Vulnerable Consumers and the Law: Consumer Protection and Access to Justice 9780367555184

Citation preview

Vulnerable Consumers and the Law

This book charts the difficulties encountered by vulnerable consumers in their access to justice, through the contributions of prominent authors (academic, practitioners and consultants) in the field of consumer law and access to justice. It demonstrates that despite the development of ADR, access to justice is still severely lacking for the vulnerable consumer. The book highlights that a broad understanding of access to justice, which encompasses good regulation and its public enforcement, is an essential ingredient alongside access to the mechanisms of traditional private justice (courts and ADR) to protect the vulnerable consumer. Indeed, many of the difficulties are linked to normative obstacles and lack of access to justice is primarily a vulnerability in itself that can exacerbate existing ones. In addition, because it may contribute to ‘pushing’ already vulnerable consumers into social exclusion it is not simply about economic justice but also about social justice. The book shows that lack of access to justice is not irreversible nor is it necessarily linked to consumer apathy. New technologies could provide solutions. The book concludes with a plea for developing ‘inclusive’ justice systems with more emphasis on public enforcement alongside effective courts systems to offer the vulnerable adequate means to defend themselves. This book will be suitable for both students and practitioners, and all those with an interest in the civil justice system. Christine Riefa is a Reader in Consumer Law, Brunel University. Séverine Saintier is an Associate Professor in Commercial Law, Exeter University.

Markets and the Law Series Editor: Geraint Howells, Manchester University

Series Advisory Board: Stefan Grundmann –​Humboldt University of Berlin, Germany, and European University Institute, Italy Hans Micklitz –​Bamberg University, Germany James P. Nehf –​Indiana University, USA Iain Ramsay –​Kent Law School, UK Charles Rickett –​Auckland University of Technology, New Zealand Reiner Schulze –​Münster University, Germany Jules Stuyck –​Katholieke Universiteit Leuven, Belgium Stephen Weatherill –​University of Oxford, UK Thomas Wilhelmsson –​University of Helsinki, Finland Markets and the Law is concerned with the way the law interacts with the market through regulation, self-​regulation and the impact of private law regimes. It looks at the impact of regional and international organisations (e.g. EC and WTO) and many of the works adopt a comparative approach and/​or appeal to an international audience. Examples of subjects covered include trade laws, intellectual property, sales law, insurance, consumer law, banking, financial markets, labour law, environmental law and social regulation affecting the market as well as competition law. The series includes texts covering a broad area, monographs on focused issues, and collections of essays dealing with particular themes. Other titles in the series Private Law, Nudging and Behavioural Economic Analysis The Mandated-​Choice Model Antonios Karampatzos ISBN 978-​0-​367-​41032-​2 The Future of the Law of Contract Edited by Michael Furmston ISBN 978-​0-​367-​17403-​3 www.routledge.com/​Markets-​and-​the-​Law/​book-​series/​ASHSER1252

Vulnerable Consumers and the Law Consumer Protection and Access to Justice

Edited by Christine Riefa and Séverine Saintier

First published 2021 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 selection and editorial matter, Christine Riefa and Séverine Saintier; individual chapters, the contributors The right of Christine Riefa and Séverine Saintier to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-​in-​Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-​in-​Publication Data A catalog record has been requested for this book ISBN: 978-​0-​367-​20468-​6  (hbk) ISBN: 978-0-367-55518-4 (pbk) ISBN: 978-​1-​003-​10465-​0  (ebk) Typeset in Galliard by Newgen Publishing UK

Contents

Acknowledgements  List of contributors  Foreword by Mary O’Hara  1 In search of (access to) justice for vulnerable consumers 

vii ix xiv 1

C H RI S TI N E RIEFA A ND S ÉVERINE S A INT IER

2 Economic theory and consumer vulnerability: Exploring an uneasy relationship 

17

C H RI S TI N E RIEFA A ND H A RRIET  GA MP ER

3 A universal perspective on vulnerability: International definitions and targets 

31

RO BI N S I M P S ON

4 The legal definition of ‘vulnerable’ consumers in the UCPD: Benefits and limitations of a focus on personal attributes 

51

E L EN I   KAP ROU

5 Vulnerable consumers in financial services and access to justice: The regulatory response 

68

S ARAH   BRO W N

6 Regulating the consumer credit market: Protecting vulnerable consumers 

85

D AN J AS I N S KI A ND NICHO L A S  R Y DER

7 Vulnerability in the UK energy market  TI M O TH Y J .   DO DS WO RT H

102

vi Contents

8 Using ‘stokvel’ community values to combat financial exclusion 

120

AN D RE W HU T CH IS O N

9 The role of voluntary standards in improving outcomes for consumers in vulnerable situations 

137

J U LI E  H U NT ER

10 Improving courts and ADR to help vulnerable consumers access justice 

155

CO S M O   G RAH A M

11 ODR and access to justice for vulnerable consumers: The case of the EU ODR Platform 

177

EL I S AB ETTA S CIA L L IS

12 Consumer ADR in the European Union and in Portugal as a means of ensuring consumer protection 

193

J O RG E M O RA IS CA RVA L HO

13 Online dispute resolution of consumer disputes, vulnerable consumers and new technologies 

208

M ATEJ A D URO VIC A ND P L A MENA MA RKO VA

14 Using claims management as a method to help consumers on low income 

226

P ETE R  RO TT

15 The way forward: For an ‘inclusive’ access to justice to protect vulnerable consumers 

244

CH RI S TI N E RIEFA A ND S ÉVERINE S A INT IER

Index 

260

Acknowledgements

This volume grew out of a multi-​disciplinary workshop that explored the concept of ‘vulnerable consumers’ and addressed the failings of the legal and regulatory systems in facilitating their access to justice. The workshop charted the experiences of access to justice for vulnerable consumers primarily in the UK, and further afield, notably the EU (through the consideration of a number of member states’ systems) and South Africa. The workshop was organised by Dr Christine Riefa and Dr Séverine Saintier and took place at Brunel University in July 2018.1 It brought together the expertise of academics, consumer associations, expert consultants, redress bodies as well as civil society and grass root organisations. Our thanks go to all the speakers2 and panel chairs,3 as well as attendees who shared their expertise and enabled us to explore this topic in more depth and open our eyes to the critical need for a rethink of the way consumers in vulnerable situations are protected. We also would like to thank:

• Mary O’Hara for her insightful foreword in this book; • All the contributors to this book who have worked tirelessly over a period of many month to prepare their respective chapters;

• Sarah Brown and Cosmo Graham for their useful remarks on our own chapters;

• The team at Routledge for their assistance. 1 The workshop was funded by the Global Lives research centre at Brunel University. For more details on the workshop 10 July 2018, (Vulnerable) Consumers or Citizens: is there a correct rationale for a fairer access to justice? accessed 23 March 2020. 2 Sarah Brown, Leeds University; Nyc Rider, University West of England; Dan Jasinski, University West of England; Caroline Mitchell, Lead Ombudsman, Financial Ombudsman Services; Andrew Hutchison, University of Cape Town; Naomi Creutzfelt, University of Westminster; Liz Coll, Head of Digital Advocacy, Consumers International; Simon Bowkett, Colab Exeter; Franziska Weber, University of Hamburg; Jorge Morais Carvalho, Universidade Nova de Lisboa; Mateja Durovic, King’s College London; Elisabetta Sciallis, Executive lawyer, ECC-​Net UK; Eline Verhage, Leiden Univesity; Cosmo Graham, Leicester University; Ariel Flavian, Partner, Herzog, Fox & Newman; Ingrid Gubbay, Hausfeld; Augusta Maciulevicuite, senior legal officer, BEUC (who could not join us on the day). 3 Toni Williams, University of Kent; Iain Ramsay, University of Kent and Elena Woolf, legal consultant.

viii Acknowledgements Finally, we would like to thank all consumer activists who are, in their own spheres of influence, fighting to improve the plight of vulnerable consumers (and more generally the neediest in our societies), not always with the recognition they deserve. The royalties for this book will be donated to charities acting in this area to help them continue their (regrettably still) much-​needed work. Christine Riefa and Séverine Saintier

Contributors

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Sarah Brown Associate Professor, Leeds University A qualified solicitor, Sarah returned to academia after years in practice. Having completed her PhD in 2006, she took up a position at Leeds University. Sarah specialises in consumer credit law and relationships. She is on the editorial team for Goode Consumer Law Credit and Practice (LNUK). Jorge Morais Carvalho Associate Professor, NOVA School of Law, Portugal Jorge is Associate Professor at the NOVA School of Law, Coordinator of the LLB and of the LLM in Law & Tech, Researcher at CEDIS (Centre for Research & Development on Law and Society), Head of the NOVA Consumer Lab and of the NOVA Law & Tech, Editor of the EuCML –​ Journal of European Consumer and Market Law and author (or co-​author) of about one hundred books and scientific articles in the areas of private law, consumer law, civil procedural law, alternative dispute resolution (including mediation and arbitration) and comparative law. He has participated in more than one hundred seminars, conferences and colloquia. More information: www.jorgemoraiscarvalho.com. Timothy J. Dodsworth Lecturer, Exeter University After completing his PhD as a Herbert Smith Fellow at the University of Warwick in 2015, Tim took up his current position in Exeter. Tim is the author of the monograph The Underlying Values of German and English Contract Law (CUP) which is due to be published in 2021. His work on the topic has led to several related research projects, including a research project which suggested an overarching theory behind all long-​term renewable contracts. His most recent work on long-​term energy contracts suggests a new framework for identifying and protecting vulnerable consumers. Tim and Dr Séverine Saintier are currently co-​leading an ESRC IAA funded project to investigate the impact of AI on the registration of land in the UK.

x Contributors Mateja Durovic Reader in Contract and Commercial Law, King’s College London Mateja is a Reader in Contract and Commercial Law and Deputy Director of the Centre for Technology, Ethics, Law and Society (TELOS) at the Dickson Poon School of Law, King’s College London, UK. Mateja performs research in the areas of Contract Law, Consumer Law, Commercial Law and Law and Technology. He holds a PhD and LLM degrees from the European University Institute, Florence, Italy, an LLM degree from the University of Cambridge, UK, and an LLB degree from the University of Belgrade, Serbia, where he graduated as the first and best student of his class. Harriet Gamper Principal, Civil Aviation Authority Harriet is a practitioner specialising in consumer policy in regulated markets. One area she has particularly focused on over the past decade is that of vulnerable consumers, designing strategies to allow regulators to define, recognise and respond to the needs of these groups. Cosmo Graham Professor of Law, Leicester University Cosmo is a competition lawyer and a public lawyer who specialises in the law relating to the regulation of public utilities. Cosmo’s research interests and areas of expertise are in the field of consumer and social policy in essential services. Cosmo is the Chair of the Essential Services Access Network: https:// www.esan.org.uk/. Julie Hunter Consumer Research and Consultancy Julie is an independent consultant, specialising in consumer advocacy and protection. She has collaborated with leading UK and international consumer organisations, including Which?, BEUC and Consumers International, to publish work on topics such as: consumer vulnerability, e-​commerce, financial services, travel, health, customer service, complaints and redress. As Chair of BSI’s Consumer & Public Interest Network (CPIN), Julie works to ensure that standards maximise positive outcomes for consumers. She co-​authored BS 18477 Inclusive Service and currently represents UK consumers in the development of a new international standard on Inclusive Service (ISO 22458). Julie is the ISO COPOLCO Key Person for Consumer Vulnerability. www. juliehunter.co.uk Andrew Hutchison Associate Professor, University of Cape Town Andrew is a contract law specialist who has published in leading South African and international peer-​reviewed law journals. A theme running through most of these articles is the role to be given to good faith or fairness in South African contract law. Dr Hutchison is interested in the comparative and historical

