UK Government Draft Bill Proposes Significant Reforms for Consumer Protection and the Digital Sector

The bill proposes to significantly strengthen the enforcement of consumer protection law by giving civil courts new penalty powers, along with allowing the CMA to use its out-of-court powers to determine and sanction violations:

Expanding the power of civil courts: New powers will be granted to civil courts to impose civil monetary penalties for violations of consumer protection laws under the bill. Local authorities and the CMA, for example, can apply to the courts for penalties of up to £300,000, or 10% of a company’s global turnover, whichever is greater.

CMA’s new powers: A new administrative model of consumer law enforcement is introduced in the bill, giving the CMA authority to impose monetary penalties (up to 10% of a business’ global turnover) if certain consumer laws are violated. The CMA will therefore be able to enforce consumer law with powers similar to those currently afforded for competition law enforcement.. A higher penalty will be imposed on those who fail to comply with investigative requirements (e.g. failing to comply with information notices or providing false or misleading information) and penalties based on business turnover for noncompliance with CMA orders, undertakings and accepted commitments. These powers will allow the CMA to take on more cases faster. The purpose is to protect consumers and create a level playing field.

Regulations (which are the UK’s implementation of the EU’s Unfair Commercial Practices Directive) governing protection against unfair trading are repealed. In spite of this, these regulations won’t be going anywhere, as the bill largely recreates the prohibitions on unfair commercial practices as set out in the CPUT Regulations, aimed at preventing harm to consumers’ collective interests.

Consumer saving schemes are proposed to be regulated in order to prevent inertia selling (the sending of unsolicited goods to potential customers in the hope of closing the sale) and subscription traps.

Businesses will need to examine their processes to ensure they are robust enough to respond to CMA requests for information (and stay compliant with any undertakings, orders or commitments) given the CMA’s greater investigative powers and the ability to impose high, turnover-based penalties.

Furthermore, the CMA’s ability to impose significant turnover-based fines without going to court will likely lead to increased enforcement of consumer law. CMA enforcement decisions can be appealed on merits under the bill; however, courts should intervene only if they find the decision ‘materially wrong’. Businesses should therefore ensure their consumer-facing communications and practices adhere to the updated rules.

Consumers in the UK are being targeted by the CMA due to potentially harmful online selling practices. The CMA’s open letter to UK businesses was published on 29 March 2023 and sets out its advice in relation to urgency and price reduction claims in the digital retail space. Business should consider the CMA’s advice on online choice architecture and selling practices given the expansion of its enforcement powers.

The CMA will also have the power to conduct “pro-competitive interventions” with SMS firms, addressing any factors it determines are adverse to competition after carrying out an investigation. They may be able to order SMS firms to divest and apply structural remedies.

Final offer mechanisms will be used as a backstop tool to enforce fair and reasonable payment terms. In this way, the CMA can require SMS firms to submit what they consider fair payment terms for a proposed transaction, and the CMA will decide.

The CMA will have robust enforcement powers. Fines of up to 10% of global turnover can be imposed for breaches of the conduct requirements, along with daily fines of up to 5% of global turnover for continued violations.

In general, the draft legislation gives the CMA the option of using its normal competition law powers or its digital regulatory powers when taking action in the digital space. Regulatory activity is therefore expected to increase.

As part of the bill, the CMA will review mergers where (i) either party has a 33% share of supplies or purchases in the UK (or substantially so), (ii) that party has more than £350.

This will enable the CMA to intervene more easily in mergers where there is no obvious competitive overlap between the parties, or where the target is particularly small but is being acquired by a large purchaser. The test aims to close a gap in UK merger control legislation. However, the UK nexus requirement suggests that the CMA’s jurisdiction will not automatically extend to acquisitions of uncommercialised products if their activities are conducted outside the UK.

While this change will apply to all sectors, a more sector-specific proposal is for SMS firms and their groups. Going forward, they would need to report to the CMA all acquisitions worth at least £25 million, where 15%, 25%, or 50% equity or voting is being transferred (including joint ventures), and where the transaction has a UK connection. Until the CMA confirms that the report has been completed, the SMS firm cannot close the transaction. By changing this rule, the CMA will gain a greater understanding of SMS firms’ investment activities and will be able to review investments and acquisitions using its existing powers, if needed. Similar requirements are currently included in the EU’s DMA, pursuant to which gatekeepers must notify the EU before completing acquisitions.