Strengthening ADR frameworks: advancing fair and effective consumer dispute resolution

Executive Summary

When a flight is cancelled, a new car turns out to be faulty, or a home improvement project goes wrong, the financial cost is only half the story. For millions of consumers across the UK, the stress, wasted time, and sheer helplessness of fighting a losing battle with a business can be overwhelming. These everyday disputes add up to a staggering £71.2 billion in consumer harm each year, leaving individuals feeling powerless and abandoned.

Alternative Dispute Resolution (ADR) offers a way for consumers to find justice without the cost and complexity of going to court. It covers processes like mediation and arbitration, where an impartial third party helps resolve the dispute. In the UK,ADR plays a vital role in consumer protection, giving people a way to solve problems with businesses efficiently, without needing to go to court or rely on public authorities to step in. It isn’t a substitute for a robust public consumer enforcement system that deters businesses from breaching consumer law. But it should be a quick, fair, and accessible pathway for consumers to privately seek redress when they are unfairly treated. Yet, for too many, this system is broken. Our analysis shows that getting fair and effective redress remains far too difficult, with access to justice often depending more on the economic sector or the business involved than on the fairness of their claim.

This isn't just a matter of consumer rights; it's about economic health and integrity of the marketplace. When people can resolve complaints easily, they feel more confident, and our economy benefits. But the current system is a confusing patchwork of different rules and providers. In some sectors, like aviation, major companies have simply walked away from the process, leaving air passengers with no real path to resolving their complaints. In others, a lack of oversight means the scales are tipped in favour of businesses, not consumers.

The result is a system that too often fails those who need it most. We've found that:

• The system is inconsistent. There is a confusing patchwork of provision across different sectors. Consumers in some areas have no access to an ADR provider at all, while in others, multiple providers may compete to attract businesses rather than ensuring fair outcomes for people. This undermines confidence and leaves people without a reliable path to justice.
• Oversight is often weak. A significant imbalance exists in how ADR schemes are monitored. Regulated sectors like energy and financial services have mandatory ombudsman schemes overseen by sector-specific regulators. In contrast, a single authority oversees a vast range of schemes in unregulated sectors, creating a huge gap in the level of scrutiny.
• Awareness is worryingly low. Consumer awareness of ADR is a major barrier, with just 20% of people recognising the term . Signposting is poor even in regulated sectors , meaning many only discover ADR after a dispute has already escalated, losing the chance for an early resolution.
• Access isn't guaranteed. In many high-complaint sectors, businesses are not required to participate in ADR. This has allowed major companies, such as Ryanair in the aviation sector, to withdraw from schemes after unfavourable decisions, leaving their customers with no option but the courts.
• The process can be slow, costly, and frustrating. To be a true alternative to court, ADR must be free and timely. However, some schemes impose fees on consumers, while lengthy and unclear timeframes for decisions erode confidence and disproportionately harm those already facing financial hardship.
• Enforcement is weak. Even when a consumer wins their case, there's no guarantee the business will comply. When participation is voluntary, traders can simply walk away from schemes after an unfavourable outcome , leaving consumers with a hollow victory and no real redress.

The Digital Markets, Competition and Consumers Act 2024 (DMCC Act) is a step in the right direction as it paves the way for the government to introduce secondary legislation that will make some improvements to the current regime in terms of quality, consistency and visibility. But it doesn't go far enough. Building on our previous research, this report aims to provide the government with a clear blueprint for legislative reform. Decisive action is needed to fix this broken system and put consumers first. Our key recommendations are crucial reforms designed to ensure consumers can resolve problems with businesses efficiently: 

1. A single ombudsman for key sectors: The government should work towards primary legislation to establish a single ombudsman in high-complaint areas like aviation, home improvements, and used car sales. This would end the confusion for consumers over which scheme applies, ensure consistency, and provide a single, trusted place for consumers to turn for help.
2. Ensure effective oversight: The government should establish criteria for selecting effective competent authorities for high-detriment markets in the forthcoming secondary legislation for the DMCC Act and primary legislation where relevant. These bodies must be empowered to approve ADR providers, set performance standards, and ensure schemes operate fairly and transparently.
3. Make it mandatory: The government should introduce legislation to make ADR participation mandatory for businesses in high-detriment sectors. If this cannot be established by the forthcoming secondary legislation in the DMCC Act, then new primary legislation should be established. Justice shouldn't be optional, and this would guarantee consumers access to fair dispute resolution when they need most.
4. Guarantee it's free and fast: No one should be priced out of redress. The government should use the forthcoming secondary legislation for the DMCC Act to ensure ADR is free for consumers and to require all schemes to meet clear, enforceable timeframes for resolving cases.
5. Give it teeth: ADR decisions must be binding and easily enforceable. The government should explore a broader update of the ADR framework to strengthen compliance, including mechanisms like financial penalties and public reporting for businesses that refuse to cooperate.
6. Spread the word: The government should mandate clear and consistent signposting of ADR options in the forthcoming secondary legislation for the DMCC Act. This should be supported by public awareness campaigns to ensure everyone knows their rights and where to go for help.

Strengthening ADR is also an essential way to protect consumers, ensuring a level playing field, and building a fairer market for everyone. By implementing these reforms, we can help to restore trust, reduce the immense stress and financial harm caused by unresolved disputes, and create a system where consumers' concerns can be effectively addressed.