Businesses selling to consumers facing fines of up to 10% of turnover

Businesses selling to consumers need to comply with new rules, or face heavy fines.

This is as a result of the new Digital Markets, Competition and Consumers Act (DMCC Act), which was passed in May 2024 but does not come into force until this autumn. In anticipation of the new rules coming into effect, a consultation on the detail of the new fining and enforcement powers has opened, which stakeholders are encouraged to engage with.

Background

The new DMCC Act will significantly impact consumer protection in the UK by introducing a number of new measures, including:

• New enforcement powers for the Competition and Markets Authority (CMA): The CMA is the UK’s primary competition and consumer enforcement body. Going forward, the CMA will have more authority to enforce consumer protection laws directly.

• Enhanced consumer rights: Consumers have enhanced “cooling-off” rights to cancel subscription contracts within a window of time at the end of a trial period, or any renewal period.

• Pre-contract information requirements: Businesses must provide clear information to consumers before contracts are signed.

• Measures against “drip-pricing”: Businesses will no longer be able to charge hidden fees.

• Ban on fake reviews: Reviews that are fake or incentivised without disclosure will be prohibited.

For further information on the above, please see our recent article on the DMCC Act.

Direct enforcement powers for the CMA

The most headline-grabbing of the above measures is the granting to the CMA of direct enforcement powers. Previously, the CMA's role was mainly investigative and advisory. They could investigate potential breaches but still had to prosecute matters through the courts, resulting in lengthy legal processes and delayed enforcement actions.

With the DMCC Act, the CMA can now:

• Determine breaches: The CMA can directly decide if consumer protection laws have been violated without needing court rulings.

• Require information disclosure: The CMA can demand information from businesses during investigations, allowing for more thorough and efficient inquiries.

Increased penalties

If the CMA determines that a breach has occurred, penalties under the DMCC Act are substantial:

• Fines for breaches: Up to £300,000 or 10% of the infringing company’s worldwide turnover, whichever is higher.

• Fines for breach of undertakings: Up to £150,000 or 5% of total turnover for failure to comply with CMA-imposed remedies.

These substantial fines underscore the importance of compliance and the serious consequences of violating consumer protection laws.

Direct consumer enforcement consultation

The DMCC Act mandates the CMA to issue guidance on its enforcement approach and allows it to publish rules. To this end, the CMA launched a consultation on 31 July  2024 which will run until 11 September 2024. Issues on which the CMA seeks views include:

• Responding to enforcement notices: Recipients of potential infringement notices from the CMA can expect to have only a short time in which to respond - typically between 20 and 30 working days. Recipients also have the option to attend an oral hearing to explain their position and answer any questions that the CMA may have.

• Accepting undertakings: Undertakings are promises made by an infringer to take specific remedial action. The CMA is more inclined to accept undertakings to settle investigations if they can be implemented effectively and quickly; they are less likely to accept undertakings from those with a history of infringement or non-compliance.

• Settlement and penalty discounts: The settlement process involves an infringer admitting an infringement, agreeing to the CMA’s remedies, and waiving their right to appeal. In exchange for settlement, the monetary penalty can be discounted. The discount may range from 20% to 40%. The earlier the settlement, the higher the discount.

• Monetary policies: The CMA may impose fines capped at £300,000 or, if higher, 10% of a party’s worldwide turnover. The penalty sum will take various factors into account, including:

• • Escalating factors: The penalty may be increased based on the impact on vulnerable consumers or the essential nature of the affected products, such as medicines.
  • Infringer’s culpability: The degree of fault or responsibility of the infringer.
  • Deterrence: The need to impose a penalty that will deter others.
  • Infringer’s size: This is considered to ensure that the penalty is impactful but not devastating.
  • Aggravating factors: Actions that exacerbate the infringement, such as attempts to cover up the wrongdoing, can increase the penalty.
  • Mitigating factors: Actions that may reduce the penalty, such as full cooperation with the investigation, self-reporting the infringement, or taking prompt corrective measures.

Stakeholders are encouraged to participate in the CMA's consultation to help shape its enforcement approach, ensuring that the new rules are both fair and effective. As the DMCC Act comes into effect in autumn 2024, businesses should prepare for these changes now to ensure compliance and avoid substantial penalties.

Heavy fines under GDPR brought data protection compliance to the forefront of board-level discussions in 2018. The heavy potential fines in the new DMCC Act should do the same thing regarding compliance for consumer-facing businesses.

What can we do to help?

If you need advice on any of the issues raised in this article, please contact either James Sarjantson on 0113 201 0401 – ku.oc1728469437.fcl@1728469437nostn1728469437ajras1728469437j1728469437 or Thomas Taylor on 0113 204 0407 – ku.oc1728469437.fcl@1728469437rolya1728469437tt1728469437.

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