'Nudge and sludge' policies for UK subscription providers take shape

The UK Competition and Markets Authority (CMA) recently announced that two leading anti-virus software companies have voluntarily offered undertakings in relation to their consumer-facing subscription practices. The move forms part of the CMA’s long-running ‘loyalty penalty’ enforcement investigations into the anti-virus and online video gaming sectors.

Accepting that auto-renewing contracts and introductory offers are legal, the announcement focusses on transparency and the ease with which customers can turn off auto-renewal and request a refund. The development has implications for companies offering subscription services in the UK, especially those that automatically renew and/or with annual or longer subscription periods.

Key emerging points for subscription providers

The key points in the announcement relate to:

• Accessibility and transparency of key terms: the CMA emphasises the accessibility and transparency of key information at multiple points throughout the customer journey. According to the announcement, customers must be ‘made aware, up front, that their contract will auto-renew, [of] the price they will be charged for the product upon automatic renewal and [of] when the money will be taken’. The CMA wants to ensure key terms are communicated clearly and prominently before the consumer takes a transactional decision.
• Cancellation mechanism: the CMA wants companies to offer a simple, straightforward and substantially automated online mechanism to turn off (disable) auto-renewal and exit the contract. This may have ramifications for other subscription companies, particularly those with less sophisticated online account and refund processes.
• Refunds: the CMA wants consumers to be able to claim a refund, in particular in scenarios where a contract may have ‘rolled over’.
• Pricing display: with introductory offers, the CMA says that companies must make the basis for any discounts/offers clear. However, the CMA has not sought to ban introductory offers per se, whereas the Financial Conduct Authority wants to prohibit the use of introductory offers and so-called ‘price walking’ for general insurance products.
• Consent to auto-renewal: although the CMA has not banned contract auto-renewals, the firms in this case voluntarily agreed to introduce a new ‘tick box’ consent mechanism by which consumers can expressly acknowledge before purchase that they are signing up to an auto-renewing product.

We would expect the CMA now to continue to apply the principles across the rest of the anti-virus and online gaming sectors and further afield, particularly in markets that use auto-renewal for long-term subscriptions.

This investigation appears to reflect the CMA’s current focus on how, in its view, some digital operators may use site and app design to affect informed consumer choice (ie through the use of ‘nudges’) and/or to make it more difficult for consumers to change their minds or exit a contract (so called ‘sludge’). The CMA is currently scrutinising default opt-ins, ambiguous ‘free’ trials, pressure selling, scarcity claims and, broadly, so-called subscription traps.

The CMA’s anti-virus investigation page suggests that the initial focus of the investigation was on the legality of auto-renewal subscriptions and introductory offers, whereas the published undertakings indicate a shift in focus to webpage design (including the font, colour and positioning of text) and automated functionalities.

Some of these points appear to be based on the CMA’s current views on best practice and are untested as principles of consumer law. Indeed, given the average UK household now has multiple subscriptions, the ‘average consumer’, as defined in law, may already be very familiar with rolling subscriptions and how to manage accounts online.

Further enforcement in this area will inevitably be tied to the CMA’s wider consumer agenda in the digital sphere. For example, the CMA recently set up a specialist taskforces (the DaTa unit) as it tries to better understand and regulate the digital sphere.

Greater CMA consumer enforcement powers on the horizon?

We are still awaiting the Government’s Consumer White Paper, which, if and when it finally arrives, should clarify whether the CMA’s consumer protection powers will be bolstered. For example, the Government could enable the CMA to impose fines directly on companies that break consumer protection law directly without the requirement to seek an order from the court. This would bring the CMA’s consumer protection powers more in line with the powers that the authority has in the competition sphere.

The Government could also change the law in order to codify certain principles that have emerged from the various ‘loyalty penalty’ sectoral investigations, as recently recommended in the Penrose Report. For example, it could add new blacklisted practices related to so-called ‘subscription traps’ to the unfair commercial practices regime.