Consumer Game Changer – The CMA will be Empowered to Directly Fine Businesses for Consumer Law Infringements as Queen’s Speech Confirms UK Consumer Law Reforms

The CMA will be empowered to directly issue fines that are larger than GDPR-style fines to businesses for consumer law infringements[1]. As stated in the Queen’s speech: “Draft legislation to promote competition, strengthen consumer rights and protect households and businesses will be published”. Further, these measures will be introduced as Parliamentary time and priority permits.

The long awaited response on the ‘Reforming Competition and Consumer Policy’ was published on 20 April 2022 by the Department for Business, Energy & Industrial Strategy (“BEIS”)[2]. These proposals follow from the July 2021 consultation, and are a package of substantial measures covering both competition and consumer protection law (see our previous article on the 2021 consultation here). These measures strive to enhance the powers of the CMA. Most significantly, these measures will empower the CMA to issue fines directly where traders breach consumer laws and fail to comply with CMA investigations into such breaches.

In line with the growth of online commerce, advertising and marketing, the reforms intend to change the UK’s consumer law regime to strengthen consumer rights, and to ensure those rights are robustly enforced. This article provides a round-up of these proposed consumer law reforms. You can also read our article on the competition reforms here

What is being proposed?

1. Subscription traps

The Government is planning to update subscription rules and introduce relevant legislation so that:

• Traders must provide clearer pre-contractual information before consumers enter subscription contracts.
• Traders must send consumers reminder notifications:
  • (i) prior to auto-renewal of a subscription contract, outlining that the contract will auto-renew unless cancelled; and
  • (ii) when a free trial or low-cost introductory offer is coming to an end.
• Consumers have a straightforward, quick and cost effective way to exit a subscription contract.

2. Fake reviews and online exploitation of consumers

The Government is seeking to tackle fake reviews (i.e., those that do not genuinely reflect the opinion of a consumer, for example where the consumer has been incentivised or commissioned to review a product or service). The Government will consult on expanding the list of automatically unfair practices contained in the Consumer Protection from Unfair Trading Regulations 2008 (“CPRs”) (subject to parliamentary approval) to include:

• Commissioning or incentivising a person to write/submit a fake consumer review of goods or services.
• Hosting consumer reviews without taking reasonable and proportionate steps to check they are genuine.
• Offering or advertising to submit, commission or facilitate fake reviews.

The Government will also:

• Continue investigating the effects of undisclosed paid-for advertising in online search results.
• Consider strengthening legislation so the CMA can enforce effectively against exploitative online architectures, such as drip pricing.

3. Strengthening prepayment protections for consumers

The Government will introduce legislation to protect certain prepayment and saving schemes which are not regulated by the Financial Conduct Authority in order to safeguard consumers’ money through insurance and trust accounts.

4. Package travel

The Government have committed to reviewing the Package Travel and Linked Travel Arrangement Regulations 2018 (“PTRs”) which currently offer protection for consumers booking package holidays. The PTRs allow consumers to receive refunds within 14 days of a cancelled trip and require traders to set aside funds to cover this. However, the PTRs are complex. The Government plan to simplify and update the PTRs to allow for easier enforcement and compliance with the law by businesses. BEIS are also to publish a consumer-focused guidance document on the PTRs.

How will consumer laws be enforced?

Strengthening and widening the CMA’s powers

The Government will introduce legislation to strengthen the CMA’s enforcements powers for consumer matters, including allowing the CMA to decide where consumer law has been infringed. The Government will advance the following policies:

• Empower the CMA to directly issue turnover-based or fixed monetary penalties for:
  • (i) failing to comply with CMA investigations and/or information requests without reasonable excuse (up to 1% annual global turnover and a 5% daily global turnover penalty for continued non-compliance); and
  • (ii) breaching an undertaking or a direction imposed by the CMA without a reasonable excuse (up to 5% annual global turnover and a 5% daily global turnover penalty for continued non-compliance).
• Enable the CMA to decide where consumer law infringements have taken place, and to take actions such as awarding consumers redress and issuing fines for breaches of up to 10% of annual global turnover.
• A selection of civil penalties for non-compliance.

New legislation will allow for CMA’s enforcement decisions which could lead to monetary penalties, to be appealed under the new administrative model to the High Court in England and Wales or the Court of Session in Scotland (as relevant).

Support for consumers and traders solving disputes independently

The Government intends to update the Alternative Dispute Resolution (“ADR”) system for all types of disputes, which includes amending the ADR Regulations 2015. BEIS will continue cooperating with businesses, consumer enforcement bodies, ADR providers and the Ministry of Justice to increase the uptake, quality and oversight of ADR services.

Conclusion

The introduction of these consumer reforms will significantly alter the landscape of consumer law compliance in the UK. The CMA will be granted substantial powers, particularly with the introduction of larger than GDPR-style fines. Businesses will need to monitor the progress of these reforms, and ensure they are ready for the new legislation.

Authored by: Amy Cole, Sophie Stoneham, Shona O’Connell, Robert Turner

For more information please contact robert.turner@twobirds.com

[1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1074113/Lobby_Pack_10_May_2022.pdf

[2] https://www.gov.uk/government/consultations/reforming-competition-and-consumer-policy/outcome/reforming-competition-and-consumer-policy-government-response