Subscription contracts and the Digital Markets, Competition and Consumer Bill.
What has happened?
Providers of subscription services will be subject to significant additional duties, and their subscribers will enjoy significant additional rights, once the Digital Markets, Competition and Consumer Bill (DMCC) comes into force. Providers will need to supply extra information before the customer enters into the contract and send notices to remind customers that their contract is continuing and that a renewal payment will fall due. They will also need to make it straightforward for customers to cancel their contracts. Customers will have enhanced, unwaivable, rights to cancel their contracts during cooling-off periods.
The duties and rights will only apply to contracts entered into after the commencement of the Bill, which is anticipated to be towards the end of 2023 or early 2024. Nevertheless, providers should start preparing now, for example by reviewing how they communicate information at sign-up, by assessing how their cancellation processes operate and by building the systems to allow for cooling off rights and reminder notices.
What contracts are caught?
A subscription contract is a contract between a trader and a consumer:
- for the supply of goods, services or digital content in exchange for payment (free services and those paid for only with provision of data are therefore excluded), and which
- automatically recur for an indefinite period or for a fixed period, automatically incurring liability and which have a right to cancel, and/or which
The Bill therefore applies to subscription contracts for the supply of eg physical products, digital media and tech services.
There is a long list of excluded contracts, such as those for insurance and financial services.
The enforcement powers of the Bill apply where the infringements meet a "UK connection" condition (amongst other things). A commercial practice meets that condition if at least one of the following conditions is met:
- the trader has a place of business in the UK
- the trader carries on business in the UK
The inclusion of the first two conditions creates an extra-territorial effect for the Bill: even if customers of a subscription service are not based in the UK, the provider will still be subject to enforcement action where it is based here.
What about contracts not subject to a UK law?
If a contract is subject to a law other than the UK or any part of it, but the contract has a "close connection" with the UK, the requirements will still apply. Close connection is not defined in the Bill, but a similar provision is contained in s.74 of the Consumer Rights Act 2015. Case law on the interpretation of that provision will be relevant (see eg Soleymani v Nifty Gateway).
What information has to be provided pre-contract and how?
The Bill identifies two types of pre-contract information and treats them differently: key and full pre-contract information.
For key pre-contract information:
- It has to be provided all together and separately from the full information.
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The customer has to be able to read it at the same time (with no other steps) as when entering into the contract. This means, for example, that it cannot be provided via a hyperlink but has to be communicated on the same page as the sign-up button.
The key pre-contract information includes:
- that there is an ongoing obligation to pay until cancellation or expiry of a fixed term
- the length of the minimum period prior to cancellation
- for free/discounted trials, that there will be a (higher) charge and when it will be incurred unless the contract is cancelled
- the frequency and amount of payments
- the pro rata monthly payment for non-monthly contracts
- the minimum total amount for which a consumer will be liable
- particulars of terms allowing variation of frequency and amount of payments, and detail of that option
- the steps needed to cancel including website or email address and amount of notice
Full pre-contract information:
- Has to be provided all together, either before the contract is entered into or as soon as reasonably practicable afterwards and before the supply starts.
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Is broadly equivalent to that already required to be given under The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, such as the trader's identity and address and information on cooling-off rights.
The pre-contract information is treated as a term of the contract.
There must be an express acknowledgment that the contract imposes an obligation to pay. Failing to provide it means the customer is not bound.
Any restrictions on the delivery of products or the means of payment have to be communicated at the same time as the customer enters the contract.
When do reminder notices need to be sent and how?
A reminder notice is a reminder that the subscription contract is going to continue and that a renewal payment will fall due.
The reminders are of the first renewal payment and of subsequent renewal payments which are either the last payment for six months or every six months after the previous notice.
The notices have to be sent between three and five working days before the last cancellation date before the payment will be taken. For example, if a service has monthly payments starting with a 30-day free trial and day 30 is the last day for cancelling before auto-renewal, the notices would have to be given:
- 3-5 working days before day 30
- 3-5 working days before day 210
- 3-5 working days before day 390
If there are annual payments, there has to be an additional notice between 10 and 14 working days before the last cancellation date before the contract renews for another year.
The notice has to provide specified information all together and separately from any other information, including the customer's liability for the renewal payment unless the contract is cancelled, the date of the renewal, the amount of the previous payment and a notification if the renewal payment is higher than the previous payment, the frequency and amount of future payments for which the consumer is automatically liable (including if they will be higher than the previous payment and the amount), the minimum total amount for which a consumer will be liable, the date of the next renewal payment or contract end, and steps needed to cancel including website or email address and amount of notice.
How do providers need to enable customers to cancel their contracts?
Customers have to be able to cancel their contracts:
- in a single communication (eg via a click of a button)
- without having to take steps which are not reasonably necessary
- online, if the contract was entered online
The provider must display cancellation instructions online in a place where customers are likely to find them and must provide a written end of contract notice within 24 hours of the online notification of cancellation.
Customers will also have a right to cancel contracts for breach of the requirement to give key pre-contract information, reminder notices and cancellation in the form outlined above.
What rights to cancel contracts do customers have?
The Bill provides customers with rights to cancel during cooling-off periods. These are similar to existing cancellation rights but they cannot be waived or conditioned and apply more often.
The initial cooling-off period is 14 days starting the day after entering into the contract, so would apply for example during a 30-day free trial period.
There is then an additional renewal cooling-off period, which is 14 days starting the day after a relevant renewal. There are two types of relevant renewal:
- the first renewal payment following the end of a free/discounted period (eg after the end of a 30-day free trial)
This means that, if a service has a free trial period of fewer than 14 days, the initial and renewal cooling-off periods will overlap.
The providers also have to send notices of the cooling-off rights on the first day of each cooling-off period, separately from the provision of any other information.
Regulations will provide for the consequences of cancellation, such as the extent of refunds and part payments.
It will be an offence to fail to provide pre-contract information about cooling-off rights.
We have prepared an illustrative timeline setting out the various events occurring over the lifetime of a subscription contract – please get in touch if you would like a copy.
