The Digital Markets, Competition and Consumers Act (the Act) received Royal Assent on 24 May 2024. Once the law comes into force later this year, the Act is expected to increase competition amongst businesses by ensuring consumers can make informed choices about suppliers who operate online. Those businesses which sell to consumers via the internet will need to take note of the following developments.
Fake reviews
There are certain commercial practices which are always considered unfair in respect of consumer contracts. With advances in technology, these blacklisted behaviours have undergone a much-needed update, with the Act confirming an absolute prohibition on publishing fake consumer reviews i.e. reviews which are not based on a person’s genuine experience. Businesses must not publish misleading reviews and must take ‘reasonable and proportionate steps’ to make clear where consumer reviews have been incentivised: where the individual has received the goods/services for free in exchange for a review or has been compensated by payment, discounts or entries into a competition
Businesses must actively monitor and remove false and misleading reviews. Consequently, businesses should ensure their own and third-party websites not only collect genuine feedback from customers but also identify and classify those reviews which have been generated through an incentive.
Drip pricing
Whilst it has always been a requirement to confirm the price to customers before the sale is concluded, the Act makes clear that the total cost must be clear at the outset. Businesses cannot reveal additional, unavoidable fees part-way through the transaction. If, owing to the nature of the product, the whole or any part of the total price cannot reasonably be calculated in advance, the advert must explain how the price (or that part of it) will be calculated.
It is no longer necessary to show that the omitted information influenced consumers’ decision to transact. This will make it easier for both consumers and public enforcement bodies to take action against such unfair trading practices.
Subscription contracts
Where business contracts are based on automatically recurring or the continuing supply of goods, services or digital content (excepting excluded contracts), there is now:
- An obligation to provide key pre-contract information. Such information includes any minimum contract period that applies, whether the seller may change the frequency or amount of payments and the steps the consumer must take to bring the contract to an end.
- A 14-day cooling-off period which allows the consumer to cancel for any reason, without cost. Whilst this should already be familiar territory, the right also applies for the 14 days after the expiry of any concession rate or trial period, and the first 14 days on any renewal where the contract is charged on an annual basis.
- Reminder notices must be issued at the end of any concession rate or trial period and at regular intervals, depending on how frequently the contract renews.
- Consumers must be able to cancel their subscription without having to jump through hoops. Businesses should not impose unreasonable or unnecessary steps where consumers want to exercise their right to bring a subscription contract to an end.
Consequences of getting it wrong
Previously, the Competition and Markets Authority (CMA) would need to apply for a court order to enforce consumer law, a long and costly process which undermined the protections offered to consumers. The Act grants the CMA extensive new enforcement powers so that it can stop and prevent traders from breaching the law.
The CMA can now issue fines of up to £300,000 or 10% of a business’ global, annual turnover (whichever is greater. Where the CMA relies on undertakings (promises to become compliant), it also can issue fines of £150,000 or 5% of the business’ annual, global turnover for breach of the undertaking.
Individuals can also be fined up to £30,000 or 1% of global, annual turnover if they provide false or misleading information, or fail to comply with a request for information.
The CMA can also issue enforcement orders, requiring businesses to put in place enhanced consumer measures such as offering compensation, giving consumers the option to terminate the contract and taking steps to prevent a similar issue from arising in future.
Preparing for the changes
The Act is expected to come into force sometime during the autumn of 2024 and to ‘beef up the enforcement of consumer protections’. The CMA has already committed to addressing concerns regarding online sales tactics that mislead or unfairly pressure consumers into making purchasing decisions (known as dark patterns), recently issuing a letter before claim against the Emma Sleep Group.
Businesses that sell to consumers and operate online will need to:
- consider whether they fall within the scope of excluded contracts, with notable exemptions relating to medical prescriptions and certain healthcare services, residential accommodation, childcare services and utilities;
- update their adverts and marketing materials to make sure the full price is communicated at the outset;
- review and update how they collect and publish customer reviews – to remove misleading comments and clearly indicate where endorsements have been incentivised;
- draft and diarise regular reminders to subscribers, alerting them to renewal periods and highlighting options to cancel;
- remove onerous or disproportionate steps to cancel, instead putting in place a system which mirrors the simplicity of the sign-up process; and
- prepare for more complaints and build effective dispute resolution processes, as the CMA will undoubtedly raise awareness of the new protections and encourage consumers to challenge unfair practices.
Traders also need to prepare for the greater transparency and increased scrutiny that will come from making it easier for consumers to compare products and services. The Act is designed to ensure online shoppers have a clear idea of what they are spending upfront, to inform them as much as possible about the terms they’re signing up for and to more easily assess whether the purchase represents best value to them.
Draft guidance has been published online (closing 12 July 2024) focusing on businesses with strategic market status and further guidance is expected to provide practical insight on how to comply with consumer protection requirements.
For more information
For information and insight as to how you will need to adjust your marketing strategy and consumer contracts, please contact Emma Watt.