Policy paper

Strengthening consumer enforcement and dispute resolution: policy summary briefing

Updated 21 December 2023

Introduction

1. UK consumers have a strong and well-accepted set of statutory rights, but there is evidence these rights could be enforced more effectively to safeguard consumers and create a level playing field for business.

2. The Bill toughens enforcement against breaches of consumer protection law, and improves Alternative Dispute Resolution (ADR) services to support speedier redress for consumers without the need for litigation.

Why are we legislating?

3. Our research suggests that consumers lose out on £54.2 billion a year from unresolved disputes with traders^{[footnote 1]}. To address this, we want to strengthen enforcement of consumer protection law, deter potential law-breakers and improve the quality of dispute resolution outside the courts.

Strengthening enforcement

4. While enforcement of consumer law generally works, the government has identified weaknesses that need remedying.

5. First, enforcement action is slow, which lengthens the time it takes for consumers to receive redress . For example, between 2009 and 2019, it took an average of over 20 months from a Competition and Markets Authority (CMA) (and its predecessor the Office of Fair Trading) application to the court to a judgment being given.

6. In one case involving alleged breaches of consumer protection legislation by a secondary ticketing platform, the CMA had to prepare for legal action against the platform twice, spanning 12 months, including preparing for contempt of court to secure compliance with a court order.

7. Second, there is little deterrence for traders who breach consumer protection law . The UK is currently the only G7 country not to have any civil penalties for common consumer protection breaches like mis-selling. Consequently, an OECD report^{[footnote 2]} on the effectiveness of consumer law enforcement regimes concluded that the UK’s enforcement model may provide insufficient deterrence and that a suitable system of administrative financial penalties would enhance compliance. Stakeholders generally agree: - 84% of respondents to a 2016 call for evidence^{[footnote 3]} showed broad support for the introduction of new civil penalty powers for breaches of consumer protection legislation. - In response to the Government’s 2021 consultation ‘Reforming competition and consumer policy’ there was broad support for strengthening and speeding up the UK’s consumer law enforcement model.

8. The Bill addresses these gaps in the enforcement toolkit through new penalty powers for the civil courts and out-of-court powers for the CMA to determine and sanction breaches of certain consumer laws.

9. Part 8 of the Enterprise Act 2002 (EA 02) currently sets out the court-based public civil enforcement mechanism for consumer protection law, which distinguishes between consumer protection laws of wholly domestic, and of EU, origin. Now that the UK has left the EU, there is no longer a need or justification for this. Part 3 of the Bill provides a court-based enforcement regime which will replace the court-based regime provided by Part 8 EA 02 for, broadly, conduct which takes place after commencement. Part 3 also simplifies and consolidates the current legal framework set out in and under Part 8 EA 02, making it more accessible and easier to use.

Reinforcing Alternative Dispute Resolution (ADR)

10. In most instances, disputes between consumers and businesses can be resolved without the need for any formal action. Seven in ten UK consumers resolve their problem directly with the business^{[footnote 4]}. But when consumers and the trader cannot come to a solution, ADR can be an effective means to secure redress for the consumer without resorting to litigation. It is generally funded by business and free to the consumer.

11. All ADR providers are independent third parties offering dispute resolution that is usually less confrontational to the consumers and businesses involved. But not all ADR providers have the same accreditations and standards and so consumers can experience inconsistent quality of services.

12. Responses to our 2021 public consultation^{[footnote 5]} suggested that there are still problems preventing ADR from reaching its full potential to reduce consumer detriment. Independent research we commissioned^{[footnote 6]} found that: - 46% of consumers using alternative dispute resolution had problems including concerns over the time the process took, customer service or a perception that the process favoured the business. - 54% of cases took longer to resolve than the 3 months allowed - 16% of consumers who went to court did so because the business refused to comply with a previous alternative dispute resolution decision.

13. The majority of respondents to our public consultation highlighted the importance of a central authority setting, applying and monitoring standards for ADR.

14. Through the Bill, government will require consumer ADR providers to be accredited and approved before they are able to provide ADR services.

15. This will help level the playing field and drive consistency across the sector through the application of a common legal framework.

16. The Bill’s measures will ensure consistency across the sector by mandating accreditation among ADR providers and setting a framework, to drive a higher standard of service, transparency and impartiality in the sector.

How does the Bill protect UK consumers?

17. The Bill will strengthen enforcement by boosting the toolkit of corrective measures available against traders who do not comply with their legal obligations to consumers or specified third parties. It will deter practices harming consumers through a more efficient enforcement process and meaningful monetary penalties which unscrupulous businesses cannot delay or avoid. It will also strengthen ADR services standards and ensure consistency across the sector, which should bring faster and fairer redress to consumers.

Strengthening enforcement of consumer rights by the CMA

18. Between 2019 to 2020 and 2021 to 2022 CMA enforcement action on consumer law has delivered direct benefits to consumers worth £146.5 million per year.^{[footnote 7]}

19. The new CMA administrative powers will enable the CMA to act faster and take on more cases on behalf of the public, resulting in further tens or potentially hundreds of millions of pounds of direct benefits to consumers^{[footnote 8]} on top of additional compliance by businesses through deterrence.

