UK Government consults on major shake-up of competition and consumer law regimes (part 2)

Proposed reforms to consumer law and enforcement

The Government has published its long awaited consultation on a wide range of proposals to reform the UK consumer law regime.

The proposals put down a marker that the Government is prepared to act decisively to strengthen the powers of the UK Competition and Markets Authority (CMA) now that it has “taken back control” of domestic consumer protection law post-Brexit. If implemented, the proposed changes would represent the biggest shake-up of the UK consumer protection regime since the creation of the CMA itself in 2014.

The specific areas of focus are not surprising – recent CMA investigations into the social media, cloud storage, anti-virus software and gaming sectors indicate that targeting fake or misleading reviews, so-called “subscription traps”, and aspects of website architecture that 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’), have been on the CMA’s watchlist for some time.

What is perhaps most striking is the scale of the potential changes to the consumer law enforcement regime – by strengthening the CMA’s consumer law enforcement toolkit, enabling the CMA to directly impose fines on firms of up to 10 per cent of global turnover, and empowering consumers to enforce their own rights.

Many of the proposed new powers align with the recommendations from the Penrose Report published in February 2021, and would appear to address the CMA’s perceived lack of bite, including by the former Chairman of the CMA, Lord Tyrie in February 2019. If adopted, the proposals would bring the CMA’s consumer protection enforcement powers closer to those available in relation to breaches of competition law, and would result in a significantly increased concentration of power in the CMA at a time when the CMA is in the process of adapting to its new post-Brexit caseload and the challenges of a digitising economy.

This blog sets out the key consumer law reforms in the consultation. Please see our separate blog post “Proposed reforms on competition regime and powers for new Digital Markets Unit” on proposed competition reforms.

Enforcement of consumer law

The Government is proposing very wide-ranging changes to the consumer law enforcement regime – both strengthening the CMA’s consumer law enforcement toolkit and empowering consumers to enforce their own rights. The key proposals are as follows:

An administrative model for the enforcement of consumer law 

Primarily the CMA enforces consumer protection legislation by seeking statutory undertakings or by applying for an enforcement order from the Court under Part 8 of the Enterprise Act 2002. In order to do so, the CMA must show that the company against which it is seeking to take such action has breached consumer protection legislation and that this harms the collective interests of UK consumers, and that any remedies/measures are just and reasonable, and proportionate.

The Government is seeking views on reforming the CMA’s civil consumer enforcement powers to allow for enforcement through an administrative model. Under an administrative model, the CMA would be the primary decision-maker and an independent court or tribunal would play a role only on appeal. The Government is seeking views on what scope and powers of judicial scrutiny should be granted to the appeal body for use in appeals. This would mean that, as it is able to do under its separate competition law powers, the CMA would also have the power to:

• decide whether a business is, has or is likely to infringe certain consumer laws;
• if so, decide whether to direct the business to bring infringements to an end or to stop future infringements, and where appropriate, order compensation or other redress for the victims of the breach; and
• where appropriate, order the business to pay a financial penalty.

This represents a significant widening of the CMA’s existing powers to enforce consumer protection legislation. If implemented, the CMA would no longer have to show that a business has in fact breached the law – instead, it would only have to decide that an infringement is likely – and it would not have to seek an enforcement order from the Court before directing a business to take action or imposing a fine.

Strengthening sanctions

The Government is seeking views on making additional civil sanctions available to the CMA and other enforcers, which would broadly align the consumer enforcement regime with existing powers or proposed reforms in competition enforcement, and would include fining powers for:

• non-compliance with information gathering powers – under the proposals, the CMA would be able to impose fines based on the business’ turnover, to a maximum level of 1 per cent of a business’ annual turnover, with an additional daily penalty of up to 5 per cent of daily turnover while non-compliance continues;
• breaches of undertakings – the Government is seeking views on three possible approaches to enhance the enforceability of undertakings: first, to treat a breach of an undertaking as an aggravating factor when determining the level of any fine following on from a finding that the law has been breached; second, to make undertakings enforceable in and of themselves such that if a business fails without reasonable excuse to adhere to the undertakings, the CMA may apply to the court for an order requiring them to comply within a specified time; and third, to give the court bespoke fining powers where undertakings are breached without a reasonable excuse; and
• breaches of consumer protection law – under the proposals, the CMA would be able to impose fines on firms of up to 10 per cent of global turnover for consumer law breaches.

