Companies who offer competitions with prizes that cost money to claim are breaking EU law according to a judgment delivered yesterday in a test case brought by the Office of Fair Trading, reports The Independent.
The Office of Fair Trading took legal action against company Purely Creative and four other companies for competitions run in newspapers and through the post.
The case went to the Court of Appeal which then referred it on to the European Court of Justice to determine whether the competitions breached EU law included in the Unfair Business-to-Consumer Commercial Practices in the Internal Market and Amending Directives.
EU law prohibits unfair commercial practices to protect consumers. Unfair practices are defined as those that do not comply with professional diligence and which may influence transaction decision. The law classifies unfair practices as either misleading or aggressive.
Aggressive trading practices
Aggressive trading practices are those that deny consumers the right to make transactional decisions freely through the use of harassment, coercion or undue influence.
In judgment, the EU court said: "EU law prohibits aggressive practices which give the consumer the impression that he has already won a prize, while he is obliged to pay money or incur a certain cost in order to be informed of the nature of that prize or to take certain action to acquire it."
The court specifically highlighted examples of competitions in which consumers are given the false impression that they have won a prize or will win a prize, but then learn that in order to claim that prize they must pay some money or incur some cost.
Consumer Protection from Unfair Trading Regulations 2008
The Consumer Protection from Unfair Trading Regulations 2008 came into force in May 2008 to implement EU law in this area into UK law. The regulations introduce a general duty not to trade unfairly and to ensure traders are fair towards their customers.
The regulations require traders to conduct their business at a level that can be expected by consumers with regards to honest marketing and good faith. They also outlaw misleading practices and aggressive sales techniques. The test as to whether a practice is unfair is whether it will harm the economic interests of the average consumer.
The companies in the case all run prize competitions by placing scratch cards in newspapers and magazines. The cards inform consumers that they have won a prize but require them to call a premium-rate phone line to claim their winnings. The OFT then criticised the companies for offering low-value prizes, contrary to their advertising.
In one example a Mediterranean cruise was offered in a promotion; however, entrants had to pay insurance, room fees, food and drink and port fees. The final result was that any one 'winning' the cruise would have to pay £399 per person to claim their prize.
Heather Clayton works for the OFT.
"Our case is that these promotions encourage people to believe they have won a valuable prize when, we argue, the plain fact of the matter is that people are being sold a low-value product."
The companies argued that all their competitions offer a route to claim a prize without making a call or paying for delivery and that they were operating within standards set previously by the OFT.
The Purely Creative website reads: "We want everyone who takes part in one of our games to thoroughly enjoy the experience and be happy with the outcome."
Costly 'prizes' firms breach EU law, judges rule (The Independent)
The Consumer Protection from Unfair Trading Regulations (Office of Fair Trading)