20. The new CMA ‘administrative model’ will give the CMA authority to decide if certain consumer laws have been breached, require compliance, include remedies such as compensation, and impose monetary penalties, without having to go through the courts. There will also be new penalties for those who frustrate consumer protection investigations by failing to comply with CMA information requests, or those who renege on voluntarily given undertakings to change their practices.

21. This reform is modelled on the administrative powers the CMA already has to enforce competition law and is broadly in line with many administrative agencies around the world – including in Australia, France and Italy – who already have authority to enforce consumer rights outside the court system.

22. This new statutory framework comes with a range of safeguards and protections for businesses suspected of breaking the law, including: - ensuring enforcement subjects see the case against them and have the opportunity to make representations, - provisions that penalties or redress measures imposed following a finding of infringement by the CMA will be suspended if the CMA’s decision is appealed, - a broad jurisdiction for appeal courts to review, uphold or change the CMA’s administrative enforcement decisions.

23. The new model will improve the speed and responsiveness of the CMA’s interventions, safeguarding the interests of consumers across the economy and creating a level playing field for law-abiding businesses.

Enhancing the powers of the civil courts

24. The Bill will also provide the civil courts with new powers to impose civil monetary penalties, to boost the regime’s deterrence effect, which the government anticipates will result in more businesses complying with consumer protection law, thus lowering levels of consumer harm.

25. Enforcers such as the CMA and Ofgem as well as local authority trading standards will be able to apply to the courts to impose penalties when dealing with procedural and consumer law breaches. For example, penalties of up to 10% of the total value of a business’s turnover (plus the turnover of anyone that controls or is controlled by that business) could be imposed on those breaching consumer protection laws.

26. This puts maximum penalties in the UK roughly in the middle of the pack internationally, with counterparts such as Canada fining up to 3% of annual worldwide gross revenues and Australia up to 30% of the business’s adjusted turnover during the breach period.

Table 1. New penalties imposable by the CMA and civil courts under the Bill

Breach	Penalty	Imposable on	Imposable by
Engaging in commercial practices breaching consumer protection laws	Up to £300,000 or 10% of annual global turnover, whichever is higher.	1. Person committing the infringing practice 2. Any accessory to the infringing practice 3. Members of the corporate group of the person committing the infringing practice (where relevant conditions are met)	1. The civil courts 2.The CMA (for breaches of certain consumer laws)
Breaching an undertaking given to the court	Up to £150,000 or 5% of annual global turnover, whichever is higher. An additional daily penalty of up to £15,000 or 5% of daily global turnover, whichever is higher, while non-compliance continues.	Person who has given and is found to have breached the undertaking	The civil courts
Breaching without a reasonable excuse an undertaking given to a consumer protection enforcer	Up to £150,000 or 5% of annual global turnover, whichever is higher. An additional daily penalty of up to £15,000 or 5% of daily global turnover, whichever is higher, while non-compliance continues.	Person who has given and is found to have breached the undertaking	1. The civil courts 2. The CMA (for breaches of undertakings given to it)
Non-compliance without reasonable excuse with an information notice given by a consumer protection enforcer	Up to £30,000 or 1% of annual global turnover, whichever is higher. An additional daily penalty of up to £15,000 or 5% of daily global turnover, whichever is higher, while non-compliance continues.	1. Person who is or might be under investigation for consumer law breaches 2. Third parties	1. The civil courts 2. The CMA (for breaches of undertakings given to it)
Providing without reasonable excuse materially false or misleading information in connection with a direct enforcement function of the CMA	Up to £30,000 or 1% of annual global turnover, whichever is higher.	Person providing information to the CMA in connection with the carrying out of a direct enforcement function	The CMA
Breaching without a reasonable excuse an administrative direction given by the CMA	Up to £150,000 or 5% of annual global turnover, whichever is higher. An additional daily penalty of up to £15,000 or 5% of daily global turnover, whichever is higher, while non-compliance continues.	1. Person who was given and is found to have breached a direction 2. Members of the corporate group of the person committing the breach (where relevant conditions are met)	The CMA

What do these reforms mean for businesses in the UK?

27. Businesses that comply with consumer law will not need to take any action in response to the consumer enforcement reforms but can expect to benefit from stronger enforcement against infringements by unscrupulous competitors.

28. For businesses offering ADR services, mandatory accreditation will be required - many are already accredited. Mandatory assessment and accreditations will improve consistency in the provision of ADR and therefore, we hope, also improve businesses and consumers’ confidence in these services.

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1. BEIS. Consumer protection study 2022 ↩

2. OECD. Best practices for consumer policy: Report on the effectiveness of enforcement regimes, 2006. ↩

3. BEIS. Improving terms and conditions 2016 ↩

4. BEIS. The Public Attitude Tracker – Wave 30 2019 ↩

5. BEIS. Reforming competition and consumer policy and the government response 2021 ↩

6. BEIS Resolving Consumer Disputes: Alternative Dispute Resolution and the Court System 2018 ↩

7. CMA impact assessment 2021 to 2022 2022 ↩

8. DMCC Bill impact assessment - annex 4: wider reforms 2023 ↩