The law that makes it quite legal to rip off 50% of Britons

The rotten secret hidden inside “The Consumer Protection from Unfair Trading Regulations”:

Jesus’ reference (Mathew 23:27) to certain individuals as “whited sepulchres” compared them to white painted tombs – pristine on the outside and full of rotting decay inside. Among the whitest of legislative sepulchres is “The Consumer Protection from Unfair Trading Regulations 2008”. 

The foulest corpse in this graveyard of ‘fair practice’ is the reference to “the average consumer”. The legislation states that a practice is only “unfair” if it brings detriment to the “average consumer”. It is this camel-sized loophole that has given the banking, television, energy, lottery, train, insurance, and charity industries and just about any other economic actor free range to rip chunks off Britons to the fullest extent of their appetites.

It is this legislation that allows Ripped-Off Britons to be entirely legally ripped off. Subtle references to the “average consumer” by well compensated lawyers have kept up company profits and executive bonuses at the expense of the less than average consumer. The fact is, half the population falls into this ‘less than average’ category.

Is it an indictment of us Britons that half the population of the UK has a lower than average IQ?  Are schools failing because half of students have less than average literacy for their ages? And that half the population is less than average height? And that half of everything and everyone is less than average in just about every way? Because, that is what “average” means.  It broadly means the middle value, from which half are above and half below.  (***Mathematical pedants, please see note at the bottom of this post).

With “The Consumer Protection from Unfair Trading Regulations 2008” British legislators declared open season on half the population of Britain! An invitation few successful British corporations hesitate to pitilessly accept.

Defining the “average consumer”, the act states

(2) In determining the effect of a commercial practice on the average consumer where the practice reaches or is addressed to a consumer or consumers account shall be taken of the material characteristics of such an average consumer including his being reasonably well informed, reasonably observant and circumspect.

(3) Paragraphs (4) and (5) set out the circumstances in which a reference to the average consumer shall be read as in addition referring to the average member of a particular group of consumers.

(4) In determining the effect of a commercial practice on the average consumer where the practice is directed to a particular group of consumers, a reference to the average consumer shall be read as referring to the average member of that group.

(5) In determining the effect of a commercial practice on the average consumer—

(a) where a clearly identifiable group of consumers is particularly vulnerable to the practice or the underlying product because of their mental or physical infirmity, age or credulity in a way which the trader could reasonably be expected to foresee, and

(b)where the practice is likely to materially distort the economic behaviour only of that group,

a reference to the average consumer shall be read as referring to the average member of that group.

(6) Paragraph (5) is without prejudice to the common and legitimate advertising practice of making exaggerated statements which are not meant to be taken literally.

It is even questionable whether the ‘average consumer’ is ‘reasonably well informed, reasonably observant and circumspect.’  Does ‘reasonably’ mean ‘averagely’ well informed, observant and circumspect? Or does it mean you actually read the contract? If so, a YouGov survey indicated that less than a quarter of consumers actually read contracts when they buy goods and services. So, on this basis, “The Consumer Protection from Unfair Trading Regulations” considers over 75% of consumers fair game for unfair contracts.

Companies well know that most consumers don’t read contracts. When you last bought a train ticket, did you really read the ‘terms and conditions’? Just in case something had changed since the last time your read them? In 2009, Manchester United had to be taken to task by the OFT for not making it clear that buying a season ticket did not actually guarantee you a seat. On April Fool’s Day 2010, the video games retailer Gamestation inserted the following clause into their ‘terms and conditions’ for online purchases:

"By placing an order via this web site on the first day of the fourth month of the year 2010 Anno Domini, you agree to grant Us a non transferable option to claim, for now and for ever more, your immortal soul," the terms and conditions read. "Should We wish to exercise this option, you agree to surrender your immortal soul, and any claim you may have on it, within 5 (five) working days of receiving written notification from gamesation.co.uk or one of its duly authorized minions. We reserve the right to serve such notice in 6 (six) foot high letters of fire, however we can accept no liability for any loss or damage caused by such an act."

