Changes to consumer law

Background

The Digital Markets, Competition and Consumers Act 2024 (“DMCC”) was passed by Parliament on 24 May 2024. This significant piece of legislation grants new and expanded powers to the Competition and Markets Authority (“CMA”) in respect of digital markets, competition and consumer protection.

The scope and implications of the DMCC are wide-ranging and originate from a previous consultation on changes to the UK competition and consumer protection regimes.  

While the changes are not yet in force, businesses should be aware of them at an early stage so that they can properly prepare and comply. 

This update focuses on Consumer Protection Reforms.

For overview of the expansion of the CMA's investigation and enforcement powers in relation to competition issues, please read our article on changes to competition law.

Consumer Protection Reforms

Enforcement powers

Prior to the DMCC, the CMA did not have the power to order non-compliant businesses to stop illegal practices under consumer protection legislation. The CMA had to secure a court order for compliance and, even if the CMA was successful at trial, the court had no power to impose fines.

The DMCC seeks to remedy these circumstances by granting the CMA the authority to take direct enforcement action against businesses that have breached relevant consumer protection legislation without recourse to the courts. The CMA will therefore now be able to decide for itself whether consumer protection laws have been broken, give directions and impose fines, mirroring the CMA's competition powers. Any appeal of the CMA's decisions will be considered by the High Court.

The CMA's jurisdiction covers a broad range of enactments and obligations, including:

• the Consumer Credit Act 1974;
• certain parts of the Consumer Rights Act 2015, including those concerning unfair contract terms; and
• certain parts of the DMCC, including: (i) Chapter 1 of Part 4, which migrates (with some minor amendments) the Consumer Protection from Unfair Trading Regulations 2008 and adds new rules on fake reviews and "drip pricing"; and (ii) Chapter 2 of Part 4, which creates new rules on subscription contracts, which are further explored below.

Unfair commercial practices

Part 4 of the DMCC migrates, with some minor amendments, the Consumer Protection from Unfair Trading Regulations 2008. This includes certain commercial practices that are considered unfair, namely:

• Drip pricing and hidden fees: The DMCC expands the existing prohibition against the omission of material information from an invitation to treat (for example, an advert or a product listing) to combat drip pricing (where a consumer is shown an initial price and unavoidable additional fees are added at a later stage in the transaction). The new rules require invitations to treat to state the total price (including any fees, taxes and charges) as well as any variable mandatory fees and how these would be calculated. 
• Fake reviews: This is a new prohibition introduced by the DMCC and looks at submitting or commissioning fake reviews as well as publishing reviews without taking reasonable and proportionate steps to prevent their publication. This last requirement is more onerous than the EU law position, which requires reasonable and proportionate steps to verify the origin of reviews only if the trader holds them out as having been submitted by real consumers of the product.

New regime for subscription contracts

The DMCC also introduces a new regime for subscription contracts (contracts which automatically renew for an indefinite or fixed period). The reform imposes a number of requirements on businesses including:

• Pre-contract information: Making available specific information to ensure consumers comprehend the nature of the contract, including how the business might change its prices, how to terminate the subscription and how much notice is required for termination.
• Cooling-off period: Giving consumers the right to cancel the subscription and obtain a refund during an initial 14-day period for any reason and without any penalty.
• Reminders: Providing reminders as to renewal and the right to terminate before the end of a free trial or discount period and at certain intervals thereafter.
• Termination rights: Enabling consumers to easily end a contract by giving a clear statement of their intention to terminate.

Consequences of non-compliance

Where consumer protection law is breached, the CMA can now impose a significant maximum penalty of 10% of the business's global annual turnover or £300,000 (whichever is higher).

Where a business has given undertakings to the CMA, the CMA can impose a penalty of up to 5% of the business's global annual turnover or £150,000 (whichever is higher) for breach of the undertaking.

The CMA can also issue fines of up to 1% of a business's global annual turnover or £30,000 (whichever is higher) for providing materially false or misleading information to the CMA in the course of an investigation or failing to respond to an information notice.

The CMA can impose an additional daily penalty for continued non-compliance.

In addition to fines that may be levied on companies, the CMA can also fine individuals up to £30,000.

Other enforcement powers granted to the CMA include:

• Enhanced consumer measures which may include redress measures such as offering consumers compensation or the option to terminate the contract early.
• Online interface notice which could require a company to modify its online interface to achieve compliance or display a warning to consumers, or even restrict access to a non-compliant interface.

Impact on businesses

Businesses are best advised to review the detail of the DMCC and carefully assess the application of the legislation to all parts of their business.

Online sellers and platforms should, in particular, ensure that their adverts and product listings are transparent regarding the actual costs of the product to the consumer and that they have put in place suitable measures to prevent fake reviews.