The Australian Competition and Consumer Commission (ACCC) and the Australian Treasury (Treasury) have both flagged their intention to pursue legal reform to prohibit unfair practices that cause consumer harm but do not run afoul of current consumer protections. This follows months of increased activity from governments and regulators around the world looking to address the practice of ‘subscription traps’ where businesses make it difficult or impossible for consumers to terminate or unsubscribe from ongoing supply agreements. The ACCC argues that unfair practices like subscription traps distort and obscure consumer rights under agreements and risk consumers retaining unwanted goods or services.
This blog post provides an overview of the current Treasury consultation on unfair trading practices and the ACCC’s recent enforcement action, and looks forward at how businesses can avoid similar regulatory scrutiny.
Treasury’s unfair trading practices consultation
On 31 August 2023, Treasury published a Consultation Regulation Impact Statement (the Consultation Paper) calling for evidence of the impact of unfair trading practices and views on proposed policy solutions (available here). The Consultation Paper follows the announcement at the end of 2022 by the relevant Commonwealth, state and territory ministers that Treasury would lead a public consultation on how to combat unfair trading practices.
The Consultation Paper uses ‘unfair business practices’ as a catch-all concept that encompasses conduct that is not expressly prohibited under the Australian Consumer Law (ACL) but which can cause significant harm to consumers and small businesses. In particular, Treasury points to the following conduct as examples that are potentially unfair and harmful:
- practices which intentionally lack transparency, such as omitting or obfuscating material information relating to a product/service or concealing data practices;
- practices which undermine consumers autonomy, such as interface design strategies and designs that exploit behavioural vulnerabilities or dissuade consumers from exercising legal rights; and
- practices which utilise ineffective or complex contracts, such as “all or nothing ‘clickwrap’ consents” for the collection and use of consumer data or which exploit bargaining power imbalances in supply chain agreements.
The Consultation Paper notes that current prohibitions in the Australian Consumer Law will not always capture the above conduct because:
- while this conduct can cause significant consumer harm it is always not misleading or deceptive, or reach the threshold required to establish unconscionable conduct.
- the conduct may not be caught by prohibitions on unfair contract terms (UCT) as the practices often relate to the ways in which an agreement is operationalised, not the explicit terms of the agreement.
To address this potential ‘gap’, Treasury is seeking submissions by 29 November 2023 on the following policy options:
- maintaining the status quo (based on existing protections being sufficient);
- broadening the scope of unconscionable conduct under ss 21 and 22 of the ACL to include either “misleading, harsh, oppressive or predatory conduct” or to explicitly include the concept of unfairness;
- introducing a general prohibition on unfair trading practices similar to provisions in the US, UK, EU and Singapore; or
- introducing both general and specific prohibitions on unfair trading practices, including a list of prohibited practices.
If you are interested in making a submission to Treasury, we can help.
Developments overseas
Similar reforms are being pursued overseas with the UK House of Commons currently considering the Digital Markets, Competition and Consumer Bill 2022-23 (the DMCC Bill). The UK Bill focuses on the UK Competition Markets Authority’s (CMA) consumer protection powers and deals specifically with subscription traps and other specific types of conduct such as fake consumer reviews. In relation to subscription agreements, the UK Bill proposes to require that:
(i) subscription services provide consumers with a prescribed set of information prior to their entry into a contract;
(ii) consumers be sent clear reminders about the expiry of trials or automatic renewals;
(iii) consumers be provided rights to cancel subscriptions during cooling-off periods; and
(iv) there be a straightforward process to terminate a subscription via a single communication.
If passed, contractual terms in the UK that do not comply with these requirements would be void and the CMA may impose penalties. In certain circumstances the failure to provide precontract information to consumers about the cooling off period may be a criminal offence.
Recent ACCC enforcement action
During a recent speech to the National Press Club, ACCC Chair, Gina Cass-Gottlieb, spoke about the impact of businesses maintaining subscription traps. In the speech, she advocated for the ACCC to be given increased powers to deal with unfair online behaviours that can cause “financial loss and frustration for consumers”. Similarly, ACCC Deputy Chair, Mick Keogh was recently quoted as stating that subscription traps are part of an increasing use of ‘sneaky tactics’ by online businesses.
