In this article, we focus on the consumer protection aspects: key proposals to strengthen consumer rights and new powers for the Competition & Markets Authority ("CMA") to enforce consumer laws.
The evolution of the online marketplace has been a primary catalyst for the proposed consumer reforms. It has been 15 years since the Consumer Protection from Unfair Trading Regulations 2008 (S.I. 2008/1277) ("CPRs") came in to effect. During that time, the consumer landscape has developed significantly, particularly the online retail environment. Access to information and purchases of goods and services via websites, apps, social media, gaming and the metaverse has transformed the way in which consumers shop. However, it has also exposed consumers to a wider range of unfair commercial practices. For example, the influence of fake online reviews encouraging the purchase of low quality goods; problems with subscription traps, including unclear terms and complex exit provisions; and consumers at risk of losing money invested in unregulated savings schemes (such as Christmas savings clubs and other similar schemes).
So what does the introduction of the DMCC Bill do to help curb these issues?
1. Replacement of existing legislation
The DMCC Bill will replace the CPRs, the existing legislation, which protects consumers from unfair, aggressive and misleading commercial practices. The intention is to retain these rights from retained EU law in the new DMCC Bill and to update the provisions to meet UK needs. One of the key changes relates to the list of 31 commercial practices, which are in all circumstances considered unfair. Since the publication of the CPRs, this list has remained unchanged. However, under the proposals in the DMCC Bill, it will be possible to revise this list through secondary legislation to reflect new business practices and consumer harms. This might include expanding or clarifying current prohibitions, but also the possibility of removing existing prohibitions and introducing new prohibitions.
2. Fake reviews
Reviews are prevalent across online shopping channels and have been become a common feature when consumers are searching for products and services. However, the existence of fake reviews distorts the customer experience and can influence purchases of low quality goods under false pretences. As such, the Government intends to rely on the ability to update the list of 31 banned commercial practices to introduce new prohibitions in respect of fake reviews:
- commissioning someone to write or submit a fake review;
- posting consumer reviews without taking reasonable steps to check they are genuine; and
- offering or advertising to submit, commission or facilitate fake reviews.
When these banned practices come into force businesses will need to ensure that they are more vigilant in their use and verification of reviews. However, depending on the volume of reviews that businesses rely on, it might be prudent to start putting such procedures into place now in anticipation of the changes.
Subscription services have become a prominent feature of consumer life: e-commerce subscriptions (e.g. Amazon); mobile phone contracts; TV and streaming services (e.g. Netflix, Apple etc.); music and book services (Spotify, Audible etc.); dating apps; gym and sports memberships; magazine subscriptions and curated subscription boxes (HelloFresh, Glossybox etc.).
However, not all subscription services have clear and transparent terms and commercial practices. Therefore, the DMCC Bill also addresses the issue of subscription traps and other unfair subscription practices, by introducing specific new consumer rights. Businesses will need to:
- simplify cancellation methods and rights by allowing for exit via a single communication and eliminating any unnecessary steps;
- provide clear prescribed pre-contract information including in relation to price, cancellation rights and renewals;
- allow for a 14 day cooling-off period at the commencement of the contract and following expiry of a free trial or at auto-renewal (if the renewal period is for a year or more); and
- send clear reminders and information on exiting the contract when free trials and introductory offers are coming to an end and in respect of auto-renewals.
Although this will place a greater administrative burden on businesses, the proposals are reasonable and should facilitate a smoother relationship with consumers. It will also ensure that businesses who already operate in a fair manner are not tarnished with the same brush as operators who are not as transparent and fair in their subscription practices.
4. Consumer savings schemes
Christmas savings clubs and other similar schemes allow consumers to put aside savings on a regular basis over a period of time. However, many of the schemes are unregulated and consumers' contributions are not protected in the same way as bank accounts. Therefore, when such schemes become insolvent, consumers are at risk of losing the payments that they have made up to that date, without knowing how much (if any) they can recover.
