Developments in the regulation of digital advertising – online choice architecture

Kate Hawkins: Hi, it is Kate Hawkins, a principal associate in the advertising law team at Gowling WLG.

One topic that I discussed in the recent AD LAW seminar was online choice architecture and the regulation of pressured selling techniques in an online environment such as countdown timers and " act fast " messaging or dark patterns as they are sometimes called. It also touched on free trials and subscriptions, online reviews and what is planned in this space looking forward.

So, starting with pressured selling techniques, this is a hot topic for the Competition and Markets Authority at the moment so they have launched a new programme focusing on how businesses present information and choices to consumers online. As part of this they launched an online rip off tip off consumer education campaign which prompted consumers to report sneaky online sales tactics and provided tips on how to spot and avoid these. Last year the CMA published an open letter to businesses that sell or advertise online reminding them of their obligations under the consumer protection legislation when it comes to urgency and price reduction claims. The key takeaway being that businesses should not use these tactics when they are misleading, untrue or put pressure on consumers. The CMA also concluded its investigation into Emma Sleep's online selling practices last year. The CMA has confirmed that the fact that the Advertising Standards Authority upheld complaints about Emma Mattress in 2022 was a factor in the CMA keeping them as a target for enforcement action so this is a good reminder that ASA wins matter and it is a big mistake to think that they do not.

Alright so getting into the specifics of Emma Sleep's claims that prompted the CMA action, their website featured extensive discount offers like there was now pricing you can see on this slide. During its investigation the CMA found evidence that only a small fraction of Emma Sleep products were actually sold at the full price. That meant that claims like these ones were giving consumers a false impression that they are getting a better deal than was the case. If Emma Sleep had actually sold mattresses for the crossed out "was" as priced for a longer period of time than a promotional price and in significant numbers, then the promotional price claim would not have been misleading but that was not the case here.

Here are some examples from the CMA's open letter that I also ran through during our seminar. The CMA is concerned with brands flip flopping between promotional prices and their usual selling price alternating prices without resting the product at the higher price is problematic. You cannot say that the higher price is the usual selling price where it is available for the same length of time as the lower promotional price so you should take care when planning your promotional calendar as basing a savings plan on a higher price in those kinds of circumstances were likely be misleading.

Back to the CMA's investigation into Emma Sleep, the advertiser was using countdown products like the one showing here. With my consumer hat on, I would assume that once the timer runs out the product will return to its higher price right not so much here. The problem was once the timer ran out the clock was replaced by another. The CMA found that timers like these can put pressure on shoppers to buy quickly at a fear that they will miss their on-sale price. This can lead to rush purchases in order to grab a perceived bargain which will be in breach of consumer protection laws.

The CMA is also concerned with popularity claims like hurry ten people are viewing this item right now or ten people have bought this item today. These can be unlawful when they are not based on accurate data or do not make it clear what timeframe they are based on so for example, ten people might be viewing the item or hotel room or other deal but not right now. Ten people might have bought the item but not in the last two hours, it might have been within the data from the day before. Claiming that there is a lot of interest in a product and prompting consumers to buy the product quickly will be misleading if there is no need for consumers to hurry.

Scarcity claims like the one on this slide imply that stock levels are low so that consumers act urgently and sometimes impulsively to buy an item quickly in order to avoid missing out. These tactics will be unlawful if their stock levels are not as low as claimed or at least high enough to mean that a brand can fulfil expected auditors for a day or expecting more stock to arrive shortly. It is also worth flagging that these techniques aren't just restricted to retail products. It may be that businesses are using these kinds of messages in other sectors like travel and property. For example, claims might be made that there is only one more room left in a hotel for a certain price or that there are only a certain number of flats available in a development. If this is not genuine and is designed purely to prompt people to act with urgency that will likely form the wrong side of the rules.

Another key development in online advertising concerns subscription traps. This is a hot topic for UK regulators particularly given research that one in four people have signed up to a subscription service by accident mostly because they did not get around to cancelling the free trial. The ASA published new guidance and an enforcement notice on this topic last year. The ASA will expect ads for a free trial or other promotional subscription offers to make clear all of the significant conditions likely to affect a consumer's decision to participate including a token T&C's apply will not be enough. Rather we need to make it clear whether a paid subscription starts automatically after the free trial unless cancelled, the extent of the financial commitment if its subscription is not cancelled during that trial and any other significant conditions such as the costs to participate.

