The UK’s Proposed Laws to Tackle Consumer Subscription Traps – 5 Things You Need to Know

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:

• Although businesses were already required (by the Consumer Contracts Regulations 2013) to provide certain pre-contractual information to consumers entering contracts online, the Bill introduces a standalone, largely similar set of requirements for subscription contracts specifically.
• The pre-contractual information must include details of the term of the contract (including any auto-renewals), the amount and frequency of payments, the consumer’s right to cancel during a cooling-off period or otherwise, and whether the provider has the right to change the frequency and number of payments.
• The pre-contractual information must be provided in such a way that the consumer does not need to take any steps to read the information (such as click on a link to a separate set of terms), other than the steps the consumer must take to enter the contract.

Reminder notices:

• Businesses must provide notices to consumers to remind them that their subscription contract will renew, and that payment will be due unless the consumer cancels. The reminder notice must include the date that the renewal payment is due and the amount owing, as well as details of how the consumer can terminate the contract before becoming liable for the next payment.
• Renewal notices must be provided: (a) for the first renewal payment due under the contract; and (b) every 6 months thereafter (even if renewal payments are more frequent).
• The renewal notice must be sent to the consumer between 3 and 5 working days before the last day on which the consumer can cancel the contract without becoming liable for the renewal payment. Additional reminders are required for subscriptions that renew for periods of 12 months or more.

‘Cooling-off’ periods:

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:

• On entry into the contract, the cooling-off period remains in line with other online contracts for goods and other services (14 days from the date on which the consumer first receives goods or the date the contract is entered into respectively).
• A new ‘renewal cooling-off period’ of 14 days from the date a ‘relevant renewal’ occurs will be introduced.
• A ‘relevant renewal’ includes: (a) when a consumer first becomes liable for a renewal payment after an introductory offer or trial period; and (b) when a consumer becomes liable for a renewal payment and the next payment will not be due for 12 months or more (or no further payments are due, but the contract will continue for 12 months or more).

Single communication cancellation

• Businesses must make it possible for consumers to end their subscription contract in a single communication and without having to take any steps which are not reasonably necessary for the contract to end. This aims to target convoluted or difficult cancellation processes put in place by some businesses.
• The business must acknowledge the consumer’s request in writing and set out when the contract will terminate. The business must also refund any overpayments to the consumer.

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.

Key Takeaways

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.