The Competition and Markets Authority (CMA) recently announced that it will begin investigating the consumer practices of various games companies, with a particular focus on the use of auto-renewing membership contracts.
The video game landscape has transformed over the last five years with a new focus on so-called ‘live service’ games and online multiplayer modes. In order to use these services on an ongoing basis, consumers are often required to pay for a membership for the specific platform or game. These memberships are consumer contracts which normally auto-renew after the initial term.
The reason that these contracts are now the subject of an investigation is that auto-renewals have previously been highlighted by the CMA as terms which may be considered unfair in consumer contracts. It is vitally important the companies ensure their renewal practices are considered fair because, if not, they may be in breach of consumer protection legislation and the contract may not be binding on the consumer.
The CMA published guidance on potentially unfair terms in 2015 which sets out what companies can do to comply with their obligations. As a general rule, consumer contracts must be transparent, meaning that they should use plain English and give prominence to any terms that may disadvantage a consumer. As well as cancellation and refund policies, this includes any provision where that contract will renew automatically, binding the consumer for a further term.
In particular, consumers must be given sufficient information on the length of the contract (including that the contract will extend automatically) and the applicable cancellation policy (as well as any additional cancellation provisions relating to the renewed term) before entering the contract. If this information is buried in a terms and conditions page then this is likely to fail the transparency requirement.
Companies must also give consumers reasonable notice before the renewal kicks in. It is common for these types of contract to renew annually and, in this case, the guidance suggests that one month’s notice would be appropriate. This notice must contain an explanation of the renewal terms (e.g. the length of the new contract) and must also clearly state the steps that a consumer can take to cancel the auto-renewal. Any such steps must be reasonable and should not impose any financial penalty or other indirect effect that would unfairly tie the consumer into the contract. Some companies deal with this by including an opt-out link in the notice.
Except in limited circumstances, a contract renewal is also likely to give consumers a fresh cooling-off period which will run from the renewal date. It is therefore important that any new cancellation rights are clearly brought to the attention of the consumer (which should also have been done before the original contract was entered into) and that the steps consumers can follow to cancel are reasonable and straightforward.
What happen will next?
So far, the CMA has not given any indication of the time frame for the investigation. However, it is likely that the process of reviewing the policies of a number of video games companies and the associated information provided to consumers will take some time.
Whatever the outcome, it will be interesting to see to what extent the existing guidance is being implemented generally, or if the CMA decides it needs to issue updated guidance to reflect the current prevalence of auto-renewing contracts in the industry.