Unfit for purpose? Tougher UK consumer protection law powers and what they mean for businesses

On 18 June 2019, the UK government published a press release announcing "tough new powers for the competition watchdog to fine businesses directly who have broken consumer law". This follows a request from Lord Tyrie, Chair of the Competition and Markets Authority ("CMA"), for enhanced powers to investigate and sanction breaches of consumer law by businesses. The government will consult on the specifics in an upcoming Consumer White Paper expected later this year.

This comes alongside proposals to increase the powers of other UK sectoral regulators in this area, in light of recent investigations into issues such as "loyalty penalties" and the government's recent Smart Data Review. It is currently a key area of regulatory focus in the UK, which could significantly increase compliance risk, and therefore it is important that businesses are prepared.

This article summarises the CMA's current consumer protection law enforcement regime (including providing some examples of recent CMA cases in this area), a description of the proposed reforms suggested by Lord Tyrie, and some comments on the potential implications of those reforms and next steps.

The current position

The CMA's stated aim is to make markets work well for consumers, businesses and the economy, and it has a statutory duty under the Enterprise and Regulatory Reform Act 2013 to seek to promote competition for the benefit of consumers.

The CMA's main consumer enforcement powers derive from a variety of sources:

• civil powers under Part 8 of the Enterprise Act 2002 ("EA02") to stop infringements of certain consumer laws, and the CMA may seek an enforcement order from a civil court against traders which breach specific laws, such as:
• the Consumer Protection from Unfair Trading Regulations 2008 ("CPRs"), which impose a general duty on businesses not to trade unfairly with consumers; and 
• the Consumer Rights Act 2015 ("CRA"), which protects consumers from traders that use unfair contract terms or notices; 
• criminal powers to prosecute traders that engage in certain unfair commercial practices under the CPRs;
• the power under Schedule 3 of the CRA to seek an injunction to stop businesses using unfair terms or notices with consumers; and
• investigatory powers to enable it to investigate breaches of consumer law.

Part 8 of the EA02 provides the principal means by which the CMA enforces consumer protection legislation, although it will use its other civil and criminal powers in appropriate situations. It enables the CMA:

• to apply to the High Court or County Court for an enforcement order; or
• to accept an undertaking,

to stop a business from breaching any legislation or rule of law listed under the EA02, where the breach harms the collective interests of consumers.

Part 8 also provides that enforcement orders or undertakings may include "enhanced consumer measures" which require businesses to take additional steps for the protection of consumers (i.e. redress, compliance, or choice measures).

However, whilst breach of an undertaking is liable to result in enforcement action and to be drawn to the attention of the court if proceedings ensue, such a breach does not directly lead to financial or administrative penalties. Rather, the CMA must bring court proceedings for breach of the undertakings. In contrast, failure to comply with a court order is liable to be treated as contempt of court and can lead to a fine or imprisonment.

The CMA has investigated a wide range of sectors using its consumer protection law powers, and some recent examples of CMA enforcement in this area are summarised in the table below:

Whilst these examples clearly demonstrate that the CMA has been active in using the consumer enforcement powers it currently has, the Secondary Ticket sales investigation in particular gives some indication of the reasons for the CMA's recent push for reform in this area, as discussed below.

This push also comes in the wake of a super-complaint made to the CMA by Citizens Advice in September 2018 concerning excessive loyalty payments in certain markets. In its response to this super-complaint, published on 19 December 2018, the CMA estimated that longstanding customers who do not shop around pay more than new customers for the same service to the value of around £4 billion in total across the five markets considered (mobile, broadband, cash savings, insurance, and mortgages). The CMA made a number of recommendations in order to address this issue.

A need for reform?

In August 2018, Business Secretary Greg Clark requested advice from the newly appointed Chair of the CMA, Lord Andrew Tyrie, on whether legislative and institutional reforms were necessary to safeguard the interests of consumers and to improve public confidence in markets.

On 21 February 2019, Lord Tyrie responded to this request with a letter containing numerous proposals for reform. These proposals are wide-ranging, and reflect the CMA's sentiments in its 2019/2020 Annual Plan, published the week before, in which it stated that "it is becoming evident that the competition and consumer protection regimes need to evolve further to ensure they stay effective".

In terms of the proposals relating specifically to the consumer protection law regime, in summary, Lord Tyrie proposes that this (and the competition law regime) should be re-centred to enable the CMA to focus more directly on protecting the interests of the consumer. The letter advocates that the CMA and the courts (including the specialist competition court, the Competition Appeal Tribunal ("CAT")) should be subject to a new statutory duty to treat the economic interests of consumers, and their protection from detriment, as paramount. This would be supported by strengthening the CMA's powers to enforce consumer protection law, which Lord Tyrie describes as "unfit for its current purpose, and far short of what would be required to enable the CMA effectively to fulfil a consumer interest duty".

