DMCC Act: Overhaul of UK consumer law

Over a year after it was first introduced into the House of Commons, the UK Digital Markets, Competition and Consumers Act (DMCC Act) received Royal Assent on 24 May 2024, introducing widespread changes to competition law and consumer law enforcement in the UK, as well as a new regime regulating designated Big Tech companies (see our May 2024 update). In this update, we focus on the new substantive consumer law protections introduced by the Act.

Key Takeaways

• As well as implementing the Government's digital markets strategy, and introducing changes to both the UK merger control regime (see our June 2024 update), and the CMA's Competition Act 1998 and market study/investigation powers (see our June 2024 update), the DMCC Act introduced extensive reforms to UK consumer protection law. The CMA's new powers to directly enforce consumer law and impose fines of up to 10% of a company's global turnover have received the most attention.
• However, the DMCC Act also introduces new protections for consumers, in particular in relation to fake reviews, drip pricing and subscription contracts, as well as amendments to existing protections. The Act also makes it easier for the government to make further changes and introduce additional protections in the future.
• The majority of these provisions are expected to enter into force in Autumn 2024. However, the Government has indicated that the new rules for subscription contracts will not come into force before Spring 2026.

New enforcement powers for the CMA

The DMCC Act introduces significant changes to the enforcement of consumer law in the UK. Significantly, the Act enables the CMA to directly enforce consumer law through administrative proceedings. This brings the CMA's consumer law powers into line with its existing competition law powers and will mark a step change in consumer law enforcement in the UK.

The CMA will have the power to issue infringement notices (i.e. decisions) setting out why the CMA considers that investigated conduct or terms breach consumer law, impose fines (of up to 10% of the global turnover on companies and up to GBP 300,000 on individuals), as well as the ability to impose directions on businesses and award compensation to consumers. In addition, the CMA will be able to directly enforce undertakings given by companies and fine companies which breach undertakings accepted, or directions imposed, by the CMA.

The CMA will also be able extend the scope of infringement notices (including the obligation to pay any fine or provide redress) to other members of the company's group where it considers it is "just, reasonable and proportionate" to do so. This could enable the CMA to extend the scope of notices to include companies that become members of the group after the infringement notice has been issued, potentially extending liability to a purchaser of a company found to have breached consumer law.

Infringement notices, penalties and directions will be subject to an appeal "on the merits" to the High Court.

Under the DMCC Act, only the CMA is empowered to directly enforce consumer law (and impose penalties). However, other consumer law regulators (such as Trading Standards and the Financial Conduct Authority) will be able to apply to the court to impose financial penalties, including fines of up to 10% of a company's global turnover.

Now that the Act has received Royal Assent, the CMA will need to issue rules and guidance on how it will apply its new powers. We expect the process for consumer law investigations to broadly mirror the current procedures for competition law investigations, although there are likely to be a number of important differences. Once the CMA has released its draft guidance for consultation, we will provide an update on how a consumer law investigation will operate and what companies should expect from a CMA direct enforcement investigation.

Restating the CPRs in primary legislation

The key substantive change introduced by the DMCC Act is that the rules in relation to unfair commercial practices (currently set out in the Consumer Protection from Unfair Trading Regulations (CPRs)) will be restated in primary legislation, with the CPRs being revoked. The majority of the provisions and protections are unchanged but there are some noteworthy amendments to the core protections, including:

• expanding the definition of the characteristics to be taken into account in considering vulnerable persons when assessing the “average consumer”. In particular, the Act recognises that vulnerability can be context dependent, meaning that vulnerability may be caused by the circumstances faced by consumers (for example, being in mourning, going through a divorce or losing a job), in addition to factors such as their age, physical or mental health, or their credulity;
• the addition of specific new protections against the omission of material information from an invitation to purchase. Relevant categories of information include: (i) the main characteristics of the product; (ii) the price; (iii) the identity and contact details of the trader; (iv) any freight, delivery or postal charges; and (v) the existence of rights of withdrawal or cancellation. Although in most cases, this would previously have been caught as a misleading omission under the CPRs, adding a specific protection to the list is likely to strengthen enforcement in this area, particularly in conjunction with the new provisions to prohibit mandatory dripped fees (explained below); and
• amendments to certain banned practices set out in Schedule 20 of the DMCC Act. For example, the CPRs prohibit falsely stating that a product will only be available, or only available on particular terms, for a “very limited time”. Under the Act, the scope of this prohibition has been extended to cover false statements about a product being available for a “limited time”.

Importantly, the DMCC Act will also give the Government the delegated power to add (by secondary legislation) additional practices to the list of “banned commercial practices” (that is, practices that are considered unfair in all circumstances, such that a regulator does not need to prove that consumer behaviour was affected). This delegated power will enable the Government to expand the scope of consumer law protections, with these new protections being subject to direct enforcement by the CMA, and potentially significant fines.

During the Parliamentary process, a number of amendments were proposed (and ultimately rejected) which may provide an indication of protections that future governments may consider. Areas to watch include greenwashing (in particular as the EU has recently passed specific new protections relating to greenwashing practices) and potential obligations on online marketplaces to ensure products purchased from them meet applicable product safety laws.

Fake Reviews

The prevalence of fake reviews and the potential for such reviews to distort consumer purchasing decisions has been an area of focus for a number of years. The DMCC Act strengthens enforcement tools in this area by adding specific banned unfair commercial practices covering:

• 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, or
• publishing or providing access to reviews of products and/or traders without taking reasonable and proportionate steps to: (i) remove, and prevent consumers from encountering, fake reviews and (ii) 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.

The new provisions therefore place specific obligations on traders (including online platforms) which publish or provide access to reviews to ensure that they have taken reasonable and proportionate steps to ensure that those reviews are genuine. The Government, working with the CMA, has committed to consult on and publish guidance on what these “reasonable and proportionate steps” may require.

