Subscription contracts have become increasingly popular over recent years and the UK government identified through consumer surveys that up to £1.8bn per year may be spent by consumers on subscription contracts.  This means that the potential for consumer detriment is significant.

Auto-renewal of contracts has been under the eyes of the regulatory authorities for some time, with the CMA investigating so-called "subscription traps" where people are tied into an automatically renewing subscription that they do not want or need. As a result, subscriptions are a hot topic with the government introducing new rules on subscriptions in the Digital Markets, Competition and Consumers Bill (DMCC Bill) and CAP issuing an enforcement notice on free trials.

This makes a recent decision by the Court of Justice of the European Union in Case C-565/22 | Sofatutor very timely. Although not directly relevant to the UK following Brexit, it will still be of interest to those trading with consumers, and also illustrates the importance more generally of ensuring consumers are provided with the requisite information before they enter into a contract. It also highlights that consumer groups are very much laser-focused on these issues at the moment.

What was the issue?

A business called Sofatutor operates online learning platforms. When a subscription is entered into for the first time, consumers have 30 days to try it free of charge and can terminate at any time during that period. The subscription only becomes chargeable after those 30 days have expired. When the paid subscription period expires without having been terminated, it is automatically extended for a fixed term. If consumers enter into such a subscription via distance means, Sofatutor informs them that they have a right to cancel.

However, an Austrian consumer protection association considered that the consumer not only has a right to cancel when they start the 30-day free trial subscription, but also when that subscription is converted into a paid subscription and each time it is extended.

What did the Court say?

The Austrian Supreme Court referred the dispute to the CJEU to rule on the Consumer Rights Directive. The Court ruled that that, when entering into a subscription that features an initial free period and is automatically extended unless terminated, the consumer’s right to withdraw from a distance contract is, in principle, guaranteed only once.  However, the Court also said that if the consumer has not been informed in a clear, comprehensible and explicit manner, when entering into the subscription, that after the initial free period payment will be required for that subscription, the consumer must have a new right of withdrawal after that period.

What about the UK?

The current position in the UK is that traders must make it clear to consumers that, by signing up to the free trial, they are entering into a subscription contract with the trader (if this is the case).The Guidance for Traders on Pricing Practices (issued by the Chartered Trading Standards Institute) says that if a product is initially offered for free or on a heavily discounted basis, consumers must be informed clearly and prominently of any additional payment obligations that will be incurred, including the duration of any contract.

Under the UK’s DMCC Bill, the position will be stricter than in the EU. Businesses will need to:

• Provide clearer information to consumers before they enter a subscription contract;
• Issue a reminder to consumers that a free trial or low-cost introductory offer is coming to an end, and a reminder before a contract auto-renews onto a new term; and
• Ensure consumers can exit a contract in a straightforward, cost-effective and timely way.

Where the subscription contract auto-renews, the CMA had suggested that customers should also be allowed to exercise their statutory right to cancel within 14 days of renewing a fixed term subscription contract (in addition to being able to cancel within 14 days of signing up to the subscription initially). This is now reflected in the Bill.  The DMCC Bill states that consumers have a right to cancel subscription contracts within 14 days of their being entered into. They also have a right to cancel for 14 days after the contract converts to a paid subscription following the expiry of an introductory free or discounted period and after any renewal which commits the consumer to a further period of 12 months or more. Traders must send "cooling off notices" at the beginning of each cooling off period.

The DMCC Bill is currently passing through the Parliamentary process and could potentially come into force towards the end of 2024. So businesses operating subscription models should be starting to think about what they need to be doing to prepare. (Let us know if we can help!)