DMCC Act – consultation on the implementation of the new subscription contracts regime

The Digital Markets, Competition and Consumers Act (DMCCA) was passed in May 2024. It overhauls the UK's competition and consumer protection regimes and, notably, provides for a new regime around subscription contracts. As highlighted in our article from June this year, much of the detail covering the mechanics for how providers were to comply with the subscription contract requirements was left out of the final text of the Act to be fleshed out in secondary legislation.

On 18 November 2024, the Department for Business and Trade (DBT) launched a consultation on the implementation of the new subscription contracts regime under the DMCCA. It appears the change of government hasn’t resulted in a significant change of direction, but the proposals do take into account some of the concerns voiced by businesses during earlier consultations as there is an effort to align them with protections given to consumers under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations (CCRs).

The deadline for submissions responding to the consultation is 10 February 2025, after which the government will table secondary legislation to implement the changes. The new regime is expected to apply from Spring 2026.

In this article we briefly summarise the proposals and what they might mean to providers of subscription contracts for digital content or physical goods.

Cooling-off cancellation rights: returns and refunds

The DMCCA gives consumers a right to cancel their subscription contract within two 14 day cooling-off periods (either the 'initial cooling-off period' when the contract is first entered into or 'renewal cooling-off period' just after the contract renews). The consultation sets out a range of proposals for what happens after cancellation during a cooling-off period depending on the type of good or service supplied, applying similar refund principles across digital content, services, and non-returnable goods.

Goods

These are split into: (1) returnable goods, where it is possible for the consumer to return them to the trader and they could be resold; (2) non-returnable goods, which could not be resold by the trader if returned and comprises 'perishable goods' and 'bespoke goods' (each as defined in the CCRs); and (3) non-returnable goods (due to circumstances), which would typically be 'returnable goods' which are no longer returnable as a result of being unsealed (eg items which are sealed for health protection or hygiene reasons) or mixed inseparably with other items after delivery. 

• Returnable goods: the consumer would receive a full refund (including of the delivery fee) if the contract is cancelled within the cooling-off period and the goods returned to the trader. It is the consumer's responsibility to return the goods within 14 days, but the trader is entitled to recover goods which have been supplied before the contact is cancelled.

• Non-returnable goods: refunds will be calculated on the basis of when goods are dispatched, rather than when supplied/delivered – this is intended to offer more protection to traders and reflect how things actually work in practice. Where the goods have not been dispatched prior to the customer's cancellation, the customer would receive a full refund. However, if goods have been dispatched, the consumer would only be entitled to a proportionate refund and the trader may reduce the refund amount by the total contract price of the goods and delivery fee up to the full contract price. 

• Non-returnable goods (due to circumstances): if the consumer exercises their cancellation rights prior to the goods being unsealed or inseparably mixed, these goods would be treated in the same manner as 'returnable goods'. However, once unsealed/inseparably mixed, they are treated as non-returnable goods.

If the trader has failed to provide the required pre-contract information or a cooling-off notice and the customer cancels the contract during the relevant cooling-off period, the trader becomes liable for collection of goods and/or cost of returns.

In each case, the trader's right to reduce the refund is subject to their compliance with the other requirements of the DMCCA (eg providing the pre-contract information and cooling-off notices as prescribed).

Services

Due to their nature, services are not returnable in the same manner as goods so need to be treated differently. The proposed regime is also a little simpler than for goods. If the service:

• has not been supplied during the cooling-off period before the customer cancels, they may cancel and receive a full refund (including of the applicable delivery fee).

• has been supplied during the cooling-off period before the customer cancels, the customer is only entitled to a pro-rata refund based on the amount of time for which the customer has enjoyed the service.

Digital content

The proposals set out a range of options for how digital content refunds may be treated, which will turn on the facts and circumstances. Some of these look to align principles under the DMCCA with the CCRs around pro rata refunds for immediate supply of digital content.

Option 1: proportionate refund for both initial and renewal cooling-off periods

If a consumer cancels within either an initial or renewal cooling-off period where:

• No digital content has been supplied: the consumer receives a full refund.

• Digital content has been supplied: the consumer pays proportionately for the content used during the cooling-off period.

Additional trader obligations:

• For initial cooling-off rights, traders must provide pre-contract information and obtain express consent to supply digital content during this period.

•  For renewal periods, traders must provide a cooling-off notice but do not need to obtain express consent again.

