The travel industry is braced for a transformation in the way in which consumer protection law is enforced in the UK.
The purpose of these changes is to give regulators the ability to impose eye-watering fines to encourage better compliance with consumer protection law and to punish those that do not comply. As the CEO of the Competition and Markets Authority (CMA) has previously stated, the new law “has the potential to be a watershed moment in the way the CMA protects consumers in the UK.”
This is clearly something which the travel industry should take seriously.
Background
The travel industry is subject to a broad range of consumer protection laws. There are specific laws that apply to the sale of package holidays, as well as general laws that require customer terms and conditions to be fair, for sales and marketing practices not to mislead, and for consumers to be dealt with fairly before, during and after the sale of a holiday.
Historically, the enforcement toolbox of regulators has lacked the sharp implements needed to punish non-compliance and make other businesses take note and ensure that they are compliant. We are used to such action in relation to data privacy, but not for other consumer protection laws. The regulators have long called for the means to enforce the law effectively in this area. That wish has now been granted.
Imposition of fines by the CMA for non-compliance with consumer law
Consumer protection law is currently enforced by means of criminal and civil enforcement powers. The former is extremely rare, whereas the latter is what has most commonly been used by the CMA, for instance when investigating the practices of hotel booking websites in 2019, and when investigating the failure of some travel companies to pay refunds during the Covid-19 pandemic.
These civil enforcement powers may ultimately lead to the regulator initiating a civil court case to force the travel company to comply with consumer law, but more commonly such action is settled without the need for a court claim by the travel company providing undertakings to the regulator to comply with consumer law. Either way, the process can be time-consuming and expensive for the regulator, as is any process that involves bringing a case in the civil courts.
Under the new powers set out in the Digital Markets, Competition and Consumers Act 2024 (DMCC), the CMA will be able to short-circuit the court process and decide for itself whether there has been a breach of consumer law and what the travel company must do (such as to stop the infringing behaviour and to compensate any affected customers). In addition, and for the first time, the CMA will be able to impose substantial fines for non-compliance.
These new rules will apply no matter where the business is located, provided that they are directing their commercial activities to consumers in the UK.
How fines will be calculated
The CMA will be able to impose fines of up to 10% of relevant turnover or £300,000 (whichever is higher). The relevant turnover in this regard will include the UK and overseas turnover of the travel company, as well as the turnover of any company which is controlled by the travel company (e.g., a subsidiary) and any company which controls the travel company (e.g., a parent). Clearly, this has the potential to be very significant indeed, particularly for those travel companies which are part of a larger group of companies.
In addition to imposing fines for non-compliance with consumer law, the CMA will be given the power to impose turnover-based fines on travel companies if they: (i) fail to comply with orders made by the CMA; (ii) fail to comply with an undertaking given to the CMA; and/or (iii) fail properly to assist the CMA during its investigation.
Liability for individuals
In order to further encourage compliance with consumer protection law, the DMCC also allows the CMA to take action and impose fines on directors, managers, secretaries, or other persons who control a business if they consented or connived in the breach of consumer protection law. Directors and other senior employees will therefore be in the firing line for non-compliance with consumer protection law.
Additional powers given to other regulators
In addition to the creation of a new enforcement mechanism for the CMA, it is worth noting that the existing civil enforcement mechanism (described above) is being refreshed so that regulators such as the CAA and Trading Standards can impose fines for non-compliance with consumer law or undertakings previously given by the relevant business. The maximum size of the fine is the same as that described above for the CMA.
What should travel companies do?
Given the punitive sanctions to be faced by travel companies (and their senior employees) for non-compliance with consumer protection law, they would be well advised to take steps now to ensure that they are not a target for the regulators. This includes auditing the travel company’s marketing practices, sales techniques, customer terms and conditions, and compliance with the Package Travel Regulations. Those that do not risk being one of the first targets for the CMA and CAA when they look to use their new powers.
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