Consumer law and drip pricing: fine margins and big fines

The Competition and Markets Authority (CMA) has now published the non-confidential version of its final infringement notice on the AA/BSM drip-pricing case, under which the CMA fined the AA £4.2 million and ordered repayments to customers of over £760,000.

The notice is valuable because it contains a detailed analysis of the way that prices were presented through the online purchase process and how those did not meet the requirements of the Digital Markets, Competition and Consumers Act 2024 (DMCCA), as well as showing the CMA’s working in arriving at the final penalty amount of £4.2 million.

The notice shows that:

• Small differences in the wording and presentation of an online sales process can mean the difference between compliance under DMCCA and infringement.
• It is not enough that all elements of a price may be stated: a ‘total price’ must be shown (even if that could be worked out from the information given).
• Fines for non-compliance (even once they are discounted for early settlement) can be very large indeed.
• Given this key business risk, companies that sell online to consumers should review their sales materials and proactively adapt them if needed.
• The key resource for that exercise is the CMA’s price transparency guidance (link given below) which covers a wide range of pricing scenarios with suggestions for appropriate price descriptions.

Drip pricing under consumer protection law

The phrase ‘drip pricing’ is not found in the DMCCA, but the practice is caught by the DMCCA on the following terms:

• Unfair commercial practices are prohibited.
• The omission of material information from an ‘invitation to purchase’ (ITP) is one such unfair commercial practice.
• An ITP involves providing information to a consumer that describes the product and its price, and which enables the consumer to decide whether to purchase (or take other transactional decisions) in relation to that product.
• ‘Total price’ is one element of the material information that must be contained in all ITPs.
• Accordingly, adding the ‘drip price’ element only at the final ITP (after the consumer has already navigated earlier ITPs with incomplete pricing information) is prohibited as an unfair commercial practice.

Breaking this down further:

• The ITP is not just the last (‘buy now’) page of an online sales process, but any earlier page on which price is indicated. Thus, the ITP does not need to include an actual opportunity to purchase (a checkout page). There may be several ITPs as a consumer navigates through the pages of an online sales process.
• Conversely, pages that do not show price are not ITPs – so more generic brand advertising, and pages during an online sales process that do not include price, are not ITPs.
• For an ITP, the ‘total price’ that must be shown must include any fees, taxes, charges, or other payments that must be paid by the consumer if they purchase the product (ie mandatory or unavoidable charges). Mandatory delivery charges are part of the total price (optional delivery charges must be stated in the ITP but can be shown separately). Where the nature of the product means that total price cannot reasonably be calculated, the method of calculation must be shown.

An ITP could also fall foul of these provisions for omitting other material information, but the omission of elements of the ‘total price’ until last minute in the sales process – drip pricing – is a key enforcement priority.

The CMA’s notice in AA/BSM

In establishing the relevant infringement, the notice includes an annex with screenshots of three online sales processes for buying driving lessons. These fell into two main categories:

• Category 1: These journeys had initial ITPs that showed prices for the lessons (eg 2 hours – £70, 10 hours – £350, etc) with the mandatory booking fee (£3) and total price presented only at the last ITP (which was the ‘pay now’ page).
• Category 2: These journeys had initial ITPs with the price for lessons shown as before but with the text ‘Please note a £3 booking fee will be added at checkout’ underneath. This text was in a smaller and lighter font than the main hourly prices. At the final (‘pay now’) ITP, the mandatory booking fee was included in the total price shown (lessons – £350, booking fee – £3, ‘total’ (in bold) – £353). The third process shown in the CMA’s annex was essentially similar to this one.

While the category 1 journey withheld all reference to the booking fee until the ‘pay now’ page (the ‘classic’ drip price), the category 2 journeys did refer to the booking fee from the first ITP. Why was that not enough? The reason is that, under DMCCA, showing the components that would go towards ‘total price’ is not the same as actually showing the total price, and any ITP that does not show total price does not therefore comply with DMCCA. Two factors are particularly relevant:

• Under DMCCA, information is considered to have been ‘omitted’ if it was provided in an unclear or untimely way, or in such a way that the consumer is unlikely to see it. In these cases (although the CMA did not expressly reference this) hourly prices were shown prominently, and the information about booking fees less so.
• The prices shown for all transactions here were ‘fixed’ (ie a ‘block’ of 2 hours, 10 hours, etc). Given this, there was no potential variability in ‘total price’ for each purchase selection and so ‘total price’ for two hours, 10 hours etc was known at the outset and could have been provided.

As the CMA notice states for this category: ‘Consumers were informed of the mandatory booking fee at the first invitation to purchase [ … ] but it was not included in the price shown. The total price inclusive of the mandatory booking fee was only provided at the third invitation to purchase.’

While the distinction between informing a consumer of a mandatory fee and including it in ‘total price’ might seem to be a fine one, the CMA’s view in the notice is consistent with its earlier guidance on price transparency (reference CMA209) which gives several clear and very useful worked examples of how to show different categories of fees.

