Actions have consequences: the cost of non-compliance with the Digital Markets, Competition and Consumers Act 2024
David Wozniak, associate in our commercial team, continues our series of articles on the Digital Markets, Competition and Consumers Act 2024 by reviewing the consequences faced by businesses that infringe UK consumer law.
Beware: the CMA has launched investigations
Earlier this year, the UK's Competition and Markets Authority (CMA) launched investigations into major tech companies under the Digital Markets, Competition and Consumers Act 2024 (DMCCA). Two of the investigations involve Apple and Google’s mobile ecosystems and aim to assess how their control over mobile operating systems, app stores, and web browsers may impact competition and consumer choice in the UK. The CMA is examining whether Apple and Google leverage their market positions to favour their own services or impose unfair terms on app developers. These investigations highlight the stringent regulatory environment in which businesses now operate under UK consumer law.
The DMCCA grants the CMA unprecedented enforcement powers over businesses operating in digital markets. Non-compliance can result in severe consequences for businesses. We explore these consequences in greater detail below, which is a follow-up to our previous article The times they are a-changin’: major changes to UK consumer laws are coming.
Consequences
1. Financial penalties on companies
The CMA now has the power to directly impose financial penalties on businesses for consumer law breaches without having to issue proceedings through the courts. This represents one of the most significant changes in consumer law introduced by the DMCCA.
2. Fines for unfair commercial practices
For “unfair commercial practices” such as drip pricing (showing the consumer an initial headline price for a product and then adding further mandatory charges during the purchasing process) and other misleading practices (which are set out in schedule 20 of the DMCCA), businesses can be fined up to £300,000 or 10% of their global annual turnover (whichever is higher). This is a significant penalty, given that it covers “global annual turnover”.
For small to medium size businesses, fines may amount to hundreds of thousands of pounds, while large corporations could face penalties in the millions or even billions. The 10% global annual turnover penalty limit under UK consumer law mirrors the maximum fine businesses can face for substantive breaches of UK competition law.
In certain circumstances, the DMCCA also grants the CMA the power to make parent companies liable for breaches of consumer law committed by their subsidiaries.
3. Daily fines
If a business provides materially false or misleading information (e.g. selling a premium service which is said to contain certain benefits which are then only available at an additional cost) or fails to comply with an information request from the CMA, the CMA has the power to fine the business up to £30,000 or £150,000, or up to 1% or 5% of global annual turnover, whichever is higher.
The £150,000 maximum fixed penalty or 5% global annual turnover cap (whichever is greater) applies to more serious breaches involving undertakings made to the CMA, CMA enforcement directions or orders.
The CMA can also impose daily fines of up to 5% of global daily turnover for continued non-compliance.
4. Penalties for individuals, including criminal prosecutions
The CMA can hold executives and other individuals personally liable for consumer law infringements by their company.
Directors and senior executives may face personal fines of up to £300,000 or even criminal prosecution, including custodial sentences for serious breaches (where they have provided false or misleading information during a CMA investigation).
5. Compensation for consumers
The DMCCA gives the CMA direct enforcement powers to decide whether key consumer protection laws have been breached without having to take businesses to court. The CMA can impose fines on businesses and require them to compensate individual consumers (via redress orders).
Consumers affected by anti-competitive or misleading practices can also file claims against non-compliant businesses. Legal battles can drain financial resources and damage investor confidence.
6. Directors' disqualification orders
Directors of companies face disqualification orders where they have been convicted of an indictable offence under the DMCCA.
7. Reputational damage
Non-compliance can also lead to reputational damage to businesses and loss of trust and confidence by consumers.
How can businesses prepare for the DMCCA?
Businesses can prepare for the changes introduced by the DMCCA by reviewing their current processes from a legal and compliance perspective. If you are a business, you may need to consider providing additional training on the DMCCA within your organisation. If any part of the DMCCA or the CMA guidance is unclear, you should raise this with the CMA and any industry groups.
For more information, please contact David Wozniak using [email protected] or 0191 211 7831.