6 minute read | May.22.2023
On 25 April 2023, the United Kingdom (UK) government introduced the long-awaited Digital Markets, Competition and Consumers Bill (Bill) into Parliament.
Along with some significant changes to the enforcement powers of the UK Competition and Markets Authority’s (CMA) in respect of breaches of consumer law by businesses, the Bill contains new protections for consumers that use subscription services for goods, services and digital content.
The Government’s stated policy aim is to reduce the estimated £1.6bn cost to consumers for subscriptions that they no longer want but are impaired from cancelling due to unclear terms and onerous cancellation processes.
1. Which subscription contracts are in scope?
The Bill applies to businesses entering B2C contracts for the supply of goods, services or digital content which either: (a) auto-renew unless the consumer cancels; or (b) have an introductory offer (e.g., a free trial or discounted initial price), after which the consumer is contractually required to pay a higher price unless they cancel.
Certain subscription contracts are excluded from the scope of the Bill, including contracts for utilities, financial services, Ofcom-regulated services (such as mobile phone contracts) and childcare.
2. What are the new rules?
Pre contractual information:
Specific cooling-off periods (i.e., periods during which the consumer can choose to withdraw from the contract without penalty) have been introduced for subscription contracts:
Single communication cancellation
3. Do the rules only apply to UK businesses?
No. As well as applying to UK-based businesses, the rules apply to businesses with a place of business in the UK and to businesses offering subscription contracts that are directed to consumers in the UK.
This means that international businesses with subscription offerings directed at UK consumers (for example, subscriptions offered via a UK website or that offer goods, services or content specific to the UK) are likely to be caught by the rules.
4. When will the rules come into force?
The Bill is currently going through the parliamentary legislative process and is likely to undergo some revisions before a final version is approved. It is expected to come into force in 2024.
The Government has not indicated whether it intends to grant businesses any grace periods in respect of the new rules, so businesses should plan for them to be effective immediately once the Bill comes into force.
5. What happens if we don’t comply?
As part of the wider changes introduced by the Bill, the CMA will have the ability to take direct enforcement action against infringing businesses (it previously had to take businesses to court).
The Bill introduces new powers for the CMA to impose significant fines for breaches of consumer law, including the rules on subscriptions. Fines can be up to 10% of the business’s global turnover, and up to 5% of global turnover for breaches of undertakings given to the CMA in connection with an enforcement action or investigation.
The requirements to provide pre-contractual information, renewal notices and permit termination of subscription contracts by a single communication will be implied into all relevant subscription contracts. If they are breached or not complied with by the business, the consumer will have the right to cancel their contract at any time without liability or penalty.
The proposed rules on subscription contracts are largely a refinement and restatement of existing consumer law, with some new additions such as the renewal cooling-off period and reminder notices.
Global businesses will likely need to review not just their consumer facing terms but also their wider operational processes to ensure that customer sign-up, communications and cancellation processes comply with the rules. It remains to be seen how actively the CMA will enforce the rules.
For businesses offering subscription services to consumers in the UK as well as other jurisdictions, UK-specific changes to terms and processes may be required in order to comply, noting that the UK has proposed some prescriptive content and process requirements that are not (yet) required by other jurisdictions.
Orrick’s Technology Transactions Group regularly advises clients at all stages on their consumer law and B2C contract terms and processes to help to ensure they have addressed key consumer law requirements. If you have questions, please contact the authors.