Who is a Consumer?

The English definitions of a consumer under EC Directives share commonality as they all provide that a consumer is (a) “a natural person” and (b) “who is acting for the purposes which are outside some kind of business, commercial or trade activity”. The definitions that are in consumer EC Directives originate from European procedural law under Articles 13 to 15 of the Brussels I Convention.

Ireland did not recognise any legal definition of consumer in whole or in part from the definitions under EC Directives when transposing the Directives into Irish Law. However, this position has changed, a definition of a consumer has now been defined in Irish case law and under Part 1 section 6 (1) of S.I. No. 281/2010 — European Communities (Consumer Credit Agreements) Regulations 2010, which states as follows:

““consumer” means a natural person who is acting, in the course of a transaction to which these Regulations apply, for purposes outside his or her trade, business or profession;”

The above S.I. No. 281/2010 transposes Directive 2008/48/EC (on credit agreements for consumers) into Irish Law effective from 9th day of June 2010.

Ambiguity arises when interpreting the second part of the above definition “for purposes outside his or her trade, business or profession” in a neighbouring jurisdiction in England under section 12(1) of the Unfair Contract Terms Act 1977, business engaged in a transaction outside their normal business purposes can claim to be “dealing as a consumer.” In R & B Customs Brokers Ltd v United Dominions Trust Ltd. Lord Justice Dillon stated:

“This reasoning leads to the conclusion that, in the 1977 Act also, the words “in the course of business” are not used in what Lord Keith called “the broadest sense”. I also find helpful the phrase used by Lord Parker C.J. and quoted by Lord Keith, “an integral part of the business carried on.” The reconciliation between that phrase and the need for some degree of regularity is, as I see it, as follows: there are some transactions which are clearly integral parts of the businesses concerned, and these should be held to have been carried out in the course of those businesses; this would cover, apart from much else, the instance of a one-off adventure in the nature of trade, where the transaction itself would constitute a trade or business. There are other transactions, however, such as the purchase of the car in the present case, which are at highest only incidental to the carrying on of the relevant business; here a degree of regularity is required before it can be said that they are an integral part of the business carried on, and so entered into in the course of that business.”

The plaintiff was therefore dealing as a consumer as the purchase was merely incidental to the company’s business activity. This position changed In Stevenson v Rogers, Potter L.J. made the comment (at 623) that the phrase was there to:

‘distinguish between a sale made in the course of a seller’s business and a purely private sale of goods outside the confines of the business (if any) carried on by the seller.’

The later case has narrowed the definition “for purposes outside his or her trade, business or profession”, to private use only.

In Ireland in a recent, case AIB PLC -v- Higgins & Ors six days prior to the S.I. 281/2010 coming into force. This is an application for summary judgment against the defendants for over €6,000,000.00.

The first, second and fourth defendants did not deny that the moneys in suit were received by them as loans from AIB but contend that they had an arguable defence to the claim by reference to certain provisions of the Consumer Credit Act 1995. They argue that they made these borrowings from AIB as “consumers” within the meaning of that Act. If correct, then s. 30 of the 1995 Act is applicable to the lending that if its requirements were not complied with by the bank. That omission would render the loan unenforceable (s. 38 of the 1995 Act).

The matter before the court: “The defendants were acting outside their business when they borrowed the monies in suit from AIB. They thus fell within the protection of the Act but as s. 30 was not complied with by the bank, the loan is unenforceable.” The Act (which was amended by Part 12 of the Central Bank and Financial Services Authority of Ireland Act 2004) insofar as it is relevant defines “consumer” as meaning “a natural person acting outside the person’s business”.

The term “business” is defined as including “trade and profession”. The term “borrower” means a consumer acting as a borrower. A credit agreement is defined as “an agreement whereby a creditor grants or promises to grant to a consumer a credit in the form of a deferred payment, a cash loan or other similar financial accommodation”. Kelly J. went on to say that:

“…the interpretation urged by these defendants would have the most profound consequences in business and commercial life. It would mean that every person who belonged to a trade or profession and who decided to borrow money to invest it in promoting another business with a view to profit would have to be treated as a consumer under the Act. The legislature could never, in my view, have so intended. If it did it would have said so in clear and unequivocal terms.”

Further, more Kelly J. affirmed the European Court of Justice Definition of consumer in Benincasa v. Dentalkit (Case C-269/95):

“As far as the concept of `consumer’ is concerned, the first paragraph of Article 13 of the Convention defines a `consumer’ as a person acting `for a purpose which can be regarded as being outside his trade or profession’. According to settled case-law, it follows from the wording and the function of that provision that it affects only a private final consumer, not engaged in trade or professional activities…”

The Irish court has now accepted this as the definition of what is a “consumer” as stated by Potter L.J. that the purpose is purely for private use.

