The UK’s new consumer law enforcement regime - DMCC Bill Deep Dive Part 2

Background

In April 2018, the UK government announced its intention to introduce legislation to give civil courts the power to impose financial penalties for breaches of consumer law up to 10% of a firm’s worldwide turnover. This was to discourage infringements and promote swift compliance with law when a breach is identified.

The Competition and Markets Authority (CMA) took this idea to another level in February 2019 by proposing to introduce an administrative enforcement regime which allows the CMA to decide whether the relevant law has been breached and impose financial penalties. This proposal was adopted in the Government consultation in July 2021 and forms part of the Digital Markets, Competition and Consumers Bill (Bill), which also includes wider changes to replace or amend the existing enforcement rules.

Overview

The provisions on the enforcement of consumer law in the Bill can largely be grouped into two: (i) the replacement or amendment of the current enforcement rules which apply generally to consumer law and (ii) the new rules relating to out-of-court enforcement by the CMA (administrative regime) for breach of the legislation specified in the Bill (relevant infringement) and monetary penalties, which may be imposed by the CMA or the court. They apply if there is an act or omission relating to the promotion or supply of goods, services or digital content by a trader to a consumer or, in the case of the promotion or supply of a consumer’s goods, services or digital content, to itself or another trader (commercial practice) which:

• harms the collective interests of consumers;
• meets the UK connection condition i.e. the trader has a place of business in the UK, carries on business in the UK or the commercial practice is part of its activities directed to consumers in the UK; and
• breaches the law specified in the Bill.

The administrative regime is additional to the current enforcement regime under which the enforcer (including the CMA) can apply to the court for an enforcement order if it thinks that a person has engaged or is engaging in conduct that breaches the relevant law or if a person breaches his undertaking. Under the Bill, the CMA and other relevant enforcers can still apply to the court for an enforcement order or an interim enforcement order in respect of a suspected relevant infringement. The court will also hear appeals from a person who has received a monetary penalty (see below).

The CMA’s direct enforcement power

Under the Bill, the CMA has the new power to issue a range of notices against a person (respondent) if the CMA has reasonable grounds to believe that a person has engaged, is engaged or is likely to engage in:

• a commercial practice in breach of:
  • the provisions of the legislation listed in the Bill;
  • an undertaking given by the respondent; or
  • a direction given by the CMA; or
• the provision of materially false or misleading information without reasonable excuse as part of the CMA’s direct enforcement function.

Other members within the same “group of interconnected bodies corporate” can also be issued with these notices.

Most types of enforcement notices are issued in two stages. A provisional enforcement notice will set out the grounds on which the CMA issues the notice, together with the proposed directions to secure the respondent’s compliance and/or the proposed monetary penalties that the CMA is considering imposing, and the respondent will have an opportunity to present its case. If following the respondent’s representations, the CMA still believes that there was a relevant infringement, it may proceed with the issuance of a final enforcement notice which requires compliance with the directions specified in the notice and may include monetary penalties.

Monetary penalties

The significance of the new monetary penalties lies in their breadth and possible amounts that may be imposed by the CMA or the court. There are three levels depending on the type of infringement:

• A breach of the relevant consumer law: a fixed amount up to the higher of £300,000 and 10% of the total value of the turnover.

This penalty can be imposed if the court finds that the respondent has engaged, is engaging or is likely to engage in a commercial practice which infringes the relevant consumer law or the CMA considers that the respondent has engaged or is engaging in such infringement.

• A breach of a court order, direction or undertaking:
• a fixed amount up to the higher of £150,000 and 5% of the total value of the turnover;
• a daily rate which is the higher of £15,000 and 5% of the total value of the daily turnover; or
• a combination of both.

These penalties can be imposed in essence if the respondent breaches the court’s enforcement order, interim enforcement order, online interface order or interim online interface order, the CMA’s direction or any undertaking that he has previously given to the court or the CMA.

• The provision of a materially false or misleading information: a fixed amount up to the higher of £30,000 and 1% of the total value of the turnover.

This penalty can be imposed if the respondent has provided with the CMA any information that is materially false or misleading in connection with the CMA’s direct enforcement function.

The monetary penalties can be very high as the “turnover” is a global turnover and includes the turnover of the person that controls or is controlled by the respondent. Those imposed by the CMA are civil penalties which also attract interest if not paid when due and are recoverable as civil debts under the Bill.

The respondent can appeal to the court to challenge the court’s or the CMA’s decision to impose the penalty or the nature or amount of the penalty.

Relevance to non-UK business

The CMA’s direct enforcement function and monetary penalties that are introduced under the Bill also apply to the activities targeted at the consumers in the UK, even if the trader carries out those activities from outside the UK.

Non-UK businesses which target the consumers in the UK in their sale or marketing activities online should note that, in addition to other enforcement powers, under the Bill, the CMA can also issue an enforcement notice without seeking a court order to:

• remove content from, or modify content on, an online interface;
• disable or restrict access to an online interface;
• display a warning to consumers accessing an online interface; and/or
• delete a domain name and take any necessary steps to facilitate the registration of that domain name by the CMA.

Potential implications

There are two key drivers behind the introduction of the new administrative regime and the introduction of monetary penalties: faster enforcement of consumer law and deterrence against a breach of consumer law.

The power to decide whether there was a relevant infringement and to impose financial penalties outside the court should allow the CMA to proceed with its enforcement actions more swiftly to make businesses comply with the relevant consumer law and where applicable give remedies to consumers by the use of enhanced consumer measures. Such prospects, when coupled with the risk of receiving substantial monetary penalties, should leave not much choice but for businesses to take consumer law compliance seriously. Trading without being fully aware of the relevant consumer law requirements, not meeting those requirements or not monitoring or having a robust system to monitor the business operations’ continued compliance with consumer law can all contribute towards a relevant infringement that is enforced under the new rules.

If a company promotes or supplies goods, services or digital content to the consumers in the UK, it is important to be fully aware of the relevant legal requirements, apply them to across the relevant business operations and build in a system under which compliance with those requirements are monitored and necessary changes are implemented in time to address future legal developments. There are regulations on various aspects of B2C promotion or supply of goods, services or digital content for example:

• the terms of the contract with the consumer;
• the consumer’s customer journey for purchase including:
  • what the business says or how it deals with the consumer before, at and after entering into a contract;
  • the information which must be given or made available to the consumer and how and when to do so;
  • the set-up of the website or other interface with the consumer; and
• what is included or presented as part of its promotional activities and materials.

Next steps

There may be changes to the Bill before the new rules become law. However, given that the CMA’s direct enforcement function and turnover-based high monetary penalties have been on the table for quite some time, it is not very likely that they will be dropped before the Bill becomes law.

The Bill requires the CMA to publish a policy statement on its power to impose a monetary penalty and guidance about its general approach to the carrying out of its direct enforcement functions including the factors that will be taken into account in determining whether to start proceedings for recovery of a monetary penalty which has been imposed but not paid. More details on enforcement under the administrative regime are therefore expected to be available before the new rules come into force. Nevertheless, the priority in practice may well be to review the current practices and ensure on-going legal compliance when engaged in the promotion or supply to or for the consumers in the UK.

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This article is part of a series of articles on the Digital Markets, Competition and Consumers Bill. See also other articles in 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 requirements for B2C subscription contracts: The UK’s new requirements for subscription contracts with consumers – DMCC Bill Deep Dive Part 3 - Hogan Lovells Engage

Authored by Michiko Jo.