The Digital Markets, Competition and Consumers Act 2024 (“DMCC”) received Royal Assent on 24 May 2024, making the United Kingdom the fourth jurisdiction to pass digital regulatory legislation targeting tech-giants. The DMCC not only regulates competition in digital markets but also introduces substantial protections for consumer rights within the UK.
In this article, we will focus on the changes introduced regarding the provision of goods, services, or digital content under subscription contracts, which primarily aimed at enhancing consumer protection by eliminating subscription traps.
What is a subscription contract?
As defined under the DMCC, a subscription contract is a contract between a business and a consumer for the provision of goods, services, or digital content in return for payment. These contracts may automatically renew for either an indefinite or a fixed period, during which the consumer continues to incur charges until they actively terminate the contract.
The definition also includes contracts that initially offered goods, services or digital content free of charge or at a discounted initial rate, after which the consumer automatically becomes liable for payments or payments at a rate higher than during the initial period.
The DMCC does not apply to utility contracts, insurance and financial services, healthcare and medical contracts, residential leases and contracts regulated by the Office of Communications ("OFCOM") under the Communications Act 2003.
New Duties for Traders
The DMCC introduces several new duties for traders offering subscription services, ensuring their practices provide enhanced consumer protection.
Key and Full Pre-Contract Information
Firstly, businesses are required to provide certain information to consumers before they enter into a subscription contract. Just before a contract is formed, businesses must present consumers with a list of “key pre- contract information”. This information includes, among other things, a notification that the contract will continue or continues for a specified term unless the consumer terminates it early, clarification that the consumer will incur liabilities until the contract ends, any minimum period before the consumer can terminate the contract, the subscription fee and its periods, and the steps and notice period required to terminate the contract.
The obligation to provide key-pre contract information is a separate obligation from the requirement to provide full pre-contract information.
Businesses are also required to give or make available additional “full pre-contract information”. Full pre-contract information must include all the “key pre-contract information” as well as other details related to the contract, such as the main characteristics of the goods, services or digital content, the trader’s identity, the complaint handling policy, and the consumer’s right to cancel during the initial and renewal cooling-off periods, including the procedures and consequences.
Explicit Confirmation of Payment
Businesses must ensure that the consumers expressly acknowledge the existence of an obligation to pay, even if there is an initial free-trial period and the subscription automatically rolls into a paid subscription.
Reminders
According to the data, the most common reason behind accidental subscriptions is the automatic renewal of subscriptions without consumer’s knowledge.
In response, the DMCC introduced an obligation on traders to issue prominent reminder notices about upcoming renewal payments, automatic renewal periods and when free trials are due to end. These notices must be clear and more prominent than any other information provided to the consumer at the same time. Additionally, the notice must be given within the period specified under key pre-contract information and should also include the total minimum amount payable if the contract is not cancelled, the date of the next renewal, and the actions that should be taken to cancel the subscription to avoid further charges.
Simple and Accessible Cancellation Processes
The DMCC mandates that traders implement simple and accessible cancellation processes, free from unnecessary complications or delays. Traders should not create barriers that make cancellation difficult for consumers.
For subscription contracts entered into online, an online cancellation process must be made available and these processes must also be prominently displayed. Consumers may also use other methods, such as email or post, to end their subscription contracts.
Once a consumer submits a cancellation request, this request must be acknowledged with an “end of contract notice”. This notice should confirm the cancellation date, and traders must refund any overpayments made by the consumer.
Cooling-Off Rights
With the DMCC, the cooling-off period applies not only to the initial 14-day period but also to renewal periods. The renewal cooling-off period allows a consumer to cancel the subscription within 14-days following the end of a free trial or discounted period, or after any renewal that commits the consumer to an additional 12-month period or longer. For instance, once a free-trial period ends and a consumer begins paying for a subscription, they can terminate the contract without any reason during the first 14-days of the contract.
If a business fails to comply with these obligations, consumers will have the right to cancel the contract due to breach.
Wider Enforcement Powers for the Competition and Markets Authority (“CMA”)
The DMCC introduces new wider and more direct enforcement powers to the CMA. As a result, the CMA can investigate directly any suspected infringements and practices that may harm UK consumers without requiring court intervention.
Additionally, the CMA will have authority to issue infringement decisions and compliance directions, impose fines of up to 10% of global turnover, and award compensation to consumers.
On 31 July 2024, the CMA as part of its consultation process, published its draft guidance for the exercise of its new direct enforcement powers. The consultation period closed on 11 September 2024. Following the consultation, it is expected that the CMA will revise the draft guidance, which will outline the CMA’s approach to enforcement.
What is Next?
Although the DMCC has received Royal Assent in May 2024, the new government has said that the rules will not come into effect until around Spring 2026 at the earliest.
In the meantime, businesses offering goods or services on a subscription basis should start taking steps to ensure that their subscription contracts comply with the DMCC to prevent potential breach of contract claims in the future.