That guidance also states (on the related issue of ‘partitioned pricing’) that: ‘…where the total price is made up of several components, which are also each listed, the cost of those components must be added together for the consumer into a total price and it must be shown to them in the invitation to purchase in a clear and timely way. It is not enough to present the individual price components and expect the consumer to calculate the total price’.

In other words, it is the business that must do the maths, not the consumer.

For example, the CMA’s recommendation for a site selling concert tickets ranging from £50 to £100 per ticket with a £3 booking fee per transaction (no matter how many tickets were bought in the one transaction) is that the advertisement should refer to tickets as being ‘from £53’ and could state: ‘Tickets from £53 – seats £50-100 each plus £3 per transaction)’. This shows that compliance with DMCCA (following the CMA guidance) may require forms of price description that differ from much earlier advertising and commercial practice.

The CMA gives another example of a coach company selling a ticket at £10 with a £2.50 (per-transaction, not per-ticket) booking fee, with the recommended text ‘Manchester to London – only £12.50′ (the point being that you could never buy a single ticket for anything other than £12.50 total price, even though the total price for two tickets bought in the same transaction would not be £25 but would be £22.50). The lesson is that the minimum price for a single ticket or journey must be stated as the total price that includes any mandatory booking fee.

In summary, any business selling online to consumers should be able to find scenarios in the CMA guidance that match its own situation (as regards booking fees, delivery charges, the presentation of optional charges, etc) and should adapt its own pricing pages accordingly.

The fine

The fine in AA/BSM was the first to be issued for substantive breach of consumer law under DMCCA, and the CMA’s notice contains a detailed step-by-step process showing how it arrived at this figure. Under DMCCA, substantive penalties are capped at £300,000 or (if higher) 10% of a party’s global turnover.

The process for arriving at the actual fine under DMCCA has some similarity with how fines are calculated under the Competition Act 1998 (CA 1998); both start by establishing turnover and generating a percentage of that as a ‘starting point’ to reflect the seriousness of the infringement. From that starting point, sequential adjustments are made to account for deterrence, aggravating or mitigating factors, a discount for settlement, and other factors.

However, from the AA/BSM decision, it is clear that step 4 of the DMCCA process (adjustment for ‘proportionality’) will do the ‘heavy lifting’; in its fining process, the CMA established that the AA group’s consolidated group UK turnover was £1.45 billion. Applying a factor of 15% to that turnover to reflect seriousness of the infringement gave the CMA the step 1 amount of £217.5 million, unchanged for ‘deterrence’ (step 2) but further slightly reduced for mitigating factors (step 3) to £206.5 million. It was only at step 4 (adjustment for proportionality) that this number came down to £7 million – a colossal adjustment of nearly 97%. The factors that were stated to be relevant to proportionality were:

• that turnover from driving lessons was only ‘a small proportion’ of the AA group’s total turnover (the exact percentage being redacted in the published notice);
• that the infringements were short-lived;
• that the total amount of ‘dripped’ booking fees over that period was around £800,000 (as against the step 3 fine figure of more than £200 million);
• the dripped booking fees will be refunded to consumers, and the AA was responsive and co-operative in this matter.

The CMA then applied a discount of 40% at step 5 in recognition of the AA’s settlement and related matters, giving the final amount of the fine at £4.2 million.

As for the 97% ‘proportionality’ adjustment at step 4, a comparison with the fining system under the CA 1998 quickly explains this oddity: under CA 1998, the turnover taken at the outset of the fining calculation is not total turnover (as it is under DMCCA), but only the party’s turnover in that product market affected by the infringement.

For a business with a single product offering, its overall turnover and its turnover in the affected product market will be essentially the same. For another business, active in multiple product markets but fined for an infringement in a product market that represents only a small part of its business, this is a key distinction. The upshot is that for such a business, the ‘starting point’ fine under CA 1998 is already pro-rated down to account for that, in a predictable and uniform manner.

It is not obvious why this approach was not also adopted for the calculation of fines under DMCCA. The AA/BSM decision sets a clear decisional precedent that the relative size of the affected product market as against overall turnover will be taken into account (indeed, may radically affect the outcome) but it is notable that the question of the relationship between affected market turnover and overall turnover is not expressly referenced in the CMA’s own guidance on how proportionality adjustments will be made, which, the guidance states, ‘is not a mechanistic assessment, but one of evaluation and judgement’.

In addition, the fact that product market turnover is not stated in the published decision, plus the fact that the ‘proportionality’ adjustment at step 4 referred to a number of different factors beyond product market turnover, means that it is difficult to ascertain how the penalty stands in relation to actual turnover in the affected market, giving potentially a less transparent and predictable system than exists under CA 1998.

The CMA is currently working through a number of other consumer law cases under DMCCA, which can be expected to give further insight into its enforcement practice in due course.