The UK’s new requirements for subscription contracts with consumers – DMCC Bill Deep Dive Part 3

Background

It is not uncommon for subscription-based services to be offered free-of-charge for an introductory period or at a low entry price to attract new subscribers. Such offers are often made on the condition that, after the initial period, the contract will automatically renew or continue on different (and less attractive) terms unless the subscriber follows through the steps set by the supplier to terminate the contract by a certain date or a certain number of days before the renewal date. Whilst any such condition needs to be agreed with the consumer when entering into the subscription contract, it is currently down to each subscriber to remember when the initial period ends or any changes that will apply after such period, as well as to take the necessary steps if they do not wish to continue receiving the service. On top of this, the steps required to stop the contract from continuing have so far not necessarily always been obvious or straightforward.

It has been a while since the UK Competition and Markets Authority (CMA) first identified issues around automatic renewals. Cloud services, online dating services, anti-virus software and online console video games were previously looked into by the CMA due to suspected widespread consumer law breaches. The automatic renewal of subscription services was identified as problematic across these services and resulted in leading market players giving undertakings to change their practices and the terms of their contracts with consumers or the CMA issuing guidance addressed to the relevant sector.

Whilst certain practices that cause consumers to unintentionally continue with their subscription payments can be addressed under current law, the Digital Markets, Competition and Consumers Bill (the “Bill”) has introduced a new set of requirements which are specific to subscription contracts and easier for the authorities to enforce. The Bill builds on the CMA’s prior work and enforcement activities, the outcome of a government consultation in 2021 and, to some extent, extends and supplements the current law which applies to distance and/or off-premises contracts.

A “subscription contract”

The new requirements apply to subscription contracts which are:

• entered into between a trader and a consumer; and

• for the supply of goods, services and/or digital content under which the consumer:

  • automatically becomes liable to pay, either for a recurring or continued supply for an indefinite or fixed period, or a rate that is higher than the rate which applies during an initial period (including where offered free during such period); and

  • is free to terminate the contract before the end of the fixed period (if any) under the terms of the contract.

The requirements apply broadly regardless of the duration of the subscription contract unless it is expressly excluded under the Bill. For example, these requirements do not apply to utilities contracts, insurance and financial services contracts, medical prescriptions and residential tenancy agreements.

Pre-contract information

Before entering into a subscription contract with a consumer in the UK, the Bill provides that the trader must give or make available certain “key pre-contract information” as well as “full pre-contract information” (to the extent applicable).

The key pre-contract information includes:

• depending on the type of the subscription contract, information that the contract will continue or that the consumer will be charged or charged at a higher rate after a specified period, unless steps are taken by the consumer to terminate the contract;
• the frequency of payments;
• the minimum amount payable on each occasion;
• the minimum total amount payable under the contract;
• any changes to the frequency or the amount payable, or any option for the trader to change those details;
• how the consumer can terminate the contract including relevant contact details; and
• a summary of the consumer’s cancellation right during the initial cooling-off period and any renewal cooling-off period (see below).

The full pre-contract information includes:

• the main characteristics of the goods, services or digital content;
• the trader’s identity and contact details;
• the arrangements for payment, delivery and performance;
• the trader’s complaint handling policy;
• certain detailed information about the consumer’s right to cancel during the initial cooling-off period and any renewal cooling-off period; and
• a reminder of the consumer’s statutory rights under the Consumer Rights Act 2015.

The information on the consumer’s cancellation right is effectively the same as the information on the statutory right to cancel that must be given or made available when entering into a distance or off-premises contract with a consumer under the current law. Businesses that offer subscription contracts at their premises should note that the Bill gives consumers (among other things) the right to cancel those contracts unlike the current situation where such right is limited to distance and off-premises contracts.

