The Digital Markets, Competition and Consumers Act (the DMCC) received Royal Assent on 24 May 2024. This landmark piece of legislation grants new and expanded powers to the Competition and Markets Authority (CMA) in respect of digital markets, competition and consumer protection, and has the potential to affect businesses across a wide variety of sectors. In particular, the DMCC:

• creates a new regime for regulating large businesses with a significant market presence in digital activities, which will be overseen by the Digital Markets Unit, a specialised unit within the CMA;
• significantly expands the CMA's existing investigation and enforcement powers in respect of competition issues; and
• equips the CMA with powers to enforce breaches of consumer protection laws directly, including through the imposition of fines of up to 10% of global annual turnover for non-compliance.

Draft guidance on the new digital markets regime under the DMCC has been published and further guidance on other aspects of the DMCC is anticipated shortly. The majority of the reforms are expected to come into force in late 2024.

This update focuses on the consumer protection reforms. We previously wrote about the changes to UK competition law proposed by the bill, all of which have now been enacted. Our update on competition law changes can be accessed here. Our separate update on the digital markets aspects of the Act will follow.

Consumer protection: a new, expansive enforcement regime

Direct enforcement powers

Prior to the DMCC, the CMA did not have the power to order non-compliant businesses to stop illegal practices under consumer protection legislation. Instead, the CMA had to go to court to secure an order for compliance. Even if the CMA was successful at trial, the court had no power to impose fines. The CMA has therefore largely relied on voluntary undertakings from non-compliant companies, although the CMA had no power to fine a company for breach of those undertakings. For these reasons, in February 2019, the former Chair of the CMA described the CMA's consumer law powers as "unfit for its current purpose, and far short of what would be required to enable the CMA effectively to fulfil a consumer interest duty".

The DMCC seeks to remedy these perceived shortcomings by granting the CMA, for the first time, the power to take direct enforcement action against businesses that have breached relevant consumer protection legislation, without recourse to the courts. The CMA will therefore now be able to decide for itself whether consumer protection laws have been broken, give directions and impose fines, mirroring the CMA's competition powers. Appeal of the CMA's decisions will be considered by the High Court.

The CMA's mandate covers a broad range of enactments and obligations, including:

• the Consumer Credit Act 1974;
• certain parts of the Consumer Rights Act 2015, including those concerning unfair contract terms; and
• certain parts of the DMCC, including: (i) Chapter 1 of Part 4, which migrates (with some minor amendments) the Consumer Protection from Unfair Trading Regulations 2008 and adds new rules on fake reviews and "drip pricing"; and (ii) Chapter 2 of Part 4, which creates new rules on subscription contracts – see below.

In addition to granting direct enforcement powers to the CMA, the DMCC includes a simplified and enhanced version of the existing court-based regime (previously set out in Part 8 of the Enterprise Act 2002). Accordingly, other public bodies (including the Financial Conduct Authority, the Information Commissioner and others) and a private enforcement body (the Consumer Association) have the power to seek enforcement orders from the courts, including (in the case of public bodies) the imposition of fines.

Automatically unfair commercial practices

As noted above, Part 4 of the DMCC migrates, with some minor amendments, the Consumer Protection from Unfair Trading Regulations 2008. This includes certain commercial practices that are considered unfair in all circumstances (the so-called "black list"). While these largely replicate and replace existing prohibitions set out in Schedule 1 of the Consumer Protection from Unfair Trading Regulations 2008, notable changes include:

• Fake reviews: This is a new prohibition introduced by the DMCC and encompasses submitting or commissioning fake reviews as well as publishing reviews without taking reasonable and proportionate steps to prevent their publication. This last requirement is more onerous than the EU law position, which requires the taking of reasonable and proportionate steps to verify the origin of reviews only if the trader holds them out as having been submitted by real consumers of the product. There was some debate as to whether this prohibition should attract criminal (rather than civil) liability, though this was ultimately rejected. The government and the CMA expect to issue draft guidance to enable businesses to understand the scope of their obligations under these rules, in particular what is required by "reasonable and proportionate steps".
• Drip pricing and hidden fees: The DMCC expands the existing prohibition against the omission of material information from an invitation to treat (for example, an advert or a product listing) to combat drip pricing – i.e. where a consumer is shown an initial price and unavoidable additional fees are added at a later stage in the transaction. The new rules require invitations to treat to state the total price (including any fees, taxes and charges) as well as any variable mandatory fees and how these would be calculated, and there is no longer a requirement for consumers to show that the omission impacted their decision to transact.

The DMCC also facilitates the addition of further commercial practices to this list by the Secretary of State in the future. It is anticipated that such additions could focus on so-called "dark patterns", where traders use e-commerce design strategies that are intended to manipulate users into making decisions that they might not have made if the options were presented fairly.

New regime for subscription contracts

The DMCC introduces a new regime for subscription contracts, being contracts which automatically renew for an indefinite or fixed period and under which consumers incur liability until they terminate the contract. The regime imposes a number of requirements on businesses including:

• Pre-contract information: The provision of specific information to ensure consumers comprehend the nature of the contract, including how the business might change its prices, how to terminate the subscription and how much notice is required for termination;
• Cooling-off period: Allowing consumers to cancel the subscription and obtain a refund during an initial 14-day period, for any reason and without any penalty;
• Reminders: The issuing of reminders as to renewal and the right to terminate before the end of a free trial or discount period, and at certain intervals thereafter; and
• Termination rights: Enabling consumers to easily end a contract by giving a "clear statement" of their intention to terminate.

