The CMA has clarified which aspects of new drip pricing regime businesses must comply with from 6 April 2025. The new regime will impact most businesses and there are significant potential fines for failure to comply.
Listen to Oz Watson and Kachenka Pribanova discuss the new rules here:
What has happened?
The new Digital, Markets, Competition and Consumers Act 2024 (DMCC Act) updates the law on pricing information businesses must show to customers. This includes a ban on 'drip pricing', the practice of showing consumers an initial price for a product and introducing (or 'dripping') additional fees as consumers proceed with a purchase or transaction. This applies from 6 April 2025.
The Competition and Markets Authority (CMA) has issued guidance to ensure businesses understand how to comply with those aspects of the pricing laws which are already well established and largely unchanged ie the prohibition of genuinely unexpected and untrailed mandatory charges added on at the end of a purchasing journey.
For the time being, the CMA will only take enforcement action against drip pricing which clearly breaches the rules in line with the guidance. For those aspects of the new drip pricing regime which have created more uncertainty (eg fixed-term periodic contracts), the CMA has confirmed that it will run a further consultation this Summer with the aim of publishing final guidance in the Autumn.
Complying with the pricing requirements is key not least because the CMA now has powers of direct enforcement (including the power to impose fines of up to £300,000 or 10% of worldwide turnover, if higher) for breaches. Businesses will need to check the way pricing information is displayed on their websites, adverts and elsewhere.
The DMCCA replaces and updates the Consumer Protection from Unfair Trading Regulations 2008 (CPUTRs). You can find more information on the DMCC Act here and here on drip pricing.
What practices must be complied with now?
The CMA has made clear that it will start targeting business behaviour that is particularly harmful to consumers and represents clear infringements in the law, including where fees are hidden until late in the buying process.
Key points to note (from the CMA's guidance) are that:
- Total price. Businesses must give the 'total price' up front in any invitation to purchase, which includes all mandatory fees, taxes, charges or other payments that the consumer must pay if they purchase a product. A charge will only be mandatory where it is unavoidable ie it is a charge the consumer must pay to purchase, receive or use the advertised product. It does not include services provided with a product which are genuinely optional.
- Mandatory charges. Mandatory charges include charges such as administration fees, booking fees, service charges, platform charges, joining fees, mandatory cleaning charges, and taxes.
- Example. A hotel provides the price of a room for a three-night stay, which includes the cost of the room being cleaned and the use of Wi-Fi and a safe within the room. As the room cleaning, Wi-Fi and safe are not optional, they are included within the total price displayed for the room which is a fully inclusive price. The costs of these services would not need be included within the headline price if they were genuinely optional, meaning guests could decide whether or not they wanted to pay for them.
- Total price cannot be calculated. The only exception to the 'total price' rule is where the nature of the product means that the total price cannot reasonably be calculated in advance. In such scenarios, consumers must still be given clear information about how the price will be calculated so that consumers can calculate the price themselves. This information must be displayed as prominently as the headline price. The format for displaying such information is likely to vary depending on the means used for the invitation to purchase. It's likely that further guidance will be provided on this.
- Complex pricing models. Businesses might need to take specific advice where they use complex pricing models (such as flexible pricing based on the type of customer or the choices and information that the customer provides) or where there are space constraints. The guidance does not currently cover many of these issues and they are likely to be considered on a case-by-case basis.
- Optional delivery fees. The invitation to purchase must also include any delivery fees, including any taxes, not included in the total price of the product but which the consumer may choose to incur (or where those additional charges or taxes cannot reasonably be calculated in advance, the fact that they may be payable).
- Clarity. All pricing information must be provided clearly, in a timely manner, and in a way that the consumer is likely to see.
What will the CMA re-consult on?
- Overview. The CMA will reconsult on the pricing of fixed-term periodic contracts and other 'new' aspects of the drip pricing regime.
- Fixed-term periodic contracts. The CMA had previously suggested that, for fixed-term periodic contracts, the total price over the course of the contract should be given. For example, if a gym membership is for a fixed 6-month contract at £22 per month, the invitation to purchase should state that the total price is £132. This caused much concern as contracts can be of different lengths and include variable elements.
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Delivery fees. It is implied on the face of the DMCCA (s230) that 'total price' includes delivery fees, however, the final version of the CMA guidance omitted a section included in the draft which gave more detail around delivery fees. As this is a complex issue for many retailers (for example, delivery charges may be waived where a minimum amount is spent which makes it difficult to include them per product as part of a total price), it's likely that this will be an area of focus in the upcoming consultation.
What items do the new rules apply to?
The new rules apply to all invitations to purchase in connection with physical and non-physical products (including goods, services and digital content).
An invitation to purchase is any communication that gives the consumer information about the characteristics of a product and its price and which enables, or purports to enable, the consumer to decide whether to purchase the product or take another transactional decision in relation to the product. It therefore covers such things as pricing information in shops, adverts containing pricing information and online product listings. There is often more than one invitation to purchase during a customer's purchasing journey.
How else can businesses ensure that they are complying?
Businesses should watch out for the second consultation in the Summer and guidance in the Autumn.
Separately, they should monitor what the CMA and other regulators/bodies (such as the ASA) are doing and saying around drip pricing, which should help make clear what practices are and are not acceptable. This is particularly important as carrying out a practice that a regulator/body has previously made clear does not (or is unlikely to) comply with consumer law, can result in increased monetary fines being imposed by the CMA.
What are the consequences of getting it wrong?
The CMA has new direct enforcement powers under the DMCC Act. This includes the power to impose fines for breaches of up to £300,000 or 10% of a trader's annual worldwide turnover, if higher, without having to go to court.
What do businesses need to do?
- Businesses should audit their existing pricing models to ensure compliance with the new rules under the DMCC Act. Reference should be made to section 230 of the DMCC Act and the UPC guidance.
- Marketing materials, adverts, websites and such like might all need to be updated to reflect the total price of the product being advertised, as well as genuinely optional delivery fees. Remember that there might be more than one invitation to purchase during a consumer's purchasing journey and that each invitation to purchase must comply.
- Staff, including sales/marketing teams, should be trained on the new rules and robust internal compliance mechanisms should be established.
- Businesses should monitor actions, decisions and guidance by the CMA and other regulators/bodies on drip pricing, including ASA adjudications.
- Some will want to input into the CMA's second consultation scheduled for the Summer.
- More generally, businesses should take note of the CMA's interest in pricing, particularly in light of its new direct enforcement powers under the DMCCA, including the power to impose significant fines for infringements. Regulatory action by the CMA to tackle drip pricing is highly likely, as are monetary fines for breaches.
