The Digital Markets, Competition and Consumers Act receives Royal Assent! What can we expect to see in consumer law changes?
The Digital Markets, Competition and Consumers Act (the “DMCC”) finally received Royal Assent on the 24 May 2024 following its introduction into Parliament on 25 April 2023 and much debate in both the Commons and the Lords. With broad political support it was passed as part of the "wash up" process following the surprise snap election news.
The DMCC introduces significant changes to consumer law which will strengthen consumer rights and significantly enhance enforcement of consumer protection law. Particularly noteworthy are the powers granted to the Competition and Markets Authority (“CMA”) to directly enforce consumer protection law, thereby bypassing the need for court proceedings and to impose significant fines.
The DMCC also repeals the Consumer Protection from Unfair Trading Regulations 2008 and reinstates them with a few (but notable) changes including those aimed at the practices of fake reviews and drip pricing.
We set out below the key changes that consumer-facing traders will need to consider before the provisions of the DMCC come into force.
CMA enforcement powers
The DMCC empowers the CMA to directly enforce breaches of consumer legislation. The CMA’s new powers include the ability to investigate suspected infringements, serve infringement notices, impose significant penalties, and give online interface notices to both the infringer and third parties as a last resort to prevent serious harm.
Crucially, the CMA has the authority to impose financial penalties up to 10% of a company's global turnover or £300,000 (whichever is the greater).
Subscription Contracts
The DMCC addresses the issue of subscription traps (estimated by the government to cost £1.6 billion a year), with provisions intended to make it easier for consumers to opt out of subscriptions. In summary, the DMCC:
- imposes new duties on traders both prior to entering and during a subscription contract;
- entitles consumers to terminate without fee or penalty if traders do not comply with the above duties; and
- provides rights for consumers to cancel subscription contracts during cooling-off periods.
The DMCC lists out certain types of subscription-like contracts to which the DMCC does not apply (even though they may meet the definition of a subscription contract) – this list of excluded contracts is fairly broad and includes utilities, financial services and insurance, childcare and contracts regulated by Ofcom. The DMCC expressly provides for this list of excluded contracts to be updated from time to time. It should be remembered that if the DMCC does not apply the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 will continue to apply.
New duties on traders prior to and during a subscription contract
Pre-contract information: The DMCC requires traders to provide certain pre-contract information to the consumer before they enter into a subscription contract, for example notifying consumers that their subscription will accrue charges unless the consumer terminates, and, where the consumer has signed up to an initial free/discounted period, notifying them when such concessionary period ends and what the revised subscription fee will be thereafter.
Traders must also ensure that ‘key information’ is provided prominently and separately from the rest of the pre-contract information.
Renewal reminders: Traders must also send auto-renewal reminders to consumers at specified intervals (such intervals depending on how frequently renewal payments are due under the relevant contract) and before the concessionary period rolls into a more expensive subscription.
Facilitating termination rights for consumers: Consumers must be able to end a subscription contract in a straightforward way. Moreover, rather than having to follow a trader’s termination arrangements (for example completing and returning a model termination clause), consumers will now be able to terminate by making a clear statement setting out their decision to bring the contract to an end.
Consumer termination rights during cooling-off periods
Consumers have a 14-day cooling off right to cancel subscription contracts, commencing on the day after they receive their first delivery of goods or sign a contract for the provision of digital content or services. Consumers also have a right to cancel for 14 days after the expiry of a concessionary period and any renewal which commits the consumer to a further period of 12 months or more.
At the beginning of each cooling off period, traders must send consumers a "cooling off notice" setting out, amongst other things, the duration of the cooling off period and the consumer’s right to cancel, how the consumer can exercise their right to cancel, and the consequences of their doing so.
When consumers cancel for breach or pursuant to their cooling off rights or if they terminate under their contractual rights, the trader must give them an "end of contract notice", acknowledging that the subscription contract has been cancelled or terminated. At this point, the trader must also refund any overpayments received to the consumer.
Drip Pricing
Drip pricing refers to the unscrupulous practice of traders luring consumers with deceptively low headline rates, only for additional fees to be ‘dripped’ at checkout, which increases the final price paid by the consumer.
The government indicated that every year unavoidable fees cost consumers £2.2 billion, which is why these laws are being designed to ensure online shoppers have a clear idea of what they are spending upfront, to inform them as much as possible and as soon as possible before making purchases.'
The DMCC tackles this by prohibiting traders from presenting a headline price (an invitation to purchase) that does not include fixed mandatory fees (such as booking fees and VAT) that must be paid by all consumers. Moreover, where variable mandatory fees apply, these must be clearly disclosed alongside the headline price, including how they will be calculated.
This ban will be easier for the CMA to enforce as it will no longer need to prove that the omission of material information affected the consumer’s transactional decision. Any failure to properly present material information will now automatically be considered a misleading omission.
Fake Reviews
In 2022, UK consumers spent £224 billion in online retail markets, with research showing that 9 out of 10 UK consumers consult reviews. The government acknowledges that as online shopping increases, the influence of these reviews on purchasing decisions is becoming increasingly critical.
Accordingly, the DMCC prohibits the following commercial practices relating to fake reviews (which it deems unfair), to ensure that reviews reflect genuine consumer experience:
- submitting a fake review, or commissioning or incentivising any person to write and/or submit a fake review of products or traders;
- offering or advertising to submit, commission or facilitate a fake review;
- misrepresenting reviews, or publishing or providing access to reviews of products and/or traders without taking reasonable and proportionate steps to:
- remove and prevent consumers from encountering fake reviews; and
- prevent any other information presented on the platform that is determined or influenced by reviews from being false or in any way capable of misleading consumers.
Whilst it will be essential for traders to understand what the law means with regards to taking ‘reasonable proportionate steps’ to ensure compliance and mitigate the risk of civil liability, the CMA has not yet issued guidance to provide clarity on this.
Nevertheless, the Government's response to consultations on this topic, issued in January 2024, indicated that stakeholders expressed approval of the proposed actions that traders should undertake. These included having:
- proactive detection processes in place to identify suspicious reviews;
- procedures for removing and preventing consumers from encountering fake reviews;
- sanctions for users and traders in response to fake reviews;
- processes for assessing the risk that fake reviews will appear on their websites;
- a reporting mechanism that allows people to report suspicious activity; and
- regular evaluations of the effectiveness of these systems.
The key takeaways:
- CMA enforcement powers – hefty fines may follow for non-compliance;
- Subscription Contracts – traders must comply with enhanced information disclosure obligations and customers must have the right to easily terminate;
- Drip Pricing – traders must be clear about the total cost at the outset; and
- Fake Reviews – traders must take reasonable and proportionate steps to prevent this.
Final thoughts
Although the DMCC has received Royal Assent, it has not been confirmed when the DMCC will come into force. However, prior government indications are that the majority of the DMCC will come into force in Autumn 2024, with the provisions relating to subscription contracts to follow (and not before Spring 2026).
The CMA will be publishing guidance and rules to assist traders in preparing for the new legislative changes. How bold the CMA will be in wielding its new enforcement powers remains to be seen, but traders will not want to be the first to receive an eye-watering fine. It is therefore important for traders to review their practices and contracts to comply with existing consumer protection law and the additional reforms within the DMCC.
