Regulators around the world continue to raise their concerns over digital practices and firms’ use of data is impacting outcomes on end consumers.
As part of that, we’re seeing proposed changes in legislation in the UK and EU that would strengthen regulators’ powers in both consumer protection and digital markets.
In the UK, the Competition and Markets Authority (CMA) – a body that has recently gained significant increases in its own powers in relation to consumer protection - is increasingly concerned about the impact of certain online practices on consumers.
In addition to its cross-regulator work focussing on algorithms, it also published two papers discussing how digital design can influence consumers’ decisions, such as algorithms used to frame choices. Its concern is that these practices can potentially lead to harm.
How can digital design harm consumers and competition?
In online settings, businesses design the environment in which customers interact with the website and/or app and make consumer choices. The way in which these options are presented is often known as the ‘online choice architecture’ (OCA).
In this environment, regulators are concerned that businesses may also use various, and harmful, OCA practices.
For example, using misleading scarcity claims (e.g. ‘only one left’), making it difficult to cancel a contract or choose a cheaper product, or revealing the full price of a product only at the last stage of a purchase.
Competition authorities are concerned that these practices, designed either deliberately or unintentionally, might negatively affect consumer choice, leading to consumers spending more, receiving poor value services, or searching less for alternatives.
“Harmful OCA practices may persist even in competitive markets due to low OCA awareness (and their effectiveness in influencing consumers even when recognised), potential profitability of OCA practices and/or certain features of a market.”
The future of regulating digital design
With consumers and businesses shifting their interactions to digital settings, OCA practices face increasing investigation. The CMA has already been pursuing cases concerning OCA practices, such as false scarcity claims in secondary ticket sellers or defaults in search engines.
So, what’s next?
The CMA has pledged to investigate harmful OCA practices ‘more actively’, using a full range of powers and tools available. The stronger enforcement powers in consumer protection mean that the CMA could take more consumer protection work and will be able to impose fines on companies breaching the fair use of digital tools if these are deemed to break the law.
“Some OCA practices, such as using false time pressure to evoke an immediate action are already prohibited within existing consumer and competition legislation.”
More practices, deemed automatically “unfair” in all circumstances, could be restricted or prohibited. Subject to the outcome of the government’s consultation, banning or restricting the use of OCA practices could be incorporated into the Digital Markets Unit’s enforceable codes of conduct or pro-competitive interventions. The unit, set up within the CMA to promote competition in digital markets, will be given statutory powers.
What does this mean for my business?
The CMA encourages businesses to consider whether their use of OCA practices complies with competition and consumer protection law. Businesses may choose to consider:
- Getting a clear picture of what OCA practices are currently being used in their organisation and how these are being implemented.
- Detecting and remedying any issues where (i) practices are implemented which are known to be harmful (from research and policy work such as the CMA’s); (ii) more generally, where practices have been found to result (or be likely to result) in negative outcomes.
- At the same time, gathering evidence of positive outcomes arising from OCA practices chosen by the organisation, providing internal assurance and an ability to communicate this to the regulator(s) as required.
The above can be achieved through a series of activities, from self-assessment through to independent review. The work is likely to require engagement across Legal, Risk and Compliance and Internal Audit teams, as well as the business’s data and commercial teams.
How businesses design their online environment, and how they frame information to customers is under increasing focus of the CMA. Combined with the expansion in the CMA’s remit, businesses can expect more scrutiny over a range of OCA practices in the near future.
