A New Age for Subscription Contracts under the Digital Markets, Competition and Consumer Act 2024.

Why has the Act been brought in?

The Digital Markets, Competition and Consumer Act 2024 (the “Act”) has passed Royal Assent, and brings in with it a new raft of protections for consumers. One of the main focuses of the Act has been to enhance the protections for consumers around subscription contracts, which is defined in the Act as a contract between a trader and a consumer for the supply of goods, services or digital content, which will automatically recur, with the consumer automatically incurring liability for each supply of such goods, services or digital content, and/or where the consumer is offered an original rate for those goods, services or digital content (including where that original rate is zero) and the consumer then automatically becomes liable for future payments.

Further regulation has been brought in around subscription contracts following growing concern around “subscription traps” such as indefinite contract lock-ins, automatic renewals, lengthy roll-over periods, and unclear cancellation information. It has been estimated that such traps cost consumers £1.6 billion a year. Interventions from the CMA and the ASA have prompted the government to implement a more robust framework around the information to be given to consumers before entering into and during the term of a subscription contract.

What new obligations does the Act introduce?

Pre-contractual Information

The obligations traders have towards consumers begin before any legal contract has been entered into, in the pre-contractual information which traders must provide to consumers. Before entering into a subscription contract, traders must provide consumers with the information set out in Part 1 and Part 2 of Schedule 23 of the Act. Part 1 details the ‘Key’ pre-contract information, and Part 2 details the ‘Full’ pre-contract information. This covers information such as the fact that it is a subscription contract, the frequency with which the consumer will need to pay, the minimum amount, the steps the consumer must take to end the contract, how much notice they must provide to end the contract, and their cooling off rights (please be aware that this is not an exhaustive list).

This information must be provided:

• as close in time to entering into the contract as practicable;
• altogether, but separately from the full pre-contract information and any other information; and
• in writing and on a durable medium where given in person, or in writing and in such a way that the consumer is not required to take any steps to read the information where provided online (i.e. they should not need to navigate to a separate web page to find this information), or orally where the contract is entered into orally and remotely (i.e. over the phone).

The final step a trader should take before entering into the contract should be to get an express acknowledgement from the consumer that they understand that the contract imposes on them an obligation to make payments to the trader. This is likely in many cases to take the form of a tick box which the consumer must actively engage with to demonstrate this acknowledgment.

Reminder Notices

Once the contract has commenced, the trader has an ongoing duty to provide reminders to the consumer about their upcoming payment obligations. As with the precontractual information, reminder notices must be given in writing and without the consumer having to take extra steps to read that information.

The Act is very prescriptive about the timing of such notices for each type of contract:

• Subscription Contracts without a concessionary period

The trader must also send a reminder notice on the last day on which the consumer can cancel and avoid becoming liable for the renewal payment.

Where renewal payments are only taken annually rather than monthly, in addition to the above reminders, the trader must also send a further reminder before the above notices at a time which is reasonable to notify the consumer that the renewal payment is coming up.

Details of the information to be covered in a reminder notice is set out in Part 3 of Schedule 23 of the Act, being that the consumer will become liable for the renewal payment, when they will have to pay, the amount previously paid and, if the next payment will be higher, how much the new payment will amount to and steps they can take to bring the contract to an end (please note that this is not an exhaustive list).

Ending the Contract

The Act also seeks to simplify the procedures around ending a contract.

The trader must:

• allow the consumer to end the contract without having to undertake any additional, unnecessary steps, such as making a telephone call to confirm, or filling out a questionnaire to explain why they are leaving;
• display instructions on how to end the contract online in a place where the consumer is likely to find them; and
• acknowledge that the contract has ended and refund any overpayment made by the consumer.

Cancellation Rights

For traders dealing with consumers online, the concept of a “cooling off period” will be nothing new. Under the Act, it is now clarified that a cooling off period will apply to all subscription contracts (note that this includes subscription contracts made in person, not just remotely), and this cooling off period applies both after the initial date on which the contract is entered into and at the start of each renewal period.

The cooling off period means that consumers have the right to cancel for any reason within 14 days and receive a full refund. For subscription contracts for goods, the period of 14 days starts on the day on which the consumer receives the goods.  For subscription contracts for services or digital content, the period of 14 days starts on the day after the day on which the contract is entered into.

Traders also have an obligation to let consumers know about these cooling off rights, both at the initial sign up and on each renewal.

Who is excluded from the Act?

Certain goods and services are exempt from the provisions of the Act, for example, contracts for the supply of utilities, financial services, package holidays and travel and services regulated by Ofcom (please note this is not an exhaustive list). However, this does not mean that those contracts are free to contract how they choose – many will still be caught by the existing rules under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (known as the CCRs), or will be governed and regulated by a different more bespoke set of rules.

What happens if we don’t comply?

The obligations around pre-contractual information, reminder notices and ending the contract are now all implied terms into a contract. This means that if any of those obligations are not complied with (for example, if you forget to send out reminder notices at the right time to your customers) those customers have a right to terminate the contract.

More severe though, the Act also grants direct enforcement powers for the CMA, including the right to levy fines of up to 10% of annual turnover. For more information, please see our article on the new CMA Enforcement Powers.