The UK Government is readying proposals to substantially expand consumer rights in relation to subscription contracts. If passed into law, these proposals will require businesses to highlight additional information to consumers pre-contract, give consumers a choice as to whether their subscriptions automatically renew or not, send more reminders to consumers about their ongoing subscriptions, and make it easier to terminate subscriptions.
Rationale for changes to consumer law
The Government says that it recognises subscription models can be beneficial to both consumers and businesses, because they allow businesses to offer competitive prices to consumers, and operate with more predictable revenue. However, it has highlighted two issues that it believes are problematic:
Consumers are not always provided with the information they need to manage their subscriptions effectively.
Cancelling subscription contracts is not always straightforward and this acts as barrier to consumers from taking control of their payments.
In 2018, the UK Competition and Markets Authority (CMA) responded to a super complaint from Citizens Advice on the topic of the so-called "loyalty penalty". The CMA concluded that the loyalty penalty arises because some people are less likely to switch or negotiate the terms of their contracts, and businesses choose to charge them more while offering new customers lower prices. This means some people can pay much higher prices, whereas others pay lower prices, without any objective reason why. The CMA identified that these problems arise in particular in relation to automatic renewal and subscription agreements.
In 2019, the CMA launched consumer law investigations into automatic renewal practices in the Anti-Virus Software and Online Video Games markets.
These investigations are ongoing, but in the meantime, the Government has decided to consider changes to the law to extend businesses' obligations around subscriptions.
Scope of the new rules
The Government proposes to define subscription services as follows:
Subscription means a contract between a consumer and trader over a period of time for the supply of goods, a service or digital content.
This is a broad definition that is likely to encompass online memberships for wine, film, TV, digital music and audiobook streaming, as well as "offline" subscriptions such as for gyms and magazines. The only proposed carve-outs from the definition are subscriptions that are essential for consumer welfare, such as medicine subscriptions or insurance contracts.
Proposed changes to the law
The Government has proposed that there should be new requirements on businesses at three stages in the customer journey: pre-contract, at the renewal of a subscription, and when the consumer wants to exit the contract.
Pre-contract, the Government wants businesses to make consumers aware of specific aspects of their subscription, including the minimum contract length and price per billing period, whether the contract will automatically renew, and the minimum notice period for cancellation. Those will be matters that businesses have to set out prominently during the order process and immediately before an order is placed.
The Government also wants to require any business offering any automatically renewing subscription contract, to offer the consumer the choice to take the subscription without automatic renewal. The consumer must actively choose to take the contract with automatic renewal (i.e. they must not be required to, for example, de-select a pre-ticked box in order to take the contract without automatic renewal).
The Government is looking to introduce more prescriptive rules around the contents and frequency of reminder emails and notifications consumers receive about their subscriptions. This may include alerting consumers shortly before their subscription renewal, with the date of renewal, the price, and how to cancel their subscription.
In addition, the Government wants to place businesses under an obligation to cancel consumers' inactive subscriptions. The problem it has suggested it wants to tackle is consumers forgetting about their subscriptions, or when consumers die and charges continue to accrue.
Finally, the Government wishes to simplify the process for consumers to cancel their subscriptions, with the aim of ensuring it is as straightforward to cancel as it is to sign up to a subscription. In particular, it has said that cancellation processes should be automated and easy to find, require the consumer to input only the information essential to process any refund required, and involve the minimum number of clicks. Businesses may also be required ensure consumers can cancel their subscriptions through the same means by which they purchased them (i.e. a consumer who bought a subscription through a business' website, should not have to send an email or phone the business to cancel it).
Impact of the changes on businesses
Perhaps the more crucial change for many businesses will be the proposal to ensure consumers are offered a choice to take a subscription without automatic renewal. Businesses that currently offer automatically renewing subscriptions as default (unless consumers opt out) might, for the first time, have to introduce a choice of one-off fixed terms. A possibly unintended consequence could be that businesses simply make their subscription terms longer, to mitigate the risk of customers choosing the option without automatic renewal.
More widely, there may be a question of proportionality and whether all of the proposals are necessary to achieve the Government's aims. Arguably, many of the harms identified would be addressed effectively if businesses were just required to make it easier for consumers to cancel their subscriptions. For some of the proposed requirements, there may need to be careful guidance and best practice examples – for instance, what a straightforward cancellation process should look like in practice.
When will any requirements come into force?
If new requirements are introduced, we anticipate that these may take the form of adding to the blacklist of banned unfair practices under the Consumer Protection from Unfair Trading Regulations, as well as changes to the required pre-contractual information under the Consumer Contracts Regulations.
It is important to note that these are only initial proposals, which may be subject to change before they become law. The Government is still considering feedback from an initial consultation on the new rules that closed on 1 October 2021, so it will likely be a long time before any changes become law.
If you would like to discuss whether and how these proposals might affect you, please get in touch.
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