Head of General Counsel Services | Commercial | Retail & Consumer
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The Competition and Markets Authority (CMA) recently published an open letter to online businesses, seeking to provide guidance on compliance with the law when making 'urgency claims' and 'price reduction claims' online. This letter comes amidst a number of investigations currently being carried out by the CMA, particularly in relation to urgency claims, which the CMA considers to be misleading or putting unfair pressure on consumers.
Companies who are found to be making such claims may be investigated by the CMA, which could ultimately lead to serious reputational damage, as well as financial penalties if breaches are pursued through the courts. Set out below is a summary of these types of claims and suggestions of steps retailers can take to avoid falling foul of this area of consumer protection legislation.
Urgency claims occur when a business creates a sense of urgency for the customer to buy a product. This could be by generating a sense of scarcity or a time limit. The following are examples of urgency claims the CMA is looking to crack down on:
Where there is a time limit on a promotion (e.g. wording such as “sale ends in two hours”), but when the timer runs out, the same offer continues. This includes instances where an offer continues by virtue of a separate offer. For example, if product A is offered at 50% off for a period of time and afterwards a “50% off all items” discount begins. As “all items” would include product A, this is likely to be misleading. It does not matter that the statement is factually true – ultimately, there is no real time pressure on the consumer to secure the deal, if the offer is set to continue regardless.
Deceptive checkout timers are also not acceptable in the CMA’s view. These tend to be timers that, when the time is up, simply reset or when a customer refreshes the page, the timer resets. This is considered to be deceptive, as there is no actual urgency for the customer to pay within the timeframe shown.
Misleading stock levels are another area under the microscope of the CMA. When businesses make claims such as “hurry, stock is low” or “only three left”, they may be misleading consumers where stocks are in fact not low, or the stock will be replenished imminently. Use of such language puts pressure on consumers to buy the product quickly, due to fear of missing out.
Statements such as “20 people are looking at this right now!” will also be deceptive if the statement is either untrue (e.g. the 20 people have viewed the product in the last hour or more, or not at all) or if the statement is irrelevant because the business has plenty of stock to be able to fulfil orders immediately, even if those 20 people were looking at the product at the same time. In this scenario, there would be no rush to make the purchase, so it is likely to be misleading.
If the demand for the product is overstated, the CMA is likely to consider this as deceptive behaviour. This could be where it is claimed that 500 units of the product have been sold in the last 24 hours, where the 500 units were not solely the product being viewed, but rather different models of the product. Additionally, statements such as “200 sold in 24 hours!”, where those 24 hours occurred at a different time (e.g. last month), will be misleading, because it creates a false sense of product demand which is inconsistent with the time the customer is viewing the product.
Price reduction claims relate to instances when businesses claim to offer discounts or special offers on items, comparing the prices to a previous higher price. Below are examples of when these types of claims are likely to amount to a breach of the law, according to the CMA:
The CMA is likely to find claims that a product has been reduced deceptive, where the reduced price now reflects the product’s ‘usual’ price. An example of this is where a product is offered for £500 in May, is reduced to £300 in June and remains at £300 for the next two months. If in August the product is on sale for £300 and is claimed to be reduced, this will be considered misleading. Further examples of comparison pricing that could breach consumer protection law are where only a few items were sold at the comparison price (i.e., the comparison is unrealistic) or where the comparison price is old (e.g. used in the previous year).
This is also known as ‘yo-yo pricing’ and occurs where prices go up and down several times over a certain period. For example, if an item is on sale for £20 in June, £15 in July, £20 in August, and a promotion claims that in September a £5 discount applies, this would be seen as deceptive, as neither of the prices is in fact the ‘usual’ selling price.
An example of this is where a product is said to have been reduced from, say, £200 to £100, but since the period when the product was being sold at £200, the product has been sold at lower prices. Therefore, the stated reduction of £100 is not entirely truthful and, as a result, deceptive to consumers.
These tend to be misleading because they do not accurately reflect a product’s ‘usual’ price. For example, if a product is sold at £200 for two months, then increased to £400 in the third month, but dropped again in the fourth and fifth month (with claims of a £200 discount), this is highly likely to be seen as misleading.
Sometimes, promotion claims can be misleading where they do not clearly include information that is important for a customer. This could be where there is a 25% sale on all items, which only applies if you spend £50 or more. This applies to any format of the promotion, including marketing materials, websites and apps. The CMA further clarifies that such claims can still be misleading if the significant terms are not displayed clearly and prominently or disclosed late in the shopping process.
The CMA has offered some useful steps for online businesses, and we recommend retailers familiarise themselves with the letter, guidance, and examples of breaches. Links to the relevant materials are provided at the end of this article.
Here are some of the most important steps from the CMA's guidance below:
Currently, the CMA does not have its own enforcement powers in relation to breaches of consumer protection law. That said, the CMA can initiate investigations into companies that it suspects may be non-compliant. Needless to say, such investigations tend to be publicised and can have a particularly negative impact on a company's reputation, something that is perhaps best avoided in the current climate, where retailers are fighting to hold on to their customers in a period of heightened economic turbulence.
Following an investigation, if the CMA is satisfied that there has been a breach of consumer protection law, it may pursue legal proceedings against non-compliant companies. This can lead to costly penalties and, as mentioned above, can leave a dent in a company's reputation.
Despite the fact that, currently, the CMA does not have its own enforcement powers, unlike in many other countries, including the EU, a new bill – The Digital Markets, Competition and Consumers Bill (the Bill) - was introduced to the House of Commons on 25 April this year and is due its second reading. Under the Bill, the CMA will be given its own enforcement powers in relation to consumer protection law breaches, allowing it to issue penalties of up to 10% of a company's global turnover. Although the Bill has some way to go before it receives Royal Assent, it is a reminder to retailers and other businesses that the government is looking to tighten up regulation in this area and this is a warning to companies to act now to get their houses in order.