Option 2: waiver for initial cooling-off period and proportionate refund for renewal cooling-off period

Initial cooling-off waiver:

• Consumers can waive their initial cooling-off rights if they want immediate access to digital content.

• Traders must secure express consent and acknowledgment from the consumer that the cancellation right will be lost.

Renewal cooling-off refund: similar to Option 1 (see above), consumers receive a proportionate refund if they cancel during the renewal period.

Option 3: waiver for both initial and subsequent renewal cooling-off periods

• Proposes securing waiver at each renewal point rather than upfront, aligning with policy objectives to protect consumers from auto-renewals.

• Considered impractical due to complexity and potential interruption of service.

Mixed contracts

Broadly, the same principles as outlined above will apply to contracts for the supply of mixed goods/services/digital content. The primary difference is that there will need to be a determination of cooling-off period lengths:

• Initial cooling-off period: for goods supplied under any subscription contract, the period starts from the day the contract is entered into and ends 14 days after the consumer receives the first supply of goods. In other cases, it starts from the day the contract is entered into and ends 14 days beginning the day after entering into the contract.

• Renewal cooling-off period: the length remains consistent regardless of whether the subscription includes goods, services, or digital content.

• Application to mixed contracts: regulations will ensure that refund rules for goods, services, and digital content apply separately to their respective components within a mixed subscription contract.

This approach aligns with the existing CCRs.

Extension of cooling-off periods

As a reminder, the DMCCA places the trader under statutory information provision obligations:

• Traders must provide consumers with information about their cooling-off rights as per the DMCCA.

• For initial cooling-off rights, pre-contract information must be given.

• For renewal cooling-off rights, traders must provide a detailed cooling-off notice.

If traders fail to meet these requirements, they breach their statutory obligations under the DMCCA and consumers will not be liable to pay for products supplied during the relevant cooling-off period if these requirements are not met.

The proposals set out an alternate position, the extension of cooling-off periods, if a trader fails to inform consumers about their:

• Initial cooling-off rights: the initial cooling-off period extends up to 12 months, allowing continuous cancellation rights.

• Renewal cooling-off rights: the renewal period also extends up to 12 months under similar conditions.

Application of cooling-off periods

The proposals look to further align the DMCCA with how cooling-off rights are applied to different product/service categories which are excluded from the cooling-off right, covering: bespoke goods; perishable goods; goods sealed for health/hygiene reasons; sealed audio/visual recordings (including computer software); goods that become inseparably mixed; newspapers and magazines; passenger transport services; and accommodation, transport, vehicle rental or leisure services (with specific date for performance).

Cancellation remedies for breach of duties

The DMCCA provides that if the trader is in breach of certain duties, the consumer has a statutory right to cancel the contract (including all implied terms) for breach. The proposals in the consultation are based on some clear principles which look to apply the following:

• Simplicity and clarity: remedies available to consumers should be straightforward and easily understood by both consumers and traders.

• Fair compensation: consumers should receive a sum that reasonably reflects the financial loss caused by the trader's breach.

• Balanced liability: traders should not be unfairly penalised; their liability to compensate consumers should reflect the nature of the breach and consider whether the consumer took reasonable steps to mitigate their financial loss.

• Trader responsibility for returns: the trader should bear any responsibility or cost for recovering returnable goods (if returnable) as they are in breach of their duties.

Using these principles, the proposals set out a series of steps that should be taken:

• Step 1 - right to a refund: consumers are entitled to a refund when they exercise their right to cancel following a trader’s breach of an implied term, particularly if they became liable for payments they would not otherwise have incurred.

• Step 2 - calculation of refund: once the right to a refund is established, consumers are presumed entitled to a full refund of all payments made from the occurrence of the breach (which could be from commencement of the contract where the breach relates to eg failure to provide pre-contract information) until cancellation.

• Step 3 - safeguards for traders: traders can rebut this presumption if they prove that the consumer increased their own financial loss by unreasonably delaying their cancellation. It's difficult to see how the trader could evidence this. There is a 12-month limitation period starting from the relevant event for consumers to exercise their cancellation right.

• Step 4 - return requirements: for non-returnable goods, digital content, and services, there are no obligations on the consumer to return them upon cancellation. Returnable goods are treated as unsolicited gifts post-cancellation. However, traders can arrange for these goods to be returned or collected at their own cost.

