Consumer Protection Reforms

14 July 2022

Author: James Milliken
Practice Area: Commercial Law

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As part of the Brexit narrative, the UK Government assured businesses that Brexit would free them from the majority of the unnecessary regulations imposed on them by an overly restrictive European Union. The Government recently announced a number of new consumer protection proposals are framed as a result of the Government’s commitment to seizing the opportunities provided by Brexit and to delivering “growth, innovation and competition” while minimising burdens on businesses. However, if these proposed reforms become law they will impose stricter controls on businesses than those in place in the rest of Europe.

Background

The Government has long had consumer protection reform in its sights. In 2018 it issued a Green Paper entitled ‘Modernising Consumer Markets’ seeking views on a number of areas of consumer law, including increased powers for the Competition and Markets Authority (the “CMA”) and proposals for civil fines imposed by the courts for consumer law breaches. There were claims from some stakeholders, including the former chair of the CMA, that these proposals did not go far enough and that the regulator should have greater powers to go after and punish non-compliant businesses.

The Government made further progress in July 2021 when it issued a Consultation Paper seeking feedback from stakeholders (including businesses, regulators and consumer groups) on a range of proposals to refresh consumer law in a way which would target certain businesses practices that have proliferated in recent years. The Government also asked for stakeholders’ opinions on proposals to enhance the CMA’s consumer enforcement powers to bring them in line with their competition enforcement powers.

The Government received and collated feedback in late 2021 and early 2022 and published its official response on 20 April 2022. As part of the response, the Government announced significant reforms to consumer protection laws in the UK. The reforms proposed in the response mostly align with the position taken in the Consultation Paper, although certain details changed following the consultation feedback.

Proposed Reforms

  • The new law will prevent businesses hosting consumer reviews without taking reasonable steps to verify that they are genuine. Commissioning a third party to write or submit a fake review will be prohibited and it will be forbidden to offer or advertise to submit, commission or facilitate fake reviews. Furthermore, all websites and platforms that host reviews will have to take reasonable and proportionate steps to check that reviews are genuine. Businesses will not be able to achieve compliance by simply stating that no checks have been undertaken.
  • The new law will require businesses to ensure that consumers can exit a contract in a straightforward, cost-effective and timely manner. Businesses will have to provide clearer and more enhanced information to consumers before they enter into a subscription contract and will be obliged to remind consumers before a contract auto-renews onto a new term or before a free trial or low-cost introductory offer comes to an end. However, businesses will not be required to offer consumers the choice to take the subscription without auto-renewal or before the end of a free trial or low-cost introduction offer, obtain the consumer’s explicit consent to continuing the subscription after the free trial or low cost introductory offer period ends.
  • The Package Travel and Linked Travel Arrangement Regulations (which already impose stringent obligations on businesses) will be amended to allow for easier enforcement and compliance with the law by businesses, better flexibility for insolvency protection for non-flight packages and to ensure that the quality of information and guidance available is sufficient.
  • Prepayment schemes like Christmas savings clubs (which are not within the scope of existing financial protections) will be required to fully safeguard customers’ money through insurance or trust accounts.
  • 5% of a business’ annual global turnover for breaching undertakings given to the CMA; and
  • 1% of a business’ annual global turnover for non-compliance with an information notice, concealing evidence or providing false information.

New Powers for the CMA?

Perhaps the most significant of the proposed changes is aimed at giving the CMA greater freedom to enforce consumer laws and punish transgressors. The CMA will be able to directly enforce consumer laws by exercising new powers to fine businesses up to 10% of their global turnover for consumer law breaches. The CMA will also be able to impose additional daily penalties for continued non-compliance and further penalties on businesses of up to:

As an alternative, the CMA will be able to fine individuals instead of businesses (including a maximum fine of £300,000 for a breach of consumer law). There are also proposals to improve the quality and oversight of Alternative Dispute Resolution services in consumer markets and to make it easier for the CMA and other UK regulators to disclose information to international regulators. The latter proposal is intended to improve investigations.

These new rules allowing the CMA to directly enforce consumer law would clearly have a significant impact on business’ compliance approaches in this area. The CMA would be able to adjudicate on alleged breaches of consumer law without separate judicial scrutiny. This would likely expedite the process quite significantly. However, businesses will rightly be concerned about the potential impact of these changes on impartiality and fairness.

Conclusion

The reforms discussed above are currently in the proposal stage. No draft legislation has yet been published and the usual parliamentary approval process will apply before any draft legislation becomes law. Furthermore, the proposals are still drafted in very high-level terms and lack detail. There are likely to be a number of changes, revisions and compromises before any of the proposals become law. However, the publication of the Government’s response gives businesses an indication of what is coming down the track and how UK consumer law is likely to evolve in the aftermath of Brexit. Businesses should keep a watching brief and assess the impact of reform as further detail becomes available in the coming months.

If you would like any further information, please contact James Milliken or any of the Commercial Law team at Carson McDowell LLP.

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