Does your business operate a subscription model and, if so, are you aware reforms are pending which will impact how you operate your business?
What’s happening?
The Digital Markets, Competition and Consumers Act 2024 (DMCC) has implemented various reforms to UK consumer law and the Competition and Markets Authority (CMA) has been busy using its new powers this year.
Part 4 of Chapter 2 of the DMCC sets out new rules for traders offering subscription contracts and new rights for consumers entering into them. These rules, which expand upon the existing protections for consumers in the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCRs) are not yet in force. However, the Department for Business and Trade (DBT) provided an update in April confirming that these reforms are not now expected to come into effect until Spring 2027 (they were originally expected in Spring 2026).
What is a subscription contract?
A subscription contract is a contract between a trader and a consumer for the supply of goods, services or digital content in return for the consumer’s payment, which is not an ‘excluded contract’ (as set out in Schefule 22 of the DMCC) and which contains contract terms that have either or both of these effects:
- Auto-renewing features and a right to bring the contract to an end which means a consumer must take action to stop the continuation of the contract beyond a mandatory period, or stop the renewal or extension of the existing contract period, rather than it terminating by default.
- A free trial or a reduced cost for a specified period of time, after which the contract continues at full cost (for example, the trader has an option to impose a charge or an increase to the original rate) and the consumer must take action to avoid defaulting to contract terms which involve paying the full or higher price
Why are the reforms needed?
The government say this is a “crackdown on unwanted and misleading subscriptions” aka “subscription traps” aimed at saving consumers millions. They also believe a fairer subscription market is good for businesses and the economy and supports healthy competition.
What is the latest?
The governments update in April doesn’t provide full details (there is a press release plus a more detailed consultation response) but what we do know will be required:
* Clear / simple information before consumers are signed up to a contract to provide increased transparency.
* Straightforward contract exit processes, including online exit where subscriptions were signed up online. High friction exit processes won’t be lawful but the response confirms the rules won’t prohibit traders from making offers or seeking feedback so long as they do not “frustrate or unreasonably elongate the process”.
* Reminders before trials become fully paid plans and before 12 month plus contracts auto renew.
* Expanded 14-day cooling off periods (during which consumers can cancel and receive a full or proportionate refund) after trials end or when a contract renews for 12 months plus (the latter including digital content). The government have confirmed ancillary contracts entered into at the same time as (and dependant on) the main contract would also cancel if the main contract does.
* Also on cooling-off periods, the government have said if a trader is in breach of the requirement to inform a consumer about their cooling-off rights, the cooling-off period extends to 14 days after the trader corrects their breach (up to a max of 12 months) and refunds will need to be paid without undue delay and within 14 days after cancellation (or 14 days after receiving returnable goods sold) to the same method of payment.
What about third sector organisations?
The government have advised that certain ‘memberships’ of charitable, cultural and heritage organisations will be excluded from the new rules (broadly subscription contracts between charities and consumer that allow consumers to attend performances, see collections or visit places related to the charity’s purpose) and they have also sought to ensure claiming of Gift Aid isn’t impacted.
What action is needed now?
Businesses impacted by these reforms still need more detail (secondary legislation is required and the government will publish guidance to support business implementation). However, many aspects of the new DMCC rules are not new, and instead build and expand in a broadly consistent manner upon the existing framework under the CCRs.
So businesses should use the time now to:
- Ensure CCR compliance (as the foundation for compliance with the reforms once they come into effect).
- Review subscription lifecycles and plan for changes to reminder and cancellation processes.
Want to read more?
- https://www.gov.uk/government/consultations/consultation-on-the-implementation-of-the-new-subscription-contracts-regime/outcome/government-response-to-consultation-on-the-implementation-of-the-new-subscription-contracts-regime-web-accessible-version
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Disclaimer
This information is intended for general informational purposes only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0800 2800 421.
