On 4 September 2023 the Department for Business and Trade (DBT) published a new 'Smart Regulation' consultation that outlined a number of further proposals to reform consumer protection law in the UK.
The proposals continue the shake-up of the UK's consumer protection regime in the Digital Markets, Competition & Consumers (DMCC) Bill, which we have reported on in our DMCC Bill in Focus series. In particular, the government's proposals should be read against the backdrop of plans to introduce the new powers for the CMA to impose penalties of up to 10% of global turnover on businesses that breach UK consumer law.
In this update we focus on some of the key proposals in the DBT consultation. Please note that we do not cover proposed changes to the Price Marking Order here (including unit pricing and the impact of the Deposit Return Schemes). These issues will be covered in a separate update.
1. Further regulation of 'drip pricing'
Earlier this year the government commissioned research into the prevalence and impact of online and in-app drip pricing in the UK and estimated that the practice may cause UK consumers to spend an additional £595 million to £3.5 billion online each year.
The practice of drip pricing occurs when consumers are presented with an initial price for a product or service (known as the base price) at the beginning of the sales journey, with additional fees being introduced (or 'dripped') as they proceed towards the final transaction.
The government's concern is that drip pricing can result in consumers being 'baited' into choosing a product because of its lower base price, but then ultimately end up paying more once further fees or products are added.
Of course, in some cases prices may be presented towards the end of the checkout process because they are genuinely optional – for example an optional charge for gift wrapping or seat reservations. These should be distinguished from fixed mandatory charges that consumers cannot avoid (for example booking fees and set cover charges at a restaurant). The CMA explored this issue in its online car intermediaries investigation and found that the headline price for a car rental must include all compulsory additional charges.
However, the legal position is less clear in cases where charges are mandatory but variable in nature (i.e. they cannot reasonably be calculated in advance) or when it is not clear whether 'optional' additional charges can genuinely be described as optional. Some of the examples given by DBT of dripped charges that may be inaccurately described as optional include:
- traders selling phones and adding charging cables as an optional fee;
- toys being sold without the required batteries, which are charged as an optional fee to consumers; and
- long-haul flight tickets being sold to consumers without luggage, which is then charged as an optional fee later in the purchasing process.
While misleading pricing is already governed by the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) – which are largely due to be restated in the DMCC Bill – the government is consulting on whether the rules on unfair commercial practices need to be tightened further and/or clarified to better deal with more ambiguous forms of drip pricing.
Thankfully, the government appears to recognise that a 'one size fits all' approach to regulation may be counterproductive given that pricing practices can vary significantly across different industries. One question DBT is therefore consulting on is whether it would be more appropriate to issue sector-specific guidance on how certain optional and mandatory additional charges should be communicated to consumers.
Any traders that promote more complex products with various layers of pricing are advised to respond to the consultation in order to ensure that any subsequent guidance or regulation properly reflects the nuances of their own business practices.
2. Application of consumer law to digital platforms
Given that online platforms and marketplaces don't generally sell direct to consumers (they typically act as intermediaries connecting traders to consumers), it hasn't always been clear how consumer protection law should apply to them.
It is accepted that digital platforms are subject to the so-called "professional diligence" requirement under the CPRs. However, the statutory formulation of this test is derived from the EU Unfair Commercial Practices Directive and is not always easy to apply in practice (specifically, traders must act "with reasonable skill and care, commensurate with honest market practice and the general principle of good faith in their field of activity").
The CMA has provided some limited guidance on this standard in its online car intermediates investigation, and subsequently in the Digital Comparison Tools Market Study but the government is concerned that operators of online platforms may not fully understand what the law requires – for example the steps that online marketplaces are required to take to verify that third party product information is accurate.
The government is therefore consulting on how best practice for complying with the professional diligence requirement for online platforms should best be set out and communicated. This includes further guidance, or potentially, a new code of conduct or self-regulatory forum.
It is worth noting that these proposals would be in addition to the separate changes introduced via the DMCC Bill whereby firms with Strategic Market Status (SMS) in relation to certain digital activities will be subject to bespoke codes of conduct (read more about those changes here). The proposals in the DBT consultation would apply to all online platforms, irrespective of whether they have SMS.
3. Increased risk of civil claims for breaches of consumer law
Under the CPRs consumers can currently bring direct civil claims against traders in the courts to recover damages when they have been the victim of certain 'prohibited practices'. However, this is limited to the more serious breaches of the CPRs – specifically misleading actions or aggressive sales practices.
As things stand, if a trader breaches one of the more abstract CPR offences, for example by making a misleading omission or failing to comply with the professional diligence requirement, consumers are not entitled to bring a private civil claim to recover any losses they may have suffered as a result of the breach. This reflects the more complex nature of those commercial practices.
The consensus has generally been that it would be a step too far to enable consumers to bring civil claims arising out of these more subjective requirements (which is more the domain of regulators), particularly as the damages that consumers can recover under the CPRs are wide and includes compensation for alarm, distress or physical inconvenience.
Nevertheless, DBT is consulting on whether it should use the powers under the DMCC Bill to extend consumers' civil rights of redress. This is likely to be of particular concern for traders that sell high value goods.
The impact of the proposed changes on class action litigation may be limited to an extent by the fact that UK Consumer Rights Act does not currently allow large-scale 'opt-out' class action claims for consumer law breaches, unless they are linked to a competition law breach (see, for example the Apple iPhone case). That said, it is not uncommon to see large group litigation claims brought on an express 'opt-in' basis – so the DBT proposals will inevitably increase the litigation risk exposure for corporates with high volumes of customers in the UK.
4. Fake and misleading reviews
One of the key changes in the DMCC Bill was the creation of new powers for the government to legislate to tackle fake reviews.
You can read our separate DMCC Bill in Focus article to learn more about the risks in this area – but taken in the round, the government's proposals would require traders to take reasonable and proportionate steps to prevent consumers from encountering fake reviews.
According to the DBT consultation, this may require traders to put in place the following practical measures:
- policies and processes for regularly and proactively assessing risk;
- detecting suspicious reviews and removing fake reviews;
- sanctioning those that commission, facilitate, or otherwise arrange for the posting of fake reviews; and
- reporting mechanisms that allow consumers to report suspicious activity, as well as conducting a regular evaluation of the effectiveness of their policies, processes, and monitoring systems.
Thankfully, the government has indicated that the proposals are unlikely to result in traders being subject to enforcement action on the basis that they publish a single fake review. The focus will be on how effective the trader's policies and procedures are overall in terms of ensuring that consumers do not encounter false or misleading reviews on their website or app.
Once the new rules have been finalised, DBT has said it will work with the CMA to publish and consult on guidance for traders on how to comply with the law.
You can read more about the proposals and the CMA's wider enforcement focus on fake reviews here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.