In particular, Lord Tyrie highlighted that:

• the CMA currently has no power to order businesses to stop illegal practices, but must go to court in order to obtain a binding remedy;
• even when the CMA wins in court, no civil fines are available;
• although the CMA can obtain undertakings from firms, it has no powers to fine firms for non-compliance with those undertakings; and
• currently, no fines are levied on firms for failing to comply with information notices in consumer protection investigations.

In his letter, Lord Tyrie emphasised the importance of adapting to protect consumer interests, in particular given the growth of digital technology, which is creating new forms of potential consumer detriment, such as data harvesting and personalised pricing. This was also reflected in a subsequent speech he gave in May 2019, in which he made it clear that "competition needs to be promoted not as an end in itself, but rather as a tool to serve the interests of the millions of consumers that are its intended beneficiaries…".

Proposed changes

In light of the above, the CMA is seeking greater enforcement powers in the consumer protection context, akin to those it has under the competition law regime. In particular, in his letter, Lord Tyrie proposes that:

• the CMA should be empowered to decide whether consumer protection law has been broken, publish this fact, require businesses to cease the relevant conduct, and impose fines (both for the infringement itself and for subsequent breach of any undertakings provided to the CMA);
• the CMA should be able to order cessation of practices it suspects may be harming consumers on an interim basis pending the outcome of its investigation;
• there could be reforms to improve personal responsibility for breaches of consumer protection law (e.g. director disqualifications) and potentially a requirement on companies to appoint a board director with responsibility for assessing and reporting on risks to competition and consumer law compliance; and
• a turnover-based fines regime for non-compliance with information notices be introduced.

Next steps and potential implications

On 18 June 2019, the Department for Business, Energy & Industrial Strategy ("BEIS") confirmed in a press release that the government intends to empower the CMA to decide whether consumer protection law has been broken and to impose fines on businesses directly for infringements. This press release includes a statement from the Prime Minister's office stating that "it is high time [harmful trading practices] came to an end and … we are confirming our intention to give much stronger powers to the CMA, to strengthen the sanctions available and to give customers the protection they deserve against firms who want to rip them off".¹

The government's intention was also referred to in response to the CMA's loyalty penalty recommendations, published on 17 June 2019, in which Mr Greg Clark stated that the government will be consulting on how best to achieve these in an upcoming Consumer White Paper, which will include the route of appeal, and the implications for the wider consumer enforcement landscape. According to a Regulation Update statement made in the House of Lords on 8 July 2019, the Consumer White Paper (which will also address other consumer-related issues), is due to be published later this year.

The details of the precise enforcement mechanisms, specific sanction levels, and indicative timings are still to be determined pending consultation. However, any implementation of these proposals can be expected to have a significant impact on the enforcement of consumer protection law in the UK. In particular, the direction of the CMA's focus is likely to lead to a greater number of CMA investigations into breaches of consumer protection law, which:

• may include more requests for information;
• will require more input/time from management of the businesses involved; and
• will increase the risk of those businesses ultimately being made subject to cessation orders, undertakings and/or being fined for breaches.

In respect of potential fines, if the approach adopted follows the competition law regime, businesses could face penalties of up to 10% of global turnover for infringing consumer protection law, and so it is important that businesses are prepared.

Similarly, in addition to the powers to impose harsher sanctions on businesses for non-compliance with CMA information requests, query whether the CMA will also seek dawn raid-type powers to assist with its consumer protection law investigations.

In any event, regardless of the precise form of the ultimate proposals, this is a key area of focus for the CMA going forward. As Lord Tyrie stated in his May 2019 speech "… these proposals will now be further developed and refined. … The task of rebuilding public trust and confidence requires much more. It requires the CMA to be a more visible and vocal consumer champion, independent of vested interests in the private sector, and of political pressures. … that will require a cultural shift."

It is also noteworthy that whilst Lord Tyrie's letter concerns the powers and role of the CMA in relation to consumer protection law, the government has also proposed measures to enhance the powers of the UK sectoral regulators (which also have concurrent competition law powers) in this respect. The BEIS press release, for example, states that the government will legislate to give regulators, such as Ofcom and the FCA, new powers to stop loyal customers being taken advantage of if their existing powers are insufficient - for example, to ensure mobile phone providers end the practice of charging customers the same rate once they have effectively paid off their handsets at the end of the minimum contract period.

Therefore, it is clear that consumer protection is a priority not just for the CMA, but also for the government and other sectoral regulators in the UK, and therefore we are likely to see significant change in this area from a variety of angles in the foreseeable future.

With thanks to Danica Barley of Ashurst for her contribution.

This article was originally published in Competition Law Insights.

1. This statement was made under Theresa May's premiership, although there is little indication that plans will change under her successor(s).