With the changes fast approaching, read on to understand them and hear the CMA’s advice on how to prepare for the new regime.

The New Direct CMA Enforcement Regime

(by Jason Freeman, Legal Director, Competition and Markets Authority)

The Digital Markets, Competition and Consumers Act 2024 (DMCC Act) creates two new enforcement regimes. 

Enhanced court based enforcement

Part 3 Chapter 3 (expected to come into force in April 2025) updates and replaces the court based regime currently governed by Part 8 of the Enterprise Act 2002. In particular, it gives courts the power to issue fines of up to 10% of global turnover for infringements of a wide range of consumer protection laws and rules (listed in Schedule 15 to the DMCC Act), following a successful application made by enforcers such as Trading Standards, sectoral regulators and the CMA. This augments the existing power to impose enhanced consumer measures (for example requiring redress to be paid), take steps to stop and prevent infringments, and remove online content. In addition, courts will be able to impose interim measures (as now) and issue fines of up to 1% global turnover for non compliance with information notices sent by enforcers, and fines of up to 5% global turnover for non compliance with undertakings given to the enforcers or to the court. In each of these cases, the court can also issue a fine of 5% of daily global turnover, which can accrue until the requirement is complied with.

Further guidance on the new court based regime may be found in the revised CMA Consumer Protection: Enforcement Guidance (CMA 58ii), on which the CMA is consulting until 22 January 2025.

Direct CMA Enforcement 

Part 3 Chapter 4 of the DMCC Act, which is also expected to come into force in April 2025, operates alongside the Chapter 3 court based regime, and gives new powers to the CMA itself to decide whether certain consumer laws (listed in Schedule 16 to the DMCC Act) have been infringed, and to impose substantial monetary penalties for those infringements. This puts the CMA’s enforcement of competition law and consumer protection law on an equal footing, and rightly sends the message to businesses that they should treat them with equal importance.

Chapter 4 lays down a comprehensive process that is designed to ensure procedural fairness and operational efficiency, which is supplemented by CMA rules, guidance and statements of policy on the imposition of monetary penalties (contained in chapter 7 of the CMA guidance). The CMA has been consulting on its rules and guidance documents, and although the consultation has now closed, the documents can be found here.

Penalties

In summary, the new powers will enable the CMA to issue a decision which may require payment of a monetary penalty of up to 10% of the trader’s worldwide turnover and impose directions for the trader to change their behaviour. These directions may include enhanced consumer measures, such as payment of compensation to affected consumers. The CMA may also issue online interface notices. If traders fail to comply with directions, further large penalties, of up to 5% of worldwide turnover and/or 5% of daily turnover can be imposed. 

In setting a penalty, the CMA will have regard to the level of harm caused and the culpability of the trader, along with aggravating and mitigating factors. Broadly if a business reviews its practices for compliance at senior level, and takes effective steps to train its staff to ensure its practices comply with consumer law, it will be far less likely to infringe, and if it does, to face a penalty at the highest end of the scale.

The enforcement process

Where the investigation leads the CMA reasonably to suspect the infringement, it may send a provisional infringement notice to the trader. This will trigger the right to make representations (including oral representations) within a specified timescale. After considering any representations made, the CMA may send a final infringement notice where it is satisfied of the infringement. The CMA expects investigations to proceed swiftly.

In some circumstances, traders under investigation may provide undertakings to the CMA or agree to conclude the investigation by way of a settlement. Undertakings, if accepted by the CMA would not involve payment of a penalty, whereas settlement requires admission of the infringement, acceptance of directions and agreement to pay a reduced penalty. Generally the earlier the settlement occurs, the larger the penalty reduction will be. These agreements will be directly enforceable by the CMA, which will have the power to impose a penalty of upto 5% of worldwide turnover for breach of undertakings or directions.

Investigation powers

The CMA has wide range of investigative powers (set out in Schedule 5 of the Consumer Rights Act 2015, as amended by the DMCC Act), which include the power to carry out unannounced inspections and searches, in addition to the ability to send information notices. As part of the DMCC Act updates, the CMA will be able to issue substantial fines of upto 1% of worldwide turnover and/or 5% of daily turnover for failure to respond to an information notice properly.

The introduction of such large potential fines aims to ensure strong, deterrent enforcement action will lies at the heart of the CMA’s work, and having asked for these powers, the CMA intends to use them.

What should businesses do to get ready? 

The most important measures firms can take now is to review their commercial practices to ensure they comply with the full range fo consumer laws. In doing this, businesses will find it helpful to look again at CMA guidance and enforcement outcomes published in the past few years, to see what practices have caused the CMA concern. For example, the CMA has had a particular focus on ‘online choice architecture’, securing undertakings from Simba Sleep and Wowcher, and launching court proceedings against Emma Mattresses, and has published a number of guidance documents to assist businesses to comply with the law. These include the CMA’s Open Letter on reference pricing and urgency claims, and the CMA’s principles for online mattress sellers. For a wider perspective, look at the CMA’s research paper Online Choice Architecture: How digital design can harm competition and consumers, and consider very carefully whether you are engaging in practices which the CMA thinks could harm consumers and competition -such as ‘sludge,’ ‘dark nudges’ and ‘dark patterns.’ 

The risks for businesses of failing to comply with consumer law are increasing very significantly, so don’t get caught out!