Digital Markets, Competition And Consumers Act

22/10/2024

Legal advice: The Digital Markets, Competition and Consumers Act 2024

A woman sat at a desk working on a laptop representing The Digital Markets, Competition and Consumers Act 2024

The Digital Markets, Competition and Consumers Act 2024. The name alone is enough to put off most businesses. But despite its awkward title, this new law has both consumer law and competition law consequences for many businesses in the fashion industry. Stephen Sidkin, a partner at Fox Williams LLP, reports

The purpose of the Digital Markets, Competition and Consumers Act 2024 is to give the Competition and Markets Authority (CMA) the ability to impose eye-watering fines to encourage better compliance with consumer protection law and to punish those who do not comply. As the CEO of the CMA has previously stated, the new law “has the potential to be a watershed moment in the way the CMA protects consumers in the UK.” This is important, as historically the CMA has lacked the sharp implements needed to punish non-compliance and make other businesses take note and ensure that they are compliant. We are used to such action concerning data privacy, but not for other consumer protection laws. The CMA has long called for the means to enforce the law effectively in this area. That call has now been answered.

Imposition of fines by the CMA for non-compliance with consumer law

Consumer protection law – primarily found in the Consumer Rights Act and the Consumer Protection from Unfair Trading Regulations (“CPUT”) – is currently enforced using criminal and civil enforcement powers. The former is extremely rare. In contrast, the latter is what has most commonly been used by the CMA.

These civil enforcement powers may ultimately lead to the CMA initiating a civil court case to force compliance with consumer law, but more commonly such action is settled without the need for a court claim by the provision of undertakings to the CMA to comply with consumer law – most recently by Asos, Boohoo and Asda, in respect of their engaging in greenwashing. Either way, the process can be time-consuming and expensive for the CMA, as is any process that involves bringing a case to the civil courts.

Under the Act, the CMA will be able to short-circuit the court process. The CMA will be able to decide for itself whether there has been a breach of consumer law and what the business must do (such as to stop the infringing behaviour and to compensate any affected customers). In addition, and for the first time, the CMA will be able to impose substantial fines for non-compliance. These new rules will apply no matter where the business is located, provided that they are directing their commercial activities to consumers in the UK.

How fines will be calculated

The CMA will be able to impose fines of up to 10% of global turnover, or £300,000 (whichever is higher). By way of comparison, non-compliance with data protection law can result in fines of up to 4% of turnover.

Liability for individuals

To further encourage compliance with consumer protection law, the Act also allows the CMA to take action and impose fines on directors, managers, and other persons who control a business if they consented or connived in the breach of consumer protection law. Directors and other senior employees will therefore be in the firing line for non-compliance with consumer protection law.

Additional powers given to Trading Standards

In addition to the creation of a new enforcement mechanism for the CMA, it is worth noting that the existing civil enforcement mechanism (described above) is being refreshed so that Trading Standards can impose fines for non-compliance with consumer law or undertakings previously given by the relevant business. The maximum size of the fine is the same as that described above for the CMA.

What else does the Act cover?

The Act also prohibits a range of practices concerned with fake and misleading consumer reviews and review information. It will also be more straightforward for the Government to add new prohibited practices to the UK’s unfair commercial practices regime under CPUT (that is, conduct that is always prohibited, irrespective of the outcome for consumers).

It is likely that in the first instance, this will include: greenwashing; addictive designs; dark patterns; and labelling of AI-generated content. Substantial changes have also been made to subscription businesses selling to consumers, as well as for the regulation of extremely large online businesses such as Temu.

What the Act does not cover…but

It has been thought that the Act could affect whether retailers can discount prices and whether brands (either directly or through their agents) and distributors were able to ask them not to. The good news is that the Act is not concerned with recommended retail prices or RRP. The bad news for some businesses is that the ability of brands and distributors to ask retailers not to discount is an issue already addressed by UK competition law. In brief, a brand may recommend retail prices. However, a brand (irrespective of its size) may not enforce the prices that retailers charge. If they do so, they will be infringing competition law with consequences for those directors responsible. The penalties include for companies fines of up to 10% of annual turnover.

What should businesses do?

Given how the CMA decided to address its concern about the use of greenwashing in the fashion industry by investigating Asos, Boohoo and Asda and extracting undertakings from them, it might be thought that the CMA and Trading Standards will pursue only the very largest of businesses to make examples. However, Trading Standards has repeatedly shown a willingness to pursue businesses irrespective of size, and if the CMA with its new powers follows the route taken by the Information Commissioner’s Office in its implementation of data protection law, the CMA will likely be size agnostic when it comes to enforcement.

Businesses should take steps now to avoid being at risk of punitive sanctions for non-compliance with consumer protection law. Reviews should be undertaken of marketing practices, sales techniques, and customer terms and conditions.