As a maximum harmonisation Directive, there was little the UK could do as it was not possible to have higher or lower standards without breaching EU law. Brexit has changed that and the UK is seizing its Brexit freedoms to take these regulations and recast them into the Digital Markets Competition and Consumers Bill (DMCC). While the DMCC will do a lot of other things, we are particularly concerned by how it will change the regulation of commercial practices in consumer transactions. Are you ready?
What is new and why should I care?
While a quick glance at the DMCC would find all the same topics covered as in the CPRs, in that it retains the concepts of misleading actions, omissions and automatically banned practices, there are lots of subtle but significant changes impacting regulation in this area.
While in many places the drafting is tightened, key aspects have been amended, including the definition of "average consumer" and "commercial practice", as well the expansion of the concept of a vulnerable consumer. While the concept of transactional decision has always been clear - that it relates to before, during or after transaction - the explanatory notes to the Bill state:
"Transactional decision is a broad concept covering both pre-purchase and post-purchasing decisions and includes decisions whether to do something, or not to do something. For example, it includes decisions whether to visit a shop, to click through to a website, to exercise a cancellation right or to pay a debt as well as a decision to purchase a product or to enter a contract. It does not have to lead to a purchase."
This gives an indication of how broadly this is now expected to be interpreted.
It is notable that the draft Bill sees a shift of focus from the specific examples of misleading actions and misleading omissions to the general. For instance, while the current CPRs which sets out a range of information that may give rise to a misleading action, including the main characteristics of the product and further defines that concept in 18 further ways, the DMCC is silent. The same issue exists in the context of misleading omissions, which miss the various information considered material.
While misleading omissions no longer contain the material information definitions, the DMCC introduces the new misleading practice where it omits material information from an invitation to purchase. This new section focuses specifically on pre-purchase stage, which is defined as a practice that indicates the characteristics of a product, its price, and enables or purports to enable the consumer to decide whether to purchase the product or take another transactional decision in relation to the product.
This will result in it being a misleading practice to omit the categories of information near identical to what was known as 'material' information under the misleading omissions provisions of the CPRs.
As before, there are automatically banned practices, but unlike the current EU redrafting of the Unfair Commercial Practices Directive (which the CPRs implements into the UK), the UK has not taken the opportunity to include green claims into the list of automatically banned practices. On the whole, the (current) list brings over the "banned practices" from Schedule 1 of the CPRs with some edits and additions. The scope of banned practices is important because there is no need for a consumer to have been misled by the activity, if the practice has occurred: it is automatically a breach. Furthermore, the DMCC gives the Secretary of State the power to add to Schedule 18 using secondary legislation, so again, watch for green claims to be added in the future like in the EU.
For more insights also see our Global Consumer Trends 2024 article ''Green claims – all risk, what reward?'.
The changes may seem minor on first read, but upon a closer look have wider ramifications. For example, the CPRs banned practice 7 prohibits false statements a product would be available/available on particular terms for a "very limited time". The amended version simply refers to a "limited time". In practical terms, extending sales and promotional offers is potentially going to get a whole lot riskier.
In other cases, there are some significant extensions. Banned practice 17 "Falsely claiming that a product is able to cure illnesses, dysfunction or malformations". Reappears as 18(1): "Falsely claiming that a product is able to - (a) prevent or treat disease or a malformation, (b) restore, correct or modify a physiological function, or (c) modify a person’s appearance." In practical terms, this could mean that unsubstantiated efficacy claims for cosmetics would be caught.
Risk of getting it wrong: civil penalties for 10% of global turnover
Under the current regime, the risk of a prosecution by Trading Standards has always existed. However, given budget challenges faced by most Trading Standards departments, in most cases the likelihood of it eventuating is low. For commercial practices in scope of the Advertising Standards Authority (ASA), it presents a higher risk of action, but has no real enforcement powers beyond the power to name and shame.
One of the most significant changes in the DMCC is in regulatory enforcement. If enacted, the DMCC Bill's "Part 3 enforcement regimes” will create two separate regimes for the civil enforcement of consumer law to protect the “collective interests” of consumers: i) a simplified and enhanced court-based regime; and ii) a direct enforcement regime administered by the Competition and Markets Authority (CMA). This could have game-changing implications when it comes to assessing risk with making decisions in relation to commercial practices. Central to this is the significant powers that the CMA will have as a national regulator in this area. The CMA will have powers to issue:
- A false information enforcement notice imposing a monetary penalty. The penalty must be a fixed amount not exceeding £30,000 or, if higher, 1% of the total value of turnover.
- A breach of directions enforcement notice imposing a monetary penalty. The penalty must be a fixed amount not exceeding £150,000 or, if higher, 5% of the total value of turnover
- An infringement notice which could include a monetary penalty of a fixed amount not exceeding £300,000 or, if higher, 10% of the total value of turnover.
When can the CMA issue a fine?
To issue an infringement notice, the CMA needs first to start an investigation. To commence an investigation it only needs reasonable grounds for suspecting either that a person has engaged, is engaging or is likely to engage in (a) a commercial practice that constitutes a relevant infringement, or (b) a person is an accessory to such a practice. The law then states that the CMA 'may' publish a notice about the matter under investigation, but it is not a mandatory 'must' or 'will'.
Then where the CMA has 'reasonable ground to believe' that effectively the same grounds are made out, i.e. 'the respondent has engaged, is engaging or is likely to engage in a commercial practice constituting a relevant infringement (“the infringing practice”) or is an accessory to such a practice' it may issue a provisional infringement notice. There are procedural requirements for the notice to set out, which requires the notice to:
(a) set out the grounds on which it is given, including the respondent’s acts or omissions giving rise to the CMA’s belief of a breach;
(b) set out proposed directions for the purposes of securing that the respondent complies with the law (and the law sets out a number of ways in which this can be achieved);
(c) invite the respondent to make representations to the CMA about the giving of the notice;
(d) specify the means by which, and the time by which, such representations must be made – which should include how they can be made orally; and
(e) indicate if the CMA is considering imposing a monetary penalty and, if so, the amount.
Once the time for representations has expired, the CMA will consider them. After consideration, if the CMA remains 'satisfied' that the respondent has engaged in or is likely to engage in a commercial practice constituting a relevant infringement, it may give a final notice. That notice may impose a financial penalty which can be up to 10% of the total value of the turnover of the respondent and sets out the grounds upon which it is given, including the respondents acts or omissions leading to the notice as well as other mandatory information. It may also require the respondent to publish the notice and direct enhanced consumer measures to be taken, including compensation for consumers. For most notices there will be a right of appeal within 60 days.
These are game changing powers and your systems will need to be ready to respond!
What should you be doing?
Most businesses will have processes in place to ensure that ads, claims and practices are approved before being released. However, most are light touch and in face of these new enforcement powers, and the increasing number of ways in which the CMA has been active, the risk assessment for commercial practices has now substantially altered. We strongly recommend that prior to the DMCC becoming law businesses review their approval processes to ensure that the due diligence systems have in place the necessary guardrails to mitigate the risks. Existing systems and processes are unlikely to be enough, particularly when the CMA just needs to conclude a practice is misleading in order to send you a notice to pay up to 10% of global turnover. The risk changes from an ASA complaint, or the remote chance of a prosecution, to a real prospect of a significant civil sanction. If received, existing processes of allowing marketing to take the lead on marketing topics is unlikely to be advisable and given the limited time to respond, we recommend getting systems and escalations set up in advance.
If you have any questions or would like to discuss any of these topics and what they mean for you and your business, please get in touch with our Consumer sector and Product Advertising and Marketing experts.
