Out-Law News | 14 Apr 2022 | 8:18 am | 3 min. read
The UK’s Competition and Markets Authority (CMA) has pledged to use its full range of powers and remedies to challenge online practices which it thinks are harming consumers.
In a discussion paper issued by the CMA’s Behavioural Hub, How digital design can harm competition and consumers (76 page / 1.45MB PDF), the authority said the way websites, apps and devices were designed – known as ‘online choice architecture’ (OCA) – had a potentially harmful impact on consumers and markets.
The paper said some companies were deliberately designing digital tools which could be harmful to consumers, including the order of products in search results, the number of steps needed to cancel a subscription, or whether an option is selected by default. The CMA was concerned that choice architecture can be manipulated to hide crucial information, set default choices that may not align with preferences, or draw attention to scarce products for example with limited stock claims.
The paper identifies 21 types of OCAs which are capable of being harmful to consumers, including ‘drip pricing’ , introducing charges towards the end of the purchase journey, ’sludge tactics’, which make it more difficult for consumers to do what they want for example by adding friction to a cancellation process, and ’dark nudges’ such as one-click purchases.
Angelique Bret, competition and consumer law expert at Pinsent Masons, said: “aside from the list of practices which are explicitly prohibited under the Consumer Protection from Unfair Trading Regulations (CPRs), a case by case analysis is required to ensure that OCAs are not misleading or unfair and are therefore on the right side of consumer protection law, considering precedents from previous CMA enforcement cases. The CMA paper clarifies that increased transparency will not always be sufficient to avoid consumer harm. Companies will not necessarily be able to justify potentially harmful OCAs by bringing them to the attention of its customers.”
The CMA makes clear that it will be looking to take enforcement action, either under the competition law rules where there is a potential abuse of dominance, for example self-preferencing by dominant platforms, or under consumer protection legislation. The CMA warns businesses, if not they are not already doing so, to conduct compliance programmes, including behavioural audits or other forms of self-assessment, to determine whether their use of OCAs is consistent with consumer protection and competition law. The CMA found consumers influenced by OCA could buy unneeded or unsuitable products, spend more than they want to, receive poor value items or services, or search less for alternatives.
OCA could also weaken or distort competition by shifting businesses’ incentives towards attributes such as price displayed upfront or pressure to buy, and can also help businesses maintain, leverage or exploit their market power.
Understanding OCA was key to the CMA’s work and of any future statutory digital markets unit in the UK, the paper added.
Competition law expert Richard Snape of Pinsent Masons said: “Choice architecture has been a key focus for the CMA’s consumer protection team for a number of years. For example, in 2019 it took enforcement action in the online hotel bookings sector in relation to hidden charges and tactics which could have created a false impression of the availability of rooms.”
“The CMA has also recently consulted on measures to limit the ability of businesses to use choice architecture to disadvantage customers, as well as significantly increase their consumer protection enforcement powers, which would allow the CMA to be able to impose fines on companies using digital tools which breach the consumer protection rules,” Snape said.
The CMA said it would use the paper as part of its programme of work to tackle harmful OCA, which included undertaking enforcement cases to set precedent and deter unfair practices, and issuing guidance to support businesses in complying with the law.
The regulator will also work out how prevalent damaging practices were, working with others to refine its view of OCA practices, and raising business and consumer awareness of the issues.
It noted that some harmful practices, such as using false time pressure to force consumers to make an immediate decision, were already prohibited under Schedule 1 of the Consumer Protection from Unfair Trading Regulations and further legislation could be drawn up to prevent harm in other areas. For example, the UK government proposed adding to Schedule 1 the commission, incentivisation or failure to address fake consumer reviews as part of its 2021 consultation on Reforming Competition and Consumer Policy.
The discussion paper includes an extensive taxonomy of OCA practices which is informed by an accompanying evidence review.
The papers’ publication follows the recent agreement between the European Council, parliament and Commission to impose requirements on technology ‘gatekeepers’, including preventing them from giving preferential treatment to their own products and promotions compared to those of their competitors. The reforms will be included in the Digital Markets Act, which is yet to be adopted by EU legislators.
The CMA has been focusing heavily on digital markets in recent years, and in April 2021 established a Digital Markets Unit which, under current proposals, could become a statutory body with the power to apply an enforceable code of conduct to businesses with strategic market status. It was noted in the paper that, subject to the outcome of the government’s consultation, banning or restricting the use of OCA practices could be incorporated into the digital markets framework.
11 Apr 2022
03 Aug 2021