In this blog post, Leigh Day’s consumer law specialists Shazia Yamin, Meriel Hodgson-Teall and Lucy Martin join forces with competition lawyers Zoë Mernick-Levene and David Mahon to explain what the proposed legislative changes outlined in the Queen’s speech mean for consumers, and also where we think the Government has fallen short and where we would like to see greater change in future.
The government’s own research
demonstrates that consumer detriment - the loss or damage that a consumer could experience as a direct result of purchasing goods or services not meeting the required requirements - costs over £54 billion a year. Consumers face issues as a result of online fake reviews, subscription traps, and regulators who do not have sufficient powers to enforce the existing rules. As part of its consultation ‘Reforming competition and consumer policy’ (the consultation), the Government said that its aim was to “bring our competition and consumer policies into the 21st century and … revolutionise the way we protect the British public’s hard-earned money”.
“Draft legislation to promote competition, strengthen consumer rights and protect households and businesses will be published. Measures will also be published to create new competition rules for digital markets and the largest digital firms [Draft Digital Markets, Competition and Consumer Bill].”
Assuming the Draft Bill mirrors those in the Government’s consultation response, these proposals will provide better legal protections for consumers online, enable regulators to take more effective action on behalf of consumers against abuses, and will boost competition. However, we consider there were also a number of missed opportunities, which could have even better protected consumers online.
What will be introduced following the Queen’s Speech?
The Draft Digital Markets, Competition and Consumer Bill:
Protection from fake reviews
Consumers will be protected from fake reviews by changes to the list of automatically unfair practices under Schedule 1 of the Consumer Protection from Unfair Trading Regulations 2008 (CPUT). This was something we recommended in our consultation response.
However, as the unfair practices listed in Schedule 1 of CPUT do not give consumers a direct right to claim for redress, enforcement against fake reviews will be dependent on the Competition and Markets Authority (CMA) being granted, and using effectively, its new powers to enforce consumer law.
The Government has said it will consider (subject to further consultation) including not just the act of commissioning or incentivising fake reviews, but also hosting reviews without taking reasonable and proportionate steps to check they are genuine. We support extending the scope of CPUT in this way, especially given the prevalence and importance of online reviews on sites such as Amazon and Google, and the fact that the CMA has significant concerns that the platforms are not doing enough to combat fake reviews. Without extending responsibility to the online platforms, the positive impact of this change on consumers could be undermined.
Tackling subscription traps
Consumers will be protected from ‘subscription traps’ - where a consumer is misled into signing up for a subscription to goods or services, including by the retailer promising a free trial, a reduced rate trial or sample goods where the consumer only has to pay for postage and packaging using a credit or debit card. The proposals indicate that the legislation will clarify and enhance pre-contract information requirements; introduce specific requirements for traders to send customers reminders regarding roll-over or auto-renew contracts and also about the end of free trials or low-cost introductory offers; and to ensure consumers are able to exit contracts in a straightforward and timely way.
While the proposals do not go as far as they could have done, they are a welcome step forward in consumer protection for subscription contracts.
Measures will be introduced to protect consumers using ‘Christmas savings clubs’ or similar pre-payment schemes which are not currently regulated, so payments made into such schemes are protected by way of a trust or insurance. This will protect consumers in the event that the scheme becomes insolvent, to ensure that consumers do not lose their pre-payment.
CMA’s consumer protection powers enhanced
The CMA’s consumer protection regulatory powers will be enhanced and brought into line with its current powers for competition regulation, allowing the CMA to enforce consumer protection law directly. This will allow it to investigate companies suspected of breaches of consumer laws, make findings of breach, and the ability to impose penalties of up to 10% of annual turnover for certain infringements of consumer protection law. As yet, the infringements giving rise to this new penalty are undefined. They will also have beefed-up powers in relation to making sure that companies who give ‘undertakings’ to the CMA that they will change their behaviour in future, actually comply with those promises.
These changes will, in our view, make consumer law enforcement in the UK much more powerful and more efficient. It should increase the number of consumer cases the CMA investigates, make more transparent the issues that are being investigated, signal to the market that consumer harm is a central issue for the CMA, and make penalties for breaches of consumer law more common.
Changes to enhance competition rules: anti-competitive agreements
The Government consulted on extending the international scope of the UK’s competition rules against both (i) anti-competitive agreements (such as cartels) and (ii) abuse of dominant position. Given the importance of international trade and global supply chains in consumer products and the impact of Brexit on competition rules, we had welcomed extending the territorial approach in both cases. In the event the Government has decided to only expand the rules to cover anti-competitive agreements which are implemented outside of the UK, but which have an impact on UK consumers and the UK market through price, quality and supply.
