DMCC Bill in focus: part two

What you need to know about the new rules for subscription contracts

In Part 2 of our series of articles on the Digital Markets, Competition and Consumer (DMCC) Bill (the Bill), we explore the UK’s new consumer regulatory framework for B2C subscription contracts.

Due to the increased popularity of subscription services such as food boxes and online gaming services, there have increasingly been calls in recent years for a more robust legal framework to regulate unwanted “subscription traps” that are easy to sign-up to, but much harder to get out of. This includes free trials that roll over into paid subscriptions. The Government believes consumers may be spending £1.8 billion a year on subscriptions that offer poor value for money.

The Competition and Markets Authority (CMA) has already carried out extensive enforcement in this area as part of its investigations into online video games and anti-virus software, with undertakings accepted from Microsoft, Nintendo and Norton in recent years. Regulatory enforcement in this area has also been closely linked to online choice architecture and “dark patterns” (also a key focus area for the CMA), which involve traders deliberately structuring their websites and apps to make it more difficult for consumers to exit subscriptions.

The new rules are designed to target these issues. Traders that offer subscription services should therefore be in no doubt that this remains high up on the CMA’s enforcement agenda. As noted in Part 1 of our DMCC series, the CMA will have the power to impose penalties up to 10% of global turnover on businesses that fail to comply with these new rules.

What kind of subscription services are caught by the Bill?

Subscription contracts are defined broadly in the Bill and apply to subscriptions for the supply of goods and services as well as digital content.

This means the rules do not just apply to digital subscriptions such as music streaming – they also capture a wide range of delivery-based subscription models, for example for food or cosmetic products. They may also apply to less tangible services, such as an annual subscription for “premier” delivery.

It is also important to note that the new rules apply to certain contracts with a free trial (or reduced-price period) that roll over into a contract where the consumer has to pay a higher rate.

However, the Bill exempts a long list of products and services from the new rules, which includes the supply of utilities, financial services, certain healthcare and medical contracts and package travel contracts. In order to avoid duplication with the Ofcom General Conditions, regulated telecoms contracts are also excluded from the new rules.

What are the new pre-contract information requirements?

The Bill introduces two different categories of information: “key” and “full” pre-contract information.

Each category of information is subject to prescriptive rules setting out when (and how) the information must be communicated to consumers during the sales journey.

Key pre-contract information

The “key” pre-contract information is set out at Part 1 of Schedule 20 of the Bill. This includes information about the contract's auto-renewal mechanism, the charges that apply after any initial trial period, the amount and frequency of payments, and details of how the consumer can exit the contract.

The information must be provided “as close in time to entering into the contract as is practicable” and must be given all together. It must be provided:

separately from the full pre-contract information (see below) and other information;
in writing (unless the contract is concluded orally and remotely); and
in such a way that the consumer does not have to take any steps to read the information, such as clicking on links or downloading separate documents, other than the steps needed to enter into the contract itself.

Full pre-contract information

The full pre-contract information is set out at Part 2 of Schedule 20 of the Bill. This is the more general information that broadly replicates existing pre-contract information requirements under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCRs).

Unlike the “key” pre-contract information, the “full” information only needs to be provided or made available before the consumer enters the contract.

As with the CCRs, consumers must be provided with a copy of the pre-contract information in a durable medium after the contract has been entered into.

Will traders be under a duty to issue reminders to consumers when a subscription is due to auto-renew?

Yes. The requirement for traders to proactively issue reminders is a key part of the new regime to help combat so-called “zombie” subscriptions that can easily be forgotten about.

Under the new rules, when a subscription contract is nearing its renewal date, businesses must ensure that reminders are sent to the consumer explaining that their subscription contract will continue and a renewal payment will be due unless the consumer takes steps to end it.

The proposed rules are quite prescriptive and are designed to ensure that the reminders are not provided too early or too close the renewal date. Specifically, it is proposed that the reminder notice must be given within 3 to 5 working days before the “last cancellation date” – which means the last day on which the consumer could avoid becoming liable for the renewal payment to which the notice relates by exercising their right to bring the contract to an end. For subscription contracts that renew for 12 months or more, an additional reminder notice must be given between 10 to 14 working days before the last cancellation date.

The Bill prescribes that each “reminder notice” must include the following information:

the date on which the renewal payment is due;
the amount due;
details of any price increase compared to the previous payment; and
details of how the consumer can exit the contract before becoming liable for the next payment.

The Bill does not define what form a “notice” should take and it is hoped that the CMA will issue further guidance on this point when the Bill is implemented.

