DMCC Bill in focus part one

Some sector regulators, for example the Financial Conduct Authority and Ofcom, already have the power to impose large fines when regulated firms engage in practices that harm consumers.

However, the CMA currently lacks those powers when it enforces consumer law against companies that operate in non-regulated sectors (for example retailers and FMCG brands). In practice this means that the CMA 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. This is the approach the CMA has taken in recent consumer enforcement cases in the online video game, anti-virus software and package travel investigations.

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. The Bill proposes 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 a company’s global turnover without going to court.

It is widely understood the intention is for fines to be set very high, as is the case with competition law enforcement where fines are rarely below the million pound mark.

A monetary penalty can be appealed in the High Court under the Bill. But as businesses that have been on the receiving end of a large CMA fine for a competition law infringement will know, appealing a fine already imposed is very different experience to defending a prosecution.

Based on the CMA’s recent consumer enforcement cases, its new powers are most likely to be used in enforcement cases that involve “unfair commercial practices” under the Consumer Protection from Unfair Trading Regulations 2008 (CPRs)[1]. This could include:

• Misleading pricing and promotions

• “Greenwashing” and misleading environmental claims (i.e. breach of the Green Claims Code). For example, the CMA is currently investigating green claims made in the FMCG and fashion sectors

• Manipulating consumer decision making through online choice architecture (so-called “dark patterns”) – including misleading “urgency” claims and countdown clocks. See, for example, the recently opened investigations into Emma Sleep and Wowcher.

The definition of unfair commercial practices under the CPRs is broad and businesses should not assume that penalties will only be imposed in cases that involve overt or egregious misleading sales practices. For example, in recent years the CMA has taken enforcement action against Apple for failing to disclose the impact that its iOS update would have on battery life and car rental intermediaries for failing to take steps to ensure that third party prices they displayed on their websites were accurate.

It is also important to note that the CMA’s new powers are not limited to breach of the CPRs. For example, under the Bill as currently drafted the CMA could impose monetary penalties for breach of the following legislation (amongst others):

• Consumer Rights Act 2015;

• Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013;

• Business Protection from Misleading Regulations Marketing Regulations 2008;

• Package Travel and Linked Travel Arrangements Regulations 2018;

• Price Marking Order 2004; and

• the new consumer rights set out in the DMCC Bill itself.

We await further guidance on how the CMA may approach enforcement in these cases, particularly given that some of the legislation referred to in Schedule 14 of the Bill (the Consumer Rights Act for example) was drafted more with the intention of empowering consumers with civil rights than setting out regulatory “offences” that are punishable with fines.

Either way, it is clear that the CMA wishes to have the new powers at its disposal to tackle a wide range of consumer law breaches.

Not directly, no. However, under Part 3 of the Bill it is proposed that certain designated enforcers will have the power to apply to the court to impose a monetary penalty. These build upon the existing powers that many regulators have to apply for an Enforcement Order under the Enterprise Act 2002; however, those powers are currently limited to the court stopping the relevant infringement and imposing enhanced consumer measures. The Bill goes further than this and states that an application for Enforcement Order can also include a requirement for the respondent to pay a monetary penalty – again for up to 10% of the company’s global turnover. 

In practice this means that other regulators such as local authority trading standards and Ofgem could also apply to the High court and request for a fine to be imposed on a company once it has concluded its investigation. It is important to note that this would be a civil penalty, so arguably removes the need for the regulator to prosecute via the criminal courts in order to impose a fine. Local authorities do occasionally prosecute consumer law breaches in the criminal courts but due to the costs associated with running a prosecution (and securing a conviction against the criminal burden of proof), it is possible that the new civil route may provide a more appealing enforcement route.

It should be noted that while the CMA’s powers to directly impose fines are limited to a small sub-set of consumer protection law, an application for Enforcement Order can be made in respect of a much wider list of regulatory offences that are not limited to consumer protection legislation.

The list of designated enforcers is also wide and includes (amongst others), local authorities, Ofgem, Ofwat, Ofcom and the Civil Aviation Authority.

Yes. The ability to impose penalties is just one pillar of the CMA’s new consumer law enforcement regime.

In particular, the CMA will have the power to impose large penalties (up to 1% of global turnover) on companies that provide information that is “materially false or misleading” during a consumer protection investigation. Given that the CMA tends to serve multiple (often wide-ranging) Information Notices during the investigation stage of enforcement, this ups the ante considerably for companies that find themselves under investigation.

Separately, the Bill proposes handing the CMA the power to impose direct penalties of up to 5% of global turnover in cases where a company breaches undertakings agreed following an investigation. This proposal will expedite the current process, whereby the CMA is required to make an application for a court order to enforce undertakings, with the court only able to impose fines in cases if the company in question breaches the court order.

Yes, in a surprising move the Bill revokes the Consumer Protection from Unfair Trading Regulations entirely – although the legislation has been largely retained but “re-housed” within Chapter 1 of Part 4 of the Bill. This is then supplemented by the new consumer rights in relation to subscription contracts (see our next update on the Bill) and consumer savings schemes.

In practice the decision to move the substance of the CPRs to the DMCC Bill shouldn’t make much difference to businesses from a compliance perspective. It has been speculated that one of the reasons the legislation (which forms the backbone of the UK consumer law regime) has been recast within the DMCC Bill is to ensure that it is not captured in any further culls of EU law, given that the CPRs was the implementing legislation for the EU Unfair Commercial Practices Directive.