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Auto-renewals and other consumer terms under the spotlight

28 August 2019. Published by Oliver Bray, Partner and Alyson Lloyd, Senior Associate

The CMA has launched an investigation into potentially unfair terms in online gaming customer terms and conditions, such as auto-renewals, cancellation processes and discretion to alter clauses.

The twist

The outcome of this investigation could bring pressure to bear on all companies, including retailers, which seek to impose “unfair” terms on their customers, such as auto-renewal terms (without sufficient warning), complex procedures to make cancelling a contract harder, or giving the company an excessive amount of discretion to alter the terms of the contract.

Why is this important for retailers?

Retailers will need to review their contracts and determine whether there are any potentially unfair terms in their customer terms and conditions. For example, if there is an auto-renewal clause, it may be worth highlighting this term to customers at the outset of the contract, giving plenty of notice before the contract renews and they are charged, and not obscuring the consumer’s ability to cancel the contract.

The development

The CMA has launched an investigation into the major players of the online gaming industry such as Nintendo Switch, PlayStation, and Xbox, in order to determine whether their commercial practices are lawful. It will examine a number of these businesses’ contractual provisions such as their auto-renewal (rollover) terms, refund policies, and terms and conditions.

Digging deeper

The CMA has contacted the major gaming companies to ask for, both, information about their specific gaming contracts and thoughts and experiences to support the investigation.

This action is the second phase of the CMA’s response to the Citizens Advice “super-complaint” regarding the loyalty penalty, which had identified practices such as expensive exit fees, compulsory auto-renewals, lack of satisfactory warning of the auto renewal and difficult procedures for the cancellation of contracts.

The CMA’s new investigation will focus on the issues below:

Fairness of contractual terms

  • Do the terms and conditions give the company a wide discretion to alter and amend the worth of the deal? For example, would it be able to increase the price or reduce the number of gaming options available to the consumer?

The refund policy

  • Do the companies make the consumers ability to obtain a refund or cancel their contract difficult? If so, what are the factors that deny consumers those rights?

The auto-renewal process

  • Is the process of starting a new membership clarified to the consumer? Is the auto-renewal a default option and how regularly is the consumer alerted that their contract will auto-renew before further payments are taken? As Andrea Coscelli, the chief executive of the CMA, stated, “roll-over contracts are becoming more and more commonplace and its essential that they work well for customers”.

As of yet, the CMA has not come to a conclusion as to whether the companies’ contractual provisions are unlawful. However, if they do find the terms unfair then enforcement action will be taken.