Publication
29 Sep 2023 ·
United Kingdom
Disputes
3 min read
The UK’s primary consumer regulator is the Competition and Markets Authority. In recent years, it has opened consumer law investigations into subscription businesses in sectors including online console video gaming and anti-virus software. The sector focus of these investigations is quite narrow, but the outcome will likely have a widespread impact across the whole subscription industry.
After concluding its enforcement action in the anti-virus software sector, the CMA published ‘Compliance Principles for anti-virus software businesses’. These principles can be transferred across to businesses in other sectors that use automatically renewing contracts with UK consumers. The CMA considers that following these principles will help businesses comply with consumer protection law and help to ensure no enforcement action is undertaken.
If the Digital Markets, Competition and Consumer Bill becomes law, the CMA will be able to enforce consumer law directly, by fining businesses up to 10% of their annual global turnover and requiring businesses to compensate consumers directly.
Regulators elsewhere, such as the General Directorate for Competition Policy, Consumer Affairs and Fraud Control in France and the Federal Trade Commission in the US, have also turned their attention to auto-renewing subscriptions. For example, in 2021 the FTC told businesses that “tricking consumers into signing up for subscription programs or trapping them when they try to cancel is against the law” and warned them that they would face legal action if their sign-up process fails to provide clear, up-front information, obtain consumers’ informed consent, and make cancellation easy.
The CMA’s investigation into the online console video gaming sector explored the auto-renewing subscriptions provided by Nintendo Switch, Sony PlayStation and Microsoft Xbox.
As part of this investigation, the CMA engaged with these businesses to seek improvements for consumers using auto-renewing subscriptions for online console gaming services.
The CMA secured certain measures from some businesses regarding their auto-renewing subscriptions.
Examples of such measures include:
- More transparent information upfront to help customers understand their subscriptions and to make the auto-renewing nature, cancellation options, cost and timings of the subscription.
- Refunds for existing customers on certain longer contracts.
- Communications for subscribers who are inactive (as they haven’t used their subscription for a long time).
- Clear notifications regarding future price.
This investigation focused on companies in the online console video gaming sector. But companies offering subscriptions in other sectors should consider its outcome carefully, in order to ensure compliance with consumer protection laws and reduce the likelihood of scrutiny from consumer regulators.
Additional regulation
Some sectors – such as financial services and telecoms – are subject to significant additional regulation. For example, in the UK, consumers buying goods or services in the banking, insurance, investments, pensions, mortgages and financial advice sectors have certain consumer rights enforced by the Financial Conduct Authority.
Breaching data protection laws
Where a subscription business breaches data protection laws, the Information Commissioner’s Office has significant enforcement options, which can include the discretion to impose significant penalties depending on the severity of the breach or whether the breach was reported or concealed.Litigation
Like any business, a subscription business may become involved in commercial litigation – if, for example, it fails to provide a product or service. Subscription businesses often rely heavily on technology, and, therefore, can be exposed to a wide range of tech disputes (including disputes over contracts, investment, IP, cyber issues, data breaches, and software or data licensing audits).
One other type of litigation to which subscription businesses may be particularly prone – and which can be closely connected to regulatory issues – is the class action.
The US has already seen multimillion-dollar settlements in a number of class actions over auto-renewal, and more cases are in the pipeline. As laws relevant to auto-renewal are tightened in jurisdictions around the world, the chances are that there will be more such actions elsewhere – potentially relating to, for example, unfair commercial practices, unfair contract terms, data protection, or defective products or services.
European Class Action Report 2023
For more on the continuing growth of class actions outside the US, see our European Class Action Report 2023.