Requirements about how the information must be provided are also set out in the Bill and can vary depending on how the contract is entered into. In all cases, all key pre-contract information must be given together and separately from the full pre-contract information. If the contract is entered into online and remotely, key pre-contract information must be given in writing and in a way that means the consumer does not have to take any steps to read the information (other than to enter into the contract). In practice, this is likely to mean that the key pre-contract information should be immediately accessible to the consumer and cannot for example only be incorporated in the terms and conditions.

Cancellation rights

The Bill gives consumers a statutory right to cancel a subscription contract during:

• the initial cooling-off period, meaning 14 days after the contract is entered into or, in the case of a contract for the supply of goods, after the consumer receives the first supply;

• any renewal cooling off-period, meaning 14 days after:

  • a free-of-charge or lower-rate period; or

  • the day on which the consumer becomes liable for a renewal payment and the next payment is not due for 12 months, or there is no further renewal payment but the contract continues beyond 12 months.

A trader must allow the consumer to terminate a subscription contract by notifying the trader in a single communication and without having to take any steps which are not reasonably necessary to do so. If the trader fails to provide any key pre-contract information or reminder notice or make relevant arrangements enabling consumers to easily exercise a right to end the subscription contract, this will amount to the trader’s breach of contract.

Notices

The Bill requires traders to give consumers the following notices:

• a reminder notice for the first renewal payment;
• a reminder notice for each subsequent renewal payment if it is due six months or more after the previous renewal payment;

• a cooling-off notice on the first day of each renewal cooling-off period, stating that the subscription contract is continuing and providing information on the right to cancel; and
• an end of contract notice where a consumer has exercised a right to cancel or terminate a subscription contract, confirming when the contract was or will be cancelled or terminated.

For each notice, the Bill specifies how and when it must be provided and what it should communicate to the consumer. The information that must be included in the reminder notice is similar to the key pre-contract information but is more bespoke to the renewal. It includes the renewal date, the amount of the previous renewal payment (if any), the next renewal date and the steps required to terminate the subscription contract including the relevant contact details and the date by which those steps must be taken.

The Bill further provides that any term of a subscription contract that is a breach of the provisions on subscription contracts has no effect on the consumer i.e. they cannot be contracted out.

Next steps

Arrangements that lead to consumers having to continue paying for services that they neither want nor need, and practices making it difficult for consumers to terminate their subscription contracts when they are entitled to do so, have been dubbed as ”subscription traps”.

The government estimates that consumers spend £1.6 billion per year on subscriptions they do not want. Unclear terms and conditions, complicated cancellation routes and traders taking advantage of consumers not remembering to cancel their contracts are viewed by the government as having contributed towards such unwanted spending. The government also estimates that consumers spend £602 million on subscriptions that are the direct result of accidentally being rolled over from a free or reduced-price trial and spend £573 million on subscriptions they have forgotten about.

The new rules introduced by the Bill standardise the information businesses are required to provide so that the applicable term and payments are clearly presented to consumers. Together with additional statutory cancellation rights and other requirements, this will enable consumers to review and more easily terminate their subscriptions. In this sense, the requirements introduced by the Bill will make it easier for consumers to avoid continuing with the subscriptions they no longer need or want. A review of and changes to existing operations, terms and conditions and, if supplied online, the customer interface will be inevitable for all businesses that offer subscriptions to consumers in the UK once the new rules come into force.

The Bill will now continue to go through the parliamentary legislative process and some revisions can be expected before a final version is agreed and the new rules become law.

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This article is part of a series of articles on the Digital Markets, Competition and Consumers Bill. See also the articles published earlier as part of this series:

An overview of the Bill: Power to the CMA – UK introduces flagship draft Digital Markets, Competition and Consumers Bill to Parliament - Hogan Lovells Engage

New regulation on digital markets: The UK’s New Digital Markets Regime – DMCC Bill Deep Dive Part 1 - Hogan Lovells Engage

New consumer law enforcement and penalties: The UK’s new consumer law enforcement regime - DMCC bill deep dive part 2 - Hogan Lovells Engage

Authored by Michiko Jo and Micaela Bostrom.