Digital Markets, Competition and Consumers Act 2024

Digital Markets, Competition and Consumers Act 2024

The Digital Markets, Competition and Consumers Act 2024 (DMCC Act) is an act passed by the Conservative Government in May 2024 to enhance competition and consumer protection in the UK’s digital marketplace. The Act aims to address the growing market power of large digital companies and promote fair competition by providing the Competition and Markets Authority (CMA) with new powers to regulate digital markets, enforce consumer rights, and ensure fair business practices.

Subscription Provisions

The DMCC Act introduces new regulations aimed at increasing transparency and fairness in subscription contracts, such as those used by Microsoft (for Xbox Game Pass), Sony (PlayStation Plus), and Nintendo (Nintendo Switch Online).

Key Rules for Subscription Contracts

• Pre-Contract Information Requirements: The DMCC Act requires businesses to provide clear and accessible information to consumers before they enter into a subscription contract. This includes:

 * Details on the amount and frequency of payments.
 * Costs that will apply after any free trial period.
 * The minimum total amount payable.
 * How the auto-renewal mechanism works.
 * Instructions on how to terminate the contract and notice periods.
 * Information on cooling-off rights.

This information must be presented in a way that is easy to understand, without requiring consumers to navigate through multiple links or downloads.

• Renewal Reminders: To address the issue of unintended renewals, the Act mandates that businesses send reminder notices before a subscription renews. These reminders should clearly state:

 * The amount of the upcoming renewal payment.
 * The date the payment will be taken.
 * Any changes in the payment amount compared to previous renewals.
 * How consumers can cancel the subscription to avoid further charges.

• Cancellation and Cooling-Off Rights: The Act requires that businesses make it straightforward for consumers to cancel their subscriptions. Cancellation should be achievable with minimal effort, often through a single communication. The use of complex or obstructive methods to deter cancellations is not compliant with the Act’s requirements.

The Act also provides consumers with the right to:

 * Cancel at the beginning of the contract.
 * Cancel after any free trial period.
 * Cancel at the start of each renewal period, with a mandatory 14-day cooling-off period. This allows them to cancel within 14 days of the renewal and receive a full refund, providing flexibility to reconsider their commitment after the renewal payment has been processed.

• Penalties for Non-Compliance: Companies that do not adhere to these new rules could face substantial fines, potentially reaching up to £300,000 or 10% of their global turnover, whichever is higher. These penalties are designed to encourage compliance and protect consumers from being locked into subscriptions they may no longer want or need.

Consumer Protection – Unfair Practices

The DMCC Act updates the existing Consumer Protection from Unfair Trading Regulations 2008 (CPRs) to strengthen consumer protection in digital markets. The Act expands the list of "blacklisted" commercial practices that are always considered unfair. For example, the ban on falsely claiming that a product is available only for a limited time has been widened, reflecting a crackdown on deceptive "dark patterns" that pressure consumers into quick decisions.

Examples of Unfair Practices

• Misleading Time-Limited Offers: Claiming that a product is available only for a "limited time" to rush consumers into a purchase, without substantiating that claim. The wording has been amended to remove "very limited time," widening the scope of what is considered an unfair practice.

• Faking Consumer Endorsements: Providing false or misleading statements about consumer endorsements or reviews, or fabricating social proof to enhance a product’s credibility.

• Concealing Important Information: Omitting or hiding critical details that consumers need to make an informed decision, such as the total price, additional costs, or subscription terms.

• "Bait and Switch" Tactics: Advertising a product at a low price to attract consumers, only to reveal that the product is unavailable and redirect them to a higher-priced alternative.

• Aggressive Sales Tactics: Using harassment, coercion, or undue influence to compel consumers into making purchases they would not otherwise consider.

• Unsubstantiated Claims: Making unverified claims about the benefits or efficacy of a product or service, particularly when scientific evidence or consumer testing is lacking.

• Pre-Checked Boxes for Additional Costs: Automatically selecting options that add extra charges or services, which consumers must actively deselect to avoid being charged.

