The Digital Markets, Competition and Consumers Act 2024 has both consumer law and competition law consequences for many businesses in the fashion industry.
The purpose of the Act is to give the Competition and Markets Authority the ability to impose significant fines to encourage better compliance with consumer protection law and to punish non-compliance.
As the CEO of the CMA has stated, the new law “has the potential to be a watershed moment in the way the CMA protects consumers in the UK.”
The CMA has long called for the means to enforce the law effectively in this area. We are used to such action in relation to data privacy, but not for other consumer protection laws.
Imposition of fines by the CMA for non-compliance with consumer law
Consumer protection law – primarily found in the Consumer Rights Act and the Consumer Protection from Unfair Trading Regulations (“CPUT”) – is currently enforced by means of criminal and civil enforcement powers. The former is extremely rare. In contrast the latter is what has most commonly been used by the CMA.
Under the Act, the CMA will be able to short-circuit the court process. The CMA will be able to decide for itself whether there has been a breach of consumer law and what the business 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 global turnover or £300,000 (whichever is higher). By way of comparison non-compliance with data protection law can result in fines of up to 4% of turnover.
Liability for individuals
In order to further encourage compliance with consumer protection law, the Act also allows the CMA to take action and impose fines on directors, managers, and 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 Trading Standards
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 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 else does the Act cover?
The Act also prohibits a range of practices concerned with fake and misleading consumer reviews and review information.
It will also be more straightforward for the Government to add new prohibited practices to the UK’s unfair commercial practices regime under CPUT (that is, conduct that is always prohibited, irrespective of the outcome for consumers).
It is likely that in the first instance this will include:
- greenwashing;
- addictive designs;
- dark patterns; and
- labelling of AI-generated content.
Substantial changes have also been made to subscription businesses selling to consumers as well as for the regulation of extremely large online businesses such as Temu.
What the Act does not cover
It has been thought that the Act could affect whether retailers are able to discount prices and whether brands (whether directly or through their agents) and distributors were able to ask them not to.
The good news is that the Act is not concerned with recommended retail prices or RRP. The bad news for some businesses is that the ability of brands and distributors to ask retailers not to discount is an issue already addressed by UK competition law. In brief, a brand may recommend retail prices. However, a brand (irrespective of its size) may not enforce the prices which retailers charge.
If they do so they will be infringing competition law with consequences for those directors responsible. The penalties include for companies fines of up to 10% of annual turnover.
What should businesses do?
Given the way in which the CMA decided to address its concern about the use of greenwashing in the fashion industry by investigating Asos, Boohoo, and Asda and extracting undertakings from them, it might be thought that the CMA and Trading Standards will pursue only the very largest of businesses so as to make examples. But:
- last week the CMA announced that it had written to 17 fashion brands about their greenwashing activities. To date the identity of these brands is unknown;
- Trading Standards have repeatedly shown a willingness to pursue businesses irrespective of size; and
- if the CMA with its new powers follows the route taken by the Information Commissioner’s Office in its implementation of data protection law, it is very likely that the CMA will be size agnostic when it comes to enforcement!
Businesses should take steps now to avoid being at risk of punitive sanctions for non-compliance with consumer protection law. Reviews should be undertaken of marketing practices, sales techniques, and customer terms and conditions.
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