CMA consults on new direct consumer enforcement guidance

The Digital Markets, Competition and Consumers Act 2024 (DMCC Act) introduces a new enforcement model for consumer protection. The CMA will have the power to issue infringement decisions for UK consumer law breaches and impose direct fines of up to 10% of a company’s global turnover – in effect, bringing the consumer protection regime more closely in line with the CMA’s existing competition law enforcement powers. 

On 31 July 2024, the UK Competition and Markets Authority (CMA) published draft guidance for the exercise of its new direct enforcement powers (Draft Guidance), as part of its consultation process.

In this briefing, we discuss the key points of interest arising from the Draft Guidance – including, in particular, the CMA’s new process for handling direct enforcement cases and its proposed approach to penalties and settlement. An overview of the package of consumer protection policy reforms in the DMCC Act, and pointers on how companies can prepare for their introduction, can be found in our previous client briefing.

Key points of interest

Investigative process for direct enforcement model

The Draft Guidance sets out in detail the process that the CMA will follow when pursuing cases under its new direct enforcement powers. An overview of this process is provided in the flowchart below.

Investigation and initial decision

As with the current court-based enforcement regime, the CMA’s formal investigation phase will follow a pre-launch intelligence gathering phase. As the Draft Guidance notes, the DMCC Act strengthens the force of the CMA’s information gathering powers during investigations – in particular, by enabling the CMA to impose fines directly on companies which supply false or misleading information or that fail to comply properly with information notices. Such fines may be up to £30,000 or 1% of global annual turnover (whichever is higher) in the case of the supply of false or misleading information, and/or include daily penalties of up to the higher of 5% of daily turnover and £15,000 for non-compliance with information notices.

Following its investigation, the CMA may issue a provisional infringement notice (PIN) to a party under investigation if it has reasonable grounds to believe that party has engaged, is engaging, or is likely to engage, in an infringing practice. If a PIN is issued, the CMA will invite the party to make representations (typically within one to one-and-a-half months).  The party under investigation will also have the opportunity to attend an oral hearing.

Final decision

Unless the CMA accepts an undertaking or a settlement is reached, the CMA will then make a final decision.  It will either: (a) conclude there has been no breach; (b) issue a final infringement notice (FIN) to the party (i.e. where it finds there has been a breach); or (c) close the investigation on administrative grounds.  If a FIN is issued, it may require the party to comply with directions, including directions to take enhanced consumer measures (ECMs) and/or to pay a fine.

Post-decision

Following receipt of a FIN, the addressee can appeal the notice to the High Court within 28 days. Directions to pay a fine will be paused during any appeal process; however, other directions (e.g. ECMs) will continue to apply during any appeal process.

Undertakings

Where the CMA identifies conduct that it believes constitutes an infringement of relevant consumer protection laws, it can accept an undertaking from a party in place of issuing a FIN (or an online interface notice (OIN)[1]). Undertakings are voluntary commitments intended to resolve the CMA’s concerns without requiring an admission by the party that there has been an infringement (or the payment of a fine).

Standard for acceptance of undertakings

Under the new DMCC Act, the test that the CMA must apply when deciding whether to accept undertakings has been updated.[2] The Draft Guidance indicates that the CMA will not accept undertakings where it considers that compliance with, and the effectiveness of, an undertaking would be difficult to monitor and/or not progressing to the final decision stage would undermine deterrence. Deterrence appears to be one of the CMA’s key underlying policy objectives in enforcing consumer law and is also a relevant factor in the Draft Guidance’s section on penalties. 

Procedure for agreeing undertakings

Undertakings may be proposed by either the CMA or a party under investigation.  Where undertakings are accepted, the CMA may still issue a FIN (or OIN) in limited circumstances, including where the FIN relates to matters not covered by the undertaking or the CMA has reasonable grounds to suspect non-compliance with the undertaking.

The CMA will also be able to impose directly penalties for breach of undertakings (up to 5% of a company’s annual global turnover, with additional daily penalties for continued non-compliance) – this is aligned with its other direct enforcement fining powers under the DMCC Act. This contrasts with the current court-based enforcement model, under which the CMA must apply to the courts to enforce non-compliance with undertakings.

The CMA’s approach to penalties

The Draft Guidance outlines the CMA’s planned approach to calculating penalties for breaches of consumer law.  To calculate the starting point of any fine, the CMA will first determine the seriousness of the infringement and the relevant infringement category, by reference to the harm (or the risk of harm) caused by the infringement and the culpability of the party. Together, the level of harm (graded from Category 1 to Category 4) and the level of culpability (graded from High to Low) will determine the starting point for a fine: