In brief:
The UK Government has – after many months of deliberation – announced sweeping reforms to UK consumer protection rules. These include new powers for the Competition and Markets Authority (“CMA”) to impose large fines and order consumer compensation, where they think that a business has breached consumer protection rules. The CMA will also be able to impose fines on firms which do not comply with requests for information in consumer protection cases. The Government says that there will be adequate protections for business (including rights of appeal), but we will need to wait and see the detail of the proposed legislation to confirm that. Specific measures governing subscription contracts, addressing fake consumer reviews, and strengthening prepayment protections have also been announced.
In detail:
On 20 April 2022, the UK Government published its long-awaited response to consultation on reforming competition and consumer law. The response emphasises the Government’s desire, post-Brexit, to implement regulations that “work better” for the UK, and to move “in a more agile way” than the EU to deliver growth and innovation and protect consumers, whilst aiming to minimise burdens on business.
In terms of consumer protection, the Government has indicated that several proposals that we have previously written about – e.g. giving the CMA powers to fine companies up to 10% of global turnover where they are found to have breached consumer protection rules – will become law. Breaches of procedural requirements in consumer protection investigations, such as not responding in a timely manner to a request for information from the CMA, could also give rise to fines.
In Freshfields’ own response to the consultation, we made clear how important it would be for any new enforcement powers to be accompanied by robust mechanisms to allow firms to challenge decisions which they disagree with. It is therefore gratifying to see that the Government has said that new legislation will include rights of appeal, and that appeals will have the effect of suspending the decision that is challenged. However, we will need to see the drafting of the legislation before we can assess how adequate those rights will be in practice.
Below, we explore these proposals in more detail. For further information on the proposed reforms to competition law, see our blog here.
Strengthening enforcement of consumer law by individuals and regulators
The Government thinks that the current system of consumer law enforcement “generally works” and delivers benefits to consumers, but that there are areas of weakness that should be addressed.
First, it says that it will grant stronger enforcement powers to the CMA. The Government plans to equip the CMA with the power to enforce certain consumer protection rules, including where a company does not agree voluntarily to make changes to its practices required by the CMA. The new powers would be similar to its competition law enforcement powers, i.e. allowing for direct enforcement and substantial fines, without requiring the CMA to go through the courts.
Where the CMA considers that certain, identified consumer laws have been breached, it will be granted powers to make “appropriate directions” to bring the infringement to an end, award redress to consumers who have suffered loss, seek undertakings to improve compliance, and/or impose turnover-based or fixed monetary policies of up to 10% of annual global turnover.
The CMA will able to impose penalties of up to 5% of annual global turnover (plus an additional daily penalty of 5% daily global turnover while non-compliance continues) where a business has breached an undertaking agreed with the CMA, or directions imposed by the CMA, without reasonable excuse.
The Government has acknowledged the need for procedural fairness in respect of decisions reached by the CMA, and rejected concerns that allowing a full merits appeal of CMA decisions would delay or impede enforcement against breaches of consumer law. Its response notes that it will seek to ensure appropriate safeguards are put in place. These include allowing parties subject to investigation the opportunity to make written and/or oral representations, creating rights to appeal CMA decisions that could directly or indirectly result in monetary penalties to the High Court (with a full review of the merits), and providing that penalties and redress measures imposed will be suspended pending the outcome of an appeal.
The Government also plans to enable all public consumer enforcers to apply to the civil courts to impose financial penalties for consumer law breaches, with the level of such penalties to be consulted on in due course. At this time it does not otherwise plan to extend the enforcement powers of sectoral regulators. The Government notes that it is continuing to explore how the structure of national local trading standards authorities can best support efforts to tackle rogue traders (i.e. through criminal enforcement mechanisms).
The CMA will continue to be able to seek criminal enforcement through the courts for the most serious breaches of consumer law.
Second, the CMA’s investigative powers in consumer protection cases will be strengthened. Currently, where the CMA wants information from a business that is under investigation for breach of consumer law, it can serve requests for information, but (unlike in a competition context) these are not directly enforceable; the CMA must go to court to get an enforcement order if the recipient does not comply. The Government will change this so that a trader can be fined up to 1% of annual global turnover (plus an additional daily penalty of 5% daily global turnover while non-compliance continues), where a business has (i) failed to comply with an information request without reasonable excuse, (ii) has concealed, falsified or destroyed evidence, or (iii) has provided false or misleading information. We would also hope and expect that the legislation that creates these new rights will contain adequate protections for businesses which feel that requests for information made by the CMA are unreasonable or disproportionate.
