In another step forwards for consumer protection regulation, the UK’s Department for Business and Trade has confirmed further amendments to the Digital Markets, Competition and Consumers Bill to tackle deceptive trading practices in the digital realm.
Following a comprehensive consultation into consumer transparency, the proposed laws will target ‘drip pricing’ by banning unavoidable hidden charges and make fake reviews illegal.
But, what does this really mean for online consumers and how can businesses ensure compliance?
What is drip pricing and why is it an issue for consumers?
Drip pricing occurs where consumers are shown an initial ‘base’ price for a good or service, with additional fees revealed (or ‘dripped’) later in the checkout process as consumers proceed with a purchase or transaction. This drip pricing mechanism can undermine price transparency and make it difficult for consumers to make informed purchase decisions. Consumers are therefore at risk of being ‘baited’ into choosing a product because of its lower base price, yet ultimately paying more once further fees and optional products are added.
What does the Bill say?
The changes introduced under the Bill will mean that any fixed mandatory fees must be included in the headline price displayed at the start of the consumers’ purchase journey. Variable mandatory fees (such as delivery fees) shall also be considered compulsory charges, but as these may not be reasonably calculated in advance, traders must instead make clear, alongside the headline price, that variable fees will be added and how such fees will be calculated. By way of example, fixed mandatory fees will include VAT or booking fees for cinemas and train tickets, whilst discretionary optional fees, such as airline seat and luggage upgrades for flights, shall not be included under these measures.
At this stage, the Government is not planning to legislate in relation to optional fees. There is, however, likely to be further discussion and consideration given to the practice of optional dripped fees, including proposals to regulate these in a proportionate way that does not adversely impact specific sectors and allows for consumer price comparison in a fair and transparent way across providers.
It should be noted that existing consumer protection regulation in force under the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (‘CAP Code’) requires prices in ads to include non-optional taxes, duties, fees and charges that apply to all or most buyers. If such charges (including VAT, for example) are not being disclosed until a later stage in the process, price statements that do not include those charges would be in breach of the CAP Code.
How can businesses ensure compliance?
Traders should ensure that headline prices include any fixed mandatory fees and make sure that communication of non-optional charges is not delayed, with any variable mandatory costs made clear to consumers (e.g. delivery will be added at the checkout) from the outset.
In respect of its practical application, traders should note that the unfair commercial practice of omitting material information from an invitation to purchase under the Bill allows for consideration of ‘any limitations resulting from the means of communication used in the commercial practice (including limitations of space or time), and any steps taken by the trader to overcome those limitations by providing information by other means’. Enforcers will, therefore, account for the medium by which pricing information is displayed to consumers when assessing whether there has been a failure to provide information on mandatory fees to consumers up-front.
What is the issue with fake reviews?
The growing prevalence of fake reviews online is distorting consumer purchase decisions and leading consumers to choose poorer quality products, with fake review text on products alone estimated to cause £50 million to £312 million harm to UK consumers each year. Fake reviews distort the market, harm consumers and make it difficult for traders to operate on a level playing field, placing honest businesses at a disadvantage against competitors prepared to mislead consumers to encourage sales and gain an enhanced market share.
What does the Bill say?
The changes to the Bill mean that online fake reviews shall be added to the list of ‘blacklisted’ practices (i.e. practices which are automatically considered unfair and unlawful) under the Bill.
How can businesses ensure compliance?
How these rules will work in practice, and clarity on the standards expected of online traders, is important to get right.
Website hosts shall be held accountable for the content on their pages and the authenticity of reviews displayed on their platforms. This will be a big task and internal changes to the business may be necessary to ensure diligent monitoring is undertaken in order to avoid legislative breaches.
But detection is not as straightforward an exercise as might be envisaged and there remain a number of question marks. What shall constitute a ‘fake review’? If consumers are incentivised to review a product, does any such review risk being considered ‘fake’?
The government will work with the Competition and Markets Authority (‘CMA’) to publish guidance in the coming months to tackle fake reviews. This guidance should explain the law and set out what ‘reasonable and proportionate’ steps traders are expected to take to remove and prevent consumers from encountering fake reviews, and to prevent any other information presented on the platform that is determined or influenced by reviews from being false or in any way capable of misleading consumers.
The CMA will consult on this guidance before it is finalised and published. This will be in addition to the continuing work of Local Authority Trading Standards, who will be able to use the guidance as a reference in their own enforcement action.
What happens if businesses don’t get this right?
Businesses would be well advised to follow the progress of the Bill and, once it comes into force, ensure they are familiar with the specific legislation which applies to their business. We recommend businesses take the time now to review their trading and marketing practices to identify risk areas and/or ensure that they are compliant.
If not followed, there is a risk that such businesses could be at the receiving end of the new heightened investigation and enforcement powers delegated to the CMA under the Bill, which includes significant financial penalties (e.g. £300,000 or, if higher, 10% of global turnover) – and not to mention, the immeasurable reputational damage that can be caused from public investigations by the regulators and the media.