Against this background, it is unsurprising that the ACCC has announced a number of actions against businesses for ACL breaches related to subscription agreements.
Hipages s 87B undertaking
On 28 May 2023, the ACCC accepted a 87B court enforceable undertakings from hipages Group Pty Ltd (hipages) regarding breaches of ss 18 and 29(1)(m) of the ACL. The ACCC launched an investigation into hipages following consumer complaints about automatic renewal and early termination fee clauses in agreements.
Hipages operates a platform that connects consumers with tradespeople, utilising an online subscription model that allows tradespeople to pay for access to jobs posted by consumers. At the time, tradespeople verbally agreed to sign-up to the service and were subsequently sent a summary email with a hyperlink to the written agreement. The agreement contained a provision for an automatic 12-month renewal upon expiry of the original subscription and that subscribers would be liable to pay the balance of the subscription fees if they cancelled outside the cooling off period.
The ACCC alleged, and hipages admitted, that they had engaged in misleading or deceptive conduct by not disclosing, or not adequately disclosing, these provisions to subscribers. Notably, the ACCC dismissed the notion that an email notifying subscribers of the automatic renewal date could have mitigated any harm caused as the email may have been “easily missed”.
The undertakings provided by Hipages included:
- agreement to amend its communications so that they clearly and prominently refer to the existence of the renewal provisions and provide consumers with more information on how and when the provisions operated.
- a requirement that outstanding complaints be resolved and remediated
- a commitment to review its complaint handling system and compliance program.
Subscription renewal provisions have also been found to be UCTs. For example, in ACCC v JJ Richards & Sons Pty Ltd an automatic renewal provision in a standard form contract was found to be a UCT as it had the effect of requiring payment even where the consumer cancelled the renewed contract and did not receive any services. You can read more about the potential for such clauses to be found unfair in our previous UCT blog post series (here and here).
Federal Court proceedings launched against eHarmony
On 7 September 2023, the ACCC initiated proceedings against online dating site eHarmony, alleging that it contravened ss 18, 29, 34 and 48 of the ACL by engaging in the following forms of misleading conduct:
- Automatic renewal – not clearly stating that memberships were subject to automatic renewal. Specifically, the terms and conditions stated that certain ‘Premium Memberships’ would be automatically renewed for a default period of 12 months after the initial subscription period. This meant that in some instances the automatic renewal was at a substantially higher price, and for a substantially longer period, than the consumer had initially subscribed to. eHarmony disclosed these terms late in the sign up process using a small font.
- ‘Free dating’ – making representations to users that they could engage in two-way communication with others for free on the ‘basic membership’ when this was not the case.
- Accurate pricing – making representations to consumers upon sign-up as to the monthly minimum price payable for subscriptions which were not correct as it did not sufficiently disclose the mandatory fee for electing to pay monthly.
- Cancellations – making representations to consumers that they could cancel their Premium Membership subscription when eHarmony informed consumers that they could subscribe for one month, or that they would have an opportunity to cancel after signing up. This was not the case, it was only possible for a consumer to cancel their membership at the next renewal date.
The ACCC commented on the fact that eHarmony should have been on notice having previously engaged with the ACCC in the development of the ACCC’s best practice guideline for dating websites. The ACCC was particularly concerned about the harm allegedly suffered by consumers, including the ability to make an informed choice, and the impact of the conduct on consumers who may be emotionally vulnerable and susceptible to misleading conduct and subscription traps.
Key takeaways for businesses
Businesses should be on notice that in the setting of subscription traps, and other unfair practices, are the focus of increased scrutiny by both regulators and government as it considers reform options.
Subscription-based businesses safeguard themselves by closely reviewing terms and customer communications to ensure that consumers are clearly informed about subscription provisions, particularly automatic renewals and methods of termination.
Finally, with the new penalties for UCTs coming into force on 9 November 2023, businesses should be extra vigilant when including subscription provisions in any standard form consumer or small business contracts.
This post was written by Eimear O’Sullivan and Laura Kiss
Image credit: “Self Trapped” / nicubunu.photo, openverse / CC BY-SA 2.0 / Remixed to B&W / Resized to 628*356
Image link: https://openverse.org/image/b2ea836e-8387-45ca-8674-eb6ba1bff25b?q=trap
