Subscription traps: new law on the way

Posted: 14/09/2023

The long-awaited Digital Markets, Competition and Consumers Bill (the DMCC) was introduced to Parliament on 25 April 2023 and is now at Committee stage in the House of Commons. Touted as the 'new bill to stamp out unfair practices and promote competition in digital markets', the DMCC enhances the Competition and Markets Authority’s (CMA) ability to promote competition and protect consumers. The DMCC has three areas of focus: consumer protection, digital markets, and competition. 

In this article we consider the DMCC’s consumer protection focus, particularly how it tackles various issues surrounding subscription contracts. It is estimated that consumers may spend as much as £1.6 billion annually on subscription contracts they do not want and £573 million on subscriptions they have forgotten about. It is also estimated that consumers spend £602 million on subscriptions that are the direct result of accidentally being rolled over from a free or reduced-price trial. The DMCC seeks to tackle such 'subscription traps' by imposing new duties on traders. 

What is a subscription contract?

The DMCC defines a subscription contract as a contract between a trader and a consumer for the supply of goods, services or digital content by the trader in exchange for payment, which meets either or both of the following criteria:

• it auto-renews for an indefinite or fixed period, creating a continuing liability for the consumer unless the consumer takes action to stop the contract from renewing or to terminate it before its expiry date; and/or 
• it contains a free trial or reduced-price period, after which the contract continues so that the consumer must either start paying or continue paying at a higher rate than during the initial period unless the consumer takes action to terminate.

The DMCC provides that, in both cases, the consumer must have the right to terminate the contract without incurring a penalty which is more than nominal. 

The DMCC does not apply to utilities contracts, insurance and financial services contracts, medical prescriptions and residential tenancy agreements. 

Pre-contract information 

The DMCC requires certain information to be provided before the consumer enters into a subscription contract. 

Accordingly, a trader must give the consumer certain "key" pre-contract information and give or make available additional "full" pre-contract information. Key pre-contract information must be provided prominently and separately from other pre-contract information. 

This includes: 

• information that the contract will continue or that the consumer will be charged or charged at a higher rate after a specified period (as applicable) unless the consumer takes steps 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 amount payable or any option for the trader to make such changes;
• how the consumer can terminate the contract including relevant contact details; and
• a summary of the consumer’s cancellation rights during any cooling-off period. 

Full pre-contract information includes: 

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

In addition, there are specific requirements for online, in person and telephone contracts. 

Reminder notices

The DMCC requires traders to proactively issue reminders to consumers before auto-renewing. Specifically, traders must give a reminder notice for the first renewal payment. For each subsequent renewal payment due six months or more after the previous payment, a cooling-off notice on the first day of the renewal period and an end of contract notice. 

The reminder notice must be given to the consumer between three and five days before the final cancellation date (ie the last date on which the consumer can end the contract and avoid being liable for the next renewal payment). For subscription contracts that renew for a period of 12 months or more, an extra reminder must be given between 10 to 14 days before the cancellation date.  

Reminder notices must contain similar information to the pre-contract information and should be tailored to the renewal, by including:

• the renewal date
• the amount of any previous renewal payment
• the next renewal date
• the amount of the next renewal payment and any additional payment
• the steps required to terminate the subscription contract, including the relevant contact details and the date by which those steps must be taken.

Termination and cancellation 

The DMCC regulates two ways in which subscription contracts end. 

Termination
This is where the consumer brings a contract to an end by exercising their contractual right not to renew.

The DMCC requires a trader to make arrangements to ensure that a consumer can end a subscription contract by a single communication without having to take unreasonable and unnecessary steps. For subscription contracts entered into online, the trader must enable termination online. Instructions on how to do so must be displayed online in a place where the consumer is likely to find them. Instead of using the trader’s termination arrangement, the consumer can notify a trader of termination using any method they choose, provided it is sufficiently clear.

Cancellation
This is where the consumer ends the contract by exercising their cooling-off rights or where the trader has breached certain DMCC rules.

• Cooling off rights: The DMCC provides the consumer with an initial cooling-off period which allows them to cancel their subscription contract within 14 days of entering into it or, where the contract is for the supply of goods, within 14 days of receiving the first supply.
  
  In addition, a renewal cooling-off period allows the consumer to cancel up to 14 days after the expiry, an introductory free or discounted period or after any renewal that commits the consumer to a further period of 12 months or more. The consumer can exercise their cooling off right using any sufficiently clear means. Cancellation is effective from the date  the notice is given.
  
  
• Breach: The consumer also has the right to cancel the contract following a breach of certain DMCC rules by the trader. Under the DMCC it is an implied term of every subscription contract that the trader will comply with its obligations to provide key and full pre-contract information, provide various notices, and facilitate termination. The consumer can cancel the contract if the trader fails to comply with these obligations. 

Where the consumer exercises their cancellation or termination rights, the trader must provide the consumer with an end of contract notice that acknowledges the fact they have cancelled or terminated. The trader must also refund any overpayment to the consumer.

General provisions 

The DMCC also contains the following more general provisions. 

Electronic communication - including email - sent by the trader is treated as received by the consumer at the time the communication is sent, even if the consumer does not receive it for reasons outside of the trader's control. 

Consumers’ cancellation and termination notices are deemed to be given within the relevant time limit provided they are sent before it expires, regardless of whether or when the trader receives the notice. 

The burden of proof is on the trader to show that it has supplied the required pre-contract information and any relevant notice. The burden of proof is on the consumer to provide evidence that they have given a cancellation or termination notice. 

Traders must ensure pre-contract information and notices are given in clear and plain language, legible if in writing and audible and comprehensible if given orally. 

Terms which do not comply with the DMCC provisions relating to subscription contracts are ineffective, including any terms that limit liability for their breach.

The consumer also has common law rights but must choose whether to exercise these or their rights under the DMCC. There is no scope for double recovery.

The DMCC provisions apply despite any choice of non-UK law, provided the contract has a close connection to the UK.

Enforcement and penalties

The DMCC grants new enforcement powers to the CMA which may now directly enforce consumer protection laws without having to take individual cases to court. The CMA may also impose fines of up to 10% of a company’s global turnover or deem a contractual term unenforceable for breaches of consumer law. 

Enactment into law

The DMCC is at the start of the legislative process; both Houses of Parliament must approve it before it becomes law. This process will involve members of both Houses of Parliament debating the DMCC and proposing amendments, as well as scrutiny by a specially convened committee. There may, therefore, be amendments to the DMCC before it is enacted, which is expected to be later this year. However, its aims and central principles are not likely to change substantively.

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