The DMCC Act: Changes to Rules surrounding Subscription Contracts

The Digital Markets, Competition and Consumers (DMCC) Act (the "Act") received Royal Assent on 24 May 2024. As mentioned in our previous blogs, it marks a significant change to UK competition and consumer protection law, and greatly expands the powers of the Competition and Markets Authority ("CMA"), allowing it more reach in enforcing these new changes. The Act also imposes a number of new obligations on businesses. This blog will explore the new consumer protection rules for subscription contracts set out by the Act. These rules are intended to eliminate "subscription traps" and make subscription contracts more transparent and consumer-friendly by requiring businesses to provide consumers with clear subscription details, simple termination processes, and notifications of trial expirations and renewals among other things.

Subscription Contracts

The Act defines a subscription contract as a contract between a business and a consumer for the supply of goods, services or digital content by the business to the consumer in exchange for payment by the consumer:

which renew automatically for the supply of goods, services or digital content for an indefinite period or a fixed period, whereby the consumer automatically incurs liability until the consumer terminates the contract; and/or
which has terms providing for a supply of goods, services or digital content to a consumer free of charge, or at an original rate specified in the contract, whereby the consumer becomes automatically liable for payments or payments at a higher rate than originally specified in the contract after that period and which has a right for the consumer to bring the contract to an end.

Certain types of contracts are excluded from the new rules. These include utilities, insurance and financial services contracts, healthcare and medical contracts, residential leases and contracts regulated by the Office of Communications ("OFCOM") under the Communications Act 2003.

For rules with regards to contracts regulated by OFCOM, you can read our blog on OFCOM's draft guidance for broadband pricing and terminology for fibre broadband to communications providers.

New Rights and Obligations

The Act introduces new rights for consumers in subscription contracts and imposes new duties on businesses:

Pre-contract information: Businesses must provide ''key pre-contract information'' and, separately, ''full pre-contract information'' to consumers before they enter into subscription contracts. The nature of information includes (among other things) details about automatic renewals, rate increases, payments and charges, cancellation procedures and cooling-off period rights. This information must be specific to each customer.
Reminder notices: Businesses must issue prominent reminder notices of upcoming renewal payments, automatic renewal periods and when free trials are due to end.
Exiting contracts: Businesses must ensure the process for exiting subscription contracts is straightforward and does not require consumers to take any unreasonable steps. Businesses must acknowledge the cancellation request in writing and refund overpayments if any. For subscription contracts that are entered online, termination must be allowed online. While businesses must provide instructions for exiting subscriptions, consumers can use any method to end the contract (e.g., sending an email or via post) as long as it is a clear expression of their intent to end the subscription.
Cooling-off rights: During an initial 14-day period businesses must let consumers cancel the subscription contract and receive a refund, for any reason, without penalty. This 14-day period applies to the initial subscription and each renewal period, which may have commercial implications for how businesses manage renewals.

Enforcement Changes

The Act introduces new, wider enforcement powers for the CMA, which provide that the CMA can directly investigate suspected infringements and practices that may harm UK consumers without the need to rely on court proceedings. The proposed new enforcement powers will allow the CMA to issue infringement notices and compliance directions, impose fines of up to 10% of global turnover and award compensation to consumers and more.

The CMA consulted on draft guidance on the new regime, with submissions having closed on 12 July 2024. The guidance will set out how the CMA will approach enforcement.

Next Steps

The Government has said that the new rules will not come into effect until spring 2026 at the earliest. While some aspects of the new rules is to be set out in secondary legislation which is yet to be published, preparing for the new rules is likely to be complex process.

Businesses should begin taking steps now to think about what changes they will need to make to ensure that their subscription contracts comply with the new rules. In addition to updating contract terms and conditions and developing new pre-contract information and renewal notices, many businesses will also need to make technical changes.

Businesses that sell online or via mobile apps will need to make technical changes to their back office systems and sales workflow and customer journey to ensure that the right information is provided at the right time during the sales process and at renewal. This will take developer time and need legal input to ensure that the new customer journey complies with the new rules.

For further detailed information on the Act you can read our 4-part series – published when the Act was going through parliament – here:

Brodies is already working with clients to prepare for the new rules coming into force. For more information on the DMCC Act and how your business can prepare for the new rules coming into effect or consumer law generally, please contact Martin Sloan or your usual Brodies contact.