When is auto-renewal of consumer contracts likely to be unfair?

When is auto-renewal of consumer contracts likely to be unfair?

Overview

The Competition and Markets Authority (CMA) has recently published a set of principles setting out how providers of anti-virus software with contracts which auto-renew can best comply with UK consumer protection law. This guidance is also noteworthy for other B2C businesses which use auto-renewal, particularly in an online context.

What do the principles say?

The principles themselves are relatively short and worth reading in full, but we would particularly highlight the following points:

  • At the outset, consumers should be given clear information about auto-renewal and the CMA's preference is for them to be offered a choice between a fixed term contract and one that auto-renews (rather than having auto-renewal as the sole option).
  • The CMA is particularly concerned about potentially misleading price comparisons when consumers initially sign up – see textbox below for an example.
  • Consumers should have the ability to turn off auto-renewal in a simple and easy way – and once off, auto-renewal should stay off.
  • Reminders about an impending auto-renewal should be sent out in good time before it happens so that consumers can opt out or cancel if they wish – and should include clear information on relevant dates and pricing.
  • Following auto-renewal, consumers should receive a written confirmation and it should be possible for them to change their minds e.g. the CMA suggests a cooling off period of at least 2 weeks, during which consumers can cancel and obtain a full refund.
  • Businesses need to engage with any consumer from whom they continue to take payments, but it is evident that the consumer is no longer using the product (e.g. because they are not taking software downloads as they have switched to another device).
  • Finally, the CMA emphasises that, at all stages of the process, consumers should be given clear information and reminders about their options, particularly as regards renewal dates, payments and ability to cancel or opt out of auto-renewal.
Misleading pricing: an example

The subscription is for an indefinite term, auto-renewing on a yearly basis. The initial sign-up cost (for the first year) is £20 and the product is marketed as "20% off". However, the "20% off" is based on a comparison with the price charged to existing customers on auto-renewal, which is £25. The CMA's view is that this is misleading because the £20 initial subscription fee is simply what the business charges all new customers. For it to be described as "20% off", the normal first year subscription would need to have been priced at £25 for all new customers – and that pricing would need have been in place for a reasonable period prior to the start of the promotion.

Do all businesses using auto-renewal have to comply with these principles?

Strictly speaking, the principles are directed at providers of anti-virus software – and the CMA's relatively prescriptive approach may reflect its view of what is needed to address the specific consumer detriments that it was concerned about in that particular market (namely, that consumers were (i) locked into contracts they no longer want/need; and (ii) being charged renewal fees they did not expect or at a price higher than expected). However, as noted above, they may provide useful guidance as to the CMA's likely approach to businesses using auto-renewal in other, similar contexts.

For those businesses, the principles should probably be viewed as a form of guidance on good/best practice, rather than as a statement of what the law requires in all cases (which, as consumer law stands at present, would ultimately be for a court to decide). However, if you are able to comply with them in full, then it is likely to be difficult for the CMA, trading standards or consumers to establish that you have breached consumer protection law.

Subscription contracts: tougher regulation could be on the way

The Government has been consulting on proposals to introduce specific regulation of subscription contracts. The principles outlined above may provide a taste of what this could look like, should the Government decide to pursue these proposals. The consultation is part of a wider review of consumer protection law which is aimed at strengthening the powers of the CMA and other regulators, prompted in part by previous problems that the CMA has experienced in tackling issues such as auto-renewal of anti-virus software (where one of the providers under investigation initially refused to cooperate, leading the CMA to initiate court action). These new powers are likely to include the ability for the CMA and other regulators to take decisions on whether conduct breaches consumer law without having to go to court and to impose substantial fines (based on a percentage of turnover).

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