The CMA’s new enforcement and investigatory powers will not cover all consumer protection legislation that the CMA has the power to enforce, but a subset of the “core” legislation and closely-related specific legislation in respect of which the CMA has relevant experience. A list of the relevant in-scope legislation will be published by the Government in due course, but is expected to include the unfair contract terms provisions of the Consumer Rights Act 2015 and the Consumer Protection from Unfair Trading Regulations 2008 ("CPRs"), which prohibit unfair, misleading and aggressive B2C practices.
Third, the Government has said that it will support consumers and traders to resolve more disputes independently. The focus here will be on raising awareness on the available routes for redress where a dispute cannot be resolved with a trader, in order to encourage increased uptake of alternative dispute resolution services and improve their oversight.
Updating consumer rights to keep pace with markets
The consultation sought views on the following areas:
- Tackling so-called “subscription traps”;
- Addressing fake reviews online; and
- Strengthening prepayment protections.
On these topics, the Government plans to impose significant legal reforms to benefit UK consumers, which it states will be wider and more effective now the UK is no longer in the EU (although it is noteworthy that some of the proposals reflect changes already made to EU consumer protection rules by 2019’s Better Enforcement and Modernisation Directive, which we previously commented on here).
New transparency requirements for subscription contracts
Recognising the “significant benefit” of subscription models to both consumers and businesses and reflecting on the potential cost to business of its proposed changes, the Government has rejected demands made by the CMA for traders which offer subscription contracts to be required to offer separate, standalone non-renewing contracts. However, it says that it will legislate to improve protections for consumers who enter into subscriptions.
The new legislation will require that:
- Consumers are given clear information, at pre-contract stage, about subscription contracts;
- Traders remind consumers that a contract is due to auto-renew or that a free trial or low-cost introductory offer is coming to an end; and
- Traders ensure consumers can exit a contract in a straightforward and timely way.
Addressing fake reviews
The Government intends to update the list of automatically unfair practices in Schedule 1 of the CPRs to include various practices relating to fake reviews. The effect of this change will be that the following practices will be deemed to be illegal:
- Commissioning or incentivising any person to write and/or submit a fake consumer review of goods or services;
- Hosting consumer reviews without taking reasonable and proportionate steps to check they are genuine; and
- Offering or advertising to submit, commission or facilitate fake reviews.
However, the Government has said that it will consult on this further. In particular, we expect it to seek views on what would constitute “reasonable and proportionate steps” to verify reviews.
The EU has recently made its own changes to the Unfair Commercial Practices Directive (which the CPRs transposed into domestic law when the UK was still a Member State). These prohibit traders stating that reviews of a product are submitted by consumers who actually bought or used a product, without first taking reasonable and proportionate steps to ensure that they originate from such consumers. Submitting or commissioning another person to submit false consumer reviews or endorsements, in order to promote products, is also banned. These changes will come into force across the EU on 28 May 2022.
Strengthening prepayment protections for consumers
The Government’s consultation highlighted prepayment schemes, like Christmas Savings Clubs, which are not covered by existing financial protections, and which would leave consumers unprotected if the business that has taken the prepayment goes insolvent.
The Government intends to legislate to ensure consumer prepayment schemes marketed as a savings mechanism must fully protect customer payments by way of a trust or insurance and to continue research into what other sectors where similar insolvency protection provisions might be justified (noting that the travel industry was suggested in the consultation response).
Consumers buying package travel deals will be better protected
Finally, focusing on the travel sector, the Government sets out its intention to better protect consumers buying package travel by:
- Simplifying the definition of a ‘Linked Travel Arrangement’;
- Improving the flexibility of insolvency protection provisions for non-flight packages;
- Enabling BEIS to make changes to the information requirements of the Package Travel and Linked Travel Arrangement Regulations 2018 (“PTRs”); and
- The publication by BEIS of a consumer-focused PTR guidance document.
We now await the publication of the Government’s draft legislation to build out the detail of its key proposals. In the meantime, you can get in touch if you would like to discuss any of the issues raised here.
