Back in March, Lord Tyrie, the Chairman of the UK Competition and Markets Authority, proposed that the CMA gain tough new powers to allow it to tackle breaches of consumer law in the same way that it deals with competition law enforcement. My colleague Chris posted about this at the time.
This week, the UK government has confirmed that it intends to legislate to grant the CMA's wish. Although these proposals will formally be put out for consultation as part of the upcoming Consumer White Paper, the fact that BEIS issued a press release on Tuesday with the title 'New powers to fine firms that exploit consumer loyalty' rather suggests that it has made up its mind to proceed.
Under the plan, the CMA could impose fines directly on traders which it considers to have breached consumer law without having to go to court. It can already fine traders up to 10% of worldwide turnover in cases where, following an investigation, it decides that an undertaking has breached competition rules. Although we won't know for sure until we see the White Paper, presumably the Government wants similar powers to apply in consumer law cases.
A power for the CMA to impose fines of that magnitude without going to court would be out of step with both the Government's own proposals in last year's Green Paper on Modernising Consumer Markets (which suggested similar levels of financial penalties for consumer law cases, but only after the CMA or Trading Standards had obtained a court order to this effect) and the EU's proposals for fines of up to 4% turnover under its New Deal for Consumers.
What is behind this new, tougher stance? The cynical might suggest various political explanations. But the wider background to the proposals - and, in particular, the CMA's recent review of the so-called 'loyalty penalty' in the mobile phone, broadband, cash savings, home insurance and mortgages markets - is also highly relevant. Since September 2018, the CMA has been looking into concerns, initially raised by Citizens Advice in a super-complaint, that consumers who stay with a particular provider can end up paying significantly more than new customers. According to the BEIS press release, other regulators, such as Ofcom and the Financial Conduct Authority, may also be given new powers to stop loyal customers being taken advantage of.
On Monday, the Rt. Hon. Greg Clark MP, the Secretary of State whose portfolio includes consumer affairs, sent a lengthy formal response to the CMA specifically on the issue of the 'loyalty penalty'. In it, he wrote that the UK Government fully supported the CMA's efforts to address the issue, and that he expected to see tougher enforcement in future. Regulators, he said, should be guided by a number of principles:
- Exit/entry equivalence: people must be able to exit a contract at least as easily as they can enter it
- Auto-renewal should generally be on an ‘opt-in’ basis upfront, and include a clear and prominent option without auto-renewal in most markets
- Exit fees should not be used after any initial minimum/fixed term
- Auto-renewal onto a fresh fixed term should not generally be used
- Customers must be sufficiently informed about the renewal and any price changes (through sufficient notifications) in good time
- Switching should generally be managed by the gaining supplier so that customers do not have to contact their existing supplier if they want to move.
He welcomed the CMA's view that 'targeted pricing interventions' (i.e., price caps) could play a role in tackling the 'loyalty penalty'. But, he wrote, new powers for the CMA to fine traders directly were also needed to address the estimated £4 billion annual cost to UK consumers.
