Subscription contracts – new measures to protect consumers

Answer

This article was originally published on Lexology.

The Digital Markets, Competition and Consumers Act 2024 (DMCC Act) introduces rules designed to reshape the nature of subscription contracts

The DMCC Act is intended to update and strengthen UK consumer law. While many of the consumer-related changes relate to strengthening the enforcement regime, one area where the requirements are set to change is in relation to subscription contracts, which auto-renew or include early cancellation features.

Background

The use of subscription contracts as a business model isn’t a new concept. They’re used across a wide range of industries such as streaming platforms and gyms for a long time, and more recently as an innovative offering in new markets such as coffee. However, for several years there have been concerns consumers are falling victim to ‘subscription traps’, which see consumers tied into subscription contracts unwittingly due to unclear terms and conditions or complicated cancellation processes. The Competition and Markets Authority (CMA) has been vocal on ensuring subscriptions and auto-renewals are fair for consumers. The UK government hopes that the DMCC Act will address the concerns raised in this respect.

Overhaul of subscription contract rules

The DMCC Act introduces mandatory rules designed to reshape the nature of subscription contracts. These requirements can be split out into pre-contract information, reminders and renewal cooling-off periods. The act contains significant detail and requirements will depend on the type of contract and its formation, as well as varying between subscription and free/reduced initial period contracts. See below for  a headline summary.

Pre contract information

The new rules will replace the pre-contract information requirements under The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCRs) for subscription contracts. Prior to forming a contract with a consumer, businesses will be required to provide ‘pre-contract information’ to the consumer.

The DMCC Act divides the information into ‘key’ information and ‘full’ information in relation to the contract. Key information includes:

• information that the contract will auto-renew (or continue for a fixed term) unless terminated by the consumer;
• any minimum period which must pass before the consumer can end the contract;
• steps the consumer must take to bring the contract to an end (including any address or other contact details needed to end the contract); and
• the amount of notice the consumer must give to end the contract and the period within which reminder notices in relation to the contract will be given.

In addition, the DMCC Act requires this information to be provided:

• all together, but separately from full pre-contract information and other information;
• in writing; and
• in such a way that the consumer doesn’t have to take any additional steps to read the information, such as clicking on links or downloading separate documents.

Reminders

Businesses will need to provide notices to consumers to remind them that their subscription contract will renew, and that payment will be due unless the consumer cancels.

In respect of a renewal payment, a reminder notice must contain:

• the date the renewal payment is due;
• the amount the consumer is liable to pay;
• details of any price increase compared to the previous payment; and
• details of how the consumer can exit the contract before becoming liable for the next payment.

These notices need to be provided once for every six-month period, or in respect of each renewal period where payments are fewer than every six months. The reminder notice must be given within a reasonable period before the ‘last cancellation date’ in accordance with pre-contract information given to the consumer. An additional reminder notice must be given for contracts that renew for 12 months or more.

Cancellation

The DMCC Act requires that consumers be able to exit a subscription contract in a straightforward cost-effective and timely way. Businesses will need to ensure the process for terminating isn’t unduly onerous and that consumers can signal their intent to end the contract through a single communication. A cancellation request must also be acknowledged in writing.

Businesses should also note that some offerings which have been exempt from the cancellation requirements of the CCRs may be caught by the DMCC Act obligations where the services are provided on a subscription basis.

Renewal cooling off period

The DMCC Act introduces new cancellation rights that apply during the 14-day renewal cooling-off period.

As well as an initial cooling-off period on commencement of the service or receipt of goods, consumers will have a 14-day right to cancel a subscription when they become liable for a ‘relevant renewal’. In practice a ‘relevant renewal’ will occur in two scenarios:

1. After the end of an initial free or discounted period.
2. After any renewal with at least a 12-month commitment.

Businesses must provide a consumer notice of each renewal cooling-off period, explain the contract is renewing and inform the consumer of the right to cancel. The notice must be provided on the first day of the renewal cooling-off period.

Penalties

Under the enforcement provisions in the DMCC Act, the CMA can impose fines of up to 10% of a business' global turnover.

It also introduces new direct enforcement powers for the CMA in respect of consumer protection.

Next steps – what should businesses do to prepare?

While the DMCC Act is in force the subscription rules will be implemented through secondary legislation. Currently, the expectation is that the rules may not be before spring 2026. Businesses therefore have time to consider their consumer subscription arrangements, but should take proactive steps to account for the new rules; this should include reviewing current pre-contract information provided and updating accordingly to ensure it meets the requirements of the DMCC Act. Businesses should also consider what operational changes are needed to implement systems to send timely reminders to consumers and establish straightforward processes for consumers to terminate their subscriptions.

Richard Hugo is a director at Burges Salmon LLP.