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The consumer law implications of the Penrose report

  • United Kingdom
  • Competition, EU and Trade
  • Consumer

05-03-2021

On 16 February 2021, John Penrose MP published his independent report “Power to the People” (the “Report”). The Report contains proposals to improve the UK consumer and competition regime within the context of recovery from the COVID-19 pandemic and the end of the transition period.

The Report makes several recommendations regarding modernising and enforcing consumer protection law, envisaging an “updated, improved and refreshed” system, with greater consumer choice and powers, in turn enabling UK businesses to become world leading competitors and spurring economic growth.

Read our additional Penrose report article on the 'UK competition law set to change to give power back to the people'

Some of the key consumer law aspects of the Report include the following:

Greater consumer powers for the Competition & Markets Authority (“CMA”)

The Report highlights what is considered to be a gap in the current regime, commenting that there is “no strong, independent institution” responsible for the overall progress of consumer rights, competition, supply-side reforms and productivity improvements. The Report recommends that the CMA should fulfil this role as a “micro-economic sibling” for the Bank of England’s “well-established public macro-economic role”.

The Report also recommends the CMA publish an annual ‘State of Competition and Consumer Detriment’ report, measuring and analysing progress and problems across all sectors of the economy.  Alongside this, it proposes the CMA holds regular monthly intelligence-gathering meetings with consumer complaints bodies such as the Citizens Advice Bureau, Trading Standards and Ombudsmen, publishing the findings of these meetings where possible to demonstrate where certain sectors and/or parts of the country are making progress, or giving rise for concern. It is suggested that both these publications should then explain and frame the CMA’s strategic choices on which industries, markets or firms it decides to investigate.

A further key proposal in the Report is the recommendation that the CMA's civil consumer enforcement powers are updated to match its competition powers. It is suggested that this strengthening of consumer enforcement powers would include the ability for the CMA to issue decisions and impose fines for infringements of consumer law without having to seek a court order. It is considered that this would result in firms having to take consumer law much more seriously and would also provide a recalibration of the CMA’s priorities by putting its consumer law enforcement obligations on an equal footing to those relating to competition law.  

Strengthening consumer rights across the country

The current steps being taken to modernise the Small Claims Courts and Alternative Dispute Resolution (“ADR”) service are recognised in the Report as crucial in strengthening individual consumer rights. However, the Report considers that by enabling small firms and consumers to digitally, quickly and easily enforce their rights, under-performing firms will subsequently face more pressure to improve their performance. On this basis, the Report recommends that the Small Claims Courts and ADR services become fully 24/7, making consumer access easy, cheap and simple to reflect the modern digital economy.  

The Report also recognises that although the Consumer Rights Act 2015 introduced a new fast track procedure in the Competition Appeal Tribunal, for many the procedure is still too slow and expensive, especially outside of London, and further improvements need to be made.  The Report therefore calls for enhanced powers to be provided to local authority trading standards and the creation of new, efficient, fast track regional County Competition Courts.

Sticking up for consumers

The Report acknowledges as its central theme the aim of providing consumers with more power and choice and that, ultimately, consumer protection law is crucial in ensuring this. Whilst recognising the adequacy of most existing UK consumer protection laws, the Report does highlight three key areas where it considers there to be gaps in legislation, allowing consumers to be continually ripped off.  These areas, said to be “mutating and growing as the economy digitises”, are namely:

  1. Loyalty penalties and price discrimination, where individuals are charged different prices for the same things;
  2. Rip-offs hidden in the small print of long and complex contracts; and
  3. ‘Nudging’ consumers the wrong way ( ‘sludging’), where consumer behaviour insights of ‘nudge theory’ are used to rip off consumers rather than help them (examples include subscription traps and the use of pre-ticked boxes).

The Report recommends addressing the issue of price discrimination by requiring businesses to offer the same prices to new and existing customers (this is a solution currently being consulted on by the FCA). Loyal customers would therefore benefit from the more advantageous prices traditionally offered to consumers who switch.  The Report states that this requirement should become a general consumer protection regulation across the entire economy and would therefore provide a complete solution covering various affected sectors.

In order to tackle rip-offs, the Report suggests that the CMA should update its guidelines on what treating consumers fairly means in practice to include the concept of ‘transactional fairness’.  This would allow easy early identification of issues by businesses, public bodies and charities which would then facilitate avoidance of such problems.

In the context of digital comparison tools (“DCTs”), the Report recommends, amongst other things, that the CMA considers how to improve transparency regarding the price consumers are paying through their data for digital goods and services so that they can make informed choices. In addition, it is recommended that the CMA should track the growth in power and reach of DCTs to level the playing field, to ensure that consumers are able to make reliable and informed choices, regardless of the complexity of a contract or how vulnerable or short of time they are (with the suggestion that in circumstances where DCTs are not growing fast enough to close the knowledge and information gaps in sectors, the CMA should reopen their 2017 market study and introduce measures to make sure they can).

In the Report, ‘Sludging’ is seen as a fast-developing area where regulators will have to consistently future-proof consumer protection.  In order to ensure that consumers are protected against these evolving digital technologies, the Report suggests that the CMA undertake a market investigation to identify what consumer protection rules and analytical techniques will be necessary to provide protection and recognise and measure sludge in the future.

Conclusion

In response to the Report, Business Secretary Kwasi Kwarteng said:

“The UK’s competition laws and institutions are highly regarded across the globe, however as we build back better from the pandemic and start life as an independent trading nation, we have a golden opportunity to strengthen that reputation.”

With the government now reviewing the Report’s recommendations, it is as yet unclear as to which of the proposals will be implemented. With many of the changes suggested by the Report not requiring legislation, it is possible that some of the key recommendations may be implemented in the near future.