United Kingdom: No New Deal – but a new dawn? Consumer enforcement and the CMA

In more detail

A. What powers does the CMA have to enforce compliance with consumer law?

The CMA currently has tools that it can use – subject to limitations – to enforce compliance of consumer protection law through investigations, in the civil and criminal courts, and even overseas.

1. The CMA can ask businesses to provide a huge amount of information about their operations – and is empowered to carry out on-site visits

The CMA currently has 12 open investigations – an unusually high number. This ranges from recent cases addressing COVID-19 cancellation rights for package holidays and holiday accommodation to longer-running investigations into online hotel bookings and secondary ticketing websites, and represents an increase in activity, driven both by COVID-19 and a shift in approach towards more proactive enforcement.

2. If the CMA doesn’t like what it finds, it can – and does – take action in the civil (and criminal) courts

There are a number of steps the CMA can take to enforce consumer protection law:

• Require a business to provide undertakings about measures it will take to address the CMA’s concerns. These can be highly prescriptive and have a material impact on how a business operates.
• Obtain a court order – usually to oblige a business to comply with undertakings, or remedy unfair terms, if it does not agree to do so voluntarily.
• Seek Enhanced Consumer Measures. In reality rarely used, ECMs allow the CMA to require a business to implement a range of measures beyond stopping certain prohibited practices – e.g. paying consumers compensation, taking steps to increase consumer choice.
• Bring criminal proceedings – extremely rare in practice.
• Importantly, the CMA does not have the power to impose fines directly – a factor that has long proved a source of frustration to the CMA’s leadership. The 2018 Green Paper (Modernising Consumer Markets) proposed UK penalties at least as severe as those in the New Deal – with up to 10% of turnover being proposed, so if the UK does introduce an equivalent to the New Deal the power to impose fines is likely to be a key change. However, the White Paper anticipated to be issued in response is now nearly a year overdue so this is presumably not considered a priority issue in the current climate.

In addition, it is crucial to remember that the effectiveness of the civil remedies described above hinges on the CMA’s ability to convince a court that the measures sought are just, reasonable and proportionate. The power to impose such measures rests with the courts alone – and from what we are seeing, the CMA is as capable of regulatory overreach in the context of consumer enforcement as it is when it comes to competition matters. While the CMA is empowered to compel businesses to comply with consumer law, it is not just, reasonable or proportionate for that to allow it to determine exactly how compliance is to be achieved. For some practical tips on how to develop a constructive dialogue with regulators like the CMA, see here.

B. What sorts of consumer cases does the CMA pursue?

The CMA enforces compliance with consumer protection law proactively, by targeting inherently unfair practices. It also reacts to complaints it receives from consumers and consumer rights bodies. Key focus areas for the CMA currently include:

• Online operators 

The CMA has been proactively targeting online video gaming platforms, online hotel booking platforms, fake and misleading online reviews, social media endorsements and secondary ticketing websites. There is a clear common denominator: the enforcement of consumer protection law against major online operators. This is a hallmark of the regime led by Lord Tyrie, the outgoing chair of the CMA, who argued in 2019 that ‘we have an analogue system of competition and consumer law in a digital age‘. Taking action against online platforms remains a priority for the CMA, even if it isn’t for consumers – and is in part driven by the CMA’s analysis of those platforms as occupying a market-leading position that confers a competitive advantage.

• Businesses that receive high volumes of complaints – and super-complaints 

In addition to identifying and pursuing its own strategic priorities, the CMA takes action in response to complaints it receives from individual consumers in the UK – for example, in April 2020 it launched an investigation into price gouging in response to complaints from over 20,000 consumers regarding traders selling hand sanitiser at inflated prices at the height of the COVID-19 pandemic. It also responds to super-complaints made by consumer rights bodies, like Which? and Citizens Advice. These designated consumer rights bodies can raise super-complaints with the CMA if any feature of a market in the UK for goods or services significantly harms the interests of consumers. Super-complaints have triggered CMA investigations into practices such as loyalty penalty charges and grocery pricing – and the CMA is required to respond to any super-complaint setting out its proposed course of action within 90 days of receipt, making them a very quick and effective tool when it comes to grabbing the CMA’s attention.

