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Businesses selling to consumers need to prepare for CMA’s major new fining powers

LCF Law | Commercial | The digital markets

The Government has recently proposed new legislation to protect consumers from “rip-off” business practices such as subscription traps and fake reviews. The Digital Markets, Competition and Consumers Bill (“the Bill”) introduces a more efficient consumer law enforcement process, and more robust financial penalties for breaches of consumer laws. One of the Government’s aims for this Bill is to encourage growth in the economy by ensuring consumers have confidence in the supply of goods and services.  Although the subject-matter of the Bill is wide-ranging, we flag up in this note the following key provisions:

Fines of up to 10% of turnover
The Bill provides the Competition and Markets Authority (“CMA”) with additional powers to enforce breaches of consumer law directly, without the need to use the existing court process. The CMA are given the authority to investigate suspected infringements where it reasonably suspects that an infringing practice has occurred, is occurring or is likely to occur. This ensures that the CMA can intervene earlier and more robustly to directly protect the interests of consumers.

In addition to the above, financial penalties for a breach of consumer law will also be strengthened. The maximum financial penalty for breach of consumer law is to be increased to £300,000 or, if higher, 10% of global turnover (and the global turnover figure could potentially include that of parent and subsidiary companies). By calculating the penalty using the higher of a fixed amount or a percentage of global turnover, the Government seeks to deter unlawful practices by all kinds of businesses, including businesses with a small turnover, sole traders, and also large global companies.

Subscription contracts
New rights are to be introduced for consumers entering into a subscription contact. A subscription contract is a business to consumer contract for goods, services or digital content that:

  1. Renews automatically; and/or
  2. Includes a free trial or discounted price for a period, following which the consumer becomes automatically liable for payments (or for payments higher than the reduced price).
  • Pre-contract information
    Before a trader enters into a subscription contract, the trader must give the consumer certain key pre-contract information immediately before the consumer enters into the contract, in writing. The required key pre-contract information includes the frequency and minimum amount of payments, the total amount payable under the contract and details of how and when the    consumer can bring the contract to an end.
  • Cooling off rights
    A consumer has the right to terminate a subscription contract during an initial cooling-off period. The initial cooling-off period ends 14 days after the day after the consumer receives the goods (for supply of goods contracts) or 14 days after the day the contract is entered into (for other contracts).A consumer also has the right to terminate a subscription contract within 14 days after a “relevant renewal”, which occurs when:
    - A consumer first becomes liable for a renewal payment after a free-trial (or reduced price trial period);
    - A consumer becomes liable for a renewal payment and the next payment is not due for 12 months or more
  • Reminder notices
    Traders must also provide the consumer with a reminder notice confirming that the consumer will become liable for a renewal payment unless the consumer terminates the contract. Information that needs to be explained in the reminder notice includes the renewal payment date and the amount due, any price increase compared to the previous payment and the steps the consumer can take to terminate the subscription contract.
  • Criminal Offences
    It is a criminal offence if a trader fails to provide pre-contract information about the initial cooling-off period. Officers of a company can also be personally liable for this offence if it has been committed with their consent or connivance or it is attributable to any neglect on their part.

Fake Reviews
The Bill will enable the Government to ban the practice of businesses facilitating fake reviews or advertising consumer reviews without taking reasonable steps to ensure that they are genuine. The details of such a ban will be consulted on by the Government during the Bill’s passage through Parliament.

At the time of writing, the Bill is awaiting its second reading in the House of Commons and as such the timeframe for implementation is unclear, however some commentators suggest that implementation may take place by the end of 2023.

Businesses selling to consumers need to review their terms and conditions, particularly in relation to subscription contracts, to ensure that they comply with the provisions contained in the Bill, and to avoid substantial penalties and potential criminal liability arising from non-compliance.

What can we do to help?

If you need advice on any of the issues raised in this article or assistance with your terms and conditions, please contact either James Sarjantson on 0113 201 0401 - ku.oc1716687135.fcl@1716687135nostn1716687135ajras1716687135j1716687135 or Thomas Taylor on 0113 204 0407 - ku.oc1716687135.fcl@1716687135rolya1716687135tt1716687135

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