Contributors  xi angles to this question, as well as the constitutional and relational dimensions. Dr Hutchison is currently engaged in research on financial inclusion and stokvels in Cape Town, South Africa. Dan Jasinski Senior Lecturer, UWE After working at the Financial Ombudsman Service and for a large financial services provider, Dan returned to academia to take up a position at UWE where he is currently a Senior Lecturer in Law teaching on the undergraduate law programmes, in addition to the Bar Professional Training Course. Eleni Kaprou Lecturer in Commercial law, Brunel University Prior to joining Brunel in 2018, Eleni held research positions in Cardiff University and the University of Exeter. She holds a PhD in Law and an LLM in International Commercial Law from the University of Nottingham where she was awarded the 2018 DJ Harris award for the best thesis in law. She received her LLB from the National and Kapodistrian University of Athens and is also a Member of the Athens Bar Association since 2013. Eleni has also worked on several projects of the European Commission as a national expert. Eleni’s interests lie in European private law and in particular European consumer law. Plamena Markova Accredited Parliamentary Assistant, European Parliament Plamena is an adviser to a Bulgarian Member of the European Parliament focusing on budgetary matters and budgetary control. She is also an editor for the King’s Student Law Review Forum (KSLR Forum). Plamena has a background in International and European Law with a Bachelor’s degree from The Hague University (cum laude) with a semester abroad at LUISS Guido Carli University in Rome and a Master’s degree specialising in EU law from King’s College London (merits). Mary O’Hara Mary is an award winning journalist and author specialising in social policy and social justice. She freelances across a number of publications and platforms including The Guardian. She is the author of Austerity Bites:  A Journey to the Sharp End of Cuts in the UK (Policy Press 2014)  and The Shame Game:  Overturning the Toxic Poverty Narrative (Policy Press 2020). She is also a consulting producer on the podcast Getting Curious with Jonathan Van Ness and founder of the anti-​poverty initiative Project Twist-​It. Mary was named International Columnist of the Year in 2017 and 2018 by the Southern Calfornia Journalism Awards for her Guardian column, ‘Lesson From America’. In 2009–​10 she was an Alistair Cooke Fulbright Scholar. She is on the board of the UK charity, Arts Emergency and is the founder and chair of the David Nobbs Memorial Trust.

xii Contributors Christine Riefa Reader in Consumer Law, Brunel University Educated in France (PhD Montpellier), Christine is a leading expert in Consumer Law (incl. Payment Services) and E-​commerce/​New Tech Law. Christine has acted as a consultant in a number of projects on various aspects of electronic commerce, new technologies and consumer law enforcement, for Consumers International, UNCTAD, BEUC, the European Commission and Parliament, and national governments and industry. She currently is a Member of two Working Groups on Consumer Protection and Electronic Commerce (unfair commercial practices and cross-​border enforcement) as part of UNCTAD Inter-​Governmental Group of Experts. She is an elected board member of the International Association of Consumer Law (www.iaclaw.org) and one of the editors of The Journal of European Consumer and Market Law (EuCML), a peer-​reviewed journal, published by Beck and available on Kluwer Online. Peter Rott Visiting Professor at the University of Gent, Belgium A fully qualified German lawyer, Professor Rott specialises in the area of European private law, with a particular focus on consumer law issues. He is a member of the International Association of Consumer Law, the European Law Institute, the Ius Commune project and the Trento/​Turin project ‘The Common Core of European Private Law’, lead editor of the German law journal Verbraucher und Recht and member of the editorial boards of The Journal of Consumer Policy and The European Journal of Consumer Law. He serves as a member of the Consumer Advisory Council of the German financial services regulator BaFin. Nicholas Ryder Professor of Financial Crimes, UWE Bristol After working at the University of Glamorgan where he read for his PhD, Nic took a position at UWE. Nic’s main research interest is in financial crime with a focus on money laundering, market manipulation and terrorism financing. Nic has worked as a consultant for the City of London Police Force, ICT Wilmington Risk & Compliance, the France Telecom Group and the European Social Fund. His research has been commissioned by the Economic and Social Research Council (ESRC), LexisNexis Risk Solutions. Séverine Saintier Associate Professor in Commercial Law, Exeter University Séverine has over 20 years’ experience in comparative commercial and contract law. Her research focuses on the manner in which the law deals with unequal contractual relations in both business to business (B2B) and business to consumer contracts (B2C). in the B2B context, Séverine has particular expertise in the law of commercial agency contracts where she has published two monographs, one co-​authored, as well as numerous sole-​authored articles in peer-​review journals. Séverine and Dr Dodsworth are currently co-​leading an

Contributors  xiii ESRC IAA funded project to investigate the impact of AI on the registration of land in the UK. Elisabetta Sciallis Legal Executive at the UK European Consumer Centre Elisabetta is an accredited mediator and a dual qualified solicitor specialising in consumer law issues. She has worked as a lecturer in consumer law, as a Trustee for a local charity, a Trading Standards Enforcement Officer and Public Prosecutor. In her current position at the UK ECC she oversees a team of advisors and is responsible for the UK’s European Commission ODR Platform. Elisabetta also undertakes policy work for national government and the European Commission. She is a Lead Officer for cross-​border affairs, and she writes on ADR/​ODR subjects. Robin Simpson International Consultant Robin has represented Consumers International in the ad hoc international expert group on consumer protection, which negotiated the revision of the UN Guidelines on consumer protection from 2013 to 2015. Having served as senior policy adviser for Consumers International from 2002 to 2019, he has worked since 2016 as policy adviser for UNCTAD on consumer protection and as part of their team working in the Middle East/​North Africa region. From 2006 to 2018 he served on the Technical Advisory Panel of the Public-​ Private infrastructure Advisory Facility, a trust fund housed in the World Bank where he worked on issues relating to poverty and public utilities.

Foreword Mary O’Hara

The word ‘vulnerable’ comes from the Latin, ‘vulnerare’: to wound. In the context of today’s society, where the term vulnerable is deployed to classify a wide range of individuals, be it children in the care system, victims of domestic violence, people in poverty, or a myriad of other groups, vulnerability can be directly linked to systems and societal structures that either directly harm people, or fail to adequately protect them. A vulnerable person is usually taken to mean someone who is in need of special protection, care or support, or who is at risk of abuse or neglect. This book examines the intersection of vulnerability, consumers, the law and legal systems. It traverses the principles and assumptions that underpin the mechanisms currently in place to protect people, but more specifically it shines much needed light on the vital importance of, yet often inadequate, tools available in terms of access to justice for vulnerable consumers. The book’s contributors and editors offer a crucial springboard for a broader discussion about inclusion within legal systems for the people these systems all too often fail to protect from harm and exploitation, including the poorest. For anyone who has worked on issues related to poverty, inequality or social justice, the fact that poorer people are among the most vulnerable consumers won’t come as any great shock. For a variety of reasons ranging from deficient housing, institutional racism and economic and educational exclusion, to the absence of social capital, services or knowledge that can assist with accessing justice or redress (consumer or not), poorer people are vulnerable to the systems they inhabit. In the UK, ten years of austerity pummelled the poorest even more than usual.1 Implemented on the back of a narrative that vilified the least well-​ off as ‘scroungers’ and ‘skivers’ who were a drain on society and the exchequer, it was the very definition of how to wound swathes of the population who were least able to fight back or challenge its (deeply flawed) rationale and policies. Austerity exposed the gaping holes in social protection systems and proved how quickly and efficiently what little protections there were could be undermined, discredited or dismantled. For example, cutting vital benefits including for children and people with disabilities, but also by sucking resources from the bodies,

1 www.austeritybitesuk.com

Foreword  xv institutions and systems, meant to be an equaliser –​not least of which was access to legal aid. As this book so clearly outlines, poorer and less well-​off consumers are often excluded from the systems that are supposed to protect them. For example, it points out that legal aid is not available for consumer disputes which means, inevitably, that access to redress is a privilege afforded to the better off, better connected and better educated. However its scope is much broader than one group or a limited range of causes as it explores the interaction between, for example, financial vulnerability with factors such as age, disability, gender and education. It takes readers on a crucial journey identifying the key elements of vulnerability among consumers, including internationally, deconstructing the legal and regulatory systems in place (as well as how they evolved) and how these might be improved. Its particular strength however is in parsing the theoretical and narrative underpinnings of our general understanding of consumers and their supposed vulnerabilities –​and the relationship between this and consumer law. From the notion of the ‘rational’ consumer to the recent input of behavioural economics, to examining proposed definitions of what constitutes a ‘vulnerable consumer’ in the first place it elevates and illuminates what might otherwise be a dry, legalistic and technocratic discourse. Real world examples of where consumers are vulnerable in a practical and visceral sense –​be that hyper-​expensive payday loans or pre-​pay electric meters –​and how regulators frequently provide insufficient solutions, offer valuable insights into how existing systems continue to fail people who should be (and need to be) protected but also empowered. Solutions, including examining ways in which the courts could be reconfigured or how technology might be employed to improve access to justice, are also scrutinised. Significantly, the authors understand the centrality of inclusion; of finding ways to ensure systems do not reinforce or worsen existing social and economic injustices. The vulnerable consumer is as much a social construction as a theoretical or legal one. As austerity taught us all too well, our collective understanding of what it means to be vulnerable can impact the policies, regulations, systems and structures put in place to address injustices experienced by a vulnerable group. Since the poor are disproportionately likely to be on the receiving end of many consumer injustices  –​as the book’s real-​world references so clearly illustrate  –​ this raises a fundamental question about the perceived status of poorer people in our societies and how this, in turn, is reflected in the justice system at large, and in terms of consumer protection. If because as a group the poorest are widely depicted as being poor due to supposed personal failings rather than systemic and structural inequalities and bad policy  –​a dominant narrative perpetuated by politicians and media certainly in the UK and US2 but also elsewhere –​this directly impedes efforts to champion, institute and enforce steps to ensure

2 www.shamegamethebook.com

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xvi Foreword protection from exploitation in the first place and then provide access to justice when required. And therein lies a conundrum:  how to challenge the enduring assumptions and pervasive understandings of vulnerability that have shaped systems when the very persistence of such conceptualisations makes this difficult. The good news is that across multiple disciplines and professions erroneous notions and narratives related to vulnerability, what constitutes individual agency, and which socio, political, economic and legal structures and conventions trigger or exacerbate injustices including soaring inequalities, are being called in to question. All of this makes a book focused on where vulnerable consumers and the laws that relate to them fit into this broader tapestry prescient –​and necessary.

1  In search of (access to) justice for vulnerable consumers Christine Riefa and Séverine Saintier

1.1  Vulnerable consumers and access to justice: The debate in context In 1963, Caplovitz published the results of his pioneering sociological study The Poor Pay More, which charted the consumer practices of low-​income families in a sample of settlements in New York City.1 The entry of low-​income consumers into consumer society was largely fuelled by the availability of credit and the coinciding poor commercial practices deployed by traders. Caplovitz showed that in low-​income areas exploitation and fraud were the norm rather than the exception,2 that most families were ill prepared to cope with consumer problems,3 and most did nothing when they found they had been cheated, either through inaction4 or lack of knowledge of available sources of assistance (some being available free of charge). Importantly, the study also highlighted that while social programmes were devised to help the poor to achieve a meaningful place in the productive sphere of society, the emphasis was on expanding earning power through education, job training and the creation of jobs.5 Caplovitz’ study served as a reminder that the poor are consumers as well, and that their inability to earn a decent living, although only one side of their economic plight,6 nevertheless has very real and tangible social consequences. Indeed, by paying more for the goods they buy, the poor are forced to live in a world of inflation that more comfortable citizens are able to escape.7

All weblinks accessed on 18 February 2020. 1 2 D Caplovitz, The Poor Pay More, Consumer Practices of Low-​income Families (The Free Press, Collier-​ Macmillan 1967) xvii. 3 Ibid., 171. 4 Caplovitz also terms this ‘apathy’ in the book, but in the preface to the 1967 edition, he regretted having used the expression, because apathy implies ‘not caring’ and this is not an accurate description of the response to consumer problems, hence our using inaction (a term also used in the book as a synonym for apathy). 5 Caplovitz (n. 2). 6 Ibid., xv. 7 Ibid.