The ASA considered free trials and subscriptions when Instagram ads for On That Ass were complained about that last year. The ads were similar to what I have got up on the slide and include the claim try now for free. The ads linked consumers to the brand's website which states "always the perfect pair of boxer shorts", "receive awesome boxer shorts every month" followed by a check list and included the claim "no strings attached, always cancellable online". The ASA concluded that consumers would understand the claim, try now for free to mean they would receive a free sample of boxer shorts and would not expect to sign up for a free trial for a subscription service in order, to receive the product. Because the ads did not include any information relating to the free trial period or make it clear that in order, to receive the free product, consumers needed to sign up to the subscription the ad was found to be in breach of the advertising code rules.

So final thoughts now on subscription traps before we move on to online reviews, the ASA has made it clear that it will take targeted enforcement action to ensure non-compliant ads for free trials or promotional subscription models are amended or removed helping to secure a more level playing field. This is a clear signal that the ASA will specifically and proactively target advertisers of subscription services, plus the proposed Digital Markets Competition and Consumers Bill introduces tighter controls over the advertising and provision of subscriptions which aligns with the ASA's approach. Under the DMCC Bill, businesses will need to provide clear information to consumers before they enter into a subscription contract, remind consumers before a free trial or introductory offer comes to an end or that contract auto-renews on to a new term and allow consumers to end a subscription contract easily. Even if you do not think that your organisation has an explicit subscription offering it is worth double checking your advertising and website copy particularly given the CMA will be able to take direct enforcement action against businesses in breach of the new rules. Of course, this all applies to obvious examples like online ads or where consumers in a subscription base membership to access exclusive holiday homes for example but also to less obvious scenarios such as where access to entertainment and other connected car features is only available on a subscription basis.

Note for fake reviews. Given their influence it is essential that online reviews are authentic. Fake reviews can distort purchasing decisions leading to consumers choosing poorer quality products and making it difficult for businesses to operate on a level playing field. With all that in mind, it is no surprise that this is another area that both the ASA and the CMA are keen to tackle.

Nothing much has changed when it comes to the ASA's policy. We need to make sure that reviews are accurate and genuine and reflect what the person said. We should also make sure that the review is relevant to the product or the service that it is being used in connection with. Encouraging consumers to leave a positive review for example, in order to enter a promotion, might breach the advertising rules. If that review does not reflect their genuine opinion. On the other hand, deleting negative reviews may be misleading if it does not then give a true reflection of the overall consumer experience.

Reviews should also comply with the advertising code rules more generally. For example, they should not include claims that would otherwise breach these rules.

Turning now to the CMA, the Government is consulting on whether they include fake reviews to the list of bad practices in the consumer protection legislation. For context, the DMCC Bill repeals and reinstates the consumer protection from unfair trading regulations. As many of you will know, a list of bad practices is included in schedule 1 to these regulations. This has been largely carried over into the new bill as schedule 19.

While this list does not refer to fake reviews at the moment the Government will be empowered to update the list of bad practices to best reflect new online practices and emerging consumer harms. The ASA has now launched a consultation seeking the views on adding bad practices into fake reviews into the list as summarised on the screen. This would mean that any business that publishes or provides access to reviews has a responsibility to ensure that consumers are not misled by them. We doubt you would be subject to enforcement action on the basis that you publish a single fake review, but you will likely need to have policies and processes in place to regularly and proactively assess the risk, look out for suspicious reviews, remove those and sanction those involved. The consultation is live now and waiting to see the results in the Government's report and how they plan on finalising the DNCC Bill.

Now for some horizon scanning, we expect to see more and more scrutiny of online choice architecture and continued efforts to bolster consumer understanding of various online sales tactics through CMA crackdowns (beyond Emma Sleep and Wowcher), and proactive ASA investigations. We have the implementation of the DMCC Bill to look forward to this year. It is intended to reform the more unfair commercial practices as well as conduct subscription traps and fake reviews. With the increased powers being granted to the CMA, most notably the ability to fine businesses directly, we are likely to see brands re-evaluating and revising their advertising to avoid more serious sanctions.

If you would like to talk through any of this in more detail with us or if you have a separate advertising law query, then please do reach out to myself, Dan Smith or Zoe Pearman.