Consumer law update: Proposals published for stronger consumer choice and competition in the UK
Locations
Scope of the independent investigation
The report acknowledges that the UK competition regime is well regarded and that the UK authorities have taken on work in a number of high profile areas. However, it also acknowledges that international rankings put our major competition institutions behind USA, France, Germany, EU and Australia. Therefore, there is always room for improvement, particularly in light of the need to adapt to current markets conditions and challenges (including the recovery following the COVID-19 pandemic and life as an independent trading nation following the end of the Brexit transition period).
Penrose highlights that there is a need to build on initial foundations implemented by existing regulators "to give a free-trading, global post-Brexit Britain one of the best competition and consumer regimes in the world”.
The report addresses both competition and consumer proposals, including the following areas:
- Making Markets Work For People, Not The Other Way Around
- Faster, More Predictable Competition Decisions
- More Competition In Industries Burdened By Red Tape
- More Competition In Digital Industries
- More Competition In Sectors With Economic Regulators
- Levelling Up: More Competition Outside The South-East
- Sticking Up For Consumers
- Self-Denial: State Aid, Subsidies & Political Intervention
In this article, we look at the proposals addressing the need to increase consumer trust.
Key consumer concerns are raised in the report
The report states that societies that have set up their economies so that companies have to "compete to delight their customers every day are fairer, with less injustice" and that consumers "get more for their money and have a higher standard of living, if the system is on their side". Furthermore, if consumers know that they can vote with their feet and rely on the law to protect them, then they will have confidence in the system and have greater trust in what they buy and in the companies that they buy from.
One specific element of the report identifies three gaps where consumers are being ripped-off and protections need to be stronger:
1. Loyalty penalties and price discrimination
This occurs where consumers are charged different prices for the same things e.g. where loyal customers renewing their existing contracts are charged more than new customers. This is prevalent in the energy and insurance sectors, amongst others. Furthermore, the issue is exasperated by deeper data pools, enabling businesses to identify which consumers are more likely to care about higher pricing.
2. Rip-offs hidden in the small print and contract legalese
Contract legalese and long and complicated contracts allow for rip-offs to be buried away within contracts and mean that sellers know far more than buyers. This prevents consumers from making properly informed choices and is particularly concerning when consumers are making big one-off commitments like pensions, mortgages or insurance. It is also a concern in the evolving digital world, where consumers are subject to terms and conditions for other products like public wifi, privacy and data usage. The rip-offs come in different forms including no visible or comparable prices; long and complicated small print that consumers do not have time to read or which are difficult to understand; and a "take it or leave it " approach, which restricts the consumer's opportunity to modify terms.
3. ‘Nudging’ people the wrong way (called ‘sludge’)
This involves using consumer behaviour insights to exploit consumers, rather than to help them do the right thing. Examples include: “Subscription traps”, such as free trial offers, which lure consumers into long and expensive deals that are often difficult to cancel; hiding or making opt out routes for added cost services smaller, less visible and/or located away from the ‘opt in’; creating a sense of urgency around price or availability; using defaults to influence consumer behaviour (e.g. pre-ticked checkboxes for add-ons; and displaying paid options more prominently).
Key proposals to improve consumer choice
1. Loyalty penalties and price discrimination
The report sets out the following proposals for addressing this issue:
- That a principle of parity should be introduced for new and existing customers across numerous affected sectors (e.g. energy, broadband, mobile phones, mortgages etc.) in the same vain as steps proposed by the Financial Conduct Authority (the "FCA") in the final report of its market study into the pricing of home and motor insurance[1] i.e. that the same prices are offered to existing customers as if they were a new customer buying through the same sales channel; and
- That the Competition & Markets Authority ("CMA") should update its guidelines to keep up with changing attitudes to what society views as 'fair' and so that businesses, charities and public bodies can identify what it means to treat customers in practice. This would include the idea of ‘transactional fairness’[2] i.e.
- ‘No deception’ – including passive forms of deception like hiding rip-offs in the contract small print, so people aren’t aware of key details when they sign up;
- ‘No hindrance’, so consumers can easily compare alternatives before they sign up, and so switching processes are simple and convenient too; and
- ‘Public explanation’ – the company must expect to be challenged to explain the rationale of its pricing practices, and be able to justify why they are good for their customers too.
Although this might not be the complete solution to future proofing our laws to ensure that they remain fair to consumers, it will help to maintain consumer trust in our digital economy.
2. Rip-offs hidden in the small print and contract legalese
The report identifies that the CMA and the sector regulators are already addressing these ‘information asymmetries’ where buyers know much less than sellers, in a number of ways including the use of expert advisors (e.g. lawyers, insurance brokers and digital comparison tools); key terms & conditions; and minimum contract terms and standards.
However, the report also suggests the following further actions that the CMA and the sector regulators should take:
- They should track whether digital comparison tools are continuing to grow in power and reach, to level the playing field and enabling buyers to make reliable and well-informed choices regardless of how vulnerable or short of time they are, or how complicated a particular contract may be and if not, close this knowledge and information gap.
- They should consider how to improve transparency of the prices paid by consumers, so consumers can make informed choices about whether each one represents good value or not, and whether they wish to switch to other better providers.
- For the local digital monopolies (e.g. a single available public wifi network), the CMA must consider how to introduce more competition or if this is not possible, then evaluate whether these monopoly-owners should be held to a higher standard of minimum contract terms and standards so that customers with less choice have stronger legal rights to protect them from being ripped off.
3. ‘Nudging’ people the wrong way (called ‘sludge’)
The report acknowledges that regulators are already taking action in some areas, such as banning pre-ticked boxes on e-commerce sites; rules against misleading discount claims; making it just as easy to exit a free trial period or contract as it was to sign-up in the first place etc.
New proposals suggest that the CMA should undertake a market investigation to assess how we should recognise and measure sludge in future, and identify what consumer protection rules and analytical techniques will be needed to protect consumers from it as digital technologies evolve and develop over time.
The consumer concerns raised in the report are not new issues and several are already being addressed to some extent by the CMA and sector regulators. However, it is encouraging to know that the issues have been considered in the context of the current climate in the UK and proposals have been suggested to identify gaps and improve protections for consumers to work towards building greater consumer trust.
This article was authored by Sonal Patel Oliva from our Advertising & Consumer Protection group. If you have any queries or would like any further assistance about consumer law matters, please do not hesitate to get in touch with Sonal or another member of our Advertising & Consumer Protection group.