A watershed in consumer law

The UK travel industry is now subject to a new consumer protection regime under the Digital Markets, Competition and Consumers Act (DMCCA).

The consumer aspects of the Act came into force om April 6, giving the Competition and Markets Authority (CMA) direct enforcement powers and updating the unfair commercial practices regime with bans on fake reviews and drip pricing. 

These rules apply no matter where a travel business is located if it directs its commercial activities towards UK consumers. 

 

More: How to comply with the ban on fake reviews

The impact of the CMA’s new powers of enforcement should not be understated. The CMA chief executive has said the new law “has the potential to be a watershed moment in the way the CMA protects consumers”.

Here we summarise the changes in relation to enforcement and drip pricing. We have discussed the changes in relation to fake reviews in a separate article. 

 

New enforcement regime

UK consumer protection law has been enforced up to now by a court-based system which included criminal and civil enforcement powers. The former was incredibly rare, with the latter being most commonly used by the CMA. 

These civil enforcement powers lacked the sharp implements needed to punish non-compliance. Under the new powers, the CMA will be able to short-circuit the court process and decide for itself when there has been a breach of consumer law and what a travel company must do to provide redress. It can also impose significant fines.

The CMA published a Direct Consumer Enforcement Guidance note (CMA200) in March setting out the direct enforcement process from the period leading up to it opening an investigation to a final infringement notice and beyond. 

Drip pricing

The DMCCA also updated the law on how companies display price information to consumers, with a new ban on ‘drip pricing’ where consumers are shown an initial price for a product then fees are added as they proceed to purchase. 

Any ‘invitation to purchase’, which broadly means any advert which mentions the price – including a listing on a website – must now feature a total price including any non-optional charges such as booking fees and local taxes. 

If these can’t be calculated in advance, information about them and how they will be calculated must be given equal prominence with the total price. Genuinely optional services do not have to be included in the headline price.

A consumer may be presented with an invitation to purchase at multiple points during the process of deciding whether to purchase a product.

 

The CMA has said that, pending further guidance on drip pricing due this autumn, it will only take action against genuinely unexpected mandatory charges added at the end of a purchasing journey. 

Businesses should refer to CMA guidance note CMA207 on Unfair Commercial Practices, issued on April 4. 

 

The CMA approach 

Although the existing unfair commercial practices regime has not changed materially, the risks of getting it wrong have increased substantially. 

The starting point for a fine will be between 7.5% and 30% of a company’s UK turnover, subject to a cap of 10% of group turnover or £300,000, whichever is higher. 

The CMA also has powers to fine directors, managers, company secretaries or others with control of a business if they consented to or connived in a breach of consumer protection law. 

The authority published a document on its approach on April 7 setting out its enforcement priorities for the first 12 months. The law does not apply retrospectively but does apply to “continuing conduct” which began before April 6 and continues or is repeated. 

The CMA has confirmed it will target clear infringements and behaviour that is particularly harmful to consumers. It has highlighted six areas liable to early enforcement action: aggressive sales practices; providing false information; fake reviews; drip-pricing;  unfair contract terms; and cancellation charges. 

The authority has also highlighted areas where there is a risk of enforcement in line with previous action or guidance by the CMA, Civil Aviation Authority, Trading Standards or Advertising Standards Authority, including in relation to: countdown timers; discount claims; price comparisons; 14-day refund obligations; refund guarantees; search rankings; resort fees; and ‘scarcity and popularity’ claims. 

The CMA’s enforcement powers create significant legal and financial risks for travel businesses. We recommend companies carry out an audit of their sales and marketing practices, customer terms and conditions and booking journey at the earliest opportunity. 

Farina Azam is a partner at Fox Williams and Samirah Haujee an associate. This is the second of two articles on the DMCCA’s impact on travel.