Changes to Consumer Subscription Contracts
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On 25 April 2023, the Government published the Digital Markets, Competition and Consumers Bill (the "Bill"). The Bill is currently in the committee stage in the House of Commons and is expected to come into force in 2024.
The Bill has been introduced by the Government to "stamp out unfair practices and promote competition in digital markets", and sets out new regulation for the digital sector, changes to existing consumer and competition regulation, and gives the Competitions and Markets Authority ("CMA") additional powers and flexibility to carry out faster and more robust investigations.
The digital markets regime will be overseen by the Digital Markets Unit (the "DMU"), which is a statutory body that sits within the CMA.
Changes to consumer subscription contracts and savings schemes
The Consumer Contracts (Information Cancellation and Additional Charges) Regulations 2013 will be amended to remove its application to subscription and consumer saving scheme contracts.
Under the Bill, businesses using consumer subscription contracts will need to:
- provide consumers with clearer pre-contractual information;
- obtain express acknowledgment from consumers that the contract imposes an obligation to make payments if signed up online;
- honour consumers' 14-day right to cancel on initial sign up, first renewal following an introductory period, and on renewal of an annual (or longer) contract;
- provide consumers with a reminder that the free / reduced cost trial is coming to an end, and again before the contract auto-renews;
- ensure consumers can easily exit contracts without any unnecessary steps (ideally in one click); and
- provide an end of contract notice to consumers who have cancelled.
Whilst the Bill largely builds upon existing requirements for subscription contracts, the renewal cooling off period and the reminder notices are new additions. The Government decided not to take the proposal one-step further, and didn't make active opt-in for auto renewal of subscription contracts a legal requirement.
Certain subscription contracts will fall outside of the Bill; these are typically those already subject to specific sector regulation, such as utility contracts and contracts with healthcare professionals. Businesses using consumer saving schemes will also be required to hold consumer monies in a trust protected by an insurance policy.
Protection from unfair trading
The Bill will also replace the Consumer Protection from Unfair Trading Regulations 2008. Under the Bill, a commercial practice will be unfair if it is likely to cause an average consumer to make a transactional decision it otherwise would not have taken due to a misleading action or omission, an aggressive practice, or breach of the requirements of professional diligence.
In addition to the ban on unfair practices, under the Bill, the Government can update the list through secondary legislation.
Strategic market status
The CMA has the power to designate companies as having a strategic market status ("SMS") in regards to 'digital activity'. Companies that are designated as having SMS status will have to adhere to additional interventions, including requirements relating to conduct.
The Bill contains a list of permitted types of conduct and allows the CMA to impose bespoke conduct requirements on individual companies with SMS status. Under the Bill, the CMA must keep conduct requirements under review and consider whether any requirements need to be imposed, varied or revoked. The CMA can also issue pro-competition interventions, which can include structural and behavioural requirements equivalent to those found under the Enterprise Act 2002.
Initially, it is expected there will only be a small number of companies with SMS status, nevertheless this is likely to impact commercial relationships between smaller companies and those with SMS status.
New powers for the CMA
The CMA will also have a new express power to investigate potential breaches and decide if an information notice has been complied with. The Bill will allow the CMA to directly enforce consumer protection laws, rather than pursuing individual cases in court. The CMA will also have the right to impose fines of up to 10% of global annual turnover for breaches of UK consumer law.
Next steps
Businesses using subscription contracts or savings schemes should review their current terms and consider whether these need to be revised to be compliant under the new rules. Changes may be required to systems and processes to give the required auto-renewal reminders, and ensure consumer monies are held appropriately. Those designated as having SMS will of course need to take additional steps.
With thanks to Trainee Solicitor Megan Lee, co-author of this article.