Commercial - Subscription contracts rule changes now in force January 2027
New rules protecting consumers who are tied into subscription contracts will now come into force in January 2027. In his first few weeks in office, the new Prime Minister has been kick-starting legislative changes to protect consumers, including bringing forward the changes to subscription contracts (originally slated for Spring 2027) and to misleading discount claims.
It means businesses should consider reviewing their processes now to avoid committing an unfair commercial practice under the Digital Markets, Competition and Consumers (DMCC) Act 2024.
The date is important: January is when many consumers start new subscriptions for the year ahead. However, the exact date for implementation has yet to be confirmed.
The DMCC repeals and incorporates the 2008 Consumer Protection from Unfair Trading Regulations (several changes have already come into force). The DMCC defines an unfair commercial practice widely as a practice “likely to cause the average consumer to take a transactional decision they would not otherwise have taken”.
One of the unfair practices impacting consumers addressed by the DMCC is so-called subscription ‘traps’. Businesses who already give their customers plenty of notice before subscriptions renew and make contracts easy to leave have little to be concerned about. Even so, the government says they will “benefit from clearer rules and a more level playing field, without being undercut by competitors who have more complicated processes that rip off consumers”.
Subscription contracts
A subscription contract is a legal agreement by which a consumer pays a recurring fee to receive ongoing goods, services, digital content, or shares in a company – for an indefinite or fixed period.
Typical examples of subscription contracts are media subscriptions, streaming services, coffee or food delivery boxes and lifestyle/gym memberships.
A key problem for consumers is that they often forget they have a subscription (for which they continue to pay) or they are unaware when the subscription is renewed. It means consumers can easily be locked into the contract, to the financial advantage of the consumer. Furthermore, it can be difficult to get out of the contract – often because the business has made it difficult to cancel.
What’s changing?
The legal framework for subscription contracts is complex, however the key changes that will come into effect in January 2027 are:
· Consumers will be entitled to receive a periodic reminder before the subscription is due to be renewed. This must be done in accordance with detailed requirements set out in the legislation. If a business fails to send a reminder, the consumer may be entitled to have a refund of all payments made since the date of the breach up the cancellation date.
· Businesses must give clear, separate information when they enter into a subscription contract, including on pricing and delivery of the goods/service, cooling-off periods and dispute resolution information.
· A statutory 14-day cooling-off period will apply from when a consumer signs up. The cooling off period can be extended for up to 12 months if the consumer is given incorrect information about the contract.
· There will be a further 14-day ‘renewal’ cooling-off period after a trial or 12 month+ contract auto-renews
· The cancellation process must be clear and straightforward, without the consumer having to take unreasonable steps to end the contract.
· Specific breaches will automatically entitle a consumer to a refund. A definitive list of those breaches is to be published later.
There are exceptions, eg educational contracts, charity and heritage contracts, rental contracts and contracts for regulated services (utilities, healthcare, financial services, etc). However, subscriptions with an initial free period will be caught by the new rules.
Penalties for breach
A business in breach of the new rules could face tough penalties. The Competition and Markets Authority (CMA) has powers to fine a business up to 10% of its turnover; and make redress orders to affected consumers.
Subscription contracts are commonplace and it is reasonable to expect that the CMA could become inundated with complaints before long.
What should we do?
Any business that has not yet reviewed and made changes to their policies and procedures around subscription contracts must do so now. They have less time to prepare than they previously thought.
There will be official guidance on the new regime but time is quickly passing and businesses should act now rather than wait for further guidance. We suggest businesses focus on the key steps for consumers that are targeted by the DMCC, particularly the signing up process, renewal dates and notifications, and cancellation policies.
Businesses will also need to take into account the potential financial impact of lost revenue from any expected uptick of cancellations of subscription contracts.
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