This leads to S.I. No. 281/2010 — European Communities (Consumer Credit Agreements) Regulations 2010, these regulations transpose into domestic law the provisions of the Consumer Credit Directive 2008/48/EC of the European Parliament and of the Council on credit agreements for consumers. That Directive establishes a harmonised legal framework in the European Union for the provision of consumer credit ranging from €200 to €75,000. It does not apply to mortgages. It replaced a 1987 Directive (87/102/EEC), which laid down minimum rules for consumer credit agreements within the EU and which was transposed into domestic law by the Consumer Credit Act 1995 .

The above stated Directive goes one-step further and encourages Member Sates to introduce legislation or measurers to protect “consumers” that fall outside the scope of the Directive. The Irish legislator has conveyed powers to the Central Bank of Ireland, which has introduced the Code of Conduct on Mortgage Arrears. A new Code is now in force as from 1 January 2011 and has legal effect by virtue of Section 117 of the Central Bank Act 1989, under Part IIIC of the Central Bank Act 1942 and under section 7 of the Central Bank Reform Act 2010. The Central Bank of Ireland has reviewed to the Consumer Protection Code, which will be give it legal effect through the same Statute as above. It is envisaged that the revised Consumer Protection Code will be complete mid year 2011.

Consumer Protection Code.

Article 14(2) of the EU Treaty acknowledges the single internal market. A market without frontiers with free movement and free movement of goods and services, the European Commission on the 8th of October 2008 proposed to create a Directive to merge four existing consumer directives. A directive to harmonise consumer rights, ensuring a high level of protection for the consumer and to simplify legislation creating one set of rules.

Merging the four Directives simplifies the Consumer “Acquis” in a systematic commonality to eliminate overlaps and inconsistencies. Regulating common definitions, pre-contractual information, rules on the contractual aspects of sales and that are scattered across several directives.

To simplify the “acquis communautaire” the Commission proposed to merge the following four directives:

Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises.

Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.

Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts.

Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees.

The Central Bank of Ireland seeks to achieve the same results by implementing the “Consumer Protection Code”. Ireland has an obligation to transpose EU Directives into Irish Law, as stated above Ireland is now in a situation that there is different statutes giving consumers rights. The code does not consolidate the legislation nor does the Central Bank of Ireland have the authority to make new laws or repeal laws. The code merely gives its self a legal footing to all the different statutes in one document. The code does not protect consumers; the purpose of the code is education. It is directed at financial, insurance and investment institutions to name a few; it is not directed at the retail market. The education or information provided in the code is merely a set of guidelines for the above stated institutions on how to deal with consumers. It sets out procedures that the institutions have to follow. These institutions have to make an undertaking to the Central Bank of Ireland that they will comply with this code.

Under the new Central Bank Reform Act 2010, sanctions shall be imposed on the institutions that do not comply.

Code of Conduct on Mortgage Arrears

This code has legal effect in Ireland from 1st day of January 2011. Ireland has been pro-active by introducing this code for consumers that fall out of the remit of the Directive 2008/48/EC, it does not however provide any protection for the “consumer”, in this case the “borrower”. It provides a mechanism for “borrowers” that are finding it difficult to pay their mortgage to consult with their lending institution to reach a compromise. The current economic situation has put unprecedented pressures on “borrowers” and lending institutions. The Central Bank in drawing up these codes of practice had regard to the interests of customers and the general public and tried to promote fair competition between lending institutions, a means to stabilise the financial markets. What is important to note is that the code only protects the “borrowers” primary family home. The protection only gives the “borrower” time to make arrangements to pay the mortgage. If this is unsuccessful, the “borrower” can still loose their home if the Lender chooses to take a court action to repossess the home.

“This Code sets out how mortgage lenders (referred to in this document as “lenders”) must treat borrowers in or facing mortgage arrears, with due regard to the fact that each case of mortgage arrears is unique and needs to be considered on its own merits. This Code sets out the framework that lenders must use when dealing with borrowers in mortgage arrears or in pre-arrears. All such cases must be handled sympathetically and positively by the lender, with the objective at all times of assisting the borrower to meet his/her mortgage obligations.

This Code acknowledges that it is in the interests of both the lender and the borrower to address financial difficulties as speedily and as effectively as circumstances allow.”

Code of Conduct for Business Lending to Small and Medium Enterprises

This Code came into effect on 13 March 2009. Institutions were required to ensure and take the necessary steps to implement measures within three months of the code coming into force. Further to change their systems from the effective date. The Code’s objectives are:

to facilitate access to credit for sustainable and productive business propositions,

to promote fairness and transparency in the treatment of SMEs by regulated entities, and

to ensure that when dealing with arrears cases the aim of a regulated entity will be to assist borrowers to meet their obligations, or otherwise deal with the situation in an orderly and appropriate manner.

This Code sets out the processes regulated entities are required to adopt in facilitating access to credit for businesses.