Unusually, the Government has excluded the new unfair commercial practices relating to fake reviews from the scope of the criminal enforcement regime, so they will only be subject to civil enforcement, likely reflecting the inherent uncertainty in the scope of the new obligations. However, they will be subject to the CMA's new direct enforcement powers, including the ability to impose significant fines.

The Government has also emphasised that the rules are unlikely to result in traders being subject to enforcement action on the basis that they publish a single fake review. Rather, the obligation on traders will be to ensure that the impact of fake reviews does not cause consumers to be misled about the nature of other consumers’ experiences with a trader or particular product.

The guidance on the steps which traders must take to ensure compliance will be important in assisting traders, in particular e-commerce platforms and marketplaces, to review their processes and ensure that they are compliant with these new provisions.

The CMA has already taken enforcement action in relation to fake and misleading reviews using its existing powers to enforce the current consumer protections. In particular, it has previously accepted undertakings from Meta and eBay, and is still investigating Amazon and Google. The new provisions, and in particular the obligations they impose on online marketplaces, suggest that the CMA will be looking to take further enforcement action in this area.

Drip Pricing

As noted above, the DMCC Act includes a new unfair commercial practice in relation to the omission of material information from invitations to purchase, including as regards the price of the product. Following amendments approved during the Parliamentary review, the Act will also require the invitation to purchase to set out either:

• the “total price” of the product (including any fees, taxes, charges or other payments that the consumer will necessarily incur if the consumer purchases the product); or
• if, owing to the nature of the product, the whole or any part of the total price cannot reasonably be calculated in advance, how the price (or that part of it) will be calculated. The amendments require that the information provided in these circumstances must enable the consumer to calculate the total price, and be set out prominently.

As regards optional dripped fees, the Government has stated that it will give further consideration to whether additional regulation may be needed. There is likely to be particular focus on notionally optional fees which are in practice mandatory for certain categories of consumers.

Drip pricing and the potential consumer harm it causes is already on the CMA's radar; it has been a feature of the CMA's existing work in relation to hotel bookings and car rentals and is one of the 21 practices assessed by the CMA in its Online Choice Architecture paper. The new provisions (and the CMA's new powers) will make enforcement action against drip pricing practices significantly easier, in particular by removing the need to prove that the practice affected the consumer's transactional decision, and it is likely to be one of the key focus areas for the CMA's enforcement work in the coming years.

Subscription Contracts

Whilst the provisions in relation to fake reviews and drip pricing were fairly late additions to the Bill as part of the Parliamentary process, new rules seeking to strengthen consumer protection against subscription traps were included in the draft Bill from the outset.

The subscription contract provisions in the Act apply to contracts for goods, services or digital content (both entered into online and in person) which renew automatically for a fixed or indefinite period, and under which consumers automatically incur liability for the continuing supply until they terminate the contract. The Act specifies a fairly broad list of excluded contracts, including utilities, insurance and financial services, contracts regulated by Ofcom under the Communications Act 2003, residential leases and childcare.

For contracts that are in scope, the new regime imposes a number of requirements on businesses, including in relation to:

The provision of pre-contract information. Schedule 23 specifies the pre-contract information that a trader must make available to a consumer when entering into a contract. This includes: (i) notification that the contract (and the consumer's liabilities) will continue (indefinitely or for a fixed term) until the consumer takes steps to terminate; (ii) any minimum period before the consumer can terminate the contract; (iii) whether future payments may be at a higher rate than the original price (and when these will be payable); (iv) the minimum total amount the consumer will be liable for; and (v) the steps that the consumer must take to terminate the contract.

Cooling-off periods. The DMCC Act provides a 14 day "cooling-off" period both in relation to the initial subscription and, in subscriptions offering an initial concessionary period or which commit a consumer for more than a 12 month period, subsequent renewals. Traders will be required to provide a cooling-off notice for each renewal cooling-off period.

Reminder notices. The DMCC Act will require traders to provide reminder notices prior to renewal payments being taken. Where a contract does not include an initial concessionary period, traders will need to provide reminder notices every six months. If there is an initial concessionary period, the notice must be provided before that period ends and then every six months. In each case, notices must be provided with enough time to allow the consumer to decide whether to end the subscription contract before incurring further costs. The Act also specifies the minimum content of any reminder notice.

Cancellations. Traders will be required to ensure that customers can cancel subscription contracts in a "straightforward" way and without needing to take "any steps that are not reasonably necessary". For contracts entered into online, this must include the option to cancel the contract online and instructions on how to do so must be clearly displayed. Traders must acknowledge cancellation through an "end of contract" notice.

These new requirements will be implied terms in contracts, giving the consumer the right to cancel (without penalty) if a trader breaches the requirements.

Given the complexity and wide ranging nature of the new requirements, the Government confirmed in Parliament that the new measures would not enter into force before Spring 2026. The new rules are likely to require affected businesses to assess their customer flows, service and renewal processes, to ensure that these will be compliant. The subscription contract regime will be covered by the CMA's new direct enforcement powers.

Comment

The CMA's new enforcement powers are long-awaited and are expected to lead to more frequent and higher profile enforcement of consumer protection law in the UK, as well as potentially significant consequences for businesses that fall foul of the rules. Whilst the substantive consumer protections remain largely unchanged, the new rules introduced by the DMCC Act will impose significant obligations on traders, and also indicate likely targets for enforcement.

Companies should begin reviewing their commercial practices and assessing their compliance with the new rules, to ensure that the risk of enforcement action is minimised. At the same time, the scope for additional new rules to be added through secondary legislation means that companies will need to continue to follow policy and legislative developments closely.