The Act allows the Government to add new unfair practices through secondary legislation, ensuring consumer laws can quickly adapt to market changes. This dynamic approach aims to protect consumers against emerging unfair practices in digital environments without the need for proof of harm.

Pro-Competition Interventions

The DMCC Act introduces new powers for the Competition and Markets Authority (CMA) to implement Pro-Competition Interventions (PCIs). These interventions are aimed at companies with "Strategic Market Status" (SMS) that have significant market power, particularly in digital markets.

Strategic Market Status (SMS)

Strategic Market Status (SMS) is a designation given to companies that hold a particularly powerful position in one or more digital markets. To qualify for SMS, a firm must have:

• Substantial Market Power: The company has significant control over a market segment, such as digital platforms, marketplaces, or app ecosystems, where its actions could significantly impact competitors or consumer choice.

• Entrenched Position: The firm's market dominance is long-standing and unlikely to be disrupted by normal market forces. This typically includes large tech companies with vast user bases, established ecosystems, or substantial data advantages.

Companies designated with SMS are subject to stricter regulatory oversight under the DMCC Act because their dominant position can potentially lead to unfair market practices such as stifling competition, self-preferencing, or imposing unfair terms on smaller competitors.

Key Points of Pro-Competition Interventions

• Behavioural Remedies: The CMA can require SMS firms to change their practices to prevent anti-competitive behaviour. This may include ensuring data portability (allowing users to move data between platforms) and interoperability (ensuring compatibility between different services or platforms). For the video games industry, this could mean enabling cross-platform play or transferring digital assets across platforms, fostering more competition.

• Structural Remedies: The CMA may impose structural changes, such as requiring a company to separate certain business operations or limiting its ownership stakes in other companies to prevent anti-competitive consolidation. This could impact mergers, acquisitions, or business integrations involving major video game companies and tech giants.

Implementation

In September 2024, the Government, through a ministerial statement by Justin Madders, outlined its implementation strategy. The statement confirmed that Parts 1, 2, and 5 of the Act will be implemented via secondary legislation, which is set to be laid before Parliament in Autumn 2024. This secondary legislation will provide the detailed rules and regulations necessary to operationalise the Act's provisions.

• Part 1: Pro-Competition Regime for Digital Markets: Part 1 introduces a framework to enhance competition in digital markets, specifically targeting major tech firms with Strategic Market Status (SMS). The Government plans to commence this part in December 2024 or January 2025, with initial SMS investigations by the CMA expected shortly thereafter. This part will empower the CMA to take proactive steps to address anti-competitive behaviours among the largest digital firms.

• Part 2: Enhancements to the Competition Regime: Part 2 of the Act strengthens the CMA’s ability to address anti-competitive conduct across the economy, focusing on sectors where the potential for consumer harm is greatest. These enhancements are aligned with the implementation of Part 1 and are also scheduled to commence in December 2024 or January 2025. This synchronised rollout will provide a comprehensive approach to updating the UK’s competition laws.

• Parts 3 and 4: Consumer Protection and New Consumer Rights: Parts 3 and 4 aim to bolster consumer protections and enforcement, addressing issues like fake reviews and drip pricing:

 * Part 3 (Consumer Enforcement) and Part 4, Chapter 1 (Unfair Trading) are slated to begin in April 2025, introducing new CMA direct enforcement powers and updating existing regulations on unfair trading.
 * Additional consumer protection rules, including those for savings schemes, will follow, with the targeted start date of April 2025. Comprehensive reforms concerning subscription contracts are expected later, with an implementation date no earlier than Spring 2026, reflecting the need for thorough consultation and detailed preparation to support these changes.

• Part 5: Miscellaneous Measures: Part 5 includes various provisions, such as new powers for the CMA to gather information, collaborate with international regulators, and monitor competition in specific sectors. These measures are set to begin alongside Parts 1 and 2 in December 2024 or January 2025.

Commencement orders will be issued at least 28 days prior to the respective implementation dates, providing time for those affected to prepare for the changes.