Time To Start Preparing For The New UK Subscription Contracts Regime

Subscription contracts are increasingly popular across the economy, but research by the UK Government suggests that consumers currently spend around £1.6 billion per year on subscriptions they do not want, due to unclear terms and conditions and complex cancellation policies. The Digital Markets, Competition and Consumers Act 2024 (DMCC Act) introduces a new set of requirements that are specific to subscription contracts and will be subject to the CMA's direct enforcement regime.

The DMCC Act sets out the broad framework for the new regime, and secondary legislation will need to be adopted to implement the rules. 

The Government consulted on its approach to the implementing legislation and has now published its response which sets out its intended policy direction. The legislation will be adopted when Parliamentary time permits and the regime is due to take effect from spring 2017, but much of the detail now available will allow businesses affected to start preparing for the new regime by:

• Preparing systems for the information notices required under the regime (reminder notices, cooling-off notices, end-of-contract notices) which will have to be given in writing, on a durable medium and with their purpose immediately apparent for the consumer
• Reviewing existing contracts and removing any terms that make it disproportionately difficult for consumers to cancel auto-renewal
• Ensuring the cancellation process is as straightforward as that for signing up
• Preparing for the rules on refunds during the cooling-off periods in line with the subject matter of the contracts

The CMA has so far launched 13 investigations under the new UK consumer protection regime (see here and here) and adopted a final infringement notice imposing a fine of £4.2 million on the AA driving school for drip pricing conduct. Once the subscription contracts provisions take effect we can expect the CMA to carefully review whether businesses are complying with the rules and take prompt action where they fail to do so.

Key features of the new regime for subscription contracts

The DMCC Act imposes new duties on businesses that will make it easier for consumers to provide informed consent and to opt out of contracts:

• Pre-contract information must be available to consumers before they enter into the contract (includes information about price, automatic renewals, cancellation methods and rights)
• Reminder notices to alert consumers that a free/discounted trial is coming to an end, or a contract is due to renew (plus information on how to exit if they wish to do so), must be issued within a reasonable period to allow the consumer to act on the notice
• Consumer termination arrangements must be in place to enable consumers to end the contract in a straightforward way, without having to take steps that are not reasonably necessary
• An initial cooling-off period of 14 days must be available to consumers at the start of the subscription and a renewal cooling-off period of 14 days must also be available to consumers after they become liable for a renewal payment

Secondary legislation to enact the regime

Publishing its response to the consultation the Government made it clear that, while its core commitment is to strengthen consumers' rights, it also recognises the importance for businesses to be able to operate within a framework that is not unduly burdensome. According to the Government this underpinned the consultation proposals for the implementing legislation and remains a guiding principle for the implementation of the regime.

In addition to the implementing legislation the Government will also publish guidance to support businesses with the implementation.

Pre-contract information and information notices

The DMCC Act requires businesses to provide pre-contract information and send information notices at certain points to ensure consumers are informed about their subscriptions and relevant rights. Businesses expressed concerns around the amount of information to be presented upfront and how it should be presented, in particular on small screens. The Government will reflect some of these points in due course in its guidance.

The implementing legislation will provide that reminder notices, cooling-off notices and end-of-contract notices must be given to consumers in writing on a durable medium and the purpose of these notices must be immediately apparent to the consumer.

Cooling-off rights - returns and refunds

Under the DMCC Act consumers will have two 14-day periods during which they can cancel their contract without penalty: an 'initial cooling-off period' when they enter a contract, and a 'renewal' cooling-off period after a free or discounted trial or after a 12-month+ contract auto-renews.

If a trader is in breach of the requirement to inform a consumer about their cooling-off rights, the cooling-off period extends to 14 days after the trader corrects their breach, up to a maximum of 12 months.

Rules on refunds will differ depending on what is the subject matter of the contract:

• Goods

For goods that are returnable, the consumer will receive a refund including standard delivery costs, if they return the goods after cancelling the contract. Where goods are sealed (eg health or hygiene reasons) and become unsealed after delivery, the trader may reduce the consumer's refund to cover the amount of the unreturnable goods. 

• Services

Where the supply of services has not started before the contract is cancelled, the consumer will receive the full refund. If supply has started or is ongoing, the consumer will receive a proportionate refund calculated on the basis of the total subscription price agreed for that service.

• Digital content

This was one of the most controversial areas of the consultation, with businesses highlighting the need for retaining a waiver from the initial cooling-off cancellation right to protect them from 'binge and cancel' behaviour. The Government has agreed to retain the current waiver for the initial cooling-off period under which once the consumer has given express consent for supply to start they lose their statutory right to cancel. Consumers will still benefit from the renewal cooling-off period and will receive a proportionate refund if they cancel.

Where a refund is due traders must refund consumers without undue delay and before the end of the 14-day period, to the same method of payment, unless otherwise agreed.

Restricting cancellation

In order to address concerns that it may not always be clear to consumers that they can end the auto-renewal on their subscriptions at any time, rather than only on the day on which the contract renews, the legislation will prevent the use of contractual terms that make it disproportionately difficult for consumers to cancel auto-renewal, such as narrow cancellation windows. Businesses will also be prevented from making consumers liable for payment before a rolling contract renews onto a new contract period.

Cancellation itself must be as straightforward as sign-up, and where a consumer can sign up online, they must be able to cancel online. While this will not prevent businesses from making offers or seeking feedback, this should not frustrate the cancellation process. The Government will issue guidance to provide additional clarification for how easy exit, online exit and offers and feedback will work in practice.

Remedies for breach of certain duties

Under the DMCC Act consumers have the right to cancel and claim a refund where the business is in breach of certain duties. To make it easier for consumers and businesses to understand and use this remedy mechanism, the legislation will include a list of acts or omissions that are specific breaches of implied terms. In order to obtain a refund, the consumer will not need to prove that they have suffered a financial loss for those breaches.

Charitable memberships

Cultural and heritage charities raised concerns around the new subscription rules and the risk that consumers could abuse the initial cooling-off period by visiting multiple exhibitions or properties in the first two weeks of a membership subscription and then cancelling with a refund. There was also concern that complying with the refund requirements would prevent them from claiming Gift Aid, as this cannot be claimed on payments subject to refunds.

Recognising the valuable work done by cultural and heritage charities, the Government will legislate to exclude cultural and heritage charitable memberships from the DMCC Act rules. This will exclude contracts between a charity and consumer that allow consumers to attend performances, view collections or visit places that are related to their charitable purpose.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.