The CMA granted significant fining and enforcement powers for breaches of consumer law

The UK Digital Markets, Competition and Consumers Act (the “Act”) received Royal Assent on 24 May 2024, and expands the protections afforded to consumers, in particular by overhauling and expanding the list of unfair commercial practices, and by introducing much more regulation around subscription contracts. Alongside this, the Act empowers the UK Competition and Markets Authority (the “CMA”), giving it significantly more power to deal with breaches to consumer law. Similar to the enforcement and fining powers granted to the Information Commissioner’s Office in respect of breaches of data protection law, the new regime grants the CMA the power to investigate, impose measures, and levy significant fines of up to 10% of a business’ annual turnover for breaches of consumer law.

To date, the CMA has had no direct powers to sanction businesses for a breach of consumer law; it has operated as a regulatory body to which consumers can report bad practice. It monitors and reports on bad practice, and negotiates with businesses to work to bring them into line. In the old world, while a letter from the CMA would of course prompt an internal conversation about what should be improved, it wouldn’t necessarily spell financial or reputational disaster.

All that is about to change.

Under new statutory powers granted under the Act, the CMA is entitled to take direct enforcement action against businesses who fail to comply with the new consumer laws. Such enforcement action will consist of four stages:

1. Pre-Launch

If the CMA suspects a breach has occurred it will consider whether there are grounds for a formal investigation, or whether an alternative route can be considered. The kinds of activities that the draft guidance identifies as being carried out by the CMA at this stage include ‘enquiries, research or… a call for information from the public’.

2. Investigation

If the CMA considers that there are reasonable grounds to suspect a person has engaged, is engaging, or is likely to engage in a commercial practice that infringes the legislation listed in Schedule 16 of the DMCC Act, it can open a formal investigation. The notion that the CMA can open an investigation if it thinks a person is ‘likely to engage’ will incentivise businesses to co-operate with the CMA at the pre-investigation stage: it will not be enough to rely on a lack of evidence that rules have been breached, it will need to go further and demonstrate through its co-operation with the CMA that it prioritises compliance with consumer laws and has no intention of breaching such rules. Once a formal investigation has commenced, the CMA is entitled to make a public announcement of that investigation, including details of the party involved and the suspected breach. Clearly, the risk of even being named as a business under investigation carries with it significant reputational repercussions.

Moreover, during the Investigation process, the CMA can apply to the court for an interim enforcement to prevent or stop consumer harm. This is a significant power, which would require a business to take immediate action before having been formally found to have breached any consumer laws.

3. Final Decision

If the CMA determines that the person has committed, is committing, or is likely to commit a breach of consumer law, or if they are an accessory to such acts, the CMA can issue a Provisional Infringement Notice. This notice will set out the proposed directions and proposed penalties. The party under investigation will be entitled to review the CMA’s file, and is given the opportunity to make representations about the findings and any proposed penalty. Once representations have been received and considered, the CMA will decide whether it is satisfied that the party has engaged, is engaging or is likely to engage in a commercial practice constituting a relevant infringement. If it is so satisfied, it will issue a Final Infringement Notice. The Final Infringement Notice will set out any measures the party needs to take to become compliant, and any fine which the party will have to pay. The CMA will have the power to impose fines of up to 10% of a business’s annual global turnover. Moreover, where a Final Infringement Notice is issued, the CMA will normally issue a press announcement and publish the details on its website. The reputational damage this would cause could

4. Post-Decision

After receiving a Final Infringement Notice, a party still has a right to appeal the decision to the High Court. While this ensures that there is a right of redress, at the point at which a Final Infringement Notice has been issued, the party will have already suffered significant reputational damage which can be incredibly detrimental to a business’ brand with consumers, even if the decision over the monetary penalty is eventually overturned.

The new powers that the CMA have been granted under the Act should not be underestimated. Consumer rights have been significantly expanded by the Act and it is critically important for businesses to ensure that they understand how the new rules apply to them and audit their practices are compliant. Going forwards, businesses must prioritise dealing with any correspondence received from the CMA to avoid the reputational damage that would ensue from a formal investigation, and certainly to avoid being fined.