2  Christine Riefa and Séverine Saintier At the time of Caplovitz’s study, consumer protection was only starting to develop in the US, in the UK8 and later in the EU.9 In those early stages, no semantic distinction was drawn between the poor, the vulnerable or the average consumer.10 The focus of the consumer movement was on protecting the consumer who, by dint of being a consumer, was the ‘weaker’ party.11 Fast forward a few decades, EU consumer law has now grown to offer much protection to consumers. A large body of laws has developed gaining autonomy from contract law. Yet, the bulk of EU consumer law has been created to primarily fit what was needed to complete the internal market.12 Micklitz regrets this approach which leads to distributional effects on the most disadvantaged consumers and impacts negatively on social cohesion and social justice.13 This failure to ‘reconcile the values of the market, rights and social solidarity and how to deal with the tensions between them’14 is further compounded by the fact that tools for consumers to enforce their rights, a corollary to any well-​developed substantive set of rights, have remained elusive. Enforcement in consumer law is a mix of public and private methods. Private enforcement relies on consumers seeking redress for infringements of their rights through the courts and ADR bodies. The actions taken can be individual or to some extent, collective. The latter, especially when across a number of members states are only a recent feature.15 Public enforcement arises where regulatory

See the UCTA 1977. 8 9 Consumer policy first appears in the EU in 1975 with the Council Resolution of 14 April 1975 on The preliminary programme of the European Economic Community for a consumer protection and information policy [1975] OJ C92/​1. For details, see S Freedman, ‘A short history of the consumer EU policy’, in D Leczykiewicz, S Weatherill (eds), The Images of the Consumer in EU Law: Legislation, Free Movement and Competition Law (Hart Publishing 2016) 447–​62. 10 In this chapter and in chapter 15, we chose to refer to ‘vulnerable consumers’ rather than ‘consumers in vulnerable circumstances’ or ‘consumers in vulnerable purchasing situations’ that part of the scholarship also uses. It is deliberate but we are aware of the importance of language, K Hamilton, S Dunnett, M Piacentini (eds), Consumer Vulnerability, Conditions, Context and Characteristics (Routledge 2015) 3. 11 See however in the context of credit, the work done by the Crowther Committee report and the vulnerable borrower at the time of the Money-​lenders Acts (report at [6.1.2–​14]). 12 HW Micklitz, ‘The consumer:  marketised, fragmentised, constitutionalised’ in Leczykiewicz, Weatherill, The Images of the Consumer in EU Law (n. 9)  21–​41, 23. Micklitz refers to the ‘instrumentalisation’ of consumer law to serve economic integration and protect ‘active participants’ in the market. Consumers in that sense have been ‘marketised’, reduced to having a market-​behavioural function. The rights protect transactional interests. 13 Micklitz (n. 12)  21. For a similar view on the need for consumer law to protect other non-​ transactional rights (social rights), see G Davies, ‘Consumer, citizen and the human being’, in The Images of the Consumer in EU Law (n. 9) 326–​36, 334. 14 T Prosser, The Limits of Competition Law, Markets and Public Services (OUP 2005) 1. 15 See Proposal for a Directive for a representative actions for the protection of the collective interest of consumers COM(2018) 184 final .

Justice for vulnerable consumers  3 bodies seek collective redress for consumers.16 Enforcers are normally granted some administrative, civil or criminal powers (or a mix).17 Although redress was identified early on as one of five consumer rights,18 efforts primarily focussed on developing rights for consumers without initially paying much attention as to how they would be upheld. It was somewhat expected that in acquiring rights, the consumer would naturally seek to exercise them. Quickly however came the realisation that access to justice (which at the time essentially meant access to court) was not, for the most part, effective. Like many of their contemporaries, Howells and Weatherhill noted that a key feature of consumer disputes is that it can be, for the bulk at least, of low value. When this is the case, it is often not worth taking a case to court. As a result, many scholars pushed for a re-​examination of dispute resolution procedures.19 Meanwhile, the involvement of the State in enforcement was largely reduced20 relying on private enforcement as the key to effective consumer protection. The shortcomings of small claims were acknowledged, and instead of attempting to adapt rules at national level, attention focussed on building ADR with the adoption of the ADR Directive and the creation of the ODR Platform in the EU.21 The focus of all alternatives to the traditional court procedures has been on enhancing access to justice, through a reduction of costs and a simplification of procedures. Despite the development of ADR, access to justice is still severely lacking for the vulnerable. The economic crisis in 2008 and its aftermath translated into a drastic rise of consumer-​indebtedness and fuel poverty.22 In the face of growing levels of income inequality,23 due in part to long periods of austerity,24 inequality 16 Collective redress can be delivered through four principal ‘technologies’ according to Hodges and Voet, namely, the collective action, civil claims piggy-​backing on criminal prosecutions, regulatory redress and consumer ombudsmen. See C Hodges, S Voet, Delivering Collective Redress, New Technologies (Hart, CH Beck, Nomos 2018) 1–​2. 17 In addition, consumer law enforcement also happens indirectly through the application of competition rules. See for example, A Coscelli, A Horrocks, ‘Making Markets Work Well: the UK Market Investigation Regime’ (2004) 10 Competition Policy International 24; K J Cseres, Competition Law and Consumer Protection (Kluwer 2005) 328. 18 Freedman (n. 9) 447. 19 See for example I  Ramsay, ‘Consumer redress and access to justice’, in Ricket and Telfer (eds), International Perspectives on Consumers’ Access to Justice (Cambridge University Press 2003) 17. 20 Writing in 2005, Howells and Weatherill explained that the ‘recent trend within Europe has been to reduce the amount of state involvement in consumer protection, often by moving to more self-​ regulatory models.’ Geraint G Howells, Stephen Weatherill, Consumer Protection Law (Routledge 2005) 603. 21 One notable exception is the development of the European Small Claims procedure in 2007, Regulation (EC) No. 861/​2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims Procedure, OJ L 199, 31.7.2007, 1–​22. 22 For figures in the energy sector, see H Thomson, C Snell ‘Quantifying the prevalence of fuel poverty of across the European Union’ (2013) 52 Energy Policy 563–​72. 23 Following the 2020 announcement by the Lord Chancellor of the increase of the minimum wage above inflation, the government is clearly aware of the problem . 24 For more on the effect of austerity on citizens in the UK, see M O’Hara, Austerity Bites, A Journey to the Sharp End of Cuts in the UK (Policy Press 2014).

4  Christine Riefa and Séverine Saintier of access to justice is felt more acutely than ever before. The issue has grown particularly pressing following the dismantlement of access to justice through a wave of reforms and a focus on ADR rather than on the modernisation of the judicial apparatus. Notably in England, the last decade witnessed drastic changes made to the civil justice system not just concerning the treatment of consumer cases.25 The overall direction of travel has been the withdrawal of the state from civil disputes.26 Today no legal aid is available for consumer disputes and consumers need to seek alternative funding where necessary, not always with a great degree of success.27 ADR has come to largely replace the courts for consumer disputes, but both structures are found lacking and are still under-​utilised by those consumers who need it the most. Access to courts and ADR are indeed the preserve of a few, primarily white, male, well-​educated, middle-​class and middle-​aged consumers.28 Meanwhile, public enforcement has not yet come to fill the gap and collective redress is still severely limited.29

5 For more on this, see Graham (Chapter 10) in this volume. 2 26 H Genn, ‘What is civil justice for? Reform, ADR and access to justice’ (2012) 24 Yale Journal of Law & the Humanities 397. 27 This is because either consumer cases are of too low a value, lawyers are reluctant to take on cases that do not guarantee a win, or consumers need to pay out for after the event insurance that often eats up all monies recovered from the other side. 28 Graham (Chapter 10). A risk Howells and Weatherill highlighted in 2005 (Howells and Weatherill (n. 20)  605). For more recent evidence, see BEIS, Resolving Consumer Disputes:  Alternative Dispute Resolution and the Court System, final report (April 2018) 4. This report confirms that it is the same profile of consumers that use both the courts and ADR processes. 29 Collective redress is highlighted as a necessary tool in the EU for over a decade. Regarding violations of consumer law, see Green Paper on Consumer Collective Redress, COM (2008) 794 final; Reding, Almunia and Dalli, Joint Information Note, ‘Reinforcing the coherence of the European approach in collective redress:  next steps’, SEC (2010) 1192. This was followed by consultations, public hearings, as well as a Recommendation on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under EU law, OJ L 201/​60, 27 July 2013. Recital 1 of this Recommendation explains:  ‘The Union has set itself the objective of maintaining and developing an area of freedom, security and justice, inter alia, by facilitating access to justice, as well as the objective of ensuring a high level of consumer protection.’ In 2018, prompted by the Volkswagen emission scandal, the project of a collective action was fast tracked. The Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee, A New Deal for Consumers COM (2018) 183 final introduced a proposal for Directive on representative actions for the protection of the collective interests of consumers (repealing Directive 2009/​22/​EC). This Directive is currently in the trilogue stage. However, Consumer organisations focused on how to improve specific acts or enforcement of rights in general prior to the latest wave of reforms. See European Parliament, ‘Consumer Protection in the EU, Policy Overview’ (Sept. 2015)  12, referencing the work of BEUC, BEUC priorities 2015 .

Justice for vulnerable consumers  5 The EU is attempting to address the issue,30 an effort echoed in some Member States.31 The fallacy of the circumspect and well informed consumer has been revealed and the ‘images’ of the consumer have multiplied.32 We are no longer simply concerned with the poor or the ‘weaker party’ but are increasingly realising that other groups also find themselves vulnerable.33 Following the opening of former state monopolies and the decrease of the welfare state,34 a clearer social-​ oriented EU policy took shape, cemented with the formal recognition of ‘services of economic general interest’ in the Treaty of Amsterdam and their access protected in the Charter of Fundamental Rights. Yet, in spite of the ‘rights rhetoric’,35 the bulk of the legislation in this domain is still focused on the need to increase choice and support ‘the active information seeker’36 to the detriment of the more vulnerable. The negative effects of an instrumentalised consumer law aimed at realising the internal market, and the ensuing need for a less transactional focus, discussed for some time in academic commentary,37 have finally reached policy and regulatory 30 See e.g. EU Directive 2019/​2161 on better enforcement and modernisation of Union consumer protection rules. 31 In the UK, the Dept for Business, Energy and Industrial Strategy (BEIS), Modernising Consumer Markets, Consumer Green Paper (April 2018, Cmd 9595) 7 acknowledged that the current rules are inadequate to protect a whole tranche of society, the so-​called ‘vulnerable consumers’ who ‘suffer disproportionally’ particularly in regulated markets. One of the three principles for responding to the challenges and opportunities of modern consumer markets includes that consumers should be able to get redress when things go wrong and consumer rights be effectively enforced. 32 Leczykiewicz, Weatherill The images of the Consumer in EU Law’ in etc (n. 9), 1–20. 33 Note that consumer vulnerability also needs to be distinguished from ‘consumer weakness’ in contractual situations according to N Reich, ‘Vulnerable consumers in EU law’ in Leczykiewicz, Weatherill, The Images of the Consumer in EU Law (n. 9) 141. 34 In its Consumer Policy Strategy 2007/​2013 (Com 2007/​99 final), the European Commission recognised the need to provide safeguard for the more vulnerable members of society and stated that ‘affordable access is crucial for social inclusion’. This more social approach started much earlier, with the 1996 Communication of the European Commission on services of general interest, Com (96) 443 of 9-​9-​96, OJ 96, C 281/​3 where the Commission stated that ‘general interests are at the heart of the European model of society’. See too the Report to the Laeken European Council: Services of General Interest (presented by the European Commission), COM(2001) 598, 3 where SGI were described as ‘an essential building block of the European model of society’; the Green Paper on Services of General Interest, COM(2003) 270, 4 where such services are described as ‘part of the values shared by all European societies’. 35 Expression borrowed from H Micklitz, Universal Services: A Nucleus for Social European Private Law, EUI Working Paper (2009/​ 12) 17 . 36 P Rott, ‘Services of general interest, contract law and the welfare state’, in J Rutgers (ed), European Contract Law and the Welfare State (Europa Law Publishing: Groningen, The Netherlands 2012) 81. 37 For a non-​exhaustive list, C Willett, ‘Re-​theorising consumer law’ (2018) Cambridge Law Journal 179–​210; L Waddington ‘Vulnerable and confused: the protection of “vulnerable consumers” under EU law’ (2013) 38 Europesn Law Review 757–​82; Micklitz, Davies and Reich (respectively Ch 2, 5 and 14) in D Leczykiewicz and S Weatherill (eds) (n. 9). S Brown ‘Consumer-​credit relationships-​ protection, self-​interest/​reliance and dilemmas in the fight against unfairness’ (2016) 36 Legal Studies 230–​57; I Domurath, Consumer Vulnerability and Welfare Mortgage Contracts (Hart 2018).