Repayment of refunds

When a consumer exercises their right to cancel, whether during a cooling-off period or because the trader has breached an implied term, they may be entitled to a refund. The consultation sets out various proposals for how these refunds will be treated:

• Refund obligations during cooling-off periods: if a consumer cancels the subscription contract during a cooling-off period and the contract is for non-returnable goods, services or digital content, the trader must make any refund without undue delay and no later than 14 days after being notified of the consumer's decision to cancel. If for returnable goods, the trader must refund no later than 14 days after receiving the goods back or receiving evidence that the consumer has sent them back.

• Refund obligations when trader breaches implied terms: if a consumer cancels due to a breach of specified implied terms by the trader, refunds must be made without undue delay and no later than 14 days after the trader agrees that the consumer is entitled to a refund.

Refunds should be made using the same means of payment as used by the consumer for the initial transaction unless otherwise agreed.

When consumers exercise their contractual right to end a subscription contract, refund obligations should follow contract terms but are expected to be timely.

Contractual terms for exiting a contract

The DMCCA makes specific provision to ensure that traders do not have contractual terms which make the consumer liable for payment unduly early or restrict when the consumer can exit the contract. The consultation sets out additional proposed regulations for when a consumer can be liable for a renewal payment or end their contract (outside of cooling-off periods or breach).

Proposed regulations for liability for renewal payments

• No pre-renewal liability: traders must not include terms in subscription contracts that make consumers liable for renewal payments before the contract actually renews. The contract renewal date, typically based on the initial sign-up date, determines both when the contract renews and when payments are due.

• Avoiding early payment traps: terms that impose liability before renewal could trap consumers into making unwanted payments. Regulations will ensure any term requiring pre-renewal payment liability is ineffective.

• Consumer protection: if traders impose early payment terms, consumers will be entitled to reclaim those payments from the trader, the principle being that consumers should be able to exercise their right to cancel without penalty.

Proposed regulations for ending subscription contracts

• Reasonable exit terms: even if liability arises on or after renewal, traders must not set unreasonable limits on when consumers can end their contracts. Specific "windows" or excessive notice periods that limit cancellation rights are discouraged. For example, contracts allowing cancellation only during certain months (eg months 9-10 of a 12-month term) or requiring long notice periods (eg six months) are problematic.

• Legislative power and existing protections: the Secretary of State has the power to regulate when consumers can exercise their right to cancel. Existing rules under the Consumer Rights Act 2015 already provide protections against unfair terms.

• Flexible and clear parameters: proposals seek to provide clear yet flexible rules accommodating various subscription models. Consumers should generally be able to cancel at any time with minimal restrictions and not excessive administrative processing times.

• Immediate cancellation rights: consumers should have the ability to exit contracts immediately upon commencement or renewal, subject to brief administrative processing times by traders.

Arrangements for exiting a contract

One of the primary aims of the DMCCA is to simplify the process by which consumers can exit a subscription contract. In particular:

• For all subscription contracts (including those entered into online): traders must ensure that there is a straightforward method by which a consumer can exit their subscription contract. The consumer must not have to take steps that are not reasonably necessary.

• For contracts entered into online only: traders must ensure that consumers who enter their subscription contracts online are able to exit online. Traders must ensure that the instructions for how to exit online are displayed online in a place that a consumer seeking to exit the contract is likely to find them.

The wording in the DMCCA mirrors the CCRs - regardless of the method used by the consumer to enter the contract, the consumer must be able to exit the contract by making a "clear statement" to the trader of their intention to bring the contract to an end. Importantly for traders, the DMCCA does not prohibit them from making offers (eg discounted periods) or seeking feedback (eg reasons for cancellation) during the exit process, provided the arrangements do not extend the exit process.

The proposals do not extend to issuing any secondary legislation but rather focus on the guidance to traders to clarify the DMCCA contract exit obligations. The guidance looks to ensure that consumers can easily and efficiently cancel their subscriptions online without unnecessary hurdles or delays:

• Exit via same online medium: consumers must be able to exit their subscription contract online through the same medium they used to sign up, typically delivered via the trader's website or app. This doesn’t extend to requiring traders to have a prominently displayed 'cancel now' button on the user's account page.

• Straightforward exit process: the exit method should be straightforward, allowing consumers to complete their cancellation quickly without needing to contact the trader multiple times.

• Non-compulsory offers and feedback requests: of particular relevance to traders is that any offers or feedback requests made by them during the exit process should not be mandatory for consumers to engage with in order to complete their cancellation. There should also not be an excessive number of such offers.