Improving access to private redress

The Government has already indicated that it intends to examine radical new ways to mainstream Alternative Dispute Resolution (ADR) for all types of disputes, including consumer disputes, so it is no longer viewed as an “alternative” to court but operates as an integrated part of the justice system. In the meantime, the Government wants to examine more immediate plans to increase the rate of individual consumer disputes being satisfactorily resolved by strengthening and expanding the scope of ADR.

The Government is also seeking views on whether there is a case for strengthening the UK’s collective redress regime, which could make direct access to remedies for infringements of consumer law more accessible to consumers, including by allowing a wider range of organisations to bring actions on behalf of consumers. This reflects the growing tide of consumer class actions in recent years, in particular opt-out representative actions filed in respect of alleged data breaches and the EU’s Collective Redress Directive.

Comment

The impact of these proposals, if implemented, cannot be overstated. In particular, empowering the CMA to enforce consumer law directly rather than through the civil courts (in the same way it currently does for competition cases), and giving the power to impose fines of up to 10 per cent of global turnover directly on companies that are found to breach consumer protection law represents a significant shift from the current consumer law enforcement landscape.

The consultation rightly includes a detailed section which requests views on the safeguards which would be required to ensure that any administrative decisions are fair and proportionate. While the devil will be in the detail, a robust appeals process is likely to be a crucial part of that package.

Reforming UK consumer law

The proposals if implemented would make UK consumer protection law more prescriptive and require companies to make significant changes to their business models and website infrastructure. Businesses are likely to think about what this means for them, particularly alongside the Government’s goal of helping businesses build back better from the pandemic and encouraging technology and innovation in the UK. The key points in the consultation relate to:

“Subscription traps”

• Notably, there are proposals to require companies who provide auto-renewing (rolling) subscriptions to offer consumers the choice, at the pre-contract stage, to take the subscription without auto-renewal and require express consumer consent (ie, to opt in) to auto-renewal. This is likely to affect a wide range of businesses – particularly in the context of digital services – who currently offer only rolling subscriptions and would therefore need to consider fundamentally altering their business models to offer fixed term contracts.
• Additionally, there are proposals to enshrine the accessibility and transparency of key information at various points throughout the purchase process and life of the subscription, including reminding consumers that free trials or introductory offer periods are coming to end.
• The Government is also seeking views on issues such as the approach to subscriptions which have been inactive for a prolonged period and whether there should be requirement in all cases for an automated online mechanism to cancel subscriptions (eg, as opposed to commonly used customer support phonelines).
• Possible exemptions are mooted for contracts for goods, services and digital content where an interruption in supply could result in serious harm to consumer welfare.

Fake reviews

• The Government is proposing to explicitly prohibit the commercial practice of commissioning consumer reviews (in all circumstances) or alternatively introduce a narrower prohibition on the commercial practice of commissioning fake consumer reviews. The proposals recognise that banning the commissioning of consumer reviews is likely to impact new businesses in particular.
• Additionally, the consultation considers imposing a legal duty on hosts of fake reviews to take steps to ensure they are genuine and to remove fake reviews.

Fairness by design

• The proposals include plans to strengthen the law so that it is easier for enforcement agencies to take action against online platforms using choice architecture (so-called “dark patterns”), which the Government view as having the potential to limit informed consumer choice and decision-making. This is consistent with the CMA’s growing interest in “nudge and sludge”, which has led them to focus on granular elements of website design (including the font, colour and positioning of text and the number of clicks required to exit a contract) and to expand the Data, Technology and Analytics (DaTA) Unit to better understand algorithms and regulate the digital sphere.

Comment

The proposals have potentially significant ramifications for all businesses, in particular those offering subscription services and those with less sophisticated online infrastructure. However, the proposals currently lack detail and it remains to be seen which principles will be carried forward into changes to legislation.

The Government has tacitly recognised the potential for such reform to stifle innovation, so it will be important for businesses and their advisers to consider the cumulative effects of the proposals and ensure the right balance is struck between consumer protection and giving businesses the freedom to market products without dealing with overly burdensome regulation.

What’s next?

The Government has sought consultation responses by 1 October 2021.

There will be a keen focus on if and how Government chooses to implement these proposals, particularly as it has not been quick to adopt similar (although in some cases more extensive) proposals made in the past, including those by the CMA’s former Chairman, Lord Tyrie. Without doubt the proposed reforms are far-reaching, but whether the Government will indeed go as far as “transforming our competition and consumer policies to make it best in class” remains to be seen.

If you would like to discuss any of these issues, you can speak to your usual Freshfields contacts or find a relevant contact here.