UK Consumer Protection: Compliance Guidance On Pricing, Urgency And Green Claims.
The Digital Markets, Competition and Consumers Act (DMCC) will transform the CMA’s consumer powers with the introduction of direct enforcement and fines of up to 10% of global turnover for non-compliance. But the CMA is not waiting until its new powers bite to take action. The regulator is cutting its teeth by actively pursuing enforcement under the existing regime. Recent weeks have seen (i) Wowcher as well as ASOS, Boohoo, and George (ASDA) agree undertakings with the CMA, (ii) a consultation letter issued to Worcester Bosch expressing concerns over misleading green claims in the heating sector and (iii) the CMA indicating that it will pursue court action against Emma Sleep if it fails to change its online practices.
Businesses should keep an eye on these developments as they provide a helpful steer on what the CMA will consider compliant under the new consumer regime.
The DMCC: What to expect and when?
The new regime under the DMCC is expected to kick in later this year although secondary legislation will provide more clarity on exactly when direct enforcement will come into force. CMA guidance is expected to set out how it proposes to exercise its new powers in this area. The key consumer provisions of the DMCC are:
- Restatement of the existing consumer rules under the Consumer Rights Act and Consumer Protection from Unfair Trading Regulations including the prohibitions on unfair terms in consumer contracts and unfair commercial practices;
- New rules in relation to subscription contracts, online reviews and drip pricing;
- Direct enforcement powers for the CMA, allowing it to find an infringement of consumer law without having to take court action; and
- New power to impose fines of up to 10% of global turnover for non-compliance with consumer law and new procedural penalties e.g. for failing to comply with information requests.
Guidance and undertakings: Meat on the bones of consumer compliance
At present consumer law comprises, in the most part, broad principles such as prohibitions on “unfair contractual terms” and “unfair commercial practices” (with the exception of certain detailed provisions such as the new rules on subscription contracts). However, published guidance and undertakings accepted by the CMA to end investigations provide a blueprint for how businesses can comply with consumer rules. It seems likely that the CMA is seeking to use the undertakings agreed with Wowcher, and those agreed with ASOS, Boohoo and George (ASDA), as a precedent for compliance across whole sectors (or even more broadly), as a benchmark for compliance in key risk areas: urgency, online choice architecture, pricing and green claims.
Urgency and scarcity claims
The Wowcher undertakings provide a helpful steer for businesses, especially those operating online, on ensuring that pricing, scarcity and popularity claims are made in a compliant way. These complement the open letter the CMA issued last year on pricing and urgency claims.
The key elements of the Wowcher undertakings are:
- Check-out timers must be clear and accurate – they should apply only to specific rates reserved for a specific customer and the duration of the timer should not give a false impression that the customer must act quickly to avoid missing out on a deal.
- Popularity claims must be accurate including by stating the period over which popularity claims apply (e.g. “X sold in the last 24 hours”); limited the term “Bestseller” for <10% of merchants offering products on a sales channel; and only using the term “New Today” on the first day that a product is available on sales channels.
- Scarcity claims must also be accurate and should not be used where a trader knows (or has reasonable grounds to believe) that a deal/product will not be out of stock within the next 7 days based on actual data about remaining stock and sales rates from the previous 7 days; or that a deal/product will be restocked within the next 7 days.
Pre-selections
In addition, Wowcher has agreed to refund over £4 million to customers who were automatically enrolled into ‘VIP membership’ via a pre-ticked box. There is also a commitment to stop the use of pre-ticked boxes. This underscores the importance of online choice architecture and ensuring customers are able to make fully informed choices about the products and services they buy.
Drip pricing and bundles
In its guidance for green heating and insulation, the CMA provides further guidance on pricing which will apply across many other sectors. Pricing communications must be:
- Accurate. The guidance reiterates the position in the DMCC that fixed costs payable to all customers should be included in headline prices, and a methodology for variable fees should be provided to consumers.
- Comprehensive. Details on bundling should be made clear to customers so that consumers can make an informed decision about the value of a bundle. Similarly, details of any government funding should be considered in pricing where relevant.
- Clear. If pricing is qualified, important qualifications should be provided as close to the headline price as possible and should be made clear to consumers upfront.
Green claims – a principles-based approach for businesses
The undertakings agreed by ASOS, Boohoo and George (ASDA), alongside the latest guidance for the use of green claims in heating and insulating, are principle-based. In short, claims should be:
- Clear. Green claims must be clear – vague descriptors such as “green” “eco” “responsible” or “sustainable” are likely too ambiguous. Even statements such as “recycled” and “organic” should be used only once certain criteria has been met.
- Substantiated. Claims should be evidence-based and substantiated before they are made. In some cases, this might mean ensuring there are clear criteria for products to be included within eco or sustainable ranges; in others, it may mean using independent evidence and credible sources to substantiate claims.
- Transparent. Words and images should be chosen carefully so as not to mislead the customer into thinking a product is “greener” than it is. Customers should be provided with comprehensive and correct information, including about how products are bundled, accreditation schemes, and government funding, which may be linked to green claims.
Conclusion
Although the CMA’s new powers to directly enforce and fine breaches of consumer law are not yet in force, this is still a fast-moving area. Decisions made in this period provide guidance on the approach that the CMA will take when its powers come into force. Businesses should carefully consider whether existing consumer compliance policies are up to the job in the new higher risk environment and engage with the detail of these precedents to ensure current practices are compliant, before the serious fines come on the agenda.
For further information, please contact:
Bruce Kilpatrick, Partner, Linklaters
bruce.kilpatrick@linklaters.com