Changes to enhance competition rules: declaratory relief and exemplary damages
We welcome the changes to allow the Competition Appeal Tribunal (CAT) to grant ‘declaratory relief’ in cases for breaches of competition law brought by claimants. This means that unions, consumer groups and business groups as well as individual claimants, will be able to ask the CAT to decide and declare that a particular set of facts or behaviour is a breach of competition law (without having to claim damages), and this will require the anti-competitive behaviour to stop in future. This will make certain claims more efficient in how they are dealt with, and, ultimately, see competition law more closely monitored across UK markets.
We also think that it is helpful that the courts will be given the discretion to award ‘exemplary damages’ in competition claims brought by individual claimants (although not in collective proceedings). Exemplary damages are additional damages awarded against a defendant as a result of particularly egregious breaches of law or behaviour. While they are rarely awarded, the idea is that they may act as an additional deterrent against breaching competition laws.
Improving Alternative Dispute Resolution (ADR) services in consumer markets
The Government intends to improve the quality and oversight of services offering dispute resolution. We welcome this development, as a means of ensuring consumers have access to effective, affordable and fair dispute resolution.
Introduction of new competition rules for digital markets and the largest digital firms
We look forward to seeing the new measures when they are published, but expect this to include the new ‘Digital Markets Unit’ being put on a statutory footing, with the core aim to promote competition in digital markets for the benefit of consumers. It will be given powers to designate certain ‘big’ tech firms as being subject to more stringent, legally enforceable competition rules and obligations, and directly regulate them. It will also be able to fine ‘big’ tech firms up to 10% of their global turnover for breaches of regulatory rules.
What’s missing from the Queen’s Speech for consumers?
Formation of contracts online still leave consumers unprotected
In our response to the government's consultation
, we set out the potential harm consumers face where businesses have terms and conditions (T&Cs) which delay the formation of a contract until after the customer has paid and only when the business despatches the goods.
This practice is increasingly common with certain online retailers because it protects them if their stock runs out or there are delays in despatching goods. However, it leaves consumers unprotected and exposed because they pay money upfront and have little by way of legal protection if the retailer fails to perform its side of the bargain by delivering the goods on time or at all.
The government decided that “banning the practice of delaying contract formation until despatch would … require retailers to operate contractually in a way that does not reflect the reality of their operations” and declined to take any steps to address this problem. That is not, in our view, good enough and is a missed opportunity to provide proper protection to consumers buying online.
No progress on collective redress
The government explained
that they had consulted on “whether there is a case for strengthening the UK’s collective redress regime, to make it easier to gather many individual claims together into a single lawsuit that can support the cost of litigation. The impact of a strengthened collective redress regime may make direct access to remedies for infringements of consumer law, through collective representative actions, more accessible to consumers in general”.
As we set out in our response to the consultation, the avenues of collective redress currently available to consumers in this jurisdiction lag behind those that are available to consumers elsewhere in the world – and when compared to the availability for opt-out collective proceedings in competition law claims in the UK. As a result, we had advocated for strengthening the current regime, to enable claims arising from consumer disputes to be pursued as class actions on an opt-out basis, similar to how we can for competition law claims. This would allow a claim to proceed on behalf of all those who fall within a class of unnamed or even unidentified claimants unless they positively take steps to opt-out. The introduction of such a regime would go some way in not only levelling the playing field between consumers in different jurisdictions, but also between consumers and big businesses as a whole.
In responding to the consultation, the government confirmed that they would not be taking any immediate steps to introduce further routes of collective redress for consumers.
In refusing to act, the government pointed to the differing perspectives presented during the consultation process. The principal concern advanced in opposing this reform is the need for regulation to prevent false or fraudulent claims and to ensure an appropriate balance is struck between facilitating consumer redress and protecting defendants’ rights. Its noteworthy that of the 188 responses to the consultation; exactly 50% (a total of 94) were received from businesses, business representatives and trade associations.
We are disappointed by the Government’s stance on this issue. In our view, courts can and should be trusted to weed out frivolous claims, and any lack of trust in the ability of the courts to perform this function should not be used as a mechanism to limit the ability of consumers to seek redress. Given the raft of measures being introduced elsewhere, the absence of any affirmative action in respect of this much needed reform feels very much like a missed opportunity.
No change to leniency rules
We are pleased to see that the Government has not decided to make any changes to the fact that firms who tell the CMA about the existence of a cartel (which is where rival businesses agree to act together and cheat customers, instead of competing with each other fairly), and therefore avoid paying fines to the CMA, are still liable to pay their share of damages to those affected by the cartel.
Whilst there is much included in the Draft Digital Markets, Competition and Consumer Bill that is to be welcomed by consumers and those who represent them, it must be noted that the Bill has been introduced in draft form only at this stage, meaning that the provisions of any eventual legislation that comes to pass may vary. We will be watching closely to see how this legislation take shape.