In efforts to protect consumers from the risk of losing money invested in unregulated consumer savings schemes, the DMCC Bill imposes the following requirements on businesses operating unregulated consumer savings schemes:
- to protect payments via a trust arrangement or insurance. Such payments must be protected in full in the event of insolvency of the business; and
- to provide prescribed information to consumers about such protections.
These proposals aims are to protect consumer money and to increase consumer confidence.
5. The CMA's new powers
One of the most significant changes introduced by the DMCC Bill relates to the shift in enforcing consumer laws. Under the current regime, although the CMA has investigatory powers (including the ability to issue directions and seek undertakings from businesses), the CMA must rely on lengthy court proceedings in order to enforce breaches of consumer law.
Under the proposed reforms, such rights and the court based regime will be retained. However, the DMCC Bill will also confer new powers on the CMA to directly enforce suspected infringements of consumer law itself, without the need for court proceedings. The CMA will be able to: issue of infringement notices; make directions; require businesses to implement enhanced consumer measures and make compensation payments to consumers; seek undertakings of compliance; and impose financial penalties.
In addition to this, in relation to websites, applications or other digital content promoting goods, services or digital content, the CMA will also have the power to issue an online interface notice requiring respondents to do one or more of the following: remove or modify content; disable or restrict access; display a warning to consumers accessing an online interface; and/or delete a fully qualified domain name and take any steps necessary to facilitate the registration of that domain name by the CMA.
These new powers of enforcement will cover consumer rights contained in the DMCC Bill and other core consumer protection legislation as detailed in Schedule 14 of the DMCC Bill (e.g. Consumer Rights Act 2015, Sale of Goods Act 1979, Unfair Contract Terms Act 1977, Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 etc.).
The proposed reforms will allow the CMA to investigate and impose sanctions in a much more efficient manner and in turn take on a larger number of cases.
6. Financial penalties for breach
As mentioned in point 5 above, the CMA will have the ability to impose significant financial penalties on businesses breaching consumer laws:
- Breaching consumer protection laws: up to £300,000, or 10% of annual global turnover, whichever is higher;
- Breaching undertakings given to the CMA: up to £150,000 or 5% of annual global turnover, whichever is higher. An additional daily penalty of up to £15,000 or 5% of daily global turnover, whichever is higher, while non-compliance continues.
- Non-compliance with an information notice: Up to £30,000 or 1% of annual global turnover, whichever is higher. An additional daily penalty of up to £15,000 or 5% of daily global turnover, whichever is higher, while non-compliance continues.
- Provision of information to the CMA that is materially false or misleading: Up to £30,000 or 1% of annual global turnover, whichever is higher.
- Failure to comply with enforcement directions: Up to £150,000 or 5% of annual global turnover, whichever is higher. An additional daily penalty of up to £15,000 or 5% of daily global turnover, whichever is higher, while non-compliance continues.
The courts will have the same rights to impose financial penalties under the court regime in respect of breaches of consumer laws, undertakings given to the courts and enforcement officers, and information notices.
The introduction of such prescriptive financial penalties will act as greater deterrents for non-compliance.
Overall, the proposed reforms provide obvious benefits to consumers, including greater protections, quicker dispute resolution, the possibility of compensation payments and greater deterrents against unscrupulous business practices. However, they also provide compliant businesses with certain safeguards and protections, including a more level playing field and greater sanctions for non-compliant competitors, greater consumer confidence and trust and the ability to resolve disputes directly with the CMA, without the burden of court proceedings.
Businesses acting in compliance with consumer laws, will not need to take any active steps. They should simply take note of the proposed reforms and be aware of the enhanced protections available to consumers. However, businesses who may be impacted by the proposed reforms should to think about how they might need to revise their commercial practices, procedures and communications with consumers.
The DMCC is currently on its second reading in the House of Commons and is expected to come into force some time in 2024.
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 advertising and consumer law matters, please do not hesitate to get in touch with Sonal or another member of our Advertising & Consumer Protection group.
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