The UK Government has been consulting on wide-ranging proposals to reform competition and consumer law. In this briefing, we consider the proposed reforms to consumer law and ask whether their impact on consumer-facing businesses will be comparable to that of the GDPR.
UK consumer law reform: a watershed moment?
UK consumer law's GDPR moment?
A string of recent reports has called for "holes in consumer protection frameworks" to be addressed. The Government's proposals aim to address these concerns in two ways:
- First, they envisage a significant strengthening of regulators' enforcement powers, including the ability to impose fines of up to 10% of global turnover for breach of consumer protection legislation; and
- Second, they outline a number of ways in which existing consumer protection law could be tightened with a view to curbing potentially harmful practices, particularly (though not exclusively) in relation to online businesses.
What are the parallels with the introduction of the GDPR?
In both these respects, there are parallels with the introduction of the GDPR in relation to data protection, which allowed the ICO as the UK regulator to impose far more significant fines than it had been able to previously whilst at the same time tightening and strengthening existing data protection regulation. For most businesses, particularly those involved in processing significant amounts of personal data, this pushed data protection higher up the risk agenda than it had been previously. It may be that these latest proposals on consumer law reform, if and when they become law, will have a similar impact for the businesses that are affected.
Since we have already reported on the proposed new powers for regulators, this briefing concentrates on the suggested changes to substantive consumer law, notably:
- Subscription contracts and auto-renewal;
- Fake reviews; and
- Online exploitation of consumer behaviour.
Subscription contracts and auto-renewal
The main proposal is that auto-renewal provisions in subscription contracts should not be the default position in consumer contracts – instead, consumers should be given the choice to enter into a non-rolling contract (which will expire after a fixed period) and auto-renewal would only be permitted where consumers opt for it in preference to the fixed term option. The Government also proposes clarifying the requirements on businesses to provide clear information at the outset of the contract, so that consumers understand what they are signing up for, including how auto-renewal provisions operate, the minimum term, the price per billing period and the notice period to cancel the contract. The cancellation mechanism must make it as easy for consumers to exit a contract as to enter into it (i.e. the process should be automated, online, easy to find, timely and simple, only requiring the absolute minimum of information or inputs from the consumer).
Consumer spending on subscription contracts is estimated to be between £28 billion and £34 billion per year across a range of sectors.
Businesses will also be required to continue to provide key information to consumers throughout the term of the contract. This information includes reminding consumers when their contract will renew (and how to cancel it) and when free trials or introductory offers will end. In addition, the consultation considers that where subscriptions have been inactive for a prolonged period, businesses should be required to give notice of the suspension of services and stop charging under the contract.
The reforms are not intended to apply to contracts for goods, services and digital content where an interruption in supply could result in serious harm to consumer welfare (i.e. supply of medicines). As this is a narrow exemption, the majority of businesses that operate on consumer-facing auto-rollover contracts are likely to be affected by the reforms and will need to review their sign-up processes.
The consultation proposes the extension of the Consumer Protection from Unfair Trading Regulations 2008 ("CPRs") to include additional commercial practices that would automatically be considered unfair (and therefore illegal). The options under consideration include either:
- commissioning consumer reviews in all circumstances; or
- a narrower prohibition which relates only to commissioning or incentivising fake consumer reviews (the consultation recognises that any outright ban on the commissioning of consumer reviews is likely to particularly impact new businesses).
An estimated £23 billion of purchases a year are potentially influenced by online reviews.
In addition, the proposals include a legal duty on host websites to take steps to ensure that reviews from consumers are genuine and to remove fake reviews. Given the extent to which online reviews now proliferate across different platforms, this is likely to prove burdensome for many host website operators to comply with.
Influencing consumer behaviour online
The Government is also considering measures to curb online practices which exploit consumer behaviour to influence choice. These include targeting:
- "dark patterns” or "sludges" designed to manipulate (or "nudge") consumers into taking actions which are against their own interests (see textbox for examples);
- "drip pricing" where products are advertised at an attractive headline price but the price does not include fees and charges that are added during the purchasing process; and
- paid-for search results that are not clearly identified as such.
Dark patterns and sludging
Examples of "dark patterns" or "sludging" which have been highlighted by consumer advocacy groups and academics as having potentially harmful effects include:
- Messages designed to exert pressure on the consumer to make a decision quickly without adequate consideration of other options or other relevant factors e.g. "X other people are looking at this now", "only Y products left in stock" or countdown timers for the expiry of deals;
- "confirm shaming" such as labelling an option to reject "No, I don't want to save money"; and
- "false hierarchies" where two options are offered (such as a choice between auto-renewal and a fixed term contract) but the option that the business wants you to select is presented more prominently and in a way that suggests it is significantly "better value" (when viewed objectively, it may not be).
However, the consultation does not explain how or where the Government would distinguish between acceptable profit-maximising activity by businesses and conduct which is felt to be harmful to consumers. This may prove to be a difficult line to draw in practice.
What is the EU doing?
The proposals in relation to fake reviews and paid-for advertising are similar to changes coming into force in the EU next year pursuant to the EU Enforcement and Modernisation Directive ("EMD"). However, the EMD and the consultation differ in some areas. For example, the EMD requires businesses to tell consumers whether prices have been personalised as part of the pre-contract information, and does not include the proposed controls on auto-renewal provisions in consumer contracts.
Will the UK and EU diverge in their approaches to consumer law?
As the UK is not required to implement or apply these new measures following Brexit, from 28 May 2022 (when the EMD comes into force in the EU) we may see the start of diverging consumer law frameworks between the UK and EU. However, this divergence seems more likely to occur at the level of detailed implementation; there is as yet little sign that the UK Government is planning a radical departure from the broad approach to consumer protection adopted whilst the UK was an EU Member State (although, as noted above, it is planning to give regulators significantly stronger enforcement powers).
What happens next?
The next step is for the Government to issue a detailed response to the consultation, which is not expected to happen until next year. As we have pointed out before, successive Governments have a somewhat patchy record of actually delivering consumer law reform, but on balance we think it is more likely than not that the proposed changes will go ahead in some form. The Government already has a busy legislative agenda and the 2021 Queen's speech made no specific reference to a Bill on consumer law reform. Assuming that primary legislation is required, it seems unlikely that a Bill would emerge until 2022 – meaning that the earliest it could be realistically brought into force would probably be 2023.
However, regulators may act on some of the issues raised in the consultation before any new legislation is introduced. For example, the Competition and Markets Authority has already taken action against providers of anti-virus software which use auto-renewal in their subscription contracts, producing a set of principles which may provide a guide for other B2C businesses. Meanwhile, as regards fake reviews, the CMA has secured commitments from Facebook, Instagram and eBay to do more to tackle the problem and has opened investigations into Google and Amazon
The Government has also been consulting on a number of other reforms in the consumer and competition law space, notably:
- reforms to the existing regimes for market inquiries and merger control and enforcement of competition law (all of which also relate to the lead consumer regulator, the Competition and Markets Authority or CMA); and
- a new pro-competition regime for digital markets (involving a special unit within the CMA dedicated to this area).