Businesses that breach UK consumer protection laws could face administrative fines of up to 10% of global turnover under new CMA enforcement powers announced by the Government.

The announcement – which has been expected for some time having formed part of the Conservative Party’s manifesto in 2019 – was made as the Government published its responses to the wide-ranging consultation on refreshing the UK’s consumer and competition regulatory landscape.

What does this mean for consumer-facing businesses?

The impact of these changes for any business that interacts with consumers in the UK should not be underestimated.

As things stand, a company that has engaged in unfair commercial practices vis-à-vis consumers may find itself investigated by the CMA – but crucially the CMA (for now) lacks the statutory powers to impose fines, which means that it currently tends to focus on compelling non-compliant businesses to change their behaviour, either via voluntary undertakings or by obtaining an enforcement order in the High Court. Businesses can also be prosecuted by Trading Standards for consumer law breaches, but such action is rare given the budgetary constraints on local authorities and, in any event, the fines have tended to be relatively low (i.e. in the tens or hundreds of thousands rather than millions of pounds).

That will all change under the new regime – which brings the CMA’s consumer law enforcement powers in line with its much more punitive competition law enforcement toolkit.

What this means in practice is that after the CMA has conducted its own investigation and satisfied itself that a consumer law breach has occurred, it can unilaterally impose a penalty of up to 10% of global turnover without going to court. It is anticipated that, as with competition law infringements, multi-million pound fines for consumer law breaches are likely to become the norm under the new regime. The Government has confirmed that businesses will be able to appeal financial penalties in the High Court – but it is important to bear in mind that appealing a penalty that has already been imposed is quite different to a prosecution in the criminal courts, where the burden is on the regulator to satisfy the courts beyond reasonable doubt that an offence has been committed.
Whether or not these changes are actually necessary (many have claimed the current system works just fine) is now moot – the CMA has been asking the Government for these powers for some time and they will soon have them.

It is also important to note that the CMA will additionally be handed the power to impose fines up to 1% of global turnover on businesses that fail to comply (even in part) with CMA information requests during investigations. Ongoing penalties of up to 5% of daily turnover can then be imposed for each day that the failure goes unremedied. When coupled with the new powers at the CMA’s disposal, this will inevitably raise the stakes in CMA consumer law investigations going forward.

In addition, the CMA will also have the power to impose fines of up to 5% of global turnover on businesses that fail to comply with undertakings accepted by the CMA as settlement of an investigation.

What kind of “consumer law” practices will the new powers apply to?

The Government has said it will specify at a future date which subset of consumer protection legislation the CMA’s new powers will apply to. However, it has already specified that the powers will apply to legislation that protects consumers from economic harm and enable the CMA to correct structural failures in consumer markets (which may include circumstances where issues are identified during Market Studies). More general consumer protection legislation relating to, for example, food standards and product safety will not be within scope – which is unsurprising given the CMA’s lack of expertise in those areas.
It seems likely therefore that the CMA’s administrative enforcement powers will apply at least to the Consumer Protection from Unfair Trading Regulations 2008 (CPRs), Consumer Contracts Regulations 2013 and Consumer Rights Act 2015.

While this would clearly apply to the most nefarious categories of unfair commercial practices under the CPRs – for example where businesses are found to have actively misled or deceived consumers via underhand marketing tactics – under the new regime, businesses could also potentially face heavy fines for:

  • including “unfair” contract terms in B2C terms and conditions;
  • limiting consumers’ ability to enforce their statutory rights, for example restricting their right to cancel in certain e-commerce transactions; or
  • “misleading omissions” – in other words failing to disclose important information which the average consumer needs to know, according to the context, to make an informed transactional decision.

In the latter case, the CMA will almost certainly use the new powers to enforce its much-heralded Green Claims Code, particularly in light of its policy focus on facilitating low carbon growth, underlined by the recent unveiling of a dedicated Sustainability Taskforce.

What should businesses be doing to prepare?

While the full extent of commercial practices that are within scope of the CMA’s fining powers is not yet set in stone, we would nevertheless cautiously advise consumer-facing businesses to start the process of reviewing their policies and standard terms and conditions to satisfy themselves that they are not at risk.

It is important to stress that businesses do not necessarily need to have knowingly engaged in underhand tactics to fall foul of consumer protection laws. For example, the CMA has shown a willingness to take enforcement action on the highly subjective basis that businesses have failed to act in accordance with “professional diligence” in relation to their customers – which is sometimes referred to as a form of “duty of care” owed by businesses to consumers. This can be seen, for example, in the CMA’s recent enforcement action in relation to video game subscription services, where the CMA provisionally found that Microsoft and Nintendo weren’t doing enough to prevent inert customers from maintaining rolling “zombie” accounts.

Put another way, the CMA considers its powers under the CPRs to extend to the general fair treatment of existing customers, not just overtly misleading sales activities used to attract new ones.

In this regard it is also noteworthy that the CMA has spent considerable time recently studying online choice architecture (or so-called “dark patterns”) which it is concerned businesses may be using to manipulate consumer behaviour in a digital context. It is conceivable we may see this area tested from a consumer law perspective at some point in the near future.

As consumer protection law continues to evolve (and grow) in scope as the CMA seeks to use its powers flexibly to regulate consumer markets, business may wish to revisit their wider compliance and training programmes to help minimise the risk of breaches.

When will the CMA’s new powers take effect?

As the new powers will require legislation to be enacted, implementation of the CMA’s new enforcement regime is subject to the usual intricacies of the Parliamentary timetable. There have, however, been calls to pass a new Consumer and Competition Bill relatively quickly and there is speculation this may be announced in the forthcoming Queen’s Speech on 10 May 2022.

What else is changing in terms of consumer rights?

As noted above, the CMA’s beefed up enforcement powers is just one aspect of a wider refresh of the UK’s consumer and competition regime. Other changes that the government intend to take forward include:

  • legislating for new consumer rights in relation to subscription contracts, which will require traders to make it easier for consumers to exit unwanted paid subscription services;
  • making it illegal to pay for or provide fake review services; and
  • working to improve the quality and uptake of alternative dispute resolution (ADR) services for consumers, including by requiring all businesses who offer ADR services to be approved under the Consumer Disputes Regulations 2015.

In addition, the Government will also grant the CMA additional powers (and implement procedural changes) in relation to its competition and merger control regulatory functions. TLT’s Competition and Regulatory team will be publishing a separate update on this in the coming weeks.

Date published

28 April 2022


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