Jason Freeman, Director, Competition and Markets Authority (CMA), discusses how the CMA will use its new powers to enforce consumer protection law under the DMCCA Act, including how the powers will work in practice, what businesses should do to prepare and likely areas of focus.
In the closing days of the last government, the Digital Markets, Competition and Consumers Act 2024 (DMCC Act) was passed. Amongst other aims, the Act is to ensure the CMA has the right tools at its disposal to tackle the biggest consumer problems across all markets. These tools include, for the first time, the power for the CMA to decide whether certain consumer laws have been infringed, and to impose substantial monetary penalties for those infringements. This puts the CMA’s enforcement of competition law and consumer protection law on an equal footing, and rightly sends the message to businesses that they should treat them with equal importance.
How will the powers work in practice?
Part 3 Chapter 4 of the DMCC Act, which is expected to come into force in April 2025, lays down a comprehensive process that is designed to ensure procedural fairness and operational efficiency. It is supplemented by CMA rules, guidance and statements of policy on the imposition of monetary penalties (contained in chapter 7 of the CMA guidance). The CMA has been consulting on its rules and guidance documents, and although the consultation has now closed, the documents can be found here.
In summary, the new powers will enable the CMA to issue a decision which may require payment of a monetary penalty of up to 10% of the trader’s worldwide turnover and impose directions for the trader to change their behaviour. These directions may include enhanced consumer measures, such as payment of compensation to affected consumers. The CMA may also issue online interface notices. If traders fail to comply with directions, further large penalties, of upto 5% of worldwide turnover and/or 5% of daily turnover can be imposed.
The CMA may launch a direct consumer enforcement investigation where it has reasonable grounds for suspecting an infringement of certain laws has occurred, is occuring or is likely. These laws are listed in Schedule 16 of the DMCC Act, and they include rules on unfair commercial practices, unfair terms, contract cancellations and other consumer rights. Where the investigation leads the CMA reasonably to suspect the infringement, it may send a provisional infringement notice to the trader. This will trigger the right to make representations (including oral representations) within a specified timescale. After considering any representations made, the CMA may send a final infringement notice where it is satisfied of the infringement.
In some circumstances, traders under investigation may provide undertakings to the CMA or agree to conclude the investigation by way of a settlement. These agreements will be directly enforceable by the CMA, which will have the power to impose a penalty of upto 5% of worldwide turnover for breach of undertakings.
The CMA has wide range of investigative powers (set out in Schedule 5 of the Consumer Rights Act 2015, as amended by the DMCC Act), which include the power to carry out unannounced inspections and searches, in addition to the ability to send information notices. As part of the DMCC Act updates, the CMA will be able to issue substantial fines of upto 1% of worldwide turnover and/or 5% of daily turnover for failure to respond to an information notice properly.
The introduction of such large potential fines aims to ensure strong, deterrent enforcement action lies at the heart of the CMA’s work, and having asked for these powers, the CMA intends to use them.
What should businesses do to get ready?
The DMCC Act gives the CMA an important and welcome upgrade to its toolkit, and means the risks for businesses of failing to comply with consumer law are increasing very significantly. Part 4 Chapter 1 of the DMCC Act also replaces and updates the protections currently contained in the Consumer Protection from Unfair Trading Regulations 2008. New provisions include much tougher rules on drip pricing and prohibitions on commissioning and publishing fake reviews. The CMA will be publishing guidance on all the new unfair commercial practice rules in due course, so look out for that.
However much of the substantive law is going to be essentially unchanged, meaning that what is an area of non-compliance today is likely still to be one once the DMCC Act enters into force. Therefore a crucial first step for businesses is to put themselves in the shoes of their customers and walk the end-to-end journey of dealing with their firm. This requires assessing the whole shopping process, from the initial information and prices displayed, to securing a sale, the terms and conditions of the services, and how people are dealt with through customer service and support systems.
Now would also be a good time to look again at CMA guidance and enforcement outcomes published in the past few years, to see what practices have caused the CMA concern: it is likely that the CMA will focus on similar market practices under the new regime. For example, the CMA has had a particular focus on ‘online choice architecture’, securing undertakings from Simba Sleep and Wowcher, and sending a letter before claim to Emma Mattresses, and has published a number of guidance documents to assist businesses to comply with the law. These include the CMA’s Open Letter on reference pricing and urgency claims, and the CMA’s principles for online mattress sellers. For a wider perspective, look at the CMA’s research paper Online Choice Architecture: How digital design can harm competition and consumers, and consider very carefully whether you are engaging in practices which the CMA thinks could harm consumers and competition - such as ‘sludge,’ ‘dark nudges’ and ‘dark patterns.’
The risks for businesses of failing to comply with consumer law are increasing very significantly, so don’t get caught out!