6  Christine Riefa and Séverine Saintier circles.38 However, no detailed policy strategy on how this can be addressed has yet been outlined. There is also a gap in literature on the interface between consumer vulnerability and access to justice, which this book aims to fill.

1.2  Unpicking the needs of vulnerable consumers to design better access to justice This book seeks to take stock, to offer a snapshot of the difficulties encountered by vulnerable consumers in their access to justice, in a small number of EU countries and further afield where there is a clear lack of adequate response to the need of the vulnerable and little is offered by way of solutions to ensure their access to justice.39 With no claim of being exhaustive, this book aims to reflect on why vulnerable consumers seem to not be adequately protected in the current system, to document and understand what the main issues are and start to reflect on some potential solutions for their needs to be met in the future. The book does so in three parts. First, it considers vulnerability from a normative viewpoint to understand what is meant by ‘vulnerable consumers’ and how they have been conceptualised to better protect them. The next part untangles the issue from a regulatory viewpoint. Contributing to the debate on vulnerability, it also highlights that a broad view of access to justice is necessary to protect consumers, especially vulnerable ones. It considers how good regulation and its public enforcement can offer some form of justice to consumers alongside, or perhaps instead, of a need for access to the mechanisms of traditional private justice. Finally, authors reflect on what currently is missing in the courts and ADR systems and offer some possible solutions. 1.2.1  Normative responses to consumer vulnerability The concept of ‘vulnerability’ originates from political sciences and Professor Fineman’s work has been particularly instrumental in this field.40 Based on the fact 38 BEIS, Modernising Consumer Markets (n. 33)  7; Authorities have also recognised that competition has not been effective in giving consumers choice in the energy market, nor provide effective protection. For e.g., see, the 2016 CAM report on energy ; Citizens Advice:  Protecting consumers in a changing world, consumer work plan 2018/​19 . 39 Collective redress as a tool for the vulnerable as well as discussions on the role of enforcers and the benefits of stronger public enforcement of consumer law were not directly explored in the volume. On these subjects, we refer the reader to some other important contributions made by scholars, including: C Hodges, S Voet, Delivering Collective Redress, New Technologies (n. 16); Siciliani, Riefa, Gamper (n. 52); C Hodges, ‘Mass collective redress: Consumer ADR and regulatory techniques’ (2015) 5 European Review of Private Law 829; C Hodges, N Creutzfeldt, ‘Transformation in public and private enforcement’ in H-​W Micklitz and A  Weschler (eds), The Transformation of Enforcement: European Economic Law in a Global Perspective (Hart 2016). 40 M A  Fineman ‘The vulnerable subject:  Anchoring equality in the human condition’ (2008) 20 Yale Journal of Law & Feminism 1; MA Fineman ‘The vulnerable subject and the responsive

Justice for vulnerable consumers  7 that, as humans, we are all ‘vulnerable subjects’, her ‘vulnerability theory’ is ‘an influential and powerful new critique of formal equality and an alternative framework for understanding substantive equality’.41 Very versatile, the concept of ‘vulnerability’ has spread to many other disciplines including sociology, marketing,42 law43 and, more particularly for the subject of this book, consumer protection. In any discipline, vulnerability is a complex and multi-​faceted concept, which is widely used but is not always entirely understood. It is intrinsically very difficult to define.44 The literature shows that all consumers will experience vulnerabilities. Vulnerability is therefore constant, a universal, ever-​present experience, which may be exposed at any given moment by our individual circumstances or embeddedness.45 The focus of debate on the best way to protect vulnerable consumers has traditionally been on the personal attributes, and the cognitive capacities of consumers46 whereas their financial capacity has not been considered to be of any relevance in private law relationships. The inability to pay did not have any influence on the contract and on the fate of the payment obligation. Payment problems and poverty were public law issues and dealt with under welfare law.47 The literature on consumer vulnerability is now moving beyond strict personal characteristics (age, gender, locality, education and language)48 by considering an ever-​growing range of socio-​economic factors, as well as looking at how state’ (2010) 60 Emory Law Journal 251; MA Fineman, ‘ “Elderly” as vulnerable: Rethinking the nature of individual and societal responsibility’ (2012) 20 The Elder Law Journal 71; MA Fineman, ‘Equality and difference: The restrained state’ (2015) 66 Alabama Law Review. 609; MA Fineman, ‘Vulnerability and inevitable inequality’ (2017) 4 Oslo Law Review 133. 41 N Kohn ‘Vulnerability and the role of the government’ (2014) 26 Yale Law Journal of Law and Feminism 1–​27, 2. 42 For a view of vulnerability through those disciplines, see Hamilton, Dunnett, Piacentini (n. 10). 43 For an exploration of the way ‘vulnerability’ is dealt with in some legal disciplines including family law, healthcare, labour law and human rights, see D Bedford, J Herring, Embracing Vulnerability, the Challenges and Implications for Law (Routledge 2020). In the UK it is enshrined in law in section 3(4)of the Communications Act 2003, which states that OFCOM (the UK Office of Communications) must have regard, in performing its duties, to (i) the vulnerability of children and others whose circumstances appear to OFCOM to put them in need of special protection; and (ii) the needs of persons with disabilities, the elderly and those on a low income.’ 44 P Cartwright, ‘The Vulnerable Consumer of Financial Services: Law, Policy and Regulation’ . 45 MA Fineman (n. 40). 46 This is what Kaprou describes as class-​based (Chapter 4) in this volume. 47 P Rott, ‘The low-​income consumer in European Private Law’ in P Rott, K Purnhagen, Varieties of European and Economic Law and Regulation (Springer 2014) 675. 48 See e.g. N.  Reich, ‘Vulnerable consumers in EU law’ in Leczykiewicz, Weatherill, The Images of the Consumer in EU Law (n. 9)  141. Reich identified three types of vulnerability for consumers: physical disability, intellectual disability and economic disability; see also CMA, Consumer Vulnerability: Challenges and Potential Solutions (Feb. 2019) 4–​8 that looks into market specific vulnerability alongside vulnerability associated with personal characteristics.

8  Christine Riefa and Séverine Saintier external elements may create, influence or reinforce vulnerabilities. For example, Cartwright developed a taxonomy of vulnerability, a novel framework consisting of a set of elements which, taken together, help identify where vulnerability is liable to exist. This vulnerability defined within the financial services sector include information, pressure, supply, redress and impact vulnerabilities.49 Similarly, the European Commission report on consumer vulnerabilities across key markets (digital services, financial services, transport, food and energy)50 considered behavioural drivers (trust, credulity, impulsiveness, attitude to risk, computational abilities); market-​related drivers (being unable to read terms and conditions, not comparing deals from providers, not knowing contract conditions, not reading or understanding communications from providers); access (use of the internet); and situational drivers (difficulty in making ends meet or having friends in this situation, long-​term sick or disabled, employment status). The report proposed the adoption of the following more exhaustive definition of vulnerable consumers: A consumer, who, as a result of socio-​demographic characteristics, behavioural characteristics, personal situation, or market environment: • • • • •

is at higher risk of experiencing negative outcomes in the market; has limited ability to maximise their well-​being; has difficulty in obtaining or assimilating information is less able to buy, choose or access suitable products; or is more susceptible to certain marketing practices.51

On this latter point, Siciliani, Riefa and Gamper have highlighted how ‘disengaged’ consumers find themselves in vulnerable purchasing situations, not because of particular cognitive failings or socio-​demographic characteristics, but because the structure of the consumer markets on which they evolve leads to apathy through obfuscation. It is in fact rational for consumers in those situations to disengage and not shop around, thus leading to detriment.52 ‘Regrettably, no matter how consumer vulnerabilities are defined or conceptualized, consumers at risk of vulnerability are overall less likely to represent their own interests; are at greater risk of suffering detriment; and the impact of any detriment suffered is likely to be greater’.53 More seriously, as the work of

49 P Cartwright, ‘The vulnerable consumer of financial services:  Law, policy and regulation’, (n. 44). 50 European Commission, Consumer Vulnerability across Key Markets in the European Union (Brussels, 2016) 319. . 51 Ibid., 169. 52 P Siciliani, C Riefa, H Gamper, Consumer Theories of Harm, An Economic Approach to Consumer Law Enforcement and Policy Making (Hart 2019) 40. 53 Ibid. See also Caplovitz (n. 2). Little has changed in the US, see E Mierzwinski, ‘Colston E Warne Lecture: Consumer Protection 2.0 –​Protecting Consumers in the 21st Century’ (2010) 44 Journal of Consumer Affairs 581. According to NC Smith and E Cooper-​Martin, ‘Ethics and

Justice for vulnerable consumers  9 many authors including some featured in this book shows, one key consequence of vulnerability is social exclusion. Therefore, the debate on ‘vulnerability’ necessarily mixes financial ability alongside other key characteristics such as gender, age, education, etc. Contributing to this debate, this volume highlights the conundrum that vulnerability poses nationally, in Europe and internationally. It quickly becomes apparent that an exhaustive and definitive definition of a vulnerable consumer is near impossible.54 Consequently, the book did not seek to define who the ‘vulnerable consumer’ is, notwithstanding that this is recognised to be an important element. Instead all our authors have highlighted one or several elements of ‘vulnerability’. Chapters 2 to 4 focus on assisting the reader with understanding how economics and consumer law (national, regional and international) have so far addressed the concept, whereas Chapters 5 to 9 explore the regulatory responses that it has triggered. To this end, Riefa and Gamper (Chapter 2) explore the role that economic theory plays on the way consumer vulnerability has traditionally been understood. The chapter argues that so far economic models have failed to recognise adequately the dynamic nature of vulnerability. The economic theory that underpins most of consumer law is anchored in the neo-​liberalist conception of the consumer as a homo economicus who, armed with the correct information will act in a consistently rational way and reach perfectly informed and logical decisions. This is of course an erroneous view of the consumer. More recent moves towards addressing vulnerabilities on an ad hoc basis, especially via behavioural economics (in the tailoring of information), have not fully addressed the problem. The current use of economic theory may even worsen the position of vulnerable consumers, leaving them at increased risk of harm. For the authors, a re-​interpretation of the ‘old’ neo-​classical model, through the prism of ‘bounded rationality’ provides a better justification for intervention to protect those at risk of vulnerability. Bounded rationality embraces the fact that consumers have limited capabilities while being nevertheless rational. It can come to explain why so many consumers feel ‘disengaged’ and apathetic in consumer markets without blaming them or stigmatising them for being ‘lesser /​or vulnerable’ consumers. The authors advocate drastic rethinking to assist regulators in dealing with vulnerability and correct the uneasy relationship that has developed between economics and the protection of vulnerable consumers.

target marketing:  The role of product harm and consumer vulnerability’ (1997) 61 Ethics and Target Marketing 1, 4 vulnerable consumers are more susceptible to economic, physical or physiological harm in, or as a result of economic transactions because of characteristics that limit their ability to maximise their utility and well-​being. In the UK, the situation is no better with the CMA 2019 report on vulnerability (n. 48) acknowledging being on low income is a vulnerability alone and people on low income are also more likely to suffer from other vulnerabilities (paras 59–​75). 54 Note that the dangers in over-​defining and generalising the concept. See OECD Consumer Policy Toolkit (2010) 56.