C. What’s changing?

Changes to the CMA’s leadership, the legislative framework, COVID-19 and Brexit will all affect the CMA’s approach to consumer enforcement. In our experience, the direction of travel is towards more robust enforcement, not unlike that seen in the competition arena.

1. New leadership

Lord Tyrie made no secret of his view that he does not consider the existing powers held by the authority to be sufficient. During his time as chair of the CMA, he was frustrated in his efforts to overhaul the legislative framework (as proposed in the Green Paper mentioned above) and remove the element of scrutiny by the courts that currently limits the CMA’s powers. The press release announcing the outgoing chairman’s departure in July did not attempt to hide his disappointment: it announced that he would be stepping down early (in September 2020) to allow him to pursue more radical reforms to consumer legislation, beyond the ‘inherent limits’ imposed by his position as chair of the CMA. Lord Tyrie has been hugely influential in determining strategic priorities for consumer enforcement cases – and we think it will be challenging for any successor to assume the mantel as chair of the CMA without continuing some of the battles Lord Tyrie started.

2. New enforcement measures

It’s all change at the CMA and, whilst recruitment rounds are taking place to find a permanent replacement for the role of chair, in the meantime a number of new enforcement measures are on the table:

• Power to seek Online Interface Orders (OIOs)

In January 2020 the EU Consumer Protection Cooperation Regulation (CPC Regulation) came into effect – and was implemented by the UK in June as the Consumer Protection (Enforcement) (Amendment etc) Regulations 2020. These regulations allow the CMA to seek OIOs, which empower the CMA to ask a court to order certain steps to be taken in relation to any online interface (e.g. a website or an app). Steps could include an obligation to modify or remove content, or display certain warnings or notifications to consumers.

• Access to the cross-border cooperation framework

The CPC Regulation also provides for a cross-border cooperation framework. It gives the European Commission and consumer regulators in Member States the ability to take coordinated action in respect of infringements of EU consumer law that affect consumers in multiple Member States. The CMA will continue to benefit from access to this cooperation framework in spite of Brexit – and together with OIOs, are designed to help take action against major online operators.

• Collective redress rights 

In June 2020, the European Parliament and Council agreed a revised text for a draft directive for consumer representative actions. The draft gives consumer in the EU the ability to collectively defend their rights – by seeking injunctions and/or redress (including compensation or replacement) on behalf of a group of consumers that allege harm by a trader that infringes EU consumer, data protection, financial services, travel and tourism, energy, health and telecommunications laws. For more detail on the revised draft, see here. The UK already has different forms of collective redress in place – from representative actions, to Group Litigation Orders (GLOs) and the Competition Appeal Tribunal collective redress process introduced a few years ago – but none are particularly easy for consumers to navigate. Although the draft directive won’t be finalised before Brexit, if and when it comes into force, it is likely to place political pressure on the CMA – and the UK Government – to demonstrate that UK consumers benefit from equivalent rights. Accordingly, improving the collective redress rights available to consumers is likely to remain on the legislative agenda.

• New fines? 

Given Lord Tyrie’s departure, concrete change to the UK regulatory framework is unlikely to be imminent (including privacy-style fines for consumer law infringement) – despite Lord Tyrie’s heavy campaigning.

Whilst UK Government voiced support for Lord Tyrie’s position, COVID-19 and Brexit mean that consumer law reform is not currently the most pressing item on the legislative agenda. That said, the effect of COVID-19 on the economy means that consumer confidence has never been more important.

On 2 October 2020, the CMA published draft guidance on its functions after the transition period to ensure businesses have clarity “on how the CMA’s powers and processes will be affected by the transition period”. The authority is seeking views on the guidance, which also covers consumer-law enforcement – which we hope will provide more clarity.

However, with the White Paper on consumer policy now being nearly a year overdue and a change of leadership at the CMA, for the time being we remain in the dark about the future of enforcement in the UK. What we can say with a degree of certainty is that the current political landscape is likely to result in legislative change to the CMA’s ability to enforce compliance with consumer law – and those changes are likely to involve closer alignment to the existing (and much stricter) competition enforcement regime.

Would you like to know more?

Our global consumer protection practice has a wealth of experience in engaging with the CMA and other consumer regulators on investigations and enforcement proceedings. If you would like to discuss any of the above or need advice on how to manage consumer regulatory risks, please reach out for an initial chat.