We’re caught in a trap, I can’t walk out…

What matters

The DMCC bill seeks tackle “subscription traps” by imposing new duties on traders. In particular, to give specific pre-contract information to consumers, send reminders to consumers before a contract rolls over or auto-renews into a new term, provide rights for consumers to cancel subscription contracts during cooling-off periods, and ensure that consumers have a straight-forward mechanism to terminate the subscription contract.

What matters next

Follow our pages for progress on the DMCC bill and follow our tips for how to ensure compliance with the DMCC subscription bill requirements. 

Nope, we’re not referring to Elvis Presley’s Suspicious Minds but rather in relation to the perils consumers have been facing when falling into subscription traps set by traders. So, how will the Digital Markets, Consumers and Competition Bill (Bill) protect consumers?

Subscription contracts – why the change? 

It has been estimated that consumers spend approximately £573 million per year on subscriptions they have forgotten about and £602 million on subscriptions that have automatically rolled over from a free or reduced-price trial.[1] These alarming statistics illustrate the importance of addressing reforms in this area – and the Bill aims to do just that by establishing regulations that govern the operation of businesses that provide subscription contracts.

How will the Bill regulate subscription contracts?

The Bill introduces additional obligations on businesses offering subscription contracts and further rights for consumers to allow them to exit such contracts easily. The Bill contains exemptions when it will not apply including, specifically, in relation to certain subscription contracts which can be found at Schedule 19 of the Bill. These include, for example, contracts for the supply of utilities, financial services and supply of services regulated by Ofcom. 

For subscription contracts that are within scope of the Bill, we have outlined below the key requirements throughout the duration of a subscription contract.

  • BEFORE SIGNING UP

    Businesses must:
    1. Provide the consumer with key pre-contract information, all together, in writing (or if online, on screen), immediately before the consumer places the order;
    2. Provide the consumer with full pre-contract information (which is broadly the same as that set out in existing consumer legislation); and
    3. Obtain express acknowledgement from the consumer that the contract imposes an obligation to make payment (e.g. via a tick box on screen).

  • INITIAL RIGHT TO CANCEL

    A consumer has an initial 14 day 'cooling off' period where they can end the subscription contract for whatever reason and without any penalty (regardless of how the contract was formed e.g. online or in premises).

  • DURING THE CONTRACT: REMINDER NOTICES

    For subscription contracts that renew for 12 months or more, businesses must send two reminder notices containing mandatory information (including how to exit the contract) as follows:

    - between 10 and 14 working days before the cancellation date; and
    - between 3 and 5 working days before the cancellation date.

    The above renewal notices must be provided for each 12 month renewal period.

    For subscription contracts under 12 months, the notice must be given between 3 and 5 working days before the cancellation date. However, clarity is being sought with regards to the frequency of these notices via the Government's Call for Evidence in relation to the Bill.

  • DURING THE CONTRACT: SUBSEQUENT RIGHT TO CANCEL

    Consumers will have a subsequent 14 day cooling off period after 1) the free/reduce price trial ends; and 2) an auto-renewal contract where the renewal term is for 12 months or more. (Note that the latter will apply everytime the contract auto-renews for a year or more).
    Businesses will need to give consumers a notice of each renewal cooling off period setting out prescribed information.

  • HOW TO END THE SUBSCRIPTION CONTRACT

    Consumers should be able to cancel the contract/trial easily and by single communication (e.g. clickling a 'cancel' button on their online account).

    Businesses must send an acknowledgment notice in writing and on a durable medium (e.g. paper or by email) to the consumer confirming the cancellation and refund any overpayments.

What are the risks of non-compliance? 

There are various enforcement/protections included within the Bill. For example, the new trader duties (as set out above) will become an implied term in every subscription contract. This means that if traders do not provide the pre-contract information or reminder notices, or do not facilitate easy termination of the contract, they will be in breach of the subscription contract. Such breach will allow consumers to cancel the contract at any time, penalty free.

If that is not enough of a deterrent, non-compliance could also result in:

  • consumers being entitled to walk away from a subscription contract where the trader fails to obtain the required express acknowledgement from a consumer;
  • criminal prosecution and fines for failure to provide the initial pre-contract information for off-premises contracts;
  • consumer damages claims for breach of contract;
  • orders for specific performance;
  • significant financial penalties (e.g. £300,000 or, if higher, 10% of global turnover) by way of the new enforcement powers delegated to the Competition and Markets Authority under the Bill; and/or
  • reputational damage.   

How does the Bill provide for future changes? 

The Bill provides the Government with the power to supplement certain provisions relating to subscriptions (for example, around the consequences of consumers exercising their right to cancel). Through secondary legislation the Government can therefore ensure that consumers continue to be effectively safeguarded. It therefore seems that the Government are aware of the importance of ensuring that the Bill can remain responsive to the constant changes in the ever-evolving consumer landscape. 

What does this mean for your business? 

Businesses will need to review their business processes and operations to ensure compliance including reviewing: consumer facing terms, website user journeys, communications with customers and staff training. 

If you would like to know more about the Bill and other fundamental reforms it seeks to introduce, please read our articles below:

 

 

Resources

  1. Enhancing consumer rights: policy summary brief (publishing.service.gov.uk)

Disclaimer

This information is for general information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Please contact us for specific advice on your circumstances. © Shoosmiths LLP 2024.

 


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