10  Christine Riefa and Séverine Saintier Simpson (Chapter 3) draws on the work of international institutions and the sustainable development targets to highlight the global nature of vulnerability, with consumers defined as ‘vulnerable and disadvantaged’. The complexities surrounding social exclusion and its links to consumer protection issues are brought to the fore in this chapter. Simpson charts how a number of jurisdictions, such as Brazil, tackle the issues, with the protection of the right of the vulnerable (i.e. the base line for consumer protection) in law and a differentiation made with the so-​called hyper-​vulnerable. Paradoxically, Simpson highlights, ‘the most vulnerable of all are often the non-​consumers’ and ‘the most expensive service can be that which does not exist’. Kaprou (Chapter  4) reflects on the legal definition of the ‘vulnerable consumer’ introduced by the Unfair Commercial Practices Directive.55 Kaprou discusses the benefits and limitations of a focus on personal attributes. The directive’s too narrow ‘class-​based’ definition of vulnerability has not only failed to provide adequate protection but even intensified the exclusion of the most vulnerable. The author argues that a ‘state-​based’ approach would provide better protection. While more recently, the REFIT consumer study56 in particular also recognised the merits of a state-​based definition to catch the nuances of vulnerability, no legislative change was forthcoming in the most recent set of reforms, leaving those who need it the most unprotected.57 The book then moves to looking at the regulatory responses to vulnerability and access to justice for vulnerable consumers. However, the book adopts a wide understanding of access to justice. 1.2.2  Regulatory responses Access to justice is normally thought of as access to courts and more recently to ADR. It is often understood as a civil justice issue and indeed many chapters in the latter part of the book look at ADR/​ODR and the court system. Access to justice has also historically been conceptualised as ‘access to means of obtaining redress’. This is what Susskind refers to as dispute resolution by contrast to dispute avoidance or dispute containment.58 However, what transpires is that access to justice is in fact broader, or at least should be, if one is to provide effective protection to vulnerable consumers. It includes not only means of finding an 55 Council Directive 2005/​29/​EC concerning unfair business-​to-​consumer commercial practices in the internal market [2005] OJ L 149/​22 (Unfair Commercial Practices Directive). For an earlier sectoral protection in the UK, section 3(4) of the Communications Act 2003 states that OFCOM (the UK Office of Communications) must have regard, in performing its duties, to (i)  the vulnerability of children and others whose circumstances appear to OFCOM to put them in need of special protection; and (ii) the needs of persons with disabilities, the elderly and those on a low income.’ 56 . 57 See eg EU Directive 2019/​2161 on better enforcement and modernisation of Union consumer protection rules. 58 R Susskind, Online Courts and the Future of Justice (OUP 2019) 65–​70.

Justice for vulnerable consumers  11 arbiter to a dispute but also looking at the way consumers can access products and services or be protected by ‘consumer-​friendly’ regulations /​soft laws in the first place. In effect, it is about the quest for justice for vulnerable consumers and not simply their access to the mechanics of the system of justice. This includes access to products and services that are tailored for the vulnerable as Brown (Chapter 5), Jasinski and Ryder (Chapter 6) and Dodsworth (Chapter  7) show in the UK context, and Hutchison (Chapter  8) highlights in the South African context. Access to products and services at a reasonable cost is also a form of (civil) justice. Consumers denied credit and forced to resort to loan sharks logically would feel a lack of justice in the way the credit system operates.59 The disabled consumer unable to access the post office or whose delivery on the doorstep was left in an inaccessible place may feel that the system is not adequately catering for their needs.60 The fuel-​poor consumer on a pre-​payment meter or poor value tariff and unable to access electricity would agree that the energy market is failing to consider their vulnerable situation.61 The response so far has normally been to legislate to require that consumers be given access. This is for example, the case of universal services (that Simpson (Chapter 2) and Kaprou (Chapter 4) deal with). However, several authors also considered targeted regulatory intervention aimed at protecting vulnerable consumers. Brown (Chapter 5) investigates the difficulties inherent in regulating for vulnerability in the financial services context. She demonstrates that access to justice (the physical redress mechanism) is not the only way to deny vulnerable consumers protection. Lack of access to relief procedures and to finance also creates vulnerabilities. Regulation that lacks clarity, based in rationales of a competitive market, exacerbates this. Brown applies Fineman’s theory to demonstrate that in responding to types of vulnerability, policy and regulatory response is misdirected. Brown highlights the tension between market competition and the protection of specific groups. She points to two key solutions: supporting consumer resilience rather than identifying consumers as vulnerable and ensuring that the framework for responsibility/​accountability be devised to provide better support to

59 For more on these issues, see Brown (Chapter  5), Jasinski and Ryder (Chapter  6), Hutchison (Chapter 8), in this volume. 60 Citizens Advice, The Consumer Journey: disabled people’s access to postal services (March 2018)

Citizens Advice, Parcel delivery companies must do more for disabled consumers (5 December 2019)  . 61 For more on the new measures in the Retail energy market, see M Ioannidou, D Mantzari, ‘The UK Domestic Gas Electricity (Tariff Cap) Act: Re-​regulating the Retail Energy Market’ 82 (2019), Modern Law Review 2, 488–​507. Also see in this volume, Dodsworth (Chapter 7).

12  Christine Riefa and Séverine Saintier consumers. Indeed, compliance with rules in financial services tends to provide automatic relief from liability, and/​or relies on a regulator’s interpretation. There is little room for flexibility and circumstances to be considered or to influence sanctions/​remedies. The author therefore advocates the adoption of a more reflective approach where specific circumstances surrounding an individual’s complaint/​detriment can be considered as is the case for the application of section 140A-​C of the Consumer Credit Act 1974 (unfair credit relationship test). Jasinki and Ryder (Chapter 6) reflect on the detriment suffered by consumers in the high-​cost short-​term credit market and the way payday loans (as they are often known) have been recently regulated. Using a price cap has led to contractions in the market and some vulnerable consumers without any access to credit with important consequences since 27% of those consumers with no access to credit go without essentials.62 The authors show the tightrope that the regulator walks upon: the need for a regulator to serve the interests of those the regulation is meant to protect. The authors argue that price regulation of the kind adopted by the FCA in the UK is in fact detrimental to vulnerable consumers as it restricts access to credit to consumers who cannot find alternatives. They compare solutions in Italy, the US and the UK to argue for a more conduct-​focussed approach whereby poor practice is punished (in some instances with criminal sanctions) but access to products is retained. Dodsworth (Chapter  7) also highlights a similar conundrum for the regulator and reviews the use of a cap on SVT prices in the energy market. The author shows that the measure adopted to identify and tackle vulnerability is flawed: engagement as a measure of whether the market is competitive is both over-​and under-​inclusive, including consumers who are not vulnerable and excluding some who potentially are. The solution of employing a price cap neither targets the difficulty of engagement in the market nor addresses the issue of vulnerability, in fact quite the opposite.63 Indeed, the energy price cap has been largely criticised for not only pushing prices up, but also stigmatising vulnerable consumers further.64 Dodsworth therefore proposes a new framework of vulnerability to identify specific measures to tackle the issue without affecting the general market. This requires first to identify that vulnerability in the energy market is a particular type of vulnerability and is also time-​sensitive so that any solution would need to specifically target the moment of entering/​renewal of the contract to have the most impact. Overall, Dodsworth argues that vulnerability should not be the mandate for intervention. Instead, a duty should be imposed on the energy supplier to fulfil the legitimate expectation of the consumer, which would depend on the type and level of vulnerability. Such an approach obviates the need for a price cap, with the consequential benefits of the free market. 62 Consumer Finance Association, ‘A modern credit revolution: An analysis of the short-​term credit market’, . 63 TJ Dodsworth and C Bisping, ‘Energy price cap –​a disservice to consumers’ (2019) EUCML 61. 64 See too M Ioannidou, D Mantzari (n. 61) commenting that the ‘price cap seems to have adopted a monolithic view of consumer vulnerability and ignores the potential of “empowerment as a process” to phase out certain vulnerabilities without the need of direct regulatory intervention’.

Justice for vulnerable consumers  13 Hutchison (Chapter 8) guides us through the South African landscape with a particular focus on stokvels, a form of community-​based finance. The chapter starts from situations where exclusion act as a source of vulnerability. The author reviews the use of stockvels (making parallels with credit union in the UK) to illustrate a system that successfully provides access to fund for consumers where no traditional bank would. Stockvels are a potential solution to the lack of access to justice: the justice of not being excluded. The chapter illustrates that stockvels and their UK equivalent, the credit unions appear to serve some small communities rather well. But, as the chapter highlights, this only works when the context is right and, as far as the UK context is, it is difficult to replicate on a big scale, which may explain recent failures to widen the appeal of credit unions in the UK. Similarly, the trend towards a certain ‘formalisation’ of stockvels to bring them into the banking system in South Africa may backfire since it would appear to be motivated by the need to serve the market rather than the socially excluded. The above chapters show that regulation has an important role to play in achieving justice for vulnerable consumers but also highlight how important it is for regulators to find the right balance between intervention and market autonomy as well as ensuring that the tools selected for the tasks are able to deliver for their intended targets. This exercise can easily fail, leaving vulnerable consumers without access to any finance able to procure them with necessities or raising the price of utilities. Finally, Hunter (Chapter 9) considers soft law as a protective tool. Through her analysis of the role of standards in assisting vulnerable consumers she highlights the positive role that businesses and the business community as a whole can play. BSI and ISO standards, although all around us, are invisible and yet, their importance is clearly put to the fore by Hunter. Those standards are only voluntary and therefore their utility may be limited. However, carefully selected case studies illustrate that changing business practice to be more inclusive need not come at prohibitive cost and can bring businesses great benefits. The chapter shows how to gather support from businesses rather than looking at costly regulation that may not get enforced as a protective measure. After all, less regulation is required when businesses behave fairly and are attuned to their consumers’ needs. 1.2.3  State of the access to justice solutions The last part of the book investigates the state of the solutions offered to consumers to solve their disputes (pre-​supposing that they needed to go beyond direct resolution with a trader) and sheds some light on the myth that vulnerable consumers are left unprotected through their own choice, because they fail to use the tool at their disposal and/​or tend to disengage from markets. Authors review courts, ADR and ODR solutions in the EU and a sample of member states.65 The 65 The book does not feature a chapter on collective actions. Some elements on collective actions are included in (n. 29) and in Riefa, Saintier (Chapter 15) in this volume. Collective actions would also be instrumental in improving vulnerable consumers’ access to some justice.

