by the ADR provider, they must each provide their submissions.
ADR providers are required to make their decision or recommendations within 90 days of accepting the complaint.
How successful have similar schemes been in the past?
It is difficult to assess the success of such schemes in the general consumer arena because they have not been used very much in relation to low value disputes, but in the general commercial arena ADR has proven to be useful as a flexible and cost effective means of resolving disputes outside of court and minimising the impact of adverse publicity.
This article was first published on Lexis®PSL In-house Advisor on 3 September 2015. Click for a free trial of Lexis®PSL.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com