For the next three months, the UK Government will consult on new rules for consumer subscription contracts, which are due to come into force in 2026 (see here).
Addressing both cost-of-living issues and additional considerations that arise for online subscriptions and digital content, the new subscription regime is a central part of the reforms being rolled out by the Digital Markets, Competition and Consumers Act (DMCCA). It seeks to tackle “an estimated 9.7 million unwanted subscription contracts” active in the UK, including those that arise as a result of consumers being rolled over from a free or discounted trial period or through auto-renewal.
The UK is the latest country to focus on consumer protections for subscription contracts, as subscription business models become increasingly popular globally – for example, see our recent thoughts on the US Federal Trade Commission’s new “Click-to-Cancel” rule on subscriptions in October 2024 (available here). Businesses which offer subscriptions to consumers should watch this rapidly evolving space and consider how different regulations affect their practices around the world.
Recap
Among its many reforms to the UK competition law, consumer protection and digital regulation landscape, the DMCCA (which received Royal Assent in May 2024 – see our blog here) imposes new rules for consumer subscription contracts in relation to the provision of pre-contract information, reminder notices, cancellation and cooling-off periods. The UK’s Competition and Markets Authority (CMA) will have the power to directly enforce breaches of these obligations and impose significant fines (up to 10% of global turnover) and / or enhanced consumer measures (including redress, compliance and choice measures).
While there may be some limited breathing space before the new subscription rules apply, now is the time to engage with the consultation in order to help shape the secondary legislation and guidance that will bring the regime to life.
Cooling-off rights for digital subscriptions
The DMCCA sets out a mandatory cooling-off period for consumers after entry into or renewal of a subscription contract, during which they can cancel their contract without liability for payment (similar to the rights under Article 11 of the Consumer Rights Directive in the EU).
When considering how cooling-off periods should apply in practice, the consultation highlights a key tension – namely that “if a consumer exercises a cooling off right, neither they nor the trader should be unfairly out of pocket”. This is particularly important to the refund mechanics for a consumer or reimbursement for a trader where a product or service has already been provided during the cooling-off period and where the consumer may have started to use it.
In most instances, the consultation makes clear proposals on when some form of pro-rated refund may be applicable for a service, or where the refund should be reduced based on perishable, bespoke or otherwise non-returnable goods already being dispatched. But the position in relation to digital subscriptions is more complicated.
As the consultation acknowledges, with digital content subscriptions there is a genuine concern that consumers can abuse cooling-off rights through signing-up, “binge watching” content, and then cancelling for a full refund. Achieving the correct balance in relation to these services is nuanced and the UK Government puts forward three potential proposals for consideration:
- Option 1: consistent with the proposal for services and non-returnable goods, consumers would receive a proportionate refund during a cooling-off period where content has been provided – i.e. you streamed the service for X amount of time and therefore the refund deducts the cost of that time on a pro-rated basis. While this provides some consistency with other types of goods/services captured by the regime, there is an open question as to whether this fully solves the “binge watch” concern if a consumer can intensely stream a service and only pay for a few days of a monthly subscription.
- Option 2: allows the trader to give notice that the consumer can start receiving content straight away but, by doing so, they waive their rights to the initial cooling-off period (requiring express consent from the consumer). This purports to address the “binge watch” concern more comprehensively and, in turn, provides a greater limitation on consumers’ cooling-off rights.
- Option 3: like option 2 above but with the waiver approach also applying for the renewal cooling-off period. The consultation questions whether a notice regime is workable in a renewals context.
The solution may sit somewhere between these different options, and will undoubtedly be a critical element of the consultation.
How and when can consumers cancel?
Another key area of interest is consumers’ ability to exercise their right to exit a subscription contract at any time. The consultation recognises this is not straightforward and that, in some cases, there is a practical justification for some traders’ cancellation notice requirements.
The consultation is clear that any term of a subscription contract which seeks to impose liability for a renewal payment before the day on which the contract renews will be invalid.
However, there may be more flexibility for terms where a consumer is required to give notice before becoming liable for the renewal payment – for example, the consultation recognises that it would not be reasonable to prohibit traders from imposing any limits on when the consumer can exercise their contractual right to exit a contract (citing the example of traders needing sufficient time to stop a renewal payment being taken). It is clear, however, that any such period would need to be “reasonably short”. Feedback from subscription providers will help determine what kind of notice period would be appropriate in these kinds of circumstances.
Consumer information
The consultation also asks for feedback on the pre-contractual information that should be provided to a consumer, and in subsequent consumer communications e.g. reminder notices, end of contract notices and renewal cooling-off notices. In particular, the consultation seeks to understand if there are specific operational concerns about the ability to provide an appropriate level of pre-contract information, which could include how a trader can be sure this is displayed ‘clearly and prominently’ across different mediums e.g. in a website sign-up flow or app user interface. This provides an opportunity for subscription providers to highlight any tensions between the information requirements and best practices in web/app design and user flows.
What’s next?
The consultation runs until 10 February 2025. The Government will then take into account responses as it prepares draft secondary legislation and formal guidance to implement the new subscription regime. The DMCCA and now the consultation, however, already provide a good indication of the direction of travel for the UK’s regime and the prescriptive new requirements on subscription contracts. Businesses should start considering whether and how they may need to adapt their current practices to ensure compliance with the new reforms when these come online in 2026.
If you have questions on the new subscription rules or would like to submit feedback to the consultation, please reach out to a member of the team or your usual Freshfields contact. You can also subscribe to our DMCCA client toolkit for further updates and insights.