The new Consumer Rights Act 2015 has been in force since 1 October. There have been many articles written about the new rights and remedies for consumers but, in my opinion, one of the biggest changes is likely to have a huge commercial impact on motor finance providers, and that is the new digital content provisions.
Digital content is defined as "data produced and supplied in digital form" and covers software, apps, games etc, whether delivered in a tangible form, or downloaded or streamed. It’s important to note that when digital content forms part of a vehicle, for example, the entertainment system or satellite navigation system, and that digital content is defective, the two tier goods remedies will apply and the consumer will potentially have a right to reject the whole vehicle, even though the defective digital content is effectively a very small part of the vehicle. In an automotive world of connected cars with integrated technology this could well be of serious concern to finance houses.
A consumer will only be able to reject the whole vehicle (and not just seek a refund) if he can show the digital content is not of satisfactory quality, fit for purpose or not in accordance with pre-contract information. The test requires us to consider what a
reasonable man would think was satisfactory quality and if the defect occurs after 30 days and before six months it will be presumed that the defect was in existence at the date of delivery and it will be for the finance house to prove otherwise.
Let us consider some practical examples. In-car entertainment systems are becoming increasingly connected and digital. In my opinion, the biggest risk here is compliance with pre-contract information (which must include compatibility). In practice it’s very difficult to keep the sales literature up to date and maintain accurate lists of compatible phones and operating software. We have seen examples of vehicles which were purchased because the entertainment system was compatible with the consumer’s mobile phone and then after the phone’s operating system was updated it no longer worked. Where the sales literature specifies a phone is compatible, but does not mention the operating system version needed on that phone to work, then potentially the consumer could argue it does not comply with pre-contract information and could reject the vehicle. Similar concerns arise with satnav systems. A reasonable person would expect that not every single street is covered, but what about a satnav that will not recognise a regional accent? Arguably this is not of satisfactory quality. We would recommend that traders be as clear as possible as to the date/year the software was last updated, particularly with used cars. Of course, if an update is later bought and this is defective, then this would only entitle the consumer to reject the update and not the whole vehicle.
The challenge for finance companies is that in the event a customer can reject the whole vehicle for defective digital content, they will need to seek an indemnity from the dealer who may then look to the manufacturer. In a new vehicle, depreciation is up to 30% when it’s driven off the forecourt, so it’s imperative that the dealer agreements entitle the finance house to recover the full loss.
This is a real challenge. Digital content (and in particular software) is notoriously unstable (compared to engineered components). If we project forward into the world of connected cars, the chance of issues escalates with increased technology and in my opinion, successful finance houses will be aware and address these it their commercial arrangements in the future.
Mel Chell is a partner at Shoosmiths