14  Christine Riefa and Séverine Saintier EU has sought to transform access to justice for consumers through a number of key pieces of legislation which are scrutinised in this part, including:

• Directive 2013/​11/​EU of 21 May 2013 on alternative dispute resolution

for consumer disputes (Directive on consumer ADR) which applies to all ADR provisions within the EU and sets minimum quality and procedural requirements; and • Regulation 524/​2013 of 21 May 2013 on online dispute resolution for consumer disputes (Regulation on consumer ODR) which applies to cross-​ border disputes within the EU. The ODR Regulation does acknowledge ‘vulnerable users’ (article 5) but does not contain a definition of who those users may be. Graham (Chapter 10) focuses on the UK and highlights that the first weakness is a lack of data on the way county courts and ADR perform in real terms. Where data is available, it shows a rather dark picture. Access to ADR is impeded by the confusion felt by consumers navigating a maze of available providers in different sectors. The overwhelming finding is that ADR and the county courts (where small claims are heard) is the reserve of a small number of consumers representing the ‘male, relatively old and affluent’. The system clearly does not work for the vulnerable and is not used by the vulnerable. Graham also considers substantive justice issues. Are consumers using ADR settling for less than they are in fact entitled to? Are standards of ADR ensuring all consumers are treated the same or is it in fact a postcode lottery? This chapter finally charts the new proposals in the UK for an online court and the possible pros and cons that will flow from the use of such venue. Graham posits that the future of consumer disputes lies with ADR rather than courts, and that there are many factors that make ADR the better choice. However, this comes with the caveat that the complexity of the system as well as the lack of proper oversight of ADR mechanisms needs urgent attention if ADR is to become an effective tool for vulnerable consumers. Sciallis (Chapter  11) offers a practioner’s view of the ODR Platform which provides European consumers and traders a single gateway to redress, in the form of an electronic case-​management tool, available in all EU member states, free of charge for online purchases. The platform transfers cases to the relevant ADR bodies who have an obligation to resolve them in 90  days. Sciallis argues that vulnerable consumers could be better served by the ODR Platform and its underlying ADR system than they currently are. She notes that despite a low number of cases actually being resolved through the platform, its existence seems to act as an incentive to traders to resolve matters informally in many cases. However low take-​up on the traders’ side in the non-​regulated sectors is a pressing issue. The author also explains how the platform is currently helping to disguise the fragmentation of the ADR landscape. Like Graham (Chapter 10) and Carvahlo (Chapter 12), she warns of the urgent need to rationalise the underlying structure of ADR. Indeed, an inconsistent ADR infrastructure might lead consumers to abandoning claims and create a trust crisis that would effectively restrict

Justice for vulnerable consumers  15 consumers’ access to some form of justice. Sciallis calls for a change in the way ADR provisions are developed, moving away from the ad hoc process that has characterised them to date. She advocates adopting a more holistic, principle-​ based approach to guarantee a simple, practical and easy access to justice for the vulnerable, where the ODR Platform can act as a familiar front-​end. Carvahlo (Chapter 12) discusses the state of ADR and ODR in Portugal where courts have failed to provide consumers with effective relief. Portugal, an early adopter of ADR offers a good case study. Interestingly the issue of vulnerable consumers is poorly tackled in Portugal because the law recognises all consumers as being vulnerable and makes no attempt to find different levels of vulnerability amongst consumers. The author makes a compelling case for ADR whereby Portuguese consumers have unrestricted access to ADR providers either for free or at low cost (maximum of €20), can receive assistance and have access to a quick resolution (average of 2 months in consumer arbitration centres in 2016). However, while the system in place seems an excellent blueprint, it fails, almost at the first hurdle, in that the information obligations imposed by EU legislation have not been implemented in their entirety and/​or are not well respected. Besides, there are a number of concerns regarding the quality of some arbitral awards. The author calls for more stringent information and improvements to the quality of decisions. Durovic and Markova (Chapter  13) investigate the way new technologies could come to solve the access to justice problem for the vulnerable. They particularly reflect on the future of ODR using the EU ODR Platform as a starting point. They explore a number of strategies to address the shortcomings of ODR in serving vulnerable consumers. This includes reflecting on the impact the digital divide has on some vulnerable individuals and the dangers of designing technological solutions that may exclude consumers. The authors float a number of ‘low-​tech’ solutions, such as enabling hard copy submissions to an ODR Platform and overall advocate a move to a multi-​channel design. They also discuss how new technologies such as blockchain could be used to develop better systems. For example, blockchain based smart-​contracts can assist in enforcing decision compliance. Other technologies include ‘bitcoin adjudication’ or algorithm enabled mediation or even the use of smartphones as dispute resolution tools. Such systems are already in place in other areas and could possibly be adapted to consumer disputes. While the authors believe ODR can adapt to the need of vulnerable consumers they acknowledge that it may still be early days before a successful roll-​out can take place. Rott (Chapter  14) also reflects on some new technologies allowing claims management companies (CMCs) to increase efficiency in handling claims lodged online and investigates how this new ‘legal tech’ industry can assist the vulnerable. Rott’s work spans Germany and the UK as the two jurisdictions of reference. The chapter focusses on low-​income consumers, but many of the findings may apply to consumers with other vulnerabilities. Rott concludes that the availability of CMCs has improved access to justice for all consumers in jurisdictions where no other effective and affordable mechanisms exist (such as Germany).

16  Christine Riefa and Séverine Saintier However, as a fee gets charged on successful claims, what CMCs offer is ‘more access to less justice’. The operation of CMCs also needs to be improved in light of the reluctance of operators to honour consumers’ claims and Rott assesses how smart contracts can provide better outcomes for low-​income consumers (notably in the area of passenger rights and welfare benefits in Germany). In the last chapter of this book, Riefa and Saintier (Chapter 15) reflect on the findings of all authors featured in this volume and the broader literature on consumer vulnerability and access to justice. They offer some perspectives, as well as some potential seeds for further research and/​or solutions on the issue. The authors call for ‘inclusive’ justice for vulnerable consumers. They explain that lack of access to justice is a vulnerability in itself and can exacerbate already existing ones. Lack of access to justice may contribute to ‘pushing’ already vulnerable consumers into social exclusion and thus, access to justice is not simply an issue of economic justice for consumers; it is also about social justice. Lack of access to justice is not irreversible nor is it necessarily linked to consumer apathy. More importantly, it appears to be directly linked to a political choice. The authors argue for more emphasis on public enforcement alongside more effective courts systems. They demonstrate that with a return to the more social roots of consumer law, it is still possible to devise inclusive access to justice mechanisms able to protect vulnerable and the so-​called average consumers alike.

2  Economic theory and consumer vulnerability Exploring an uneasy relationship Christine Riefa and Harriet Gamper

2.1  Introduction This chapter explores the role economic theory plays on the way consumer vulnerability has traditionally been understood.1 The chapter argues that so far economic models have failed to recognise adequately the dynamic nature of vulnerability, and that economic theory needs to be understood in a different way in order to assist regulators in dealing with vulnerability. In some cases, the current use of economic theory may even worsen the position of the vulnerable consumer, leaving them at increased risk of harm. It is clear that an uneasy relationship has developed between economics and the protection of vulnerable consumers. This is particularly the case to date because the traditional use of neoclassical economics, which has been predominant in the elaboration of consumer law, has neglected the vulnerable consumer. More recent moves towards addressing vulnerabilities on an ad hoc basis in regulation, or via the use of behavioural economics, have not fully addressed this deficit. In this light, we therefore argue for a reinterpretation of, the ‘old’ neoclassical model, through the prism of bounded rationality, to provide a better justification for intervention to protect those at risk of vulnerability.

2.2  Neoclassical influence on consumer law Addressing consumer vulnerability is central to the consumer principles2 of fairness and equality of access. Yet, consumer law, historically, has developed along a neoclassical economics continuum that does not explicitly acknowledge vulnerability. Neoclassical economics starts from the premise that individuals seek to maximise their utility from consumption and that when given all relevant information about a product they will be able to make discerning choices. Using the

All weblinks accessed on 11/​12/​2019 unless otherwise stated. 1 2 Many consumer organisations use a set of seven principles to assess where the interests of consumers lie on any given issue. These principles are Access, Choice, Safety/​Quality, Information, Fairness, Representative, and Redress. See for example .

18  Christine Riefa and Harriet Gamper traditional neoclassical model of economics entails understanding the consumer as a ‘homo economicus’. This portrays consumers as acting in a consistently rational way, taking into account all available information, processing and understanding this information fully, and weighing the options before coming to a perfectly informed and logical decision. This, in turn, means that consumers are trusted to be the arbiters of markets, since it is their ability to make choices that will force markets to regulate themselves. Indeed, within the model of ‘perfect competition,’ economic agents do not make mistakes or commit errors of any kind. Sellers are homogenous. Transaction and information costs, including the costs of processing information required to make economic decisions, are zero. It follows that resources instantaneously flow to their highest valued use.3 By contrast, ‘consumer law developed on the premise that there was an imbalance between consumers and businesses and that it was primarily information asymmetries that caused this difference in bargaining powers’.4 This is the first juncture at which there is a need to reflect on the concept of vulnerability. Consumer law was conceived to protect the vulnerable in a business to consumer relationship, i.e. all consumers, by dint of their position, were deemed to be in a vulnerable position. It may therefore be surprising to discuss vulnerable consumers as a different group, a different class. Unfortunately, this need is anchored in the influence of economics on consumer law and its deployment. The use of economics in law first focused on drawing attention to the potential failures of government regulation, notably in the USA.5 For example, Peltzman developed an economic model claiming that automotive safety regulations had no effect on deaths on the road and actually increased the total number of accidents and the share of the toll borne by pedestrians. He criticised governmental intervention that had introduced seat belts and was moving towards even further safety features. He concluded that ‘non-​regulatory forces promise to provide everything the regulator would credit to their own actions’.6 One interpretation that could be given for the results was that government legislation had reduced the risk of death more than an unregulated market would have, but by doing so, drivers took greater risks, resulting in more accidents, offsetting any benefits. An alternative explanation was that regulation had merely confirmed market forces, which had already begun to produce a long-​term decline in the highway death 3 JD Wright and DH Ginsburg, ‘Behavioral law and economics: Origins, fatal flaws, and implications for liberty’ (2013) 106 Northwestern University Law Review 1033. 4 P Siciliani, C Riefa, H Gamper, Consumer Theories of Harm, an Economic Approach to Consumer Law Enforcement and Policy Making (Hart 2019) 12. 5 I Ramsay, Consumer Law and Policy –​Text and Materials on Regulating Consumer Markets (3rd Edn, Hart 2012) 136. See for example, S Peltzman, ‘The effects of automobile safety regulation’ (1975) 83 Journal of Political Economy 667; and also S Peltzman, ‘Towards a more general theory of regulation’ (1976) 19 Journal of Law and Economics 211. 6 S Peltzman, ‘The effects of automobile safety regulation’ (n. 5).

Economic theory, consumer vulnerability  19 rate. Or the results could be interpreted to mean that the response of drivers to safety measures has been to have more severe accidents while continuing to have fewer accidents. Whatever way one looks at the results, they seem to show that the usefulness of safety regulation was downplayed when viewed through the prism of economics.7 But we now know that legislative intervention coupled with more effective safety features on cars (produced by market competition) have produced desirable results. Death tolls on roads in Europe, for example, are amongst the lowest in the world.8 In spite of this, the neoclassical economic narrative spread and there was, and in many regards still is, a strong belief that the question of allocative efficiency should be left to the market rather than to state regulation9 even in jurisdictions where consumer law may be conceived as a more social concern (in the EU for example).10 In other words, while a combination of regulatory intervention and competition can be most effective, neoclassical economics have prevailed, in that any regulatory intervention that follows was shaped to be strongly guided by the limitation of government intervention. This was always going to be attractive to governments who could thus channel funds otherwise devoted to consumer protection and public enforcement to other causes, safe in the knowledge that it was the right thing to do for consumers. As a result, consumer law quickly turned to information as a primary tool for protection. There was, more or less from the outset, a recognition that competition could only work if consumers had all the information required to make decisions. As a result, information remedies quickly became a widely adopted shortcut for fixing markets.11 The default adopted by many legislators was that of providing as much information as possible, without much care for how efficient such a tool may be, in the belief that the ‘rational’ consumer would be able to do the rest. According to Howells, EU consumer law started out preferring ‘information provision over interventionist norms, both in legislation and in case law’.12 The 7 S Peltzman (both references) (n. 5). 8 World Health Organisation, Global Status report on road safety supporting a decade of action (2013) . The report shows that only 28 countries (7% of the world’s population) have adequate laws that address all five risk factors (speed, drink-​driving, helmets, seat-​belts and child restraints). The report highlights that Africa is the worst hit by road death (absence of traffic laws and or enforcement, old cars, lack of healthcare provisions) while most developed countries have the best results. 9 KJ Cseres Competition Law and Consumer Protection (Kluwer Law International 2005) 178. 10 The interventions with a more ‘social’ concern can be seen especially in the area of energy and finance. For more details, see J Rutgers European Contract Law and the Welfare State (Europa Publishing 2012). For some, this does not go far enough, see e.g. I Domurath ‘Mortgage debt and the social function of contract’ (2016) 22(6) European Law Journal 758–​771 and I Domurath Consumer Vulnerability and Welfare in Mortgage Contracts (OUP 2017). 11 Siciliani, Riefa, Gamper (n. 4) 19. 12 G Howells, ‘The potential and limits of consumer empowerment by information’ (2005) 32(3) Journal of Law and Society 349, 351.

