Governance & PolicySpecial Feature

Consumer Laws: The need for a modern approach to lawmaking

By Supratim Chakraborty (Partner) and Anwesha Sinha (Associate), Khaitan & Co LLP

With the rapid strides that India is making towards overall development, it is also pertinent to protect the rights and interests of consumers through robust consumer protection policies and laws. While consumer protection issues have existed since pre-independence era, it has exacerbated in recent times due to proliferation of technology. This entails a requirement of re-thinking the consumer protection laws in India in order to adapt to the changing consumer needs and rights.

In India, the Consumer Protection Act, 2019 (CPA) was enacted to cater to the rapidly evolving consumer sensitivity. Largely hailed as a poor man’s legislation, the framework of the CPA is such that, it is lighter on paperwork and pocket, is user-friendly, is time-sensitive, and is justice-delivery centric. The CPA, unlike many other Indian legislations, strides across problem areas by amalgamating issues stemming from tortious affairs as well as contractual liabilities. Yet, the CPA is failing to cater to the need of the times.

Keeping up with the consumers

A point of critique when it comes to policymaking in today’s day and age is the knee-jerk reaction that legislators have. Often consumer protection policies and laws are framed haphazardly and reactively after there has been some major abuse of consumer rights. However, due to the emerging technological advancement and evolving consumer issues, we have felt a need for dynamic policymaking which will keep such issues and related research agendas at the center of policymaking.

The need for dynamic policymaking is felt more deeply as emerging technologies have turned upside down the concept of traditional businesses. Technologies like artificial intelligence, machine learning, big data analytics, the Internet of Things, etc. are driving factors behind new businesses. The vast nature of such technological developments poses significant challenges for regulators who strive to maintain a balance between fostering innovation, protecting consumers, and addressing the potential unintended consequences of disruption. As a reason, significant delays are caused in developing such laws, which can be best described as a ‘lag’ or a ‘pacing’ issue. The policy cycle often takes anything from 5 to 20 years, whereas a unicorn startup can develop into a global mammoth in a matter of months.

The days of regulations being crafted slowly, and then remaining in place, unchanged, for long periods of time, are long gone. Just as examples, businesses like ridesharing services, initial coin offerings, etc have mushroomed and have posed legislators with the challenge of creating or modifying regulations, enforcing them, and communicating them to the public at a pace that was previously unimaginable.

Today legislators are also faced with another dilemma that appears to arise with these new technologies in the market, i.e. the issue of assignability of liability for consumer harm. For instance, if a self-driving car crashes, who is liable? The software developer, the automobile owner, or the occupant? A single stakeholder law can no longer be applied to such an evolving ecosystem. Liganded with this, ensuring consistency in policies is particularly challenging in a disruptive environment, which often blurs lines between vendors, facilitators, and customers.

Engage before you legislate

An aspect of democratic policymaking that is often overlooked is the necessary engagement of the policymakers with civil society and community organizations. These groups represent the interests of consumers and conduct much-needed research to provide information to policymakers. Inarguably, the backbone of any effective policymaking is grounding it in evidence, the economic realities, and the prevailing market conditions, the inputs for which are often provided by such groups. In India, we have seen a steady trend of this facet of policymaking going unnoticed or rushed, just to tick the box.

Futuristic policymaking

Policymakers could try the following: Adaptive regulation by shifting from “regulate and forget” to a responsive approach; Regulatory sandboxes of testing new approaches by creating sandboxes and accelerators; Outcome-based regulation of focusing on performance rather than form; Risk-weighted regulation by moving from one-size-fits-all regulation to a data-driven approach; and Collaborative regulation of aligning regulations nationally and internationally by engaging a broader set of players.

What is the “right way to regulate” then?

For disruptive technology to boom, regulations can either be catalytic or an obstacle. As technologies evolve, regulators globally are rethinking their approaches, adopting methods that are iterative but collaborative and adaptive to face the challenges posed by emerging technologies head-on. The methods suggested above can potentially establish a system that looks beyond the traditional forms of policymaking.

Policymaking is the hallmark of change. A fast-paced, evolving economy demands to be constantly catered to or else there may be a situation that will greatly disadvantage consumers, businesses, and governments alike. As lawmakers, it is essential to upgrade oneself and create inclusive laws that will not only further consumer choice but also factor in changes that the economy is undergoing on a regular basis.

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