The new CMA Direct Enforcement Regime

Jason Freeman, director for consumer law at the Competition and Markets Authority (CMA), shares his thoughts on how the new enforcement powers for the CMA created by the Digital Markets, Competition and Consumers Act (DMCC Act) will change enforcement of consumer law.

The DMCC Act was passed into law during the wash up before the general election. The consumer aspects of the legislation are expected to come into force in two tranches, with most of the legislation, including the new enforcement powers for the CMA, expected imminently in spring 2025 and the subscription regime to come into force later in spring 2026. For more on the DMCC Act and what it means for consumer protection, please read this article and access the In-house in Focus webinar recording here.

The Digital Markets, Competition and Consumers Act 2024 creates two new enforcement regimes for consumer enforcement. The first, in Pt 3 Ch 3 is a new version of the current Enterprise Act 2002 court based regime, enhanced to include power for enforcers to ask courts 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). Further guidance on the new court based regime may be found in the revised CMA Consumer Protection: Enforcement Guidance (CMA 58ii) – currently still in draft pending the outcome of the CMA’s consultation.

The second regime, set out in Part 3 Chapter 4 of the DMCC Act, 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 draft CMA rules and guidance may be found here.

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.

Generally, the CMA is likely to use its direct enforcement powers when enforcing. However, in certain circumstances, the CMA may pursue action through the courts. For example, the consumer protection legislation at issue may only be in scope of the court based regime, or the need for urgency may require the CMA to apply for an interim enforcement order. Where it is in the public interest to do so, the CMA may pursue a criminal prosecution.

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 up to 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.

Enforcement and voluntary settlement

Historically, the CMA has concluded a significant proportion of cases by accepting undertakings. Under the direct enforcement regime, undertakings and settlement are available where appropriate.

"Settlement" is a streamlined process whereby a party admits the facts and conduct in question, admits that it has infringed consumer law and agrees to the content of the Final Infringement Notice. This includes agreeing not to appeal the directions and penalty. In exchange, the penalty will be reduced by as much as 40% – it is envisaged that the discount will be greater the earlier in the investigative process settlement is concluded.

By contrast, an undertaking is a voluntary commitment to resolve the CMA’s concerns, but there is no requirement to make any admission, or to pay a penalty.

The CMA has a discretion whether to accept undertakings and will not do so where not to complete its investigation and make a decision would undermine deterrence. Aside from this, undertakings are more likely to be acceptable where they fully address the CMA’s concerns, can be implemented effectively within a short period of time and are straightforward to monitor compliance with. Where undertakings are offered on only some of the issues in scope of the investigation, the CMA may accept those undertakings but continue the investigation into the issues which remain outstanding.

The CMA is very unlikely to accept undertakings which do not satisfactorily address the CMA’s concerns, or where a party has previously failed to comply with any enforcement remedy. 
The CMA draft guidance envisages that where parties wish to offer undertakings or settlement, there will be a limited timeframe for negotiations to be concluded – failing which the CMA will proceed to the next formal step in the investigation (for example issuing a PIN). The CMA may decline to enter into subsequent discussions where it has not been possible to agree undertakings previously, or to accept undertakings at a very late stage in an investigation (such as after the CMA has considered representations made on a PIN).

Undertakings given under both the direct enforcement regime and the court route will be directly enforceable, and non-compliance could result in a penalty of up to 5% of worldwide turnover for breach of undertakings or directions.

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 of consumer laws. In doing this, businesses may 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 urgency and discount claims, securing undertakings from Simba Sleep and Wowcher, and launching court proceedings against Emma Mattresses. The CMA has published Open Letters on reference pricing and urgency claims, and to providers of unregulated will writing, online divorce and pre-paid probate services, reminding them of their obligations under consumer law.

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

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