20  Christine Riefa and Harriet Gamper legislator has overused information as a remedy, viewing it as a ‘quick’ win, a tool that all member states could agree on. It is indeed easier to agree on information than on substantial obligations, and information tends to be a quick win for courts too. It is less intrusive as a method of protection than more substantive rules can be. Indeed, labelling was used in case law to reconcile free movement of goods principles and consumer protection because it was the least restrictive on trade.13 In GB-​INNO-​BM v Confédération du Commerce Luxembourgeois14 the (then) ECJ confirmed consumer information as ‘king’. Information was elevated from a ‘method’ to a ‘right’ in the Treaty of Amsterdam and is seen as ‘undoubtedly the most fundamental specific consumer right’.15 When information is king, it is the responsibility of the consumer to beware; to make use of the tools provided to guard against the excesses of the market, and to assess the suitability of products for his or her needs. It is therefore not surprising that the default position of the courts in the EU has been, and continues to be, that consumers are gifted with high cognitive faculties able to digest the information provided. In parallel to the information paradigm, the courts developed the notion of the ‘average consumer’ as a reference point. This ‘average consumer’ or ‘homo economicus’ is ‘reasonably well informed, reasonably observant and circumspect’.16 The notion permeates all areas of consumer protection although its roots lie in trade protection and the free movement of goods. Its underlying value is therefore in ensuring that barriers to trade were not erected, rather than in consumer protection. Thus, so the thinking goes, the average consumer is not easily misled and a high standard with much emphasis on consumer self-​reliance has been set.17 This is the next point at which we need to reflect on the notion of the ‘vulnerable consumer’. The notion has been developed to distinguish the consumer less able than its ‘average’ peers. This is problematic, first because it does not align with the original goals of consumer law, a further testament to the influence of economics and second, because it stigmatises consumers. Through this lens, vulnerable consumers are seen as lesser consumers; they are not as able as their ‘average’ consumer counterparts. Below average is thus the way ‘vulnerable’ has been conceptualised in many instances, not least in the Unfair Commercial

13 Rewe Zentral (cassis de Dijon); Walter de Rau v. De Smedt Case 261/​81; Commission v. Germany (Beer Purity) Case 178/​84 The ECJ decided that German consumer choice should not be restricted by the exclusion of beers that did not conform to beer purity laws. Information on the content of the beer is a regulatory technique considered less restrictive than a ban with the intended result that the informed consumer will exercise choice according to his or her preferences rather than choice confined by governmental intervention. 14 C362/​88 [1990] ECR I-​667. 15 J Stuyck, ‘European consumer law after the Treaty of Amsterdam: Consumer policy in or beyond the internal market’ (2000) 37 Common Market Law Review 367, 384. 16 This is the benchmark in the UCPD, see recital 18. The notion was actually developed by the ECJ Case C-​210/​96 Gut Springenheide and Tusky [1998] ECR I-​4657, para. 31. 17 For in depth discussion on the average consumer in UK and EU law see for example Siciliani, Riefa, Gamper (n. 4) 24–​37.

Economic theory, consumer vulnerability  21 Practices Directive, where consumers are described as ‘inferior’ because of their mental or physical infirmity, age or credulity.18 The notion of ‘vulnerable’ is in many ways linked to the influence of behavioural economics. This strand of economics acknowledges the limitations consumers have in computing information and making rational choices and emphasises the need to shape disclosures to maximise their effect.

2.3  Catering for the vulnerable in the ‘information paradigm’: The use of behavioural economics Behavioural economics incorporates the study of psychology into economic analysis. Recognising that in reality consumers do not often make rational or logical decisions, behavioural economics seek to understand both why this is so and how such biases might be overcome. The discipline was pioneered by Khaneman and Tversky,19 and further developed by Thaler and Sunstein.20 While behavioural economics is not limited to information and devising effective information mechanisms, it is in this area of consumer law that we can see a marked influence. Indeed, it is now well established that consumers are subject to behavioural biases when making decisions and that they do not behave as rational ‘homo economicus’. For example, they may suffer from inertia and be unwilling/​unable to make decisions21 and be more sensitive to losses than gains and so are afraid to act in case they incur losses as a result.22 They may ‘anchor’, starting from a reference point and then fail to adjust adequately as more information is obtained (for example the final price going up).23 Consumers can also suffer from the ‘endowment effect’ whereby a higher value is placed on something a person owns

8 Article 5.3 UCPD. 1 19 D Khaneman, A  Tversky, ‘Prospect theory:  An analysis of decision under risk’ (1979) 47 Econometricia 263. D Khaneman, A.  Tversky, ‘Loss aversion in riskless choice:  A reference dependent model’ (1991) 106 Quarterly Journal of Economics 1039. D Khaneman, A  Tversky, ‘Judgment under uncertainty:  Heuristics and biases’ (1974) 185 Science 1124. D Khaneman, J Knetsch, R Thaler, ‘Anomalies: The endowment effect, loss aversion, and status quo bias’ (1991) 5 Journal of Economic Perspectives 193. 20 R Thaler, H Richard, Cass R Sunstein, Nudge:  Improving Decisions about Health, Wealth, and Happiness (New Haven: Yale University Press 2008). Thaler and Sunstein brought aspects of behavioural economics such as nudge theory into the mainstream. For example the Obama administration in the US consulted Thaler and Sunstein on nudge theory, while in the UK the Conservative government under David Cameron set up a ‘nudge unit’ and was interested in using nudge theory to influence behaviour, for example to improve levels of recycling and decrease knife crime. 21 e.g. JJ Choi, D Laibson, BC Madrian, A  Metrick, Defined Contribution Pensions:  Plan Rules, Participant Decisions, and the Path of Least Resistance (Cambridge, NBER 2002)  . 22 On loss aversion see e.g. Kahneman, Tversky, ‘Prospect theory’ (n. 19); Kahneman, Tversky ‘Loss aversion’ (n. 20); T Odean, ‘Are investors reluctant to realize their losses?’ (1998) 53 Journal of Finance 1775; and also P Heidhues, B Köszegi, ‘Competition and price variation when consumers are loss averse’ (2008) 98 American Economic Review 1245. 23 D Kahneman, A Tversky, ‘Judgment under uncertainty: Heuristics and biases’ (n. 19).

22  Christine Riefa and Harriet Gamper and they therefore demand more to give up a good than they would be willing to pay to acquire it.24 Consumers also fail to adequately anticipate their future needs which can lead to problems such as failing to anticipate that preferences may change in future or putting too much weight on the prospect of an immediate reward.25 Behavioural biases can be exploited by businesses to trigger consumers to behave in a certain way, for example increasing the willingness to pay for a product or service depending on how it is presented, and affecting willingness to buy extras and add-​ons. Exploitation of behavioural biases can also raise research costs, making it difficult or impossible for consumers to carry out effective comparisons and make informed purchasing decisions. Regulators, on the other hand, may use behavioural economics both to understand why consumers do not always act in a rational manner and to design remedies that have the maximum impact on consumer behaviour.26 The best-​known example is that of the ‘nudge theory’,27 which has been used by governments and regulators to intervene to ensure that people, generally speaking and not just consumers, make better decisions than they otherwise would. One of the most quoted examples is automatic enrolment in pensions. In this context, consumers say they would like to save for retirement but in reality they put it off, preferring to spend on more tangible offerings that are more in the present than far away in the future. Auto-​enrolment, with the possibility to opt-​out if desired, was introduced in the UK in 2012, and by 2016 membership of private pension schemes had increased from 2.7 million to 7.7 million.28 The Financial Conduct Authority (FCA), as a UK regulator, has been at the forefront of the use of behavioural insights to design remedies. The regulator underlines the importance of testing remedies in a controlled atmosphere before rolling them out to observe how proposed remedies work in practice and whether they are effective. In many instances, nudge style remedies have been found to be effective, such as the example on pensions set out above. However, this is not always the case. For example, the FCA tested different ways of contacting consumers to inform them they were eligible for redress after making incomplete cash machine (ATMs) transactions.29 The consumers in question did not take the 24 D Kahneman, J Knetsch, R Thaler, ‘Anomalies: The endowment effect, loss aversion, and status quo bias’ (n. 19). 25 U Malmendier, G Tate, ‘CEO overconfidence and corporate investment’ (2005) 60 Journal of Finance 2661; A Sandroni, F Squintani, ‘Overconfidence, insurance, and paternalism’ (2007) 97 American Economic Review 1994; and M Grubb, ‘Selling to overconfident consumers’ (2009) 99 American Economic Review 1770. 26 In some cases, regulators may also need to take action to mitigate the negative consequences for consumers of businesses using behavioural biases to exploit consumers, for example in the use of drip pricing or pre-​ticked opt in boxes. 27 Thaler, Richard, Sunstein, Cass (n. 20). 28 See . 29 FCA Occasional paper 23, ‘Full disclosure:  A round-​ up of FCA experimental research into giving information’, November 2016, 19 .

Economic theory, consumer vulnerability  23 money from the ATM so the money was actually retained by the bank, but it was still debited from their accounts. Three different ways of presenting the information were tested against a standard control letter: Bullets: Summarising key information in bullet points at the top of the letter, including the amount that was owed and why and the action the customer could take, with the message ‘ACT NOW: You are less likely to respond if you delay’; Process: Summarising the ease of claiming redress in a numbered list in the body of the letter (‘1. Complete the attached form within 28  days, being careful to fill out the correct account details. 2. Post the form to us using the provided pre-​paid envelope’); and Bullets and process: Both treatments included.30 The FCA found the bullets and process treatments did not affect whether or not consumers claimed their redress, and the bullet treatment actually led to significantly more customers contacting the firm, often due to concerns that the letter might be a phishing scam. In this case, the FCA concluded that efforts to make communications simpler, such as bullet points and summarising the process to claim might work in some redress cases, [but] in others there may be a risk that changes in directness or style cause customers to question the authenticity of the letter.31 While we do not deny the usefulness of behavioural economics, its scope of intervention can be limited. It is therefore important that remedies are tested not only to ensure they are effective, but also to make sure they do not cause consumers to behave in unintended ways that could actually undermine the regulators’ intention. Indeed, behavioural economics can be too narrow to be used effectively by regulators to protect the sometimes-​large groups of consumers that might be at risk of vulnerability. In the example of ATMs used above, the regulator designed a remedy to help people claim the redress they were entitled to. It found that around half of the consumers in the trial claimed redress.32 Accuracy of address was undoubtedly a significant consideration since the trial was testing different styles of letter prompting consumers to claim redress, and the trial found that joint account holders were most likely to make a claim, potentially because this group was most likely to have stable addresses. However, it is also possible to theorise that those still using cash, amidst increasingly cashless societies, might be the most at risk of vulnerability.33 Besides, those without stable 0 Ibid., 20. 3 31 Ibid. 32 Ibid. 33 In particular, disabled people are amongst those left behind in cashless society, J Robbins, ‘Thousands of cash machines vanish: I could lose my independence’ (12, February 2019, Which) .

24  Christine Riefa and Harriet Gamper addresses could also be a group at higher risk of detriment since people who move more often might be more likely to be renting and/​or in temporary accommodation, something which is understood to be a risk factor for vulnerability. So whilst behavioural economics was helpful in this case to help design and test some remedies, the discipline can sometimes be too narrow to be used effectively to incorporate those who are perhaps most vulnerable. Below we reflect on how regulators34 ensure that vulnerable consumer groups can be identified and can access markets. Behavioural economics can be useful in this context, but as set out below, whilst both legal and economic theories tend to provide a strong basis, most regulators go further in their approach to vulnerability.

