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Consumers and blacklisted practices

Scratch cards are small cards containing concealed information in one or more areas, generally at the back, that can be revealed by scratching off an opaque covering to reveal the winning prize. These cards are popular not only because of their low purchase cost but, more importantly, the instant gratification effect as opposed to waiting for a lottery draw. For this reason, traders endeavour to make their cards even more appealing, tempting the consumers’ eyes with prize promotions that occasionally hide a scam. Not surprisingly, as a result, scratch card companies’ profits soar.

Companies wishing to attract consumers by offering prizes have to assume the cost involved
- Josette Grech

This lucrative business has been dealt a blow by a recent judgment handed down by the Court of Justice of the European Union against several British traders specialised in the distribution of mailings.

One of these companies, called Purely Creative, conducted a number of promotions throughout 2008, which in different ways informed the addressees of the promotions that they had won a prize or equivalent benefit. This was done by sending individually addressed letters, scratch cards and other advertising inserts placed into newspapers and magazines. The winner was offered options for discovering the exact prize and getting a claim number – from dialling a premium rate number, texting or sending a letter. Call costs were given, but consumers were not told the promotions company received a share of such costs. Purely Creative reaped its profit by charging costs exceeding the costs involved with the prize which was allocated to almost all addressees.

The Office of Fair Trading, the authority responsible in the UK for enforcing consumer protection laws, called upon those traders to stop their practices. The OFT took issue with these commercial practices on the basis that winners incurred expenses to obtain their prize. For instance, in order to receive a cruise prize, the consumer had to pay inter alia the insurance, a supplement to obtain a cabin of choice and, during the voyage, the cost of food and drink, plus the port fees. On receiving the cold shoulder, the OFT brought proceedings against these traders before the High Court in a bid to restrain them from these commercial practices.

The High Court found that commercial practices would only be acceptable if the payment required was negligible, no part of which would benefit the trader concerned, and if that payment was minimal compared with the value of the prize won. Neither the OFT nor the traders were satisfied with the decision of the High Court and appealed. The Court of Appeal referred the matter to the Court of Justice for its guidance.

In coming to its decision, the CJEU considered theUnfair Business-to-Consumer Commercial Practices Directive as the basis for its analysis. This Directive seeks to protect consumers’ economic interests by prohibiting companies from adopting commercial practices that are unfair to consumers. In particular, the court dealt with the Directive’s so-called “Black List”. It prohibits, among other things, companies from creating the false impression that the consumer has already won, will win, or will win on doing a particular act, a prize, when in fact taking any action in relation to claiming the prize is subject to the consumer paying money or incurring a cost.

The court considered the practices adopted by the British traders to fall within the “Black List”. Purely Creative argued unsuccessfully that consumers who incur a cost were under no false impression as they were informed in advance about this cost. The court ruled that as soon as consumers are made to believe that they have won or will win a prize while there is no prize or while they have to pay money or incur costs to claim the prize, this is, in itself, an aggressive practice and thus prohibited. Furthermore, the court was strict in its interpretation as to what payment or cost will trigger the application of the banned blacklisted practices. The court ruled that even if a consumer bears a minimal cost compared with the value of the prize or even if the cost does not procure any advantage for the trader, such as the cost of a stamp or a local telephone call, is considered nonetheless a cost for the winner.

The CJEU has significantly limited the conduct of commercial practices that include the award of ‘prizes’. Companies wishing to attract consumers by offering prizes have to assume the cost involved, no matter how trifling the cost.

[email protected]

Dr Grech is an associate with Guido de Marco & Associates and heads its European law division.

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