Consumer subscription contracts: what you need to know under the new regime

Background

The DMCC Bill was first published in April 2023 and is a bill that will look to “crack down on rip-offs, protect consumer cash online and boost competition in digital markets”.

One area that the DMCC Bill will address is the increasingly popular consumer subscription contracts which are often for an indefinite or lengthy fixed period and can be difficult to cancel easily. Some examples of these types of contracts include film streaming sites, meal preparation companies, and gym memberships.

It is estimated that consumers spend between £1.6b to £1.8b per year on subscription contracts; however, despite this popularity there has been little by way of specific regulation beyond the Consumer Rights Act 2015, the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCRs) and the Consumer Protection from Unfair Trading Regulations 2008.

It has been estimated that between April 2020 and April 2021, 55% of consumers suffered some kind of detriment, such an unintended renewal, missed deadlines to cancel free trials or difficulty in exiting (for example by being required to call a helpline to exit and receiving pressurised selling tactics before being able to do so).

Which contracts are included, and which are excluded?

The proposed provisions of the DMCC Bill will apply to contracts between traders (i.e., businesses) and consumers (meaning those acting wholly or mainly outside of their business, trade, or profession), and that:

• are contracts for goods, services or digital content in exchange for payment;
• automatically recur and hold the consumer liable for each supply or recurring supply; and
• give the consumer the right to cancel the contract at the end of any free trial or discounted initial period before charging a higher rate.

Section 247 and Schedule 19 of the DMCC set out a number of contracts that are excluded from these provisions, including contracts for the supply of utilities, insurance and financial services, medical prescriptions, package holidays, and more.

What are the proposals?

The DMCC Bill will impose a number of obligations on traders whose contracts fall within the categories mentioned above, which include:

• providing certain pre-contractual information to the consumer;
• notifying the consumer before renewal dates and final cancellation dates (as well as the end of free trials) within specific timeframes;
• easing the process of ending the contract which should only contain a single communication and no unnecessary steps. For online contracts it is recommended that a single click cancellation button is used; and
• extending the 14-day cooling off period for off-premises/distance contracts beyond that contained in the CCRs.

What are the consequences for non-compliance?

If a trade does not comply with these requirements, the consumer will have the right to cancel the contract and claim damages for breach. Furthermore, a failure to comply with the cooling off period requirements is a criminal offence and could result in indictment.

Next steps

If you offer subscription contracts to consumers, you should revisit these contracts to:

1. assess whether they are caught by the new rules; and if so,
2. whether they are compliant.

Whilst the DMCC Bill is not yet codified legislation, it is expected to come into effect by the end of 2023/early 2024 with few changes expected from its current form.

Please note that this information is for general guidance only and should not substitute professional legal advice. If you have specific concerns, we recommend consulting with one of our legal experts.