The consumer power shift - CMA reforms on the horizon

13 Oct 2021

The acceleration of e-commerce during 2020 was hard to ignore, as consumers shopped online often out of necessity. There was, after all, only limited opportunity for wandering those aisles during the pandemic’s peak and for many window shopping was as good as it got. Those straightened times forced brands to rapidly change their e-commerce strategies.

2021 looks set to be another busy year for online retailers, with data indicating a 55% increase in worldwide consumer e-commerce spend between March and July 2021 compared with the same period in 2020.

But all is not quite so rosy in the online retail world… 

Aside from the new Digital Services Tax which imposes a 2% tax on the revenues of, amongst others, online marketplaces, the Government has proposed reforms to enhance consumer rights and the way those rights are enforced. The proposals, which were out for consultation until 1 October, 2021, if implemented in their current form, will have a significant impact on both businesses and consumers, much in the same way GDPR hit businesses back in May 2018. Below, we look at what those proposals are, and what businesses should consider doing now.

The role of the CMA
A key reform currently on the table, is to increase the Competition and Markets Authority’s (CMA) reach, whereby it could be allowed to:
  • fine businesses up to 10% of their global turnover for infringing consumer law;
  • levy civil fines for businesses which mislead or don’t cooperate with the CMA – including personal liability for directors/owners; and
  • levy fines itself – this is a big one as currently it has to bring a claim and ask the courts to impose a fine where wrong-doing is found.

The reforms, as proposed, would place the CMA at the frontline of consumer-related issues, with extensive powers over businesses to ensure compliance as well as overseeing a streamlined penalty process: the CMA may become the consumers’ biggest weapon.

Consumer Policy Reforms
In addition to the CMA’s proposed extra powers, the Government wants to introduce additional consumer protection; this directly flows from the increased trend in online shopping during the pandemic. These additional measures may include:
  • Pre-contract Information: Help to avoid consumers falling in to ‘traps’, such as unreasonable minimum contract terms, auto-renewals and unfair minimum notice periods for cancellation. Consumers should also expect to receive clear, pre-contract information, prior to purchasing a product or service.
  • Subscriptions: New rights could be granted to consumers allowing them to have an easy, hassle-free way of cancelling subscriptions. This would not only do away with long cancellation notice periods, but also impose an obligation on businesses to remind its subscribers that their subscription is still active – no more would consumers be allowed to forget about fallow memberships, or subscriptions. 
  • Online Reviews: A ban on businesses paying or incentivising consumers to submit reviews is proposed. This may also extend to restrict or outlaw the use of influencers and brand ambassadors.
  • Arbitration and Mediation: It could become mandatory for businesses to take part in arbitration and mediation in order to encourage faster, independent dispute resolution for consumers regardless of what may be in the business’ terms.
  • Safeguarding all pre-payments: If your business holds consumer money as a form of pre-payment, you may be required to ‘ring fence’ and protect that money if your business should fail.
  • Prohibiting ‘Dark Patterns’: ‘Dark Patterns’ (using algorithms to manipulate consumers in to spending more) could be banned entirely.

These proposals would see obligations imposed on a business, both practically, in how it sells to its customers, as well as legally, in respect of the terms and conditions it uses.

What to do now
Since the consultation period has now closed, we should begin to learn more about the Government’s plans and the timetable for their introduction in the coming months: watch this space. All we can say with certainty is that, as Sam Cooke sang, “Change is Gonna Come”! 

More bad news…

For those who sell into EU, the position will be more complicated going forward. The EU has adopted a directive (the Omnibus Directive) which, like the UK Government’s proposals, aims to strengthen consumer rights through enhanced enforcement measures and increased transparency requirements. A key difference, however, is that we have certainty as to the new EU regime: Member States have until 28 November 2021 to implement the Omnibus Directive and must apply measures under it from 28 May 2022.

Whilst you may consider it premature to do anything now, we do know, from our experience with GDPR, that many businesses are less than compliant and that it can be a costly (and a somewhat stressful experience) to undertake wholesale change in one step. Now is as good a time as ever to look to plug gaps in compliance with current laws so that you are better prepared for the proposed changes. A few things to look out for include:
  • Terms and conditions for consumers should be written in plain, clear and easy to understand language (i.e. no legal jargon!).
  • Undertake an audit of compliance with current consumer rights legislation and, in particular, around returns and cancellation rights.
  • If you are selling into the EU, you should start to put your house in order now. You could adopt a ‘one size fits all approach’ or look to separate out your UK and EU trading terms.

How we can help
We can help businesses assess whether they are compliant with consumer law, and help rectify things where they aren’t. We can:
  • draft or amend terms and conditions or other customer facing policies (such as returns or cancellation policies) to ensure they are compliant with consumer law;
  • assist you in carrying out consumer law compliance audits; and
  • advise on disputes you have with consumers.

If your business is consumer-facing and you think it may be affected by any issues concerning current and/or proposed consumer law, please get in touch with one of our experts in the Commercial Team.

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