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Modernising consumer markets: what changes are on the horizon?

The Government’s “Modernising Consumer Markets” Green Paper consultation concluded recently. It sets out three principles for improving modern consumer markets:

  • competition should be central to the UK’s approach;

  • consumers should benefit from new technology and new business models with competition and regulation working for consumers; and

  • consumers should be able to obtain redress when things go wrong.

Here are some of the proposed regulatory changes that grabbed our attention:

Fairer pricing for all

The paper wants all consumers to get a good deal, not just those who shop around. In some markets, people “search” which has the effect of ensuring that suppliers offer reasonable prices. In other markets, the competitive pressure is missing. These include the energy market (where 57% of people remain on a standard variable tariff), banking (where 90% of customers could be better off by switching from a standard variable account) and the broadband market (where research shows that the cheapest deal for new consumers can jump 43% at the end of a fixed initial term). The paper sees the advantages of price comparison websites but wants to make more use of emerging technologies such as automatic switching services or apps in services beyond the banking sector, especially in the insurance sector (given the extensive information that has to be provided by consumers upfront) and in respect of bundled tariffs in the telecoms sector.

Data portability and the use of APIs

The paper sees opportunity for consumers, and digital intermediaries, in respect of consumers exercising their new GDPR “data portability” rights. The paper draws an analogy with the emerging Open Banking model, launched earlier this year, where consumers can provide third parties (regulated by the FCA) with secure access to their current accounts to allow, via APIs, the seamless provision of innovative products tailored to consumers’ needs. This might include apps monitoring spending and making payments or authorising the transfer of money between accounts to avoid overdraft charges.

Altruism versus algorithms

The traditional concept of ineffective competition leading to consumer harm from increased prices does not easily apply in markets where consumers receive “free” services in exchange for data. Digital platforms now excel at gathering data and predicting what consumers want to buy. There is a desire to ensure that these techniques are used to benefit consumers, which is not always the case. For example, businesses increasingly use algorithms to track and adjust prices, which the CMA is worried can facilitate collusion.

Regulating personalised pricing

The Government wants greater transparency into the way that pricing and other personalisation works. Currently, regulations prevent different prices being charged only in limited cases. In 2012 a new regulation banned insurers from using gender as a factor in pricing insurance. A recent EU decision on geo-blocking prevents EU sellers from charging customers in different EU countries different prices based on location. The CMA is investigating the online hotel booking market, yet the Government wants to do more. This is likely to have an impact on the UK’s advertising and marketing sector.

Informed consent

Apparently, fewer than 1% of shoppers open the terms associated with retail purchases and one in ten expressed regret at not reading terms and conditions. Watch out for new rules requiring sellers to make terms shorter and simpler. In the meantime, watch out for the Behavioural Insights Team’ guide on presenting terms and conditions and privacy notices.

Subscriptions

Financial directors love recurring revenue streams and subscriptions are increasingly common online. While 99.8% of consumers ended a free trial when cancellation was set at the default, fewer than 40% did so if it required active cancellation. New rules may appear ranging from explicit “nudges”, removing automatic opt-ins for paid-for services and more targeted enforcement.

Strengthening the powers of consumer law enforcers

It has become challenging for Trading Standards to pursue complex enforcement cases such as online fraud, product safety and use of unfair terms, especially for cross border enforcement. Changes and new powers may arise. In the meantime, the new Office for Product Safety Standards is focusing on product safety and will shortly publish its strategy.

Consumer law contains criminal sanctions for flagrant abuses but often the law on unfair terms is a matter for civil courts. Despite recent changes, consumer law enforcers feel that they have limited options to punish past behaviour. The Government intends to allow all consumer law enforcers, including the CMA and Trading Standards, to ask the courts to impose fines, as a standalone remedy or alongside existing civil remedies, enforcement orders and enhanced consumer measures. If the introduction of a 4% GDPR fine made you gasp, you may wish to sit down before learning that the proposed financial penalty is up to 10% of a firm’s worldwide turnover.

As the paper recognises, consumers are central to our economy as their choices about what they spend on goods and services drives innovation and competition, but getting the balance right between free trade and regulation is not straightforward. Watch this space and, as ever, be prepared for change!

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