Out-Law News 5 min. read
21 Apr 2022, 4:09 pm
The plans are part of a broader suit of legislative changes the government has confirmed it will pursue to bolster the UK’s consumer law enforcement regime. They were outlined in a new paper that also detailed the government’s intentions to set new rules around consumer subscriptions and clampdown on fake reviews. The paper further details forthcoming changes to UK competition and merger control laws and follows a consultation on possible reform last year.
Given the risk of serious penalties, businesses … will be encouraged to consider putting in place robust compliance policies and systems for consumer protection law compliance, similar to those in place for competition law compliance
Angelique Bret, competition and consumer law expert at Pinsent Masons, said: “These proposals have been hotly anticipated since being raised in an open letter from Lord Tyrie back in February 2019. Until now it was not certain whether and when the new powers would be introduced. This paper confirms that the government does indeed plan to introduce changes which will dramatically increase the CMA’s powers, giving the CMA similar powers to those in relation to competition law enforcement.”
“The government has accepted that the system will need to incorporate processes to ensure rights of defence, with the opportunity to make written and oral representations, and allowing access to the CMA’s file. This will impact the speed at which the CMA will be able to take decisions under the new framework,” she said.
“It is proposed that the CMA would be able to impose fines not only on infringing businesses – up to 10% of turnover – but also on individuals; up to £300,000 for a breach of the consumer protection rules. In addition, the CMA would be able to require businesses to compensate consumers and make changes to their business practices to improve compliance,” Bret said.
“Given the risk of serious penalties, businesses – particularly e-commerce platforms and marketplaces, as these have been a focus for consumer protection enforcement action across the EU – will be encouraged to consider putting in place robust compliance policies and systems for consumer protection law compliance, similar to those in place for competition law compliance,” she said.
The government confirmed that its plans to bolster the UK’s consumer law enforcement regime will not involve extending the powers the UK’s sector regulators, such as Ofcom and Ofgem, at this time. They will, however, significantly strengthen the existing powers of the Competition and Markets Authority (CMA).
The CMA must currently apply to court for an enforcement order against a company in relation to an infringement of consumer protection law where the company does not agree to voluntarily make the changes required. While the government confirmed that the CMA will continue to be able to pursue both civil and criminal consumer law cases before the courts, and that it intends to strengthen the courts’ fining powers in this area, under the planned reforms, the CMA will be able to make determinations of its own that a business has infringed the rules and fine companies up to 10% of their global turnover.
The government said it will stipulate exactly which pieces of consumer protection legislation the CMA’s new enforcement powers will relate to; it will not be all the consumer protection legislation relevant to Part 8 of the Enterprise Act 2002.
Bret said: “As the CMA will be able to continue to use its existing powers, there may be cases where it tries to secure voluntary undertakings from business to make certain changes to their business models, where the CMA has consumer protection concerns, without the business needing to admit to any infringement of the rules. This could be used for less serious breaches.”
The CMA will also obtain new powers to impose significant fines on businesses that breach consumer protection undertakings they have given or directions the CMA has issued them, under the new plans. Fines of up to 5% of annual global turnover will be able to be levied in that scenario and the CMA will have powers to impose additional daily penalties of up to 5% of daily global turnover for continued non-compliance. Individuals could be fined up to £150,000 and £15,000 daily for continuing non-compliance in this context.
The government further confirmed that it plans to strengthen the CMA’s information gathering powers. Businesses will face fines of up to 1% of their annual global turnover for failure to comply with statutory information requests, where they only do so in part, provide false or misleading information, or otherwise destroy, conceal, or falsify information and documents. Additional daily penalties of up to 5% of daily global turnover for continued non-compliance with information requests will be able to be imposed by the CMA. Individuals could be fined up to £30,000 and £15,000 daily for continuing non-compliance in this context.
The new paper published by the government also contained details of new decision-making procedures and appeals process that consumer law enforcement case will be subject to. This includes a defined role for a CMA appeals body and a route to appeal CMA decisions before the High Court in England and Wales and Court of Session in Scotland.
The government said it wants to encourage businesses and consumers to resolve consumer law disputes between them, but it has decided against imposing time-limits on resolving those complaints and on mandating they be referred to formal alternative dispute resolution (ADR) proceedings thereafter.
New rules in relation to consumer subscriptions are also proposed.
As well as requiring businesses to provide clearer and enhanced pre-contract information requirements for subscription contracts, the government’s package of legislative reforms will also require businesses to “send reminders to consumers before a contract rolls over (or auto-renews) onto a new term”. A further duty to remind consumers that a free trial or low-cost introductory offer is due to end will also be introduced, as well as a requirement for businesses to ensure consumers can exit subscription contracts “in a straightforward and timely way”.
The government had considered imposing additional obligations on businesses offering subscriptions, including requiring businesses to obtain explicit consent to continue subscriptions at the end of a free trial or introductory offer, but it has confirmed that those measures will not be introduced.
Some subscription contracts will be outside of the scope of the reforms, such as subscriptions arising in the context of financial services and insurance, the supply of gas, electricity and water, and prescription medicines, the government said.
The proposals include a new ban on fake reviews.
Plans to strengthen the law against the posting of fake reviews online were also outlined by the government. It said it intends to add certain practices associated with fake reviews to an existing list of practices that are automatically considered to be unfair under UK consumer protection laws.
The government said it will consult on adding the practices of commissioning or incentivising any person to write and/or submit a fake consumer review of goods or services; hosting consumer reviews without taking reasonable and proportionate steps to check they are genuine; and offering or advertising to submit, commission or facilitate fake reviews, to the list of banned practices under Schedule 1 of the Consumer Protection from Unfair Trading Terms Regulations.
Among the other measures set out in its paper, the government said it would also continue to research the way in which online architecture can be designed to influence consumer behaviour and potentially result in harm. The CMA recently vowed to use its full range of powers and remedies to challenge online practices which it thinks are harming consumers in a discussion paper on how digital design can harm competition and consumers.
The government said: “Businesses may design webpages in such a way to nudge consumers towards decisions that they would not otherwise have taken. As more data becomes available to businesses via their web operations, some have utilised it in a way that distorts free choice resulting in unfair competition. In many cases, firms design their systems in ways which benefit consumers’ interests. However, there is growing evidence of the negative impact of exploitative online choice architecture practices. Government believes that consumers should be able to exercise choice and that this is important for competition.”
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