2.4  Carving out ‘vulnerable groups of consumers’ in regulation A fairly recent trend has developed which seeks to identify a separate group of consumers that requires additional protection compared to that already afforded by consumer law. In the UK, sectoral regulators are tasked with ensuring that their respective markets work well for all consumers and to intervene where they do not. In many cases, regulators have a particular duty to protect specific groups of consumers, as will be discussed in further detail below. And broader consumer law also pays some regard to consumers in vulnerable situations. What transpires from an analysis of the position papers of sectoral regulators in the UK is that often regulators consider these provisions do not go far enough towards protecting the vulnerable. It is clear that the ‘average consumer’ is unlikely to have perfect understanding or unlimited time and be free of behavioural biases. Instead people can be made vulnerable due to circumstances or personal characteristics, or a combination of the two. In the past decade the regulatory community has recognised this and devoted significant resource to developing approaches to consumer vulnerability, which go beyond specific legal obligations, taking a broader perspective on consumers who struggle to access or secure value for money from particular goods and services. Regulators tend to do this as part of a wider consumer empowerment agenda, which recognises that addressing vulnerability can result in service improvements for everybody. This can be good for businesses as well as consumers. Firms have a duty to make reasonable adjustments so that all consumers can access goods and services.35 But in addition, when vulnerable consumer groups are well catered for then all consumers tend to benefit from improved service, including clearer and more accessible information, greater ease and ability to make choices, more tailored and/​or useful products, and quick and simple access to redress when required. This in turn improves consumer engagement and means more 34 Regulation in the UK tends to be compartmentalised, with each sector having its own regulator, for example Ofcom is the communications regulator, Ofgem regulates energy, the Financial Conduct Authority financial services etc. 35 Equality Act 2010.

Economic theory, consumer vulnerability  25 consumers are likely to participate in the market, thus increasing businesses’ market share. A typical starting point is the British Standard on Inclusive Service Provision (BS18477), which highlights the importance of recognising vulnerability as dynamic:  due to the characteristics of the market, the particular circumstances of the individual consumer, or a combination of the two.36 It is also important to acknowledge that the actions of regulators and providers may also improve or worsen the consumer experience. In the energy sector, Ofgem, for example has a statutory duty to ‘consider the interests of individuals who are disabled or chronically sick, of pensionable age, with low incomes, or residing in rural areas’.37 However, the regulator takes the view that ensuring the energy market delivers positive and fair outcomes for consumers who are struggling to engage in fact cuts across all of its functions. Ofgem views vulnerability as the combination of a consumer’s personal circumstances and characteristics, along with aspects of the market. This can create situations where consumers are less able to represent their interests, and more likely to suffer detriment. Ofgem published a Consumer Vulnerability Strategy in 2013,38 setting out its approach to identifying and tackling consumer vulnerability in the energy market. The strategy guides Ofgem’s work on vulnerability, as well as setting expectations for energy companies. It published a progress report on the strategy in 201539 and an assessment of how the energy market is working for consumers in vulnerable situations40 in 2017, and is currently updating its approach in consultation with stakeholders. Its overarching objective is to understand and identify the causes of vulnerable situations in the energy market, protect consumers, and ensure they do not face barriers when engaging with the market. Ofgem commits to use its regulatory powers to create the right framework to protect and empower consumers. Similarly, the communications regulator, Ofcom, has specific duties under the Communications Act 2003 to take account of particular groups of ‘citizens’ and ‘consumers’ who may be vulnerable to harm. These duties include the requirement for Ofcom to have regard to the needs and interests of those who are disabled, elderly, on low incomes or living in rural areas, as well as to the vulnerability of any others whose circumstances appear to put them in need of special protection.41 In particular, Ofcom requires a range of measures to ensure that no one is prevented from making an emergency call because of their circumstances. This includes availability of public phone boxes, ensuring emergency calls are 6 This standard is discussed further in Hunter (Chapter 9) in this volume. 3 37 See Ofgem letter to stakeholders, Updating the Ofgem Consumer Vulnerability Strategy  –​ CVS2025, December 2018 . 38 . 39 . 40 . 41 Communications Act 2003.

26  Christine Riefa and Harriet Gamper free, and ensuring text relay or emergency SMS can be used by those who are deaf or speech-​impaired to make emergency calls.42 Ofcom states that in addition to these specific groups of people, there are people whose circumstances make them vulnerable but who do not necessarily fall within these defined groups. Ofcom takes a wider view of consumer vulnerability that recognises its dynamic nature: life events such as bereavement, illness or redundancy can temporarily reduce people’s ability to afford or manage their communication services.43 In financial services, the Financial Conduct Authority (FCA) produced an occasional paper on consumer vulnerability in 2015.44 Again, it views vulnerability as being temporary, sporadic or permanent in nature and stresses that vulnerability is a fluid state that needs a flexible, tailored response from firms. It also focuses on the actions of firms as well as the situation of the consumer. Vulnerability can be caused or exacerbated by the actions or processes of firms. The work done by UK regulators in trying to understand and protect vulnerable consumers underlines the importance of:

• Personal circumstances, which can make some people more vulnerable to

detriment than others; • The sometimes transient nature of vulnerability, for example those who have suffered a bereavement, illness or loss of employment; • The importance of firms’ actions and the impact these can have; and • The high impact on these groups when something does go wrong. It is of note that in addition to setting out positions that are often much wider than those mandated by law, in practice, regulators do not always turn to economic theory, either to justify their stances on vulnerability or make the case for intervention. Talk of greater emphasis on social values can be seductive. But it is doubtful it will have a lasting effect if it cannot be anchored in economic theory, for market rules, although they may be changed and updated in future, will most likely continue to apply. It is therefore important to offer an alternative economic theory to anchor the regulatory stance towards more inclusive consumer protection. One recent example45 can be found in the energy sector, where the retail supply of electricity and gas has been the subject of action by first the sector

2 . 4 43 Ofcom, Access and Inclusion Report 2018 . 44 . 45 Further in-​depth consideration of the work on retail energy can be found in Siciliani, Riefa, Gamper (n. 4).

Economic theory, consumer vulnerability  27 regulator, Ofgem, followed by the UK competition authority (the Competition and Markets Authority, (CMA), and finally by the legislator. Both Ofgem and the CMA agreed that the energy market was not working well for consumers, largely due to there being too many different and complex tariffs, making it difficult for consumers to search for and correctly identify the best fit for their circumstances. However the two regulators disagreed as to the correct remedies to implement to address this and improve consumer engagement. In 2013 Ofgem used its licensing powers46 to introduce measures designed to cut down tariff proliferation across all consumer groups, with the expectation that a smaller number of tariffs would make it easier to compare energy deals and make an informed choice, thus increasing consumer engagement and potentially switching. After further investigation, in 2016 the CMA47 ordered Ofgem to remove these restrictions and instead imposed a price cap, which only applied to customers using prepayment meters.48 The CMA used the results of a survey to inform its analysis, which showed that some groups of consumer were more likely to be at risk of vulnerability. Groups identified as ‘at risk’ included those on low incomes, those with low qualifications, people living in rented accommodation, and those over 65 years of age. All of these groups were identified as more likely to suffer from low levels of engagement with the market, and these consumers were more likely to use prepayment meters.49 In total the CMA found that 16% of the total customer base used prepayment meters, and alongside the price cap it introduced a package of transparency remedies aimed at increasing shopping around by consumers more widely and thus increasing competition between firms. The CMA did consider broader use of price caps but decided against this due to the risk of undermining competition and attendant risks that consumers might not shop around and switch if not incentivised to do so.50 However, in July 2018 legislation was passed which required standard variable rate and default energy tariffs to be capped for all consumers, and not just those on prepayment meters, reflecting a wider social and political conversation taking place at the time, and demonstrating a much wider approach to vulnerability considerations than the use of traditional economic theory.51 The cap will remain in place until 2020 when its effectiveness will be reviewed. The passage of this piece of legislation demonstrates that vulnerability can be much wider than those traditionally considered to be ‘at risk’ demographics. It shows that traditional economic theory, which tends to dismiss the fact that

46 Ofgem, Retail Market Review –​Updated Domestic Proposals, London 2012 . 47 CMA, Energy Markey Investigation  –​Final Report, London 2016 . 48 CMA, Energy Markey Investigation  –​Final Report, London 2016 . For more on this, see Dodsworth (Chapter 7) in this volume. 49 Ibid., paras 125–​41. 50 Ibid., para. 251. 51 Domestic Gas and Electricity (Tariff Cap) Act 2018.

28  Christine Riefa and Harriet Gamper consumers have limited capabilities in general, may not always be useful to regulators when deciding if and how to intervene to improve circumstances for a large cross-​section of consumers. In this case the Ofgem remedy was intended to improve ease of comparison and thus levels of switching for all consumers. The CMA remedy focused on those groups of consumers who are traditionally thought to be more at risk of vulnerability, but by targeting this specific group, and due to concerns around moral hazard (if prices were capped for all consumers then people would not drive competition by shopping around) other consumers, who could also be considered to be made vulnerable by information overload, were left out. As legislation now covers all consumers, it will be interesting to see the results of the evaluation in 2020. As the above highlights, the use of economic theory could be beneficial to UK regulators in further developing and anchoring their approach to consumer vulnerability. This has already been done to a certain extent through the use of behavioural economics. However, we argue that traditional economic theory could and should in fact be reinterpreted to serve the vulnerable.

2.5  The need to re-​interpret economic theories to serve the vulnerable In section 2.1 we explored the notion of the average consumer and the rise of transparency remedies. In this context it is the responsibility of the consumer to beware and to assess the suitability of products for his or her needs. Traders simply have to provide the information to consumers who can then make an informed choice. However, as current regulatory approaches demonstrate, and the energy case study set out in Section 2.3 further shows, in practice simply providing consumers with information is not always a perfect remedy. In the energy case study, recognising that a large majority of consumers were unable to make informed choices and were becoming disengaged, the government stepped in to cap energy tariffs for all consumers, pending a review in 2020. We put forward the argument that it is actually rational for consumers to disengage. However, through this disengagement, the consumer becomes vulnerable or amplifies an already existing vulnerability. Research carried out by Citizens Advice in 2016 found that following a ‘good’ decision-​making process takes longer than following a natural process (an average of 107 versus 76 minutes per week) and following a ‘good’ decision-​making process also leaves consumers feeling less satisfied with their decision than when they decide naturally. The difference on both indicators is exacerbated in regulated markets.52 From a practical point of view there is a limit as to how engaged we can realistically expect consumers to be. Consumers are expected to shop around not only for ongoing essential services including phones, broadband and energy, but also for high value 52 Citizens Advice, ‘Against the clock: Why more time isn’t the answer for consumers’, November 2016. .

Economic theory, consumer vulnerability  29 purchases such as cars, electronics and holidays, and even for things like their weekly supermarket shop. In reality there is a limit to the amount of time a consumer has each week to spend on making comparisons, as well as a justified limit to their energy and enthusiasm for the task. In addition, and as demonstrated in the energy case study, tariffs and information can be so complex that consumers, even when they do engage and try and shop around, might not make a good choice and could even end up worse off.53 The 2016 Citizens Advice report found that regardless of whether they do save money by shopping around or not, those consumers who spent longer interrogating information actually felt less satisfied with their final decision. This is likely to be because where there is a large amount of complex information to be taken into account consumers may begin to realise the difficulty inherent in making a good decision, and so regardless of what they decide in the end and whether it represents an improved outcome or not, they begin to feel uncertain about the effectiveness of their decision making, and this could lead to disengagement.54 Government, regulators and consumer organisations often draw attention to the savings which can be made by shopping around. They also proceed from the underlying baseline that by shopping around and switching consumers should keep firms in check and competing robustly on the merits. However, we have just seen that apathy is often the only rational response. The time spent researching may outweigh savings and the uncertainty caused by increased confusion after researching makes any savings worthless in effect for two main reasons. First because the consumer is not sure if they chose the right deal or not and second because the savings may not compensate for the time that could have been spent earning or relaxing.55 It is therefore our view that regulators need to further develop their approaches to vulnerability. Instead of positing that the consumer needs to be engaged and should be relied upon to drive competition, regulators (and legislators for that matter) could instead utilise a version of the classical economic theory (developed by Herbert Simon) of the rational consumer to underpin their work. Simon’s theory of bounded rationality56 sees consumers as having computational limitations while nevertheless being rational. This new interpretation would posit that the rational response of consumers to the profusion of complex information is to stop shopping around and disengage from the market. Such an 3 Siciliani, Riefa, Gamper (n. 4) 141–​5. 5 54 Citizens Advice, ‘Against the clock: Why more time isn’t the answer for consumers’ (November 2016)