Information notices

The consultation sets out some new proposals for additional requirements in relation to each of the notices that are required to be issued under the DMCCA and set out key information:

Reminder notices

The DMCCA is now less prescriptive around the timing for when reminder notices are to be sent (as against what was prescribed in the DMCC Bill). Traders must specify a "reasonable period" in the key pre-contract information for issuing a reminder notice to consumers. This period should be reasonable enough to inform the consumer that they are about to become liable for the renewal payment. It must provide sufficient time for the consumer to decide whether they want to exit the contract and take necessary steps if they choose to do so. In addition, the consultation sets out proposals for further regulations requiring:

• Written and durable medium: reminder notices must be provided to consumers in writing and on a 'durable medium' (eg email or paper). This ensures that consumers can refer back to key information.

• Clear purpose communication: the purpose of the reminder notice must be immediately apparent. For example, if sent via email, the subject line should clearly indicate that the primary purpose is to provide reminder notice information. This helps ensure consumers understand and engage with the communication promptly (and refer back to it easily).

• Prescribed information upfront: the prescribed information required by Part 3 of Schedule 23 to the DMCCA must be given upfront in the reminder notice so that it is the first thing the consumer sees. This is an extension of the 'more prominently' language used in the DMCCA and is intended to prevent important information from being overlooked due to its positioning within other content.

End of contract notices

The DMCCA requires traders to acknowledge that a consumer has exited the subscription contract. Additionally, if a consumer cancels by exercising statutory rights, traders must send an end-of-contract notice confirming the cancellation and stating when the contract ended or will end. This must be provided in writing on a durable medium. For online cancellations, the notice must be sent within 24 hours; for other methods, within three working days starting the day after notification. Traders must also refund any overpayment made by the consumer due to cancellation. Traders can include additional information in the same communication as the end-of-contract notice.

The proposals under consultation look to build on this through further regulations covering the following:

• Timing of notice: the timeframe for sending an end-of-contract notice begins after the trader confirms that the consumer has a statutory right to cancel due to a breach of implied terms. This aims to ensure traders have time to confirm breaches without breaching the Act's stipulated timeframes for notices.

• Prominence of information: the prescribed information in these notices must be more prominent than any other information provided simultaneously, ensuring it is not lost among other content (eg promotional material).

• Upfront information delivery: the required information must be given upfront so it is the first thing the consumer sees, supporting the effectiveness of the prominence requirement and reducing the risk of it being overlooked.

• Clear communication purpose: the primary purpose of the communication must be immediately apparent. For instance, if sent via email, the subject line should clearly state that its main purpose is to provide prescribed information, ensuring consumers understand and engage with it effectively.

Cooling-off notices

Cooling-off notices must also contain specific information and be delivered in accordance with specific timing, and separately from other information given at the same time (eg promotional material). The proposed regulations build on the current DMCCA text to include:

• Written and durable medium: cooling-off notices must be provided in writing on a durable medium (eg email or paper). This ensures that consumers can refer back to key information and aligns with other notice requirements in the legislation.

• Information on return costs: the prescribed information must include details about the costs for the consumer of returning goods if they cancel their subscription during a renewal cooling-off period. 

• Clear communication purpose: the primary purpose of the communication must be immediately apparent to the consumer. For example, if sent via email, the subject line should clearly indicate that its main purpose is to provide cooling-off notice information.

Pre-contract information

While the DMCCA specifies what pre-contract information is required and how it should be presented to consumers, little detail is given on how traders should comply. The government doesn’t intend to issue further regulations covering this, but rather will issue guidance covering how the requirements under the DMCCA should be implemented. The consultation expects the guidance to cover:

• Visibility and accessibility: the key pre-contract information must be clearly and prominently visible where the consumer will enter into the contract online, without requiring additional steps to access or, importantly, read it. This assumes it will be clearly displayed with the 'buy now' button on the trader's website.

• Separate and prominent: the key pre-contract information should be provided separately from other information, including the full pre-contract information, and must be more prominent than the full pre-contract information.

• Unobscured information: pre-contract information should not be obscured by other content that may compete for the consumer's attention.

• Ease of understanding: all pre-contract information must be easy for consumers to understand.

• Presentation: the pre-contract information should be easily identifiable and readable (including as to font, size, colour and positioning).

What next?

The final part of the consultation has a range of specific questions covering each section that it invites respondents to submit responses to, indicating their agreement with principles and proposals, along with any reasoning and evidence to support the response. The closing date for submission is 10 February 2025.