Despite promises that Brexit would be an opportunity to ‘slash the red tape’ and ‘unshackle’ the UK from unnecessary EU regulation, new consumer protection proposals seek to impose stricter controls than elsewhere in Europe.
This week, on 20 July 2021, the Government announced widespread consumer protection and competition reforms and issued a consultation paper (the “Consultation Paper”) addressing proposed consumer law policy changes together with wider functions and increased powers of the Competition and Markets Authority ( the “CMA”), which acts (separately) as both the competition and consumer law regulator in the UK. With potentially serious challenges for business and possible harm to actual consumers, in this article we highlight some of the key consumer protection proposals in the context of the wider position in Europe.
Setting the scene
The consumer protection reform agenda is not new. In 2018, the Government issued a Green Paper seeking views on similar issues as those raised in the Consultation Paper. The Green Paper proposed increased powers for the CMA and put forward proposals for civil fines imposed by the courts of up to 10% of a trader’s worldwide turnover for consumer law breaches (see the 2018 Government Green Paper, Modernising Consumer Markets). Some, including the former chair of the CMA, claimed these proposals did not go far enough, arguing for greater powers for the regulator.
Across Europe, consumer law’s “GDPR-moment” is fast approaching on the horizon. The introduction of the Omnibus Directive and increased powers for the Consumer Protection Cooperation Network (see here for more information) have substantially increased the risks faced by traders operating within the EU, with turnover-based fines of at least 4% of turnover in relevant Member States becoming a reality from May of next year.
Increased risk of operation in the UK
What is surprising, especially following the rhetoric during and after the EU referendum, is the push for increased regulation in consumer protection in the UK beyond even that seen in Europe. This is particularly stark when you consider that historically the UK has not generally gone beyond the requirements of EU consumer legislation and does not have a tradition of “gold-plating”, as is common in other EU Member States.
A clear example of this can be seen in the levels of fines being proposed under the two regimes. The Omnibus Directive specifies that (from May 2022) regulators across the EU must have the ability to impose fines (whether through administrative procedures or legal proceedings) which at the maximum level must be at least 4% of the trader’s annual turnover in the Member State or Member States concerned. Where information on turnover is not available, the maximum fine must be at least EUR 2 million. While Member States can therefore implement a maximum fine above this level, so far only a handful of Member States have decided to do so, and only in limited circumstances reflecting the current law (rather than extending the law as a result of the Omnibus Directive). In contrast, the Consultation Paper proposes that the CMA should be able to impose fines of up to 10% of global turnover for traders that breach consumer protection law. This would arguably make the UK one of, if not the most risky market for businesses to operate in across Europe.
This presents obvious challenges to businesses in that, with a diverging regulatory framework in the UK, they will need to adapt and tailor their dealings with consumers in the various jurisdictions in which they operate. This, in turn, could have a detrimental effect on consumers and cross-border trade. Should SMEs and international businesses not wish to burden themselves with the additional regulatory provisions applicable in the UK, they may choose simply to not trade in the UK thus denying consumers’ choice and competition over the products they could buy.
Proposals made in the Consultation Paper
Turning to the specifics of the Consultation Paper, the proposed reforms focus on two broad areas: consumer rights and consumer law enforcement.
The Consultation Paper specifically mentions the rise of the digital market, accelerated by the pandemic, and the potential perceived consumer harms that might be associated with this. As a result, the Consultation Paper focuses on, amongst other areas:
Subscription contracts: information to be supplied at the outset, auto-renewal, free-trials and introductory offers, and cancelation.
Fake reviews: understanding the legitimate role of commissioning reviews and addressing fake reviews.
Savings clubs: considering potential additional protections for consumers.
Influencing consumer behaviour: including consideration of behavioural techniques, drip-pricing and paid-for search results that are not indicated as such.
A number of questions have been posed for consultation, in general and specific terms, including where the proposals seek to go beyond the reforms currently being implemented across the EU, potentially creating real compliance issues for businesses operating across Europe.
Consumer Law Enforcement
The current proposals shift matters up a few gears from 2018 and include a marked increase in the CMA’s consumer enforcement powers.
A key proposal is to allow the CMA to decide for itself, rather than going through the Courts, when consumer law has been breached and imposing potentially colossal fines on businesses, without any prior judicial scrutiny. This is a monumental change from the current landscape and mandates a shift in approach from the regulator if the risks are to be manageable by businesses. As the CMA regularly reminds us, only a court can decide what the law actually is. The CMA itself has in recent years often sought to push the boundaries of consumer law, but with some assurance for businesses that the Court is there to adjudicate prior to any fines or other enforcement action being imposed. With fines of up to 10% of a business’ global turnover, the proposed reforms radically alter the risk landscape.
Responding to the Consultation
The consultation closes on 1 October 2021 with the Government seeking the views of those with knowledge and expertise in consumer law and policy including consumer organisations, those in the legal profession, trade associations and membership bodies, as well as consumers and businesses.
For assistance with responding to the consultation, or further information on this or any consumer law issue, please do not hesitate to contact one of our specialists.