Apparently 7,500 people ticked the ‘I have read the terms and conditions’ box, which is probably the most common lie in the world, after “I’m very well, thank you” and “of course I love you “. I understand Gamestation subsequently released its customers from this clause by email.

In February 2011 a Guardian article on an OFT report stated that problem contracts lost consumers £3 billion

Misleading and problem contracts led to consumers losing £3bn over the past 12 months, according to a study by the Office of Fair Trading (OFT). The highest instance of problems occured with telecoms and internet access packages, with 10.3% of consumers surveyed affected.

In an interview with the Daily Telegraph newspaper this month, Mervyn King, the Governor of the Bank of England, commented ruefully about the tactics of the british banking sector:

“if it’s possible to make money out of gullible or unsuspecting customers, particularly institutional customers, that is perfectly acceptable”.

Sir Howard Davies, outgoing Chairman of the FSA in 2003, said

“The biggest disappointment of my time at the FSA has been the failure of firms, and particularly their senior management, to learn the lessons of past mis-selling”

Mervyn and Sir Howard have had the best possible vantage point from which to witness the rip-offs perpetrated by the financial services industry.

The chief executive of Which?, the leading UK consumer affairs organisation, commented in January 2011 about financial services

“If left to its own devices, the industry will spend its energy inventing products and sales practices that fill the balance sheets but don’t deliver for their customers. From pension and endowment mis-selling to PPI and most recently the emergence of identity theft insurance, this hall of shame is evidence enough that a new approach is long overdue.'

Look back over 200 years to the words of that icon of capitalism, Adam Smith. In his book “The Wealth of Nations”, published in 1776 and considered by some to be the bible of the free market, presumably because like the Bible it is more quoted from than read, Adam Smith states:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”

Adam Smith referred to not just the banks, but to all trades. In a country which scores poorly on literacy and numeracy, regulators such as the Financial Services Authority, OFGEM, OFTEL, OFCOM and the Office of Fair Trading have a continuing record of allowing mis-selling. The regulators think it is enough to make a discrete press statement that one organisation or another is ripping off its customers, which will be news for a couple of days and then forgotten. But they generally do not require the offenders to explicitly contact their victims, and they tend to shy away from ‘naming and shaming’.

Their approach is

-         You have been very naughty indeed

-         But we won’t tell anyone who you are

-         And you don’t need to tell anyone either

From contracts for goods, services, insurance, investments all the way to the size of a chocolate bar. Companies do not hesitate to swipe the treats from the mouths of children – presumably on the basis that the ‘average child’ would read the contractual weight on the packet, remember what it used to be, and decline to make the purchase. Changes since 2008 to the size of your sweetie have included

·        Box of maltesers: down from 140g to 120g

·        Mars Bar and Snickers: down from 62.5g to 58g

·        Cadbury’s Dairy Milk: down from 140g to 120g

While companies boast about ‘maxing’ a bigger bar, they forgot to widely advertise their new ‘clipped’ products.

Other bamboozlements popular among british companies include

• Impenetrable gas and electricity bills
• Misleading train fares
• Deceitful special offers by airlines and furniture stores
• Banks pushing costly executor services hidden behind free will writing.
• Phoney food labels

Companies do their risk assessments, and know very well that the law protects them from the regulators and courts, and the downside of being found out by a few customers who withhold their custom is wildly outweighed by the profits of continuing to rip-off everyone else.

***For the mathematical pedants: there are examples where half the people are not below average.  Almost every living human has one head – though a very few have two.  Therefore the average number of heads per human is a tiny bit more than one – so in this case, almost everyone has fewer than average heads. Mathematics, like law, provides endless opportunities for games like this for those whose purpose is to confuse. Ask the CFO of Goldman Sachs, and his reference to "25 sigma" events as an excuse for the Credit Crisis!