The UK government has launched a consultation on updating consumer law, competition law and the powers of the Competition and Markets Authority (CMA). Ostensibly, the consultation comes in light of the pandemic and its likely lasting impact on how consumers are shopping; however; the consultation's policy paper highlights that it is also looking to address growing calls in recent years to reform the UK consumer and competition law regime in order to "keep pace with the challenges of the 21st century". The government is particularly looking to bolster the CMA's ability to act quickly and effectively to address harms in fast-moving markets.
The issues highlighted in the Reforming Competition and Consumer Policy consultation paper mirror some of those that are covered by the EU's New Deal for Consumers. It is clear that in a number of areas, particularly in relation to reviews, the proposals have been inspired by – even if they are not completely aligned with – the New Deal for Consumers. However, the consultation will also tackle other areas that are not covered by the New Deal for Consumers, such as subscription models and "dark patterns".
The Department for Business, Energy and Industrial strategy is running the consultation until 1 October 2021 – and interested parties should consider responding to ensure that the UK government receives a full range of responses.
The consultation policy paper has identified various contracts as problematic. This includes those that renew automatically, rollover into a new term and lock customers in indefinitely. It highlights the issues with subscription in relation to vulnerable consumers such as those with mental health issues and those who struggle to manage their finances. The proposal is to introduce various protections to tackle these traps:
- The provision of pre-contractual information (in a clear and prominent manner) to ensure that consumers know what they're signing up for. This should include specific details regarding minimum contact terms, price per billing period, auto-renewal and/or minimum notice periods for cancellation;
- Presenting consumers with a choice in relation to auto-renewal at the pre-contractual information stage. This is to allows consumers the option elect to either have a fixed term contract or a contract which auto renews;
- Nudging consumers so as to ensure their awareness of ongoing subscriptions. This covers a reminder as to the date on which the contract will auto-renew, the current price of the contract and any notice period for cancelling the renewal and details as to how to cancel; and
- Making it straightforward, cost-effective and timely for consumers to exit subscriptions. Specifically, the process being automated, easy to find and one which only requires the inputting of information essential to process their refund (where payment has already been taken).
- Placing on businesses to cancel inactive subscriptions after an, as yet undecided, period of time
While not unexpected these changes will have a very significant impact on business models which rely on subscriptions as they will mean that consumers are more likely to exit subscriptions and stop paying subscription fees more quickly.
Reform of reviews
It has been recognised that through the digitalisation of consumer reviews and fake or misleading reviews have become increasing problematic for both business and consumers. The government is considering amending the UK-implemented Unfair Commercial Practices Directive to include some or all of the following blacklisted offences:
- Total ban on traders paying or otherwise incentivising consumers to submit reviews;
- Commissioning or incentivising a person to write and/or submit fake reviews of goods, services and digital content; and
- Hosting consumer reviews of a good or service without taking reasonable and proportionate steps to ensure that they originate from consumers who have actually used that good or service.
These proposals are very much inspired by the New Deal for Consumers. However, there are important differences – in particular, under the New Deal for Consumers it is possible to use a disclaimer to say that no steps have been taken to ensure that the reviewer bought or used a product. Under the UK proposals this will not be possible and checks will be mandatory.
Dark patterns, nudges and sludge
The UK government is considering strengthening the law so that it is easier for enforcement agencies such as the CMA to take action against particular exploitative designs that feature on some websites such as dark patterns nudges and sludge (the CMA term to describe a nudge which has a negative consequence for a consumer).
The government is also seeking evidence as to whether practices relating to "drip pricing" and paid-for rankings on traders websites are problematic and whether they need to be addressed with specific legislation.
Proposals in this area are relatively undeveloped and the government is simply seeking opinions in this area. There have been serious suggestions of additional regulations and/or guidance, for example, in the recent report by John Penrose MP, so it is possible that specific proposals may develop out of the consultation.
