The Government has indicated that it intends to examine radical new ways to mainstream ADR for all types of disputes including consumer disputes, so it is no longer viewed as an “alternative” to court but operates as an integrated part of the justice system. Peter Causton looks at the proposals.
We are currently running an ADR Roadshow free trial of our ADR service part funded by the EU which could not be more apposite.
Published last week was a BEIS command paper on consumer ADR. This suggests mandating ADR in certain high detriment consumer areas. It also comes with some strings attached for ADR providers like ProMediate.
We are currently providing a free trial of our ADR service for consumers in dispute with traders, funded by the EU, which we call the ADR Roadshow. www.promediate.co.uk/adr-roadshow
We are carrying out research into the use of ADR in such circumstances and will be publishing a report in September.
This neatly fits in with BEIS’s consultation into reforms to the ADR industry in the UK and the publication of the Civil Justice Council’s report into mandatory mediation which concluded it is lawful to make people use ADR. The BEIS Consultation is open until 1 October. They say that:
“Government is seeking views of those with knowledge and expertise in competition and consumer law and policy. This includes consumer organisations, those in the legal profession, charitable organisations particularly where there is expertise in how to help vulnerable consumers, those in the public sphere such as public enforcers and sector regulators, and advice and resolution services like ombudsman and mediation providers. Government is also seeking views of those with a specific interest in businesses, such as trade associations and membership bodies, both relating to general business interests and specific to those markets particular to the proposals below. Government is also seeking the direct views of consumers and businesses.”
The proposals include:
• Providing more support to consumers in individual disputes with traders by improving consumers’ access to arbitration and mediation services, thus avoiding the need to go to court. This includes a proposal to make arbitration/mediation compulsory in the used car and home improvement sectors where consumer detriment is relatively high.
• Improving the quality and oversight of alternative dispute resolution services.
• Improving consumer awareness and signposting.
• Seeking views on making it easier for consumers to band together to seek redress
collectively from traders.The proposals include
Improving Alternative Dispute Resolution
“… most complaints are individual in nature and consumers need knowledge and support to pursue them for themselves. If competition is working well, most consumers who make an unsatisfactory purchase can expect to fix any problems quickly with the trader: seven in ten UK consumers resolve their problem directly with the business.
However, when consumers cannot reach agreement with the trader, they need to understand their redress options, which may include Alternative Dispute Resolution (ADR) processes.
Government has already indicated that it intends to examine radical new ways to mainstream ADR for all types of disputes including consumer disputes, so it is no longer viewed as an “alternative” to court but operates as an integrated part of the justice system.
In the meantime, as proposals for this wide-ranging and fundamental reform are developed, government wants to examine more immediate plans to increase the rate of individual consumer disputes being satisfactorily resolved by strengthening and expanding the scope of ADR.
Many consumer disputes could benefit from ADR because it can be less confrontational in nature than a court process and more easily allows for mediated settlements. It is also generally lower in cost to traders than the courts and free for consumers. Over 2.5 million disputes were resolved through ADR and 80% of consumers who used ADR thought their problem would not have been resolved without it.
www.gov.uk/government/speeches/lord-chancellors-speech-london-international-disputes-week
Many trade associations or similar bodies offer simple and effective ADR by taking complaints about their members and, with a view to resolving any dispute, contacting those members on behalf of the consumer. Generally, such bodies will not deal with complaints about non-members.
John Penrose’s report highlighted the importance of consumers having easier, cheaper, and more digital ways to enforce their rights, whether through ADR or the courts. He saw it as important so that poorly performing firms face more pressure, and consumers know they can trust the system to be on their side if they need it. ADR is an important avenue to redress for consumers outside of the civil courts process, which is often more costly and time intensive. It can also help reduce the burden on the civil courts, which is facing an increasing caseload and resourcing pressures following the COVID-19 pandemic.
Government believes a well-functioning ADR system can make markets work more effectively and drive economic growth, as it increases consumers’ confidence in spending and generates higher trader compliance with the law. However, responses to the Consumer Green Paper suggest that a number of improvements need to be made to improve the quality and scope of ADR so that it delivers for more consumers and businesses in all markets. In this chapter, government is seeking views on three specific improvements that were highlighted by respondents:
• Improving consumer awareness and signposting – the current landscape for accessing redress is confusing and the process varies across markets. This is dissuading consumers from seeking private redress and enforcing their consumer rights.
• Increasing the quality and oversight of ADR – the quality of ADR services, including the time to access ADR, and oversight of ADR bodies varies across both regulated and non-regulated markets.
• Improving the take-up of ADR by businesses in non-regulated markets – Business participation in ADR is particularly low in non-regulated sectors with a high number of SMEs and microbusinesses. This is concerning if those sectors are also ones where consumers are experiencing high levels of harm.”
We would agree that more needs to be done to increase the use of ADR in the consumer arena, and our report is likely to show that consumers appreciate being able to resolve disputes with traders more efficiently and effectively than having to go to the Small Claims Court.
We agree that more needs to be done to improve consumer awareness and signposting.
