Ofcom has issued a fine of £28 million for systemic failures in the way a company handled customers seeking to cancel their contracts. The regulator's investigation, which covered the period from January 2022 to September 2024, found that millions of customers who contacted the company to cancel were likely to have been mishandled by call agents' intent on delaying or preventing cancellations and deterring switches to competitors.

Similarity to the new subscription rules

The issues at the heart of the Ofcom investigation bear a striking resemblance to those the Competition and Markets Authority ("CMA") will be empowered to enforce when the new subscription rules, widely expected to come into force in spring 2027, take effect. Those rules will apply to subscriptions not already governed by sector-specific regimes, such as financial services or, as in this case, telecommunications. The practical consequence is that a vast range of subscriptions, from those for contact lenses and anti-virus software to gym memberships, will come under regulatory scrutiny. Central to the new framework is the requirement that customers be given a straightforward means of cancelling a subscription. Where a contract is entered into online, the new law will also require the business to allow the customer to cancel online.

The Ofcom investigation therefore offers more than a factual parallel: both the substance of the regulator's findings and its approach to calculating the penalty could well influence the CMA's enforcement of the new rules, particularly in relation to cancellation processes that are not automated online.

Ofcom's findings

Ofcom's investigation revealed a range of tactics designed to dissuade customers from switching provider. There was a "two-tier" cancellation process under which customers first had to speak with agents who were not authorised to process cancellations before repeating their request to a second agent and only then standing any chance of the cancellation being actioned. The regulator also found that unnecessary or excessive call transfers were made to other departments and that customers were repeatedly placed on hold. Further tactics included agents deliberately dropping calls and failing to record cancellations on the system.

More seriously still, Ofcom found that the company had effectively encouraged these behaviours by financially rewarding agents through its commission scheme for retaining customers. Its training and guidance failed to prevent the conduct, while inadequate quality assurance and monitoring meant it was frequently overlooked.

Lessons for other subscription businesses

These findings demonstrate that where a subscription cancellation process is not automated, and the customer must interact with representatives of the business, it is vital that such interaction does not render the cancellation process cumbersome or discouraging.

Equally important, the business will be expected to take proactive steps to prevent its representatives from frustrating cancellation, including providing clear training on expected standards, monitoring employee interactions with customers and intervening promptly to correct any conduct that falls short.

Ofcom and CMA fines compared

In setting the penalty, Ofcom took into consideration factors including the level of harm experienced by affected customers, repeated failures to identify and prevent the harm, and the financial gain the company is likely to have made.  

These factors closely mirror those the CMA will consider under its guidance on calculating penalties if it determines there has been a breach of the new subscription rules. To date, the highest fine the CMA has imposed under the new direct enforcement powers conferred by the Digital Markets, Competition and Consumers Act 2024 is £4.2 million, ordered against AA/BSM driving schools for a lack of transparency concerning a £3 booking fee.

It is not difficult to see why the fine in the AA/BSM case was substantially lower than the Ofcom penalty. The AA/BSM case was primarily about the businesses failing to follow CMA guidance on upfront pricing.  This was a presentational breach that occurred over eight months and affected approximately 90,000 customers. By contrast, this case concerned a company breaching the trust of millions of customers, over a period exceeding two years, by intentionally frustrating their contractual right to end their relationship and switch providers.

Could CMA fines reach similar levels?

It is readily conceivable that the Ofcom level of fine could be replicated, or even exceeded, in a CMA subscriptions enforcement case. It is well within the realms of possibility that similar incentives and behaviours aimed at frustrating termination could be uncovered in sectors covered by the new subscription rules, affecting large volumes of consumers.

Ultimately, the fine was discounted by 30% when the company accepted it had done wrong, but it is also notable that it was uplifted because the company had been fined previously for breaching the same rules in 2018. The CMA's penalty guidance likewise recognises previous breaches of consumer law or regulatory codes as an aggravating factor. This means that a historical adverse finding by the ASA on an unrelated issue, for example, could lead to a CMA fine being increased. It is a further reason for businesses to treat compliance as a priority across all regulatory regimes.

The fine also reflected the company's repeated failure to comply with Ofcom's information-gathering process. The CMA would be unlikely to defer such concerns and wrap procedural non-compliance into a fine for a substantive breach, particularly as it now has standalone fining powers specifically to address failures to cooperate with investigations. It has already exercised those powers, imposing a fine of £473,000 on a company that failed to respond to an information notice.

What should subscription businesses do?

This case emphasises the importance of preparing now for implementation of the new subscription rules, which the CMA will enforce and which are expected to come into force in spring 2027.

The practical impact of the changes should not be underestimated. Subscribing processes, ongoing customer communications and the contractual documentation underpinning subscriptions are all likely to require review and substantive amendment. Where system or software changes are needed to facilitate compliance, lead times can be considerable and therefore early preparation is strongly recommended.

For more information, please visit our Consumer Law Hub. We are already helping businesses to navigate the subscriptions changes. If you would like practical, strategic advice on getting your business ready, please get in touch with the team below.