Given the fairly onerous nature of these requirements, the government indicated earlier this year that this regime will not come into force until spring 2026 or later.¹

Consequences of non-compliance

In the event of a breach of consumer protection law, the CMA can now impose a significant maximum penalty of 10% of the business's global annual turnover or £300,000 (whichever is higher).

Where a business has given undertakings to the CMA, the CMA can impose a penalty of up to 5% of the business's global annual turnover or £150,000 (whichever is higher) for breach of the undertaking.

The CMA can also issue fines of up to 1% of a business's global annual turnover or £30,000 (whichever is higher) for providing materially false or misleading information to the CMA in the course of an investigation, or failing to respond to an information notice.

In each of these cases, the CMA can impose an additional daily penalty for continued non-compliance. As well as the fines that may be levied on companies, the CMA has the power to fine individuals up to £30,000.

Additional enforcement powers granted to the CMA include:

• the ability to impose so-called "enhanced consumer measures" as part of an enforcement order or undertaking, which could include redress measures such as offering consumers compensation or the option to terminate the contract early, or compliance or choice measures (providing further information to allow consumers to choose services more effectively); and
• the ability to impose an online interface notice, which can for example require a company to modify its online interface to achieve compliance or display a warning to consumers, or even restrict access to a non-compliant interface.

As noted above, certain other public bodies will also be able to impose the same fines and additional enforcement measures through the courts.

Notable omissions from the Act

A number of proposed amendments were rejected in the last few months of the DMCC's passage. These are set out below.

Reversing the impact of PACCAR

Last July, the Supreme Court found in PACCAR² that litigation funding agreements providing for third-party funders to be paid a percentage of damages recovered constitute damages-based agreements, with the result that they are unenforceable in opt-out collective (class) proceedings before the Competition Appeal Tribunal, and enforceable in other contexts only if they comply with the relevant statutory requirements. Given the prevalence of these funding arrangements in UK group litigation, this was a significant blow to claimants and funders and led to revisions having to be undertaken to render funding agreements compliant with the law.

In November 2023, the government introduced an amendment to the then DMCC Bill which would have reversed the impact of the judgment, albeit only in the case of competition opt-out collective proceedings. This was subsequently rejected in favour of a separate bill, the Litigation Funding Agreements (Enforceability) Bill, the purpose of which was to address the impact of PACCAR for all types of claims. Following the announcement on 22 May 2024 of a general election on 4 July 2024, the Litigation Funding Agreements (Enforceability) Bill did not make it through "wash-up". The fate of the proposed legislation will now be decided by the new government once constituted. In the meantime, there are a number of appeals pending against decisions of the Competition Appeal Tribunal³ which held that a funder's fee calculated by reference to a multiple of the funding provided, instead of a percentage of the damages recovered, is not a damages-based agreement and is enforceable. These appeals take on renewed importance for the future of funding collective actions in the UK.

Availability of opt-out regime for consumer protection claims

Currently, opt-out collective proceedings can only be brought in the UK in respect of competition law breaches. This stands in contrast to the regime in the EU, following the introduction of Directive 2020/1828 on representative actions for the protection of the collective interests of consumers. An amendment to the DMCC was debated in the House of Lords late last year which would have expanded the opt-out regime to breaches of consumer protection legislation. While this would have allowed consumers who could not otherwise bring a claim on their own for financial or other reasons to seek collective redress, the amendment was not backed by the government and ultimately failed to pass in the House of Commons. Accordingly, in order to seek collective redress for consumer law breaches, consumers will either need to be able to reframe the infringements as competition law infringements (which will most likely require alleging abuse of a dominant position by the infringing company) to bring an action under the collective action regime in the Competition Appeal Tribunal or will need to structure the claim as a representative action under CPR 19.8, an opt-in group litigation under CPR 19.22, or as case-managed multi-party litigation.

What should businesses do to prepare?

Corporates should familiarise themselves with the detail of the DMCC and subsequent guidance and carefully assess the application of the legislation to all parts of their business, identifying any potential areas of non-compliance. In particular, e-commerce sellers and platforms should ensure that prices in adverts and product listings are transparent regarding the actual costs of the product to the consumer and that they have put in place suitable measures to prevent fake reviews. Recent media coverage and public statements provide strong indications that, having been bestowed with such significant powers, the CMA intends to use them.

In light of the CMA's recent priorities, we expect to see a greater emphasis on enforcement action and imposition of fines in the consumer protection sphere, particularly in respect of hidden fees and fake reviews. Businesses should be cautious of the prospect of increased litigation, as any CMA enforcement action may, in turn, encourage consumers to bring their own claims. It is also advisable to keep abreast of any proposals to supplement the black list, which will likely be influenced by hot topics on the CMA's radar, such as "dark patterns".

1. 49 HL Deb 13 March 2024 c2085. See: hansard.parliament.uk/.
2. R (on the application of PACCAR Inc. and others) v. Competition Appeal Tribunal and others [2023] UKSC 28.
3. This includes, for example, the granting of permission to Apple in January 2024 to appeal the Competition Appeal Tribunal's decision in Kent v. Apple Inc. and another [2024] CAT 5.