The government proposes to give the CMA and other regulators the power to levy civil fines to a maximum level of 10% of a business’ annual turnover, with an additional daily penalty of up to 5% of daily turnover during any the period where there is non-compliance with the regulators investigative powers.
Building on findings from reviews into the working of UK competition law over recent years (including the Furman Review, former CMA chair Lord Tyries's proposals for reform, and the Penrose report), the government is now proposing reform to the UK competition enforcement regime designed to address findings that the UK's competition policies (alongside its consumer policies) are failing to keep pace with the challenges posed by modern markets.
The proposals have a significant focus on speeding up enforcement and making the CMA's investigations more efficient – a criticism often levied against competition regulators is that investigations do not move quickly enough to address harms in fast-moving markets; remedies are imposed too late in the game to address the competition harm.
The government states that these reforms are seeking both to take advantage of the opportunities Brexit creates, enabling the CMA to strike out its own course to benefit UK markets with a view to the UK's regulator becoming "best in class" , while dealing with the challenges Brexit poses, such as the CMA's greater workload and the increased strategic significance of the cases it is taking on.
The proposals include:
- Changes to merger control thresholds: the government proposes to introduce a new threshold, based solely on the share of supply or turnover of one party in the UK. This is designed to capture "killer acquisitions" by large players that would otherwise go under the CMA's radar (because the transaction relates to a small player in an adjacent market to the acquirer, which means that existing target turnover and share of supply thresholds are not met). At the same time, the government proposes introducing measures seemingly designed to catch fewer transactions, including raising the existing threshold for the target turnover test from £70 million to £100 million and introducing a new de minimis threshold where, even if the tests are satisfied, the transaction would not be caught if the worldwide turnover of each party is below a certain level (proposed to be £10 million).
- CMA to impose stronger penalties on businesses who fail to comply with its investigations or orders, with new powers for fixed penalties of up to 5% of annual turnover and additional daily penalties of up to 5% of daily turnover while non-compliance continues. This would create more pressure on companies to comply with new and existing obligations to the CMA.
- Changes to review standard for appeals. The standard of review on CMA Competition Act appeals remains up for grabs. It was recommended by Lord Tyrie that this be changed to the judicial review standard, which would make it considerably more difficult for companies to successfully appeal adverse decisions and penalties, compared to the current full-merits-based reviews of CMA decisions on appeal to the Competition Appeals Tribunal. The CMA is now consulting on what the appropriate level of judicial scrutiny should be.
- Increased ability to settle cases at any point during an investigation and for the CMA to streamline the process, with a view to achieving quicker results and lower costs for both parties. The government is also proposing to introduce a settlement tool for abuse of dominance investigations. This may create opportunities for businesses to engage more positively and constructively with the CMA in relation to any ongoing or future investigations, and also to find mutually acceptable settlement terms.
- More effective market enquiries. The government proposes changing the structure of the market inquiry process to allow the CMA to tackle harms more quickly. The proposals include enabling the CMA to impose certain remedies at the end of a market study (currently remedies can only be imposed at the end of a market investigation), or, alternatively, by entirely replacing the existing process with a new single stage market inquiry tool. In addition, the government is consulting on whether to allow the CMA the power to impose interim measures/ accept binding commitments at any stage in a market inquiry. Making the merger enquiry process more efficient may reduce the burden on companies asked to respond.
- Greater incentives for companies to alert the CMA of anti-competitive conduct. The government is considering whether to introduce greater protections for whistle blowers and whether immunity from follow on damages actions ought to be introduced for leniency applicants, addressing the fact that potential leniency applicants may be deterred from making an application due to the risk of such actions.
- A new approach to the government's strategic steer for the CMA. The government has always provided a "high level" steer to the CMA on its enforcement focus, but is now considering taking a more active role, for example, providing its steer more regularly and encouraging the CMA to focus on certain sectors. The government will be consulting in more detail on the strategic steer later this year.