Digital Markets, Competition and Consumers Bill: Significant consumer law reforms

The Digital Markets, Competition and Consumers Bill (the Bill)¹ was introduced into Parliament this week and is expected to enter into force in 2024.  

According to the Government’s press release², the new legislation is intended to “ensure businesses and consumers are protected from rip-offs and can reap the full benefits of the digital economy with confidence”.  In order to achieve this, the Bill will (inter alia):

1. Strengthen the CMA’s powers to investigate and directly enforce consumer protection law, including a new power to impose penalties on businesses of up to 10 per cent of global turnover.
2. Update and enhance consumer rights in a number of areas including subscription traps, fake online reviews and prepayments.
3. Underpin and provide statutory powers for the Competition and Market’s Authority (CMA)’s Digital Markets Unit (DMU) which will oversee a new regulatory regime aimed at boosting competition in digital markets.  

This briefing note focuses on the consumer-related aspects of the new Bill. 

1. Proposed consumer law enforcement changes

The first major change the Bill will introduce is strengthening the CMA’s powers to enable it directly to enforce consumer protection law.

Under the current regime, in order to enforce consumer protection law, the CMA must apply to the Court for an Order and it has no power to fine businesses directly.  The need to involve the Court generates administrative and procedural complexity and creates delay, so in practice the CMA has often defaulted to agreeing undertakings with companies under investigation.

Under the proposed new regime, the CMA will be able to enforce consumer protection legislation against businesses directly, and make infringement findings without needing to involve the Court. This will mirror the CMA’s abilities in respect of competition law enforcement and will mean that the CMA will be able to (inter alia): 

• Issue fines for breaches of consumer protection law of up to 10 per cent of global annual turnover for businesses, and up to £300,000 in the case of an individual; award redress to consumers who have suffered loss; and/or make directions to bring the infringement to an end. 
• Issue fines for failure to comply with an information request (or providing false or misleading information) of up to 1 per cent of a business’s annual global turnover or up to £30,000 for an individual, with an additional daily penalty of 5 per cent of daily global turnover (or equivalent) while non-compliance continues. 
• Issue fines for breaches of undertakings or CMA directions with the power to issue penalties of up to 5 per cent of a business’s annual global turnover and up to £150,000 for an individual, with an additional daily penalty of 5 per cent daily global turnover while non-compliance continues.

The intention of these enhanced investigative and enforcement powers is that the CMA will be able to conduct faster and more flexible consumer law investigations, with the aim of identifying and stopping unlawful consumer law breaches more quickly and effectively. 

2. Proposed consumer rights changes

Additionally, the Bill updates a number of aspects of consumer protection legislation, to ensure it remains keeps apace with evolving consumer markets.  The legislation will apply where a trader has a place of business in the UK or carries on business in the UK, or undertakes certain practices whilst carrying on activities that are directed to consumers in the UK.  The main areas covered by the Bill are:

• Subscription traps: these are a key focus of the Bill, as they are estimated to cost UK consumers £1.6 billion a year.  The Bill focuses on tackling contracts containing:
  • Automatic renewal provisions which have the potential to lock-in consumers indefinitely - the Bill provides that businesses must issue a reminder to consumers that a free trial or low-cost introductory offer is coming to an end.
  • Lengthy roll-over periods (e.g. one year) – again, the Bill provides that business must issue a reminder before a contract auto-renews onto a new term.
  • Unclear information buried in lengthy terms and conditions - the Bill provides that clearer information must be provided to consumers before they enter a subscription contract and that consumers must be able to exit a contract in a straightforward, cost-effective and timely way.
• Fake reviews online (i.e. those that do not reflect an actual consumer's genuine experience of a good or service, or deliberately mislead consumers to benefit the business by being commissioned or incentivised). The Bill does not expressly mention fake reviews, but it is thought delegated powers will be used to include fake reviews in the list of commercial practices which in all circumstances are considered unfair as set out in Schedule 18 of the Bill. The expectation is that it will become unlawful for businesses to pay someone to write or host a fake review for a product or service, and that sites hosting consumer reviews will need to take reasonable steps to check they are genuine. Other examples of commercial practices which in all circumstances are considered unfair in Schedule 18 of the Bill currently include:
  • Falsely stating that a product will only be available for a limited time in order to elicit an immediate decision and deprive consumers of sufficient opportunity or time to make an informed choice.
  • Providing materially inaccurate information about market conditions or about the availability of the product with the intention of inducing the consumer to acquire the product under conditions that are less favourable than normal market conditions.
• Payment protections: the Bill will strengthen prepayment protections for consumers, particularly those using Christmas Savings Clubs and similar savings schemes not covered by existing financial protections.  The Bill will ensure that consumer prepayment schemes marketed as a savings mechanism fully protect customer payments by way of a trust or insurance.

Comment

The Government’s intention is that the reforms in the Bill will provide strong and proportionate competition and consumer law and enforcement, which consumers and businesses need to thrive. The changes are expected to lead to increased numbers of complaints to the CMA which will in turn result in increased requests for information and investigations. The CMA’s ability directly to enforce consumer law is also likely to lead to new precedents on what UK consumer protection legislation requires of businesses.  

The CMA has pushed for these powers for some time, and, in recent years, has been keen to ensure it uses the procedural tools it has available to it.  We would therefore expect the CMA to devote resources to utilising its new powers and it will be particularly important for consumer-facing businesses to ensure that their practices and any consumer terms and conditions are compliant with the new legislation.