When did you last review your standard terms and conditions? If you can’t remember, now is the time. The Competition and Markets Authority (CMA) has made unfair contract terms a top enforcement priority for 2026–2027, and with new powers to impose penalties of up to 10% of global turnover, it has never been better placed to act.
New CMA’s enforcement powers
Under the Digital Markets, Competition and Consumers Act, the CMA can now take direct enforcement action against businesses that use unfair or unclear contract terms without first bringing court proceedings. Penalties can reach up to 10% of global turnover or £300,000, whichever is higher.
The CMA is actively monitoring business practices using AI and other tools to detect potential misconduct. Because unfair terms are often publicly visible on a company’s own website, they can be identified quickly through technology or picked up incidentally during wider investigations into other issues, such as fake reviews or misleading pricing. This makes contract terms a relatively straightforward area for the regulator to enforce.
Cancellation charges in the spotlight
One area the CMA has specifically highlighted is early termination, or “exit”, charges. Many businesses include terms requiring customers to pay the remaining balance of a fixed-term contract if they cancel early. The CMA’s position is that such terms may be unfair where they go beyond what is reasonably necessary to compensate the business for its actual losses.
The CMA recently opened an investigation into a software company over concerns that early cancellation fees on certain subscription plans may breach consumer protection law. The investigation is looking at whether these terms are unfair, and whether customers are given clear and timely information about the charges upfront, something the CMA regards as likely to influence purchasing decisions.
What does “fair” look like?
Exit charges are more likely to be considered fair where they are written in plain language and represent a genuine, reasonable estimate of the business’s likely loss. A sliding scale, where the charge reduces the longer the customer has been with you, can be acceptable, provided it is not punitive and gives customers a clear picture of what they would owe at any point.
Terms are more likely to attract scrutiny where they:
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Require payment of all outstanding sums even though the business is no longer providing any service
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Fail to account for savings the business makes by no longer supplying the service
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Ignore the business’s ability to find a replacement customer
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Include fixed or arbitrary sums with no link to actual loss
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Allow the business to recover the same loss more than once
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Use vague or discretionary language that lets the business set the charge after the fact
What should businesses do now?
The law itself hasn’t changed, as unfair terms have been prohibited under the Consumer Rights Act 2015 for over a decade. What has changed is the CMA’s capacity and willingness to enforce it. Businesses that relied on the regulator being slow to act can no longer count on that.
This affects any business using standard form consumer contracts, from gym memberships and broadband agreements to software subscriptions, streaming services, insurance policies, and retail e-commerce sales. If your contracts include fixed terms with early exit provisions, now is the time to review them, particularly any provisions dealing with early termination, cancellation charges, and penalties. Key questions to ask are: does the charge reflect our likely actual loss? Is the calculation transparent to the customer? Could a court regard it as punitive rather than compensatory?
If you would like to discuss how these changes may affect your business, please get in touch with us.
Image credit: Freepik
