Policy paper

Enhancing consumer rights: policy summary briefing

Updated 21 December 2023

Introduction

1. The Bill responds to a rapidly evolving online marketplace and changing consumer behaviours by introducing new consumer rights that prohibit restrictive practices that distort consumer choice, and improve the playing field for rule abiding businesses.

2. The Bill will introduce new measures to give consumers more control over their spending by:

• dealing with unfair ‘subscription traps’
• protecting those that pay into savings clubs
• taking a power that can be used to tackle emerging harms such as fake reviews online

Why are we legislating?

3. The way consumers are purchasing goods and services is changing. Online shopping has been growing steadily. The share of transactions made online almost doubled during the COVID-19 lockdowns and remains above its pre-pandemic level. This is convenient for shoppers and opens up new markets and opportunities for business. But it also creates new risks which can see consumers lose money unfairly or get a poor deal.

The graph shows the increase in online sales as a proportion of all retailing.

Source: Office for National Statistics (ONS) – Sales Index internet sales^{[footnote 1]}

4. Our research suggests that consumers lose out on £54.2 billion a year from unresolved disputes with traders they have bought from.^{[footnote 2]} To address this, the Bill tackles or takes powers to tackle practices that can harm consumers such as:

• subscription traps
• the proliferation of fake reviews that do not represent a genuine consumer experience
• unregulated saving schemes

Tackling fake reviews and subscription traps

5. Consumers are increasingly seeking information and making purchases online. The CMA estimates that £23 billion a year of UK consumer spending is influenced by online reviews^{[footnote 3]}. Research by the consumer body Which? highlights that fake reviews make consumers more than twice as likely to choose poor-quality products.^{[footnote 4]}

6. Whistl, a delivery management company, estimated that 81% of UK households were signed up to at least one subscription service in 2022, up from 61% in the previous year^{[footnote 5]}. Our research^{[footnote 6]} suggests that many of the subscriptions in which consumers later encountered problems had been signed up to online. More than a third of experiences of detriment occurred following purchases made online via the seller’s or trader’s website.

7. We estimate that consumers spend £1.6 billion per year on subscriptions they do not want.^{[footnote 7]} This unwanted spending is influenced by unclear terms and conditions, complicated cancellation routes and businesses taking advantage of consumers overestimating their ability to remember and cancel their contract. Both of these issues were emphasised by respondents to the government’s 2021 consultation ‘Reforming competition and consumer policy’.

8. For example, consumers are estimated to spend £573 million per year^{[footnote 8]} on subscriptions they have forgotten about. This represents 35% of all spending on unwanted subscriptions. A further £382 million of unwanted spending (23%) is the result of people finding the cancelation process too difficult and we estimate that consumers spend £602 million on subscriptions that are the direct result of accidentally being rolled over from a free or reduced-price trial.

9. Markets work best when they are open and competitive. Poor or false information in online reviews prevents consumers shopping around to find the best deal. Similarly, subscription traps erode consumer choice and prevent them switching from one provider to another. Both outcomes weaken competitive forces and lose consumers money.

Protecting payments to Christmas and other savings club

10. Savings schemes, such as Christmas saving clubs, are promoted as methods of saving through regular payments. They can be attractive to consumers who want to put money aside. With UK consumers facing the rise of living costs, the Bill also addresses a gap in protection for consumers using Christmas and similar savings schemes.

11. Unlike bank accounts, which are covered by the Financial Services Compensation Scheme (FSCS), many savings schemes are unregulated. When businesses operating such schemes become insolvent, consumers often risk losing payments made in advance and are left uncertain of how much of their money they will recover in insolvency proceedings.

12. When the Farepak Christmas Savings Club went into administration in October 2006, it was holding over £38 million in consumer payments but was left unable to deliver vouchers and products to the 114,000 consumers who had prepaid during that year. Customers had to engage in years-long process to attempt to recover at least some of their money.

13. Whilst a self-regulatory trade body, The Christmas Prepayment Association (CPA), was set up in the wake of Farepak, the Law Commission noted the shortcomings in voluntary regulation of the sector stating that a company in financial difficulty might withdraw from the scheme before reimbursing consumers. Large supermarket savings schemes and many local retailers and microbusinesses are not members of the CPA, and could attract considerable sums in “savings” from consumers.

How does the Bill protect consumers?

Taking a power to update consumer law quickly when new  harms are identified

14. The Bill will replace the Consumer Protection from Unfair Trading Regulations (‘CPRs’) which are retained EU law, retaining the rights they contain, and updating them to meet UK needs. The CPRs impose a general prohibition on traders in all sectors from engaging in unfair commercial practices. The CPRs define and prohibit the following as unfair commercial practices:

a) misleading actions

b) misleading omissions

c) practices which contravene the requirements of professional diligence

d) aggressive trading practices

e) practices listed on schedule 1 of the CPRs (‘banned practices’)

15. The Bill will carry over this general prohibition but also enable the list of banned practices now in schedule 19 of the bill  to be updated  by Parliament through secondary legislation. This will allow the law to reflect new business practices and emerging consumer harms.

16. We recently consulted on the addition of the following practices to the list of banned practices:

• submitting a fake review, or commissioning or incentivising any person to write and/or submit a fake review of products or traders

• offering or advertising to submit, commission or facilitate a fake review

• misrepresenting reviews, or publishing or providing access to reviews of products and/or traders without:

  • taking reasonable and proportionate steps to remove and prevent consumers from encountering fake reviews
  • taking reasonable and proportionate steps to prevent any other information presented on the platform that is determined or influenced by reviews from being false or in any way capable of misleading consumers

We are still considering the evidence from the consultation and will outline next steps in due course.

