Travel businesses in breach of consumer law could soon face big fines, warns Rhys Griffiths, partner and head of travel at law firm Fox Williams
The travel industry should be braced for a transformation in the way consumer protection law is enforced in the UK, with regulators soon to gain the ability to impose eye-watering fines to encourage compliance with consumer protection law and to punish those which don’t comply.
As the chief executive of the Competition and Markets Authority (CMA) said recently, the new law – the Digital Markets, Competition and Consumers Bill (DMCC) – “has the potential to be a watershed moment in the way the CMA protects consumers”. It is something the travel industry should take seriously.
Travel is subject to a broad range of consumer protection law. There are specific laws which apply to the sale of package holidays as well as general laws which require terms and conditions to be fair, sales and marketing practices not to mislead and consumers to be dealt with fairly before, during and after the sale of a holiday.
Historically, the regulators’ enforcement toolbox has lacked sharp implements to punish non-compliance and make other businesses ensure they are compliant. We are used to such action in relation to data privacy, but not for other consumer protection law.
The regulators have long called for the means to enforce the law effectively in this area. That wish is about to be granted.
CMA enforcement action
Consumer protection law is currently enforced by means of criminal and civil enforcement powers. Use of the former is extremely rare. Civil enforcement is what has most commonly been used by the CMA, for example when investigating the practices of hotel booking sites in 2019, or the failure of some travel companies to pay refunds during the Covid-19 pandemic.
These civil enforcement powers can ultimately lead to the regulator initiating a court case to force a company to comply with consumer law.
But more commonly such action is settled without the need to go to court, with the company providing undertakings to comply with the law. Either way, the process can be time consuming and expensive for the regulator.
Under new powers set out in the Digital Markets, Competition and Consumers Bill, the CMA will be able to short-circuit the court process and decide for itself whether there has been a breach of consumer law and what the company must do about it – such as stopping the infringing behaviour and compensating affected customers.
In addition, and for the first time, the CMA will be able to impose substantial fines for non-compliance.
These new rules will apply no matter where a business is located if it sells to consumers in the UK.
Fines and individual liability
The CMA will be able to impose fines of up to 10% of ‘relevant turnover’ or up to £300,000, whichever is higher.
‘Relevant turnover’ will include the UK and overseas turnover of a company as well as the turnover of any company controlled by it (a subsidiary) and any company which controls it (a parent group).
Clearly, this has the potential to be significant, particularly for companies which are part of a group.
The CMA will also have the power to impose turnover-based fines on companies if they fail to comply with an order made by the CMA; fail to comply with an undertaking given to the CMA; or fail to assist the CMA properly during an investigation.
In addition, to further encourage compliance, the DMCC Bill will allow the CMA to take action against, and impose turnover-based fines on, directors, managers, secretaries or other persons in control of a business if they consented to, or connived in, the breach of consumer protection law.
Directors and other senior employees will therefore be in the firing line for non-compliance.
Additional powers for other regulators
It is worth noting that the existing civil enforcement mechanism is also being refreshed so that regulators such as the Civil Aviation Authority (CAA) and Trading Standards can ask a court to impose fines for non-compliance with consumer law or with undertakings a business has given to the regulators. The maximum size of fines will be the same as for the CMA.
The DMCC is currently working its way through Parliament and is expected to become law in 2024.
Given the punitive sanctions travel companies will face for non-compliance with consumer-protection law, businesses would be well advised to take steps now to ensure they do not become a target for the regulators.
These steps should include auditing a company’s marketing practices, sales techniques, customer terms and conditions and compliance with the Package Travel Regulations. Those which do not take action risk being among the first targets of the CMA and CAA when they look to use these new powers.