In November, GDI reported (1) that the UK Competition and Markets Authority had begun an investigation into an unnamed online dating operator for suspected unfair commercial practices and unfair contract terms.
We submitted a Freedom of Information request (2) to the CMA in an attempt to learn more about the nature of the operator’s malpractice. GDI asked for the name of the implicated company, any communications the CMA had received from the operator, and information on the CMA concerns about their advertising, use of consumer data and contract terms.
In their December response, the CMA informed GDI that they had elected to withhold the information for the following reason:
“The CMA must be able to carry out its law enforcement and regulatory functions (including those in respect of competition and consumer matters) properly and effectively and the CMA considers that the disclosure of the information of the type that you have requested would be likely to undermine its ability to do so.”
In this GDI Editorial, we speak to ex-lawyer and ex-CMA employee Michael Blakeley, now the Founder and CEO of dating app CLiKD, about the scope and likely outcomes of the investigation.
The Launch of the Investigation
A number of factors may have contributed to the CMA’s decision to launch an investigation into the dating niche. Typically, one (or some combination of) the following occurrences can prompt an enquiry:
- The most common reason for enforcement in consumer protection is because the CMA has received one or more (usually many more) concerned complaints from consumers about potentially unfair terms and practices by (one or more) companies in a sector.
- The CMA may have received a complaint from another operator about their competitor’s actions.
- A whistle-blower may have come forward from within the industry and/or from one of the dating operators to self-report their own behaviour or that of their employee. This can sometimes be a disgruntled (former) employee.
After it receives a complaint, The CMA tends to conduct some initial work reviewing websites and T&Cs, gathering complaints evidence and monitoring social media. In particular, it may reach out to the company concerned and ask for further information on the cited issues before deciding whether a case is worth pursuing.
The decision to proceed is not taken lightly, as the CMA must take into account its administrative priorities before deciding to open a case (that this will cost the government money, the potential impact on consumers and the likelihood of a successful outcome).
Scope of the Investigation
The first thing to note is that this is a UK focused investigation, and that the CMA has no authority beyond that remit. It may, however, share information from the investigation with its counterparts elsewhere in the European Union.
Secondly, although the CMA cites the conduct of one unnamed dating operator specifically, the investigation may well have implications for the UK online dating sector as a whole.
The outcome of the investigation could include enforcement against the individual company, but it could also lead to others being drawn in, or to guidance being issued for the whole sector (this was the result when the CMA investigated unfair contract terms in the Gambling Sector (3)).
The Relevant Legislation
The CMA is the UK’s primary competition and consumer agency, and the procedures of the investigation are governed by the Enterprise Act 2002. This provides wide ranging powers to investigate, and is able to compel companies involved to supply information and answer questions.
Once the CMA has opened a case, then, in practice, this means that it has taken the decision that there is a possible infringement of legislation. In its press release, the CMA cites two pieces of legislation which it believes will have a particular bearing on the investigation:
- The Consumer Protection from Unfair Trading Regulations 2008 (CPRs), which prohibit certain unfair commercial practices, in particular misleading acts or omissions, but also behaviour that is contrary to the requirements of professional diligence.
- The Consumer Contract Regulations 2013 and the Consumer Rights Act 2015 (CRA), which – amongst other things – prohibits unfair contract terms in consumer contracts. The CRA requires that terms be fair and transparent. The 2 are interrelated; terms that are not transparent are much more likely to be unfair. In assessing the fairness of a particular term, the CRA asks whether that term creates a significant imbalance, contrary to the requirements of good faith, to the detriment of consumers.
Any assessment of how consumer protection legislation applies has to take the prevailing market context and the nature of consumer behaviour, i.e. how the consumer interacts with the company, into account. The fact that the T&Cs reflect ‘good law’ does not necessarily mean they will be found to be fair. Consumer behaviour, and how T&Cs affect consumer experiences in practice, are of paramount concern to the CMA.
The CMA’s ultimate objective when it intervenes using its consumer powers, in any market, is to promote sector-wide compliance with consumer law. Accordingly, whilst it would seem that they undertake individual enforcement cases against a specific operator, they will also be taking a wider perspective and will expect any similar operators in the UK to make equivalent changes to their terms and practices to ensure a consistent approach to legislation. The CMA will also carefully consider whether further enforcement action is required across the sector, should they feel that these issues have not been addressed.
