What's the issue?
The Digital Markets, Competition and Consumers Act 2024 (DMCC) has introduced strengthened price transparency requirements that significantly impact how businesses advertise pricing for fixed-term contracts. The Act prohibits traders from showing consumers an initial headline price for a product and then introducing additional mandatory charges as consumers proceed with a purchase - a practice sometimes called 'drip pricing'.
For businesses offering subscription services, gym memberships, mobile and broadband contracts, understanding these new requirements is particularly important, especially as the CMA has recently launched a major consumer protection drive focused on online pricing practices opening investigations into eight businesses (including two gyms and two driving schools) and issuing advisory letters to 100 firms (more here).
The core principle
When presenting an invitation to purchase, traders are required to inform consumers of the total price of the product. This total must include any fees, taxes, charges or other payments that the consumer will necessarily be required to pay upon purchase. In the case of periodic (recurring) contracts, the ‘product’ generally refers to the provision of services during each period, and the ‘total price’ is the amount payable for each individual period.
Two compliant approaches for minimum term contracts
For minimum term contracts, traders may satisfy DMCC requirements by displaying the ‘total price’ in one of two ways:
- either as the total amount payable by the consumer over the entire minimum contract term, inclusive of all mandatory charges (‘total cumulative price’); or
- as the price payable for each period (for example, ‘total monthly price’) accompanied by a clear statement specifying the number of months for which the consumer will be committed to pay that amount.
Traders who provide the total cumulative price for their product can be confident they comply with the total price requirements of the DMCC, regardless of the pricing structure they use.
Handling one-off fees
If a periodic contract includes a requirement to pay a one-off fee (for instance, an administration, joining, set up or installation fee) at the start of the contract, the advertised pricing must set out a total monthly price for the first month that includes those fees as well as a statement of how much the subsequent monthly payments will be.
Fixed term contracts with upfront payment
Fixed-term contracts where the total price is required upfront are not classified as periodic contracts, even if the service is delivered over time or the trader collects the payment in instalments. In these circumstances, it is necessary to state the full cumulative price in any invitation to purchase. For example, if a trader offers a three-month fixed-term gym membership and requires both the membership fee and any joining fee to be paid at the outset, the invitation to purchase must clearly set out the total amount payable for the entire term.
What does this mean for you?
Businesses offering fixed-term contracts should:
- review current pricing presentations to ensure compliance
- decide whether to use total cumulative pricing or total monthly pricing alongside the commitment period
- ensure mandatory one-off fees and other charges are properly incorporated into advertised prices
- if charges cannot reasonably be calculated in advance (eg variable but mandatory delivery costs), the consumer must be informed of the charge and how it is calculated, and then provided within the total price once information has been provided to enable the total price to be calculated
- update marketing materials, websites and sales processes, including 'basket of goods' type functionality, accordingly.
The DMCC updated the law to protect consumers from unfair trading, including strengthening the rules on price transparency in the context of invitations to purchase, and the CMA has made clear that this is a priority area for it, given its impact on cost of living issues and fair competition. Given the potential for significant penalties and reputational damage, ensuring compliance should be a priority.
