Consumer laws and the regulatory landscape are moving quickly – both in the UK and the EU. In the UK, the Government has announced that it’s moving forwards with plans to introduce new laws to strengthen consumer protection in light of the digital era. In the EU, the Omnibus Directive, legislation that similarly addresses consumer protection online, is coming into force at the end of this month. The EU Commission has also called for further evidence to see if consumer laws are fit for purpose, which suggests more legislation may well be on the horizon.
These changes are, for the most part, focused on protecting consumers online but what practices exactly are causing the issues and where exactly do we think regulators will be focusing attention?
Regulatory announcements / literature seem to suggest the issues essentially boil down to “Online Choice Architecture” (“OCA”). The CMA has been unpicking the issues for some time. Back in 2019, the CMA announced it was scaling up its resources in data and analytics to develop technical understanding of working with data and the use of algorithms, and the impact had on competition and consumers. This more recently led to the publishing of an OCA Discussion Paper and Evidence Review of OCA and Consumer and Competition Harm, both published April of this year
The EU Commission too seems to be focusing on unpicking the issues associated with OCA and also last month published its final report on unfair commercial practices in the digital environment; ironically, the website cookie banner highlights “I accept” in blue, while non-acceptance is grey – a live example of OCA!
What is online choice architecture and why is the CMA focusing on it?
What is OCA?
The CMA explains that consumers spend an increasing amount of time in online environments and the design of these environments can deliberately or unintentionally, lead users towards certain decisions and actions. The CMA is clear that a well-designed website, app or digital service built with consumers’ interests in mind will help consumers choose between suitable products, make transactions faster, and recommend new relevant products or services. However, it also notes that choice architecture can hide crucial information, set default choices that may not align with consumer preferences, or exploit consumer attention being drawn to scarce products.
The CMA breaks down OCA practices into the following categories – (1) choice structure (the design and presentation of options); (2) choice information (the content and framing of information provided); and (3) choice pressure (through indirect influence of choices) and gives the following examples:
Choice overload and decoys
Sludge (negative nudges)
Virtual currencies in gaming
Scarcity and popularity
Prompts and reminders
These practices are more fully described in the CMA’s discussion paper – available here.
Why and how is the CMA focusing on OCA?
OCA, the CMA says, most often affects those who are most likely to experience harm from it (e.g. vulnerable users).
The CMA notes OCA can lead to three specific types of harm to consumers and competition – it can:
- distort consumer behaviour (i.e. consumers may purchase unsuitable or unneeded products);
- weaken or distort competition (i.e. it can shift business incentives to compete on product attributes that benefit a consumer, such as quality and total price, towards less beneficial attributes, such as price displayed and pressure to buy); and
- maintain, leverage or exploit market power (i.e. particularly problematic where a business has market power as it can use OCA to exploit its position).
Action by the CMA has already been taken in relation to specific aspects of OCA – for example, its investigation into subscriptions and auto-renewal subscriptions (see here for our update on the CMA’s investigation into online video games subscriptions). So, action by the CMA in relation to OCA is nothing new, but its examination of the wider context will likely frame its understanding of where harm most often happens and how, which may give us some insight into where regulatory focus will fall next.
What the CMA says its next steps are
The CMA Discussion Paper states that the CMA plans to take the following next steps:
- address OCA practices through on going work (i.e. continue investigations and challenging companies it sees as misleading or harming consumers online);
- try to determine the prevalence of harmful OCA practices (i.e. further studies to nail down what the issues are);
- work in partnership with others to refine the view of OCA practices (i.e. engage with interested organisations – interestingly, the CMA notes this will include engaging with the European Commission); and
- raise consumer and business awareness (this process has already begun – see our update about the CMA “online rip-off, tip-off” campaign).
What might the future hold and how will regulators act together?
Clearly, the CMA intends to do a lot more work in the space of OCA. It will be interesting to see where its focus will land and how it will engage with other regulators acting in this space, in particular in the light of its engagement in the Digital Regulation Cooperation Forum, which consists of the major UK regulators tasked with regulating digital services (including the CMA, the Financial Conduct Authority (FCA), the Information Commissioner's Office (ICO) and the Office of Communications (Ofcom)).
The Digital Regulation Cooperation Forum’s plan suggests that the key priority for 2022-23 will be supporting improvement in algorithmic transparency to promote benefits and reduce risks to consumers and competition – so, this will be a space to watch very closely.