The Focus of the Investigation
The CMA flagged particular concerns about the dating sector in their press release. These seem to include a number of key interactions between operators and consumers on dating sites.
The CMA notes that it is primarily concerned with potential unfair contract terms and unfair commercial practices. This could allude to a number of specific infringements:
- Advertising and describing a product to consumers in a dishonest way
- This could take a number of forms: are the services advertised misleading? Are the descriptions inaccurate? Do they over-promise and under-live? Are there ‘fake user’ or ‘bait tactics’ used to entice users to subscribe?
- Privacy and use of consumers’ data
- Companies could misuse consumer data in several ways: are they over using it? Selling it on? Marketing it without necessary consents, or passing on the consumer’s data to other companies?
- The recent investigation by the CMA into Gambling Sites looked into the abuse of data, and the manner in which their sites reserved the right to use personal data for publicity purposes without explicitly asking for consent, contrary to the Data Protection Act 1998. There is a possibility that a similar issue has been identified in the dating sphere if operators are taking the profiles of dating users and using them for marketing purposes to attract new users.
- Subscription, cancellation and variation of contract terms
- Issues around charges may not be handled with sufficient clarity by operators: how easy is it to cancel the subscription? Is it clear how you cancel? Have they given themselves the ability to vary terms and put prices up, or to take advantage of the consumers?
- eHarmony’s recent infringements in the US included auto-enrolment without clearly informing the user, not making the right to cancel conspicuous, and not making the amount they charged clear to users.
Operators that use these tactics as part of their business practice may risk being dragged into the CMA investigation.
The Next Steps
Given the nature of the concerns that the CMA has identified during their initial work, it may well decide to use its enforcement powers provided under the Enterprise Act 2002 (if sufficient evidence of an infringement is found).
Whilst it is investigating, the CMA will want to ensure consumers are not suffering – this may result in it making demands of companies before the case concludes. The Enterprise Act legislation provides for the potential for the CMA to seek court orders to stop businesses from acting in breach of consumer law. Alternatively, the CMA can accept appropriate interim undertakings from businesses where these would address the relevant legal concerns.
The CMA will, during its investigation, be keen to understand how restrictive terms and practices will work in practice on consumers. They may also seek to understand any possible industry motivations as to why the service providers are acting in such a manner. The CMA will then look for sensible and practical solutions to remedy any breaches of consumer law.
As far as we are aware, it seems that the CMA have not used their formal powers as part of the investigation to gather information from operators yet. But, this may well be the next step in the process in order to ask for input and information from the company, or from the rest of the industry and the main players.
The CMA investigation has a number of different potential outcomes.
- Case closed
- The investigation may find that the case has no merit, or that there is not enough evidence to prove wrongdoing. The CMA can decide to stop the process in this instance.
- Request for information / further investigation
- This can take a number of forms, but if it follows a typical investigation process then another 6 months of information gathering is likely. If the CMA needs further information, it may put out a call to the industry or approach major players and industry bodies for comment.
- Enforcement Action
- The main focus of any enforcement action is a) to stop the wrongdoing and harm to consumers and b) to punish any such actions. The latter normally involves having to prove the case, which is a lengthy and time consuming procedure. As such, the CMA will usually seek to gain commitments or undertakings from the company(s) involved in the conduct, and assurances that they will stop acting in such a manner / adopt new ways of working.
- Fines and court action
- Generally speaking, the CMA’s preference is to work with the parties. If they are unable to reach an agreement, however, or if the party disputes the findings, then the CMA may bring action through the courts. If this happens, then this will prolong the life of the investigation by a significant amount of time and may lead to fines / cost orders for the companies involved (in the event that they lose the case).
A typical case takes 18-20 months.
GOV.UK expects to provide an update on the case in early 2018.
The above article was co-authored by CEO and Founder of CLiKD Michael Blakeley and Global Dating Insights Editor Scott Harvey. The opinions expressed are primarily those of Michael Blakeley, particularly opinions regarding previous case law and actions of the CMA. His personal opinion is no substitute for engaging a dedicated solicitor and obtaining specific advice from a lawyer on any particular case.
Michael has worked in competition law and compliance for over a decade. His previous employers include Tata, MTG, the Cartels branch of the CMA and Feshfields Bruckhaus Derringer. As well as an LLB, he holds an Advanced Diploma in Competition Law from Kings College.