Consumer deep dive: Understanding unfair commercial practices under the DMCC

As we outlined in our previous blog post, the Competition and Markets Authority (“CMA”) now has direct enforcement powers in consumer protection law under the Digital Markets Competition and Consumers Act (“DMCC Act”). This means that the potential consequences of non-compliance with consumer law have materially increased, with the CMA having the ability to impose penalties of up to 10% of global turnover alongside other measures, including issuing directions (which can include consumer redress requirements). At the same time, the scope of the rules regarding unfair commercial practices has expanded (sometimes significantly) from the former rules under the Consumer Protection from Unfair Trading Regulations (2008) (“CPUTRs”). 

In the first of a series of consumer deep dives, we explore the new rules on unfair commercial practices, including a detailed breakdown of the relevant tests, risk areas, and compliance tips for businesses.

A guide to unfair commercial practices

Under the DMCC Act, as was the case under the CPUTRs, some commercial practices are always considered unfair, whilst others will only be unfair if they impact a consumer’s commercial decision-making.

Banned practices – always unfair

There are three types of practice which are always deemed unfair, regardless of their impact on consumer decision-making:

• Banned practices. Schedule 20 of the DMCC Act lists 32 “banned practices” including fake reviews, misuse of trust marks, pressure selling and selling illegal products. With the exception of fake reviews and some restatements of banned practices, these commercial practices are largely unchanged from the former rules under the CPUTRs. 
• Omissions of material information from an invitation to purchase. This includes failure to provide information on the main characteristics of the price, product and trader, failure to display information in a clear, timely manner and, importantly, drip pricing. 
• Promotion of unfair commercial practices in a code of conduct.

The introduction of fake reviews and omissions of material information in an invitation to purchase mark new additions to the suite of “banned practices” under the DMCC Act. Under the new consumer regime, these practices will always be considered unfair, in contrast to the position under the CPUTRs, when enforcement against such practices was subject to the transactional decision test.

We will cover new rules on fake reviews and drip pricing in detail in future deep dives and, as most businesses will be familiar with the other banned practices under the DMCC Act, will focus the rest of this blog on commercial practices which may be considered unfair in certain circumstances. 

Other practices – these are unfair if they impact consumer decision-making

Certain commercial practices will be “unfair” if they “are likely to cause the average consumer to take a transactional decision which they would not have taken otherwise, as a result of the practice”. It is worth unpacking this in detail to understand the scope of the new regime.

1. What are the commercial practices which might be considered “unfair”?

There are four types of commercial practice which may be considered “unfair” if they impact consumer decision-making:

• Misleading actions such as providing false or misleading information (e.g. non-genuine reference pricing), or marketing which is likely to confuse one trader with another. 
• Misleading omissions including the omission of material information which should be provided to consumers (e.g. substantiation of green claims), or providing material information in a way which is untimely, unclear, or which means consumers are unlikely to see it. 
• Aggressive practices which harass, coerce or use undue influence to exploit and pressure consumers. 
• Contravention of the requirements of professional diligence meaning practices fall short of the standard of skill and care which a trader may reasonably be expected to exercise

2. Who is the “average consumer”?

Businesses need to consider how practices impact different types of consumers. The DMCC Act identifies three separate categories of consumer specifically:

• Vulnerable customers. As was the case under the CPUTRs, customers can be considered vulnerable based on their mental and physical health, age and credulity. The DMCC Act adds a new fourth category, and consumers can now also be considered vulnerable based on circumstance. This marks an increased emphasis on the individual considerations of customers, and consumer vulnerability at specific stages of consumer decision-making. Time will tell if the addition has a practical impact on interpretations of vulnerability in consumer law.
• Average targeted consumer. Where a commercial practice targets a specific group of consumers (e.g. children or parents) the CMA will consider the average consumer (defined below) subject to the characteristics of that group. 
• Average consumer. The average consumer is held to be reasonably well-informed, observant and circumspect. This is not a statistical average/test.

3. What is a “transactional decision”?

The CPUTRs provided that a decision to purchase goods or services, or to vary the terms of the contract was a transactional decision. Dictum from the Care UK judgment (23 July 2021)  further indicated that whilst a transactional decision was not confined to a final “go/no go” decision under the CPUTRs,  the concept shouldn’t expand beyond decisions “directly related” to that decision. For example, “information gathering” steps (such as taking a decision to visit a care home, or accepting a tour of a care home) were considered in that case to precede a transactional decision. 

Under the DMCC Act, however, the concept of the transactional decision has expanded to capture the decisions “related” (i.e. leading up) to a decision to purchase a good or service. CMA guidance confirms that this concept now captures, for example, clicking through a website or making the decision to view a property. As a consequence, businesses will likely need to undertake more diligence to ensure compliance throughout the customer journey.

4. How can we know whether commercial practices are “likely” to impact consumer behaviour?

As was the case under the CPUTRs, under the DMCC Act, there is no need for actual customers to be affected by a commercial practice. There is no prescribed way to determine whether consumer behaviour has been impacted by a commercial practice, however, it bears note that the threshold for finding a commercial practice “unfair” has been reframed in more general terms under the DMCC Act. 

Under the CPUTRs, a commercial practice was unfair if it “materially distorted” or was “likely to materially distort” the economic behaviour of the average consumer. Under the DMCC Act, a commercial practice need only have “likely” impacted a consumer’s transactional decision-making.

CMA guidance is relatively quiet on the subject of how the CMA will approach its assessment of whether and how consumers are impacted by commercial practices. A/B testing, surveys, reviews of internal documents, online testing and reviews of sales patterns against changes in commercial practices may be used in the CMA’s assessment. In practice, determining whether a consumer would have taken the transactional decision they did absent the commercial practice in question is a challenging exercise in detective work. 

Tips for businesses seeking to comply:

• Undertake diligence to ensure compliance with Schedule 20 of the DMCC Act, and ensure that your business is not engaged in any “banned practices”.
• Diligence all touch-points with consumers, as the transactional decision test is now likely to catch all contact with consumers.
• Consider how consumers make decisions to acquire your goods and/or services, what are the most important things they consider before pursuing a purchase decision? For example, are green claims a USP for your business which attract customers, or does pricing, availability and style matter more than sustainability? 
• Consider how business practices are likely to impact different types of consumers, and importantly, vulnerable customers. 
• If you have a website and/or app, consider how consumer behaviour (including for different categories of consumer) can be assessed, especially in response to business practices. This could be used as evidence by the CMA in an investigation. 
• Consider business resilience – what would the practical consequences be if the CMA chose to investigate your business, and require a change in approach to, for example, pricing, marketing, green claims substantiation, or fake reviews?