17. These changes were broadly supported by respondents to our 2021 public consultation^{[footnote 9]}. Strengthening the law on fake reviews and maintaining the protections currently provided by the CPRs will mean that UK consumers can continue to shop with confidence and retain the private rights of redress they currently have if they have been the victim of misleading actions or aggressive selling.^{[footnote 10]}

Examples of past enforcement cases based on infringements of the consumer protection from unfair trading regulations which will continue to apply under the Bill’s provisions

Past enforcement of the CPRs has included:

• halting the unauthorised sale of tickets to the London Olympics, via an interim civil court order and undertakings given by the enforcement subjects to the CMA
• successful prosecution of 9 individuals for organising and/or promoting a pyramid promotional scheme involving over £20 million, resulting in 6 months imprisonment for some of the individuals

Examples of automatically unfair business practices

Some examples from the list of automatically unfair business practices should provide further clarity on the CPRs’ remit and value:

• falsely claiming that a product is able to cure illnesses, dysfunction or malformations
• describing a product as ‘gratis’, ‘free’, ‘without charge’ or similar if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item

Tackling subscription traps

18. The Bill will give new rights to consumers entering into subscription contracts.  Businesses offering subscription contracts to consumers will need to:

a) provide prescribed pre-contract information, prominently and clearly presented to consumers before they enter the contract, in particular information about the price, automatic renewals and cancellation methods and rights

b) send reminders in prescribed form to consumers, alerting them that a free or discounted trial period is coming to an end, or that a contract is shortly due to renew, with information on how they can exit the contract if they wish

c) make available to consumers a process to exit the contract via a single communication and prohibiting the trader from imposing any steps on a consumer wishing to end their subscription which are not reasonably necessary. This proposal was overwhelmingly supported by respondents to consultation

d) extend consumers’ existing early cancellation rights to all subscription contracts so they will apply to an updated range of products, and regardless of the purchase channels

e) give consumers a new cancellation right after a free or reduced price trial, and after auto-renewal if the renewal term is a year or more, so they have 14 days to cancel a subscription contract after it has renewed

19. The measures will give consumers more control over their spending, and better rights with their subscriptions. We estimate that this will allow consumers to avoid around £400 million of spending on unwanted subscriptions a year.^{[footnote 11]}

New consumer rights when purchasing a subscription

Examples of consumers trapped in subscriptions

a) Amy took out a wine subscription and forgot to cancel her free trial and is now locked into a full subscription contract of £35.00 per month. She experienced difficulty in finding information on how to cancel. She contacted the company but is told she can only cancel via a call centre which is open at limited times and on a premium number. She has difficulty being connected to an operator and the line is always busy.

b) David became a member of a premium gym club. After a year, the contract automatically renewed to a new one year term at a substantially higher price compared to the initial offer. On checking the contract, he found an automatic renewal clause had been included unless he opted out from it. This clause was not immediately clear to him at the pre-contract stage when he subscribed.

c) Under the new measures, before Amy and David sign up to a subscription contract they will be provided with clear pre-contract information with key information displayed prominently that is how to cancel a contract and whether the contract will auto-renew. They will receive reminders when a free-trial/reduced period is coming to an end and when a contract auto-renews with simple steps on how to cancel if they wish. They will also each benefit from a further ‘cooling-off’ period in case Amy wants to cancel after the free trial or David wants to cancel after his contract renews. Exiting a contract will be clear and easy, removing barriers when exiting the contract.

Protecting payments to Christmas and other saving clubs

20. Businesses operating Christmas and similar savings schemes currently fall outside of existing deposit protection regulations. The Bill will require these businesses to protect payments via a trust arrangement or insurance and provide prescribed information to consumers about how their payments are protected. Whichever protection method is used, all payments made by the consumer to the scheme should be protected in full in the event of insolvency of the business.

21. While consumers who place their money in consumer savings schemes will only directly feel the benefit of such protections if the scheme operator becomes insolvent, requiring scheme operators to protect consumer monies via trust or insurance will help increase consumer confidence in such schemes.

What do these reforms of consumer policy mean for businesses in the UK?

22. Government is looking to ensure consumers get a fair deal through reasonable and proportionate regulation. These new consumer rights impose a new minimum standard and will support businesses who otherwise risk being undercut by unscrupulous competitors who seek to exploit consumers.

23. Businesses offering subscriptions and savings schemes will be required to comply with new rules. There are many businesses that already meet some or all of the new requirements. For others, integrating these requirements into business processes may have implementation costs, which will vary depending on the extent to which businesses need to change their processes. In both cases the Bill establishes exemptions and microbusiness exclusions where appropriate.

24. The Bill retains the current legal effect of the Consumer Protection from Unfair Trading Regulations (CPRs). Businesses should not need to take additional action, though they should ensure that they are familiar with the requirements of the regulations. Government will continue to work with businesses and consumer groups to ensure new regulations on fake reviews are clear and proportionate.

1. ONS. Retail Sales Index internet sales ↩

2. BEIS. Consumer protection study 2022 ↩

3. Which? How Facebook fuels Amazon’s fake reviews ↩

4. Which? Fake reviews make consumers more than twice as likely to choose poor-quality products ↩

5. Whistl. 81% of UK households are signed up to subscription services. 2022 ↩

6. BEIS. Consumer Protection Study 2022 ↩

7. Internal DBT analysis, based on subscriptions regulations impact assessment ↩

8. Internal DBT analysis, based on subscriptions regulations impact assessment ↩

9. BEIS. ‘Reforming competition and consumer policy’, 2021 (and see Reforming competition and consumer policy: government response ↩

10. Which? Fake reviews make consumers more than twice as likely to choose poor-quality products ↩

11. Internal DBT analysis, based on subscriptions regulations impact assessment ↩