BEIS report that despite a plethora of advice and support services, responses to the Consumer Green Paper said that consumers still find it difficult to understand their redress options, make the right choice for them and navigate the routes to resolving their problem, particularly if they are vulnerable. This includes finding out whether ADR is available, how it works and what other options are available.
We also agree about speeding up access to ADR
As the report says:
In regulated markets, the majority of disputes are resolved within four weeks, but most regulators have typically set an upper limit of eight weeks for businesses to resolve complaints before consumers are entitled to take a dispute to ADR.
Businesses should have sufficient time to resolve disputes informally before involving a third party, but many respondents to the Consumer Green Paper argued that this lengthy period was no longer justified in an era of e-mail and social media. Those respondents felt that it did not reflect consumers’ changing expectations of engaging with business and led to consumers abandoning complaints. MoneySavingExpert’s ‘Sharper teeth: the consumer need for ombudsman reform’ report highlighted that this rule was created in a non-digital age and should be shortened to a minimum of 4 weeks.223 The All-Party Parliamentary Group (APPG) on Consumer Protection’s 2019 Ombudsman Report also concluded that the upper limit of eight weeks should be shortened
Maintaining an upper limit of eight weeks has the potential to harm both consumers and businesses if active steps are not being taken to resolve the complaint. Evidence from the Consumer Green Paper suggested that protracted disputes can cause consumers stress and financial hardship and may harm businesses too by eroding trust and reducing satisfaction with business complaint handling, affecting customer retention.
Government therefore considers there is a good case for halving the upper threshold of eight weeks in markets where ADR is mandatory so that businesses are incentivised to settle problems promptly and, if necessary, consumers cantake complaints to ADR more quickly. Many regulators already support a significant reduction in this threshold and see the business and consumer benefits of doing so. The Office of Rail and Road (ORR) has set an upper limit of 40 days in the rail sector and intends to formally consult this year on reducing it. Similarly, some businesses in sectors such as energy have already reduced the time to access ADR voluntarily.
However, government recognises that there are some complaints that are complex and may take businesses longer to resolve and that referring a complex case into the ADR process prematurely before the facts are established could introduce delay later in the process. It is also important that cases are fully investigated by businesses before a third party intervenes, especially in markets where a single ADR body is investigating complaints in a large market or in markets in which disputes tend to be more complex. In these instances, there may be value in the business having more time to resolve the complaint, provided there is constructive engagement.
Government would welcome views on whether regulators should aim to set a significantly lower threshold for consumers to exercise their right to access ADR and if so whether exceptions could or should be made to allow more time to resolve complex cases.
The report asks for views as to how regulators and government can balance the need to ensure timely redress for the consumer whilst allowing businesses the time to investigate complex complaints?
We see no justification for an 8 week delay before deadlock is established except in complex cases, for example disputes between lawyers and clients which can take time to investigate and analyse. Straightforward consumer transactions should not take 8 weeks to deal with in our view.
BEIS then looks at quality and oversight of ADR services
They say that:
Government also intends to improve the quality and consistency of ADR services in consumer markets, to further increase business and consumer confidence in ADR. The Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015 (the regulations) were introduced to promote high- quality consumer ADR schemes through the creation of an accreditation and reporting framework and regular monitoring against this by a competent authority.
The regulations provide a basic set of approval processes and monitoring requirements to ensure these standards are maintained.
However, responses to the Consumer Green Paper identified consistency of quality standards, transparency of process, speed of case resolution, and enforceability of decisions as areas where improvements could be made to the ADR system in the UK. Any dispute resolution process or body that interprets and rules on issues relating to legal rights and obligations should have a clear set of standards that can be relied on by all parties involved and policed effectively by a neutral arbiter. Government therefore agrees with the APPG on Consumer Protection’s 2019 Ombudsman Report
2www.legislation.gov.uk/uksi/2015/542/contents/made
that there should be a more demanding and consistent minimum set of standards for approval as an accredited ADR provider and adherence to a code of practice.
Firstly, government proposes to require that all providers of consumer ADR are assessed and approved for their ability to provide an ADR service. Currently there are numerous non-accredited and unsupervised providers that offer dispute resolution on an informal basis alongside accredited providers. Mandatory approval by the Competent Authority would mean that all providers operate to a common set of quality standards and oversight.
This would level the playing field and drive consistency across the sector through the application of a common legal framework around expertise, independence and impartiality, transparency, fairness, and annual reporting.
Secondly, government intends to strengthen the minimum service expectations of all ADR providers, focusing on four key principles to improve the quality of ADR – neutrality, efficiency, accessibility, and transparency. This would focus on the areas of key concern raised by respondents to the Consumer Green Paper such as setting clear expectations of the ADR process, improving communications on case progression, dealing with straightforward cases as promptly as possible and reporting publicly on outcomes.
Government proposes to do this by amending the ADR regulations, building on its existing framework to incorporate additional requirements for ADR providers, both as part of their initial accreditation and as part of their service provision to consumers and businesses. These would include strengthening the accreditation process through the introduction of a ‘fit and proper persons’ test for key personnel to ensure that businesses owners, officers and senior management are suitable people to undertake those roles. These amendments will also focus on the consumer and business experience of the ADR process by embedding in the regulations additional criteria around the neutrality, efficiency, accessibility, and transparency of service provision to ensure a common set of standards are applied and that providers can be monitored against and held accountable to these by the Competent Authority.
