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Mid-contract price rises in consumer contracts: how to advertise fairly

Mid-contract price rises in consumer contracts: how to advertise fairly

Overview

The Advertising Standards Authority (ASA) is consulting on guidance that would require mid-contract price rises in consumer contracts to be more prominently stated in telecoms advertising. As we explain below, this may also be of interest to other B2C businesses outside the telecoms sector.

What's the concern?

The ASA is concerned that telecoms businesses promoting broadband and/or mobile services are focusing heavily on promoting an attractive initial price (usually monthly) without making it sufficiently clear that these prices are not guaranteed to last or may only last for a relatively short period. This has led to consumers feeling that they have been misled, particularly in cases where the initial price ends up increasing quite quickly and/or by a significant amount. In this context, misleading information includes not only the information contained in the advertisement, but also material information that has been omitted. The ASA is particularly concerned about these practices given the current high inflation and the cost of living crisis.

Who is the ASA?

The ASA is a voluntary industry-funded body acting as a "first port of call" for complaints about advertising, including misleading promotional material. It will assess whether advertisements comply with its Codes of Practice and has a close partnership with the Competition and Markets Authority (CMA).

In most cases, advertisers on the receiving end of an adverse ruling from the ASA will withdraw or amend the marketing material in line with the ruling. If advertisers do not comply with the ASA's ruling, it has a range of sanctions it can apply and as a last resort, the CMA can be called upon to take enforcement under the Consumer Protection from Unfair Trading Regulations (CPRs), which prohibit misleading marketing practices.

How is this relevant to non-telecoms B2C businesses?

Non-telecoms B2C businesses which operate a subscription-style model based on e.g. a monthly fee face broadly the same issues as telecoms businesses when it comes to marketing which focusses heavily on price. In particular, they too need to ensure that their advertising does not mislead by creating a false impression about how long an attractive initial price is likely to last.

Advertisers need to avoid creating a false impression about how long an attractive initial price is likely to last.

What is the ASA proposing?

The ASA has set out a number of principles that, if followed by advertisers, will (in its view) make it more likely that an advertisement will comply with its Codes and Practice and less likely to mislead consumers in its presentation of information about mid-contract price increases:

    • Information indicating the presence or possibility of a price rise should either be a part of the price claim or placed immediately adjacent to it. This means that companies need to be as up front as possible to allow consumers to make well informed decisions about the packages they choose.

    • If known, information about price rises must be featured prominently within the main copy of the advertisement rather than in the terms and conditions or in the fine print where it is barely visible.

    • Descriptions of future price rises and terminology used should be clear and simple to understand. In particular, initialisms including RPI (retail price index) and CPI (consumer price index) should be written out in full the first time they are used in an advertisement, and appended with ‘rate of inflation’ to aid understanding.

    • Advertisers should take care to distinguish the full contractual price that applies before the tiered increase from any other introductory discounts that may apply.

    • Advertisers should be mindful of the time of year the advertisement is being published, relative to the timing of any compulsory or potential annual inflation-linked increase (usually April in the telecoms sector) to avoid misleading consumers. If there is an imminent price change, this should be made clear to consumers.

Examples of good practice

The ASA suggests different ways for advertisers to highlight the possibility of a mid-contract price rise in a relatively concise manner, including:

  • Starting at £X
  • £X (2022-2023)
  • £X until October 2023

Although all of the above is only draft guidance (and strictly speaking, only directed at telecoms firms), our view is that it represents a useful checklist for all businesses (not just those in the telecoms sector) when it comes to advertising which focuses on price where there may be a mid-contract price rise.

What happens next?

The consultation closes at 5pm on 17 November 2022, following which ASA will evaluate and then publish the outcome of the consultation. We would expect guidance to be produced by the ASA at some point next year.

The bigger picture

B2C businesses using a subscription model are facing greater scrutiny on a number of fronts:

  • In 2021, the CMA published guidance on how businesses using contracts which auto-renew can comply with UK consumer protection law and similarly avoid misleading price comparisons. Although this was primarily directed at anti-virus software providers (which had been the subject of a CMA investigation), it is useful for other B2C businesses to consider as a form of guidance on best practice on auto-renewal (in the same way as the ASA guidance outlined above).

  • Meanwhile, the Government is planning to tighten up the law on subscription contracts with consumers; a draft Bill is expected in this session of Parliament.

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