Will it be easier for consumers to exit subscription contracts?

Yes. The CMA has long held concerns that it is too hard for consumers to escape auto-renewing subscription contracts, so the so-called “easy exit” requirements are another key component of the new rules.

The Bill introduces new cancellation rights that apply during the contract term and, crucially, after an auto-renewal has taken effect (which are referred to as “renewal cooling-off” rights). These are described below:

Cancellation rights during subscription contracts

Businesses must put in place arrangements so that a consumer can end the subscription contract in a single communication without having to take any steps that are “not reasonably necessary” to end the contract, such as having to follow various links.

This is deliberately intended to stop traders from making the cancellation option hard to find, or more generally implementing obstacles (a tactic often referred to as “sludge”) that make it difficult for consumers to exit subscription contracts.

It is hoped that the CMA will provide further guidance as to how accessible it would expect the cancellation option to be on a trader’s website or app.

Notably, the Bill does not state that this easy cancellation option must be provided free of charge to the consumer. This is important as many longer term (e.g. 12 month) subscriptions are priced on the basis that the consumer will honour their full contractual term. It is standard practice to impose reasonable early cancellation charges in these cases and, as drafted, the Bill should not alter this position. The Bill states that any "overpayments" must be refunded to consumers, which is defined as any payment made by the consumer that they are not liable for as a result of cancelling their subscription.

However, the Bill is clearly designed to give the government the power to introduce additional secondary legislation setting out rights for consumers to exit subscription contracts in the future, so it seems likely that we will see further regulations governing subscription cancellations.

Renewal cooling-off rights

The Bill introduces the new concept of a “renewal cooling-off period” that runs for 14 days starting from the date a “relevant renewal” occurs. Consumers can cancel their subscription within this period without penalty.

The renewal cooling-off rights are designed to apply in two cases:

when a subscription contract of 12 months or more rolls over into a new term; and
when a free trial or discounted introductory offer (referred to as a “concessionary period”) rolls over into the full price subscription.

In the latter case, this means that consumers who forget to cancel a free trial before their paid subscription kicks in will effectively get an extra 14 days to cancel in most cases – a fact that may well influence some traders’ pricing models.

Traders are also required to provide a “cooling-off notice” whenever a relevant renewal occurs. The notice must make it clear that the renewal is taking place (including details on charges, length of terms etc.) and, crucially, how consumers can exercise their cooling-off rights in relation to the renewal.

Do traders also need to provide cooling-off rights at the beginning of the subscription?

Yes, much like the existing rules under the CCRs, traders will also be required to provide 14- day cooling-off rights at the beginning of the contract (referred to as the “initial cooling-off period” in the Bill).

While there are many similarities with the CCR cooling-off rights, it is notable that some of the additional protections for traders included within the CCRs appear to be absent from the cooling-off rights in the Bill. For example, in the case of subscription contracts for goods, the initial cooling-off period runs for 14 days starting from the date the consumer receives their first delivery of goods under the subscription. But (unlike the CCRs) as drafted there is no obligation for the consumer to return the goods in order to receive a refund of their first payment.

However, the Bill does strongly suggest that secondary legislation may be passed to clarify how refunds and cancellations will work for different types of subscription contracts, and further clarity on this point will be welcomed – particularly by traders who offer subscriptions for delivery of goods.

Are there likely to be further regulations governing B2C subscription contracts?

The Bill is clearly designed to establish a statutory framework for subscription contracts, with secondary legislation filling in the gaps in some areas. There are some hints in the Bill as to what those future regulations might look like – for example it states that regulations may set out further consequences of consumers cancelling their subscription contracts, including ensuring that if consumers have a choice of multiple cancellation rights, they exercise “the most advantageous” remedy available to them.

What are the penalties for non-compliance?

Under the CMA’s new enforcement powers (also contained in the Bill), businesses that fail to comply could face penalties of up to 10% of global turnover. They also run the risk of their contractual terms being deemed unenforceable.

As noted above, we have already seen extensive enforcement in this space and it clearly remains a high priority for the CMA. It’s therefore probably only a matter of time before the CMA takes action once the Bill is on the statute books.

When will the new rules come into force?

The Bill still needs to work its way through Parliament and has to pass through two further readings in the House of Commons (and the Committee stage) before it progresses to the House of Lords, so the new rules are unlikely to enter the statute book until next year.

Nevertheless, as the Government has consulted widely on the proposed changes with regards to subscription contracts, we wouldn’t expect to see many significant changes to the rules. Businesses may therefore wish to reflect on their current terms and processes now to ensure they are in line with the expected future regulations.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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