Government believes these changes will help deliver a trustworthy, timely, and fair service that consumers and businesses can trust to resolve disputes amicably with improved oversight to monitor service standards.
BEIS asks what changes could be made to the role of the ‘Competent Authority’ to improve overall ADR standards and provide sufficient oversight of ADR bodies?
In our view there is justification for increased regulation to ensure independence and quality standards but there is an absence of understanding as to funding of ADR providers. If costly licensing and regulatory requirements are imposed there is a risk that it may not be worthwhile many ADR providers continuing to provide a service. Currently we are providing a free trial funded by the EU and this is encouraging consumers and businesses to use ADR, but more regulation means higher costs and we are currently restricted in what we can charge consumers in low value cases. We find that consumers and traders are willing to use ADR if it is free or low cost, but they will not use it if it is uncommercial or disproportionate. Of course, if compulsion is introduced then ADR providers may be able to increase prices and could afford regulation but as things stand it is uneconomic.
BEIS deal with compulsion next and as I say, the Civil Justice Council recently published a report essentially giving the green light to compulsory ADR. It is already compulsory in some sectors.
In the regulated sectors, it is generally mandatory for traders to participate in ADR schemes. For sectors where participation is voluntary, there is little engagement, particularly amongst SMEs. Evidence suggests that participation rates could be as low as 3% in some sectors.228 The low participation rates are driven by a range of factors. These include businesses’ confidence in their own dispute resolution processes and ability to maintain close relationships with their customers, their perception that there are few intractable disputes, and the cost of ADR participation.
Several responses to the Consumer Green Paper provided strong support for requiring business participation in sectors where the volume and value of consumer detriment is demonstrably high. Government has developed a set of criteria to assess where the level of consumer detriment is high and show where mandatory business participation in ADR could be beneficial.
Using these criteria, our analysis shows that most of the sectors with poor scores are regulated and already have mandatory ADR in place. Of those that do not, house and garden maintenance services, vehicle maintenance and repair services, and used cars are the highest detriment sectors.
Unresolved problems in these markets can have a significant impact given their cost and importance, particularly for vulnerable consumers. For example, faulty home renovations may have significant importance for a disabled person looking to increase the accessibility of their home. A reliable car is vital for someone who has to travel for work.
We have spoken to ADR providers in high-detriment sectors to obtain sign-up levels and have compared these to the estimated number of businesses operating in a sector according to the Interdepartmental Business Register (IDBR). See Impact Assessment for further details.
www.gov.uk/government/publications/resolving-consumer-disputes-alternative-dispute-resolution-and-the- court-system
The low ranking of regulated sectors may reflect to an extent structural market features such as concentration
and choice – which in turn are driven by large minimum efficient scales and natural monopolies.Government considers that a number of factors are relevant in assessing whether to extend mandatory business participation in ADR to new sectors. These include the volume or value of consumer problems, the overall consumer experience, and the structure of the market. In some markets mandatory participation might be justified because there is a high incidence of high value disputes combined with one off purchases, such as we see in the motor vehicles and home improvements sectors. In other markets, it might be justified even where transaction values are lower because of a high level of complaints affecting vulnerable consumers, as we see in the retail energy market.
We have built on work by Which? and used the following core set of criteria to aid in identifying sectors where extending mandatory ADR could benefit consumers:a. nature of consumers: vulnerability, importance (for example essential or high cost)
b. nature of the purchase: complexity, value, incidence, competitiveness
c. consumer experience: consumer confidence/trust, level of complaints
d. alternative routes: availability and effectiveness of other types of consumer protection/enforcement
BEIS publish a diagram showing the result of ranking consumer sectors against the comparability of offers, trust in businesses to respect consumer protection rules, the extent to which markets live up to consumer expectations, choice of retailers/suppliers, and the degree to which problems experienced in the market cause detriment.
We would agree with the proposal to mandate the use of ADR in these sectors. There is clearly a problem with the ADR regulations in that businesses are not required to use ADR and yet consumers are signposted to it and rightly think that they should be able to use it. Yet many traders prefer to tough it out and not use ADR. We have found this when offering our free trial ADR roadshow funded by the EU.
Conclusion
It is positive that the Government has already indicated that it intends to examine radical new ways to mainstream ADR for all types of disputes including consumer disputes, so it is no longer viewed as an “alternative” to court but operates as an integrated part of the justice system. As pointed out, ADR is already compulsory in some sectors, for businesses at least. There should be easily accessible ways for consumers to avoid the costs and time of going through a Court process, which is just one form of ADR.
The government is right to examine more immediate plans to increase the rate of individual consumer disputes being satisfactorily resolved by strengthening and expanding the scope of ADR.
We would say that mediation should not be forgotten as a valuable ADR process. Mediators are already regulated by the Civil Mediation Council so we would resist any double regulation which might result in mediators who are unregulated and not ADR providers being unable to mediate consumer disputes.