Yesterday, the Issues Paper for the Australian Consumer Law Review (ACL Review) was released, which is the next step in the first review of the ACL since it came into force in January 2011.

The Issues Paper is comprehensive, covering a range of topics from the definitions of “consumer” and “unconscionable conduct” to appropriate financial penalties and enforcement mechanisms. Many of these topics were also canvassed at the National Consumer Congress on 16 March (see our Alert here).

Some the topics raised would involve only “tweaks” or limited expansions of the ACL. However, others would involve significant changes to the scope of the ACL and the enforcement arsenal of regulators.

Background to the ACL Review

The ACL commenced on 1 January 2011, as part of reforms that replaced the previous Trade Practices Act with the Competition and Consumer Act 2010 (CCA). The ACL expanded existing consumer protections, and introduced national consumer guarantee and product safety regimes.

Now, it is being reviewed for the first time, in line with the intergovernmental agreement made when the ACL was introduced. The ACL Review has three broad terms of reference:

  • First, to assess the effectiveness of provisions of the ACL, whether they are operating as intended and whether the regulatory burden they impose is appropriate.
  • Second, to examine the extent to which the consumer policy framework has met the objectives articulated at its commencement.
  • Third, to consider whether the ACL is sufficiently flexible to respond to new and emerging issues in the market.

The Final Report of the ACL Review is currently expected in early 2017.

Expanding general protection provisions?

The first important reforms up for discussion are possible expansions of the misleading and deceptive conduct, unconscionable conduct and unfair contract terms provisions.

Misleading and deceptive conduct

In what would be a major change, the Issues Paper raises the possibility of extending pecuniary penalties for contraventions of the general prohibition against misleading and deceptive conduct. We would expect the ACCC to push hard for these reforms, given Chairman Rod Sims’ recent comments at the National Consumer Congress about the need for “large penalties which are, frankly, headline grabbing” to deter larger companies from breaching the ACL.

Unconscionable conduct

Unconscionable conduct has evolved significantly beyond its origins in equity, and the ACCC has focused its efforts on enforcement in this area in recent years. The current interpretation no longer requires a particular individual to be identified as disadvantaged by a pattern of behaviour. The meaning of unconscionability has also shifted from a focus on morality, to conduct that offends against "norms of society".

One issue raised is whether more clarity is needed on the meaning of "norms of society", to facilitate more consistent decisions and certainty for business. Another issue is whether unconscionable conduct protections should be extended to all businesses, including publicly listed companies.

Unfair contract terms

In addition to the recent extension to small business, more changes to the unfair contract terms regime could be on the horizon. Among the considerations raised in the Issues Paper are whether:

  • the regime should extend to capture contracts that are unfair as a whole (as opposed to just individual terms within a contract);
  • regulators should have the power to seek monetary penalties against businesses (as opposed to a Court just being able to declare the terms void); and
  • regulators should be able to take representative actions against systemic unfair contract terms on behalf of consumers.

Consumer guarantees

Specific consumer protections are also under scrutiny. The Issues Paper gives particular attention to improving the clarity and certainty of the consumer guarantees regime, for example, by giving more guidance on terms such as “major” failure and “acceptable quality”.

In terms of the regime’s application, areas of concern include whether consumers are given enough information to assess the value of extended warranties at the point of sale, and the effectiveness of the indemnification provisions between suppliers and manufacturers.

The Issues Paper also devotes a section to the possibility of introducing “lemon” laws, for goods that do not function despite repeated repairs.

A new general protection against unfair commercial practices?

Currently, the ACL does not contain a general prohibition against unfair commercial practices, although the need for this prohibition was considered by the Productivity Commission in 2008. Both the Productivity Commission and the current Issues Paper identify as possible models the general prohibitions against unfair commercial practices in the EU and US.

The Issues Paper expresses particular concerns about business models that:

  • depend on consumers lacking access to, or knowledge of, alternative products;
  • market goods to consumers with characteristics that tend to be associated with consumer harm (e.g. physical or psychological injuries); or
  • are based on ongoing fees, or fees disproportionate to the cost of providing the good or service.

Effectiveness of penalties – a possible increase?

The adequacy of the current level of financial penalties for breaches of the ACL is expected to attract close scrutiny. The current maximum penalties of $1.1 million for a company and $220,000 for individuals were set when the ACL commenced in January 2011.

The ACCC is an advocate for increased penalties. It has stated on several occasions that the current level of penalties is inadequate and should be increased. Recently, Justice Gordon echoed those concerns, suggesting that the current maximum penalty of $1.1 million is an insufficient deterrent.[1]

The Issues Paper presents two alternatives for setting and updating financial penalties:

  • First, to use “penalty units” for offences, as is done under the ASIC Act. The unit value of the penalty unit would be periodically updated to keep pace with inflation, without requiring other changes to the ACL.
  • Second, to factor in the size of the company and the benefit of the breach. This model is already used in relation to competition laws under the CCA, where companies can receive a penalty that is the greater of $10 million, three times the value of the benefit received from the breach, or 10% of annual turnover.

Access to remedies and the enforcement ‘toolkit’

Regulators’ enforcement powers could also undergo changes. Possibilities include empowering all regulators to issue infringement notices, and to bring proceedings in the Federal Court to restrain conduct nationally.

The Issues Paper also highlights the “super complaint” mechanism recently trialled in NSW, which allows a consumer body to present evidence of systemic issues to the regulator for further research and assessment.

Empowering consumers through information is also a key area of focus. The Harper Competition Policy and the Murray Financial Systems Inquiry both recommended improving consumer access to information and, in response, the Federal Government has requested the Productivity Commission to investigate ways to improve consumers’ ability to use and benefit from data – particularly about themselves.

This fits neatly with Small Business Minister and Assistant Treasurer Kelly O’Dwyer’s recent comment that empowered consumers “armed with information” are essential to effective regulation, suggesting the government may be receptive to reform on this front.

Emerging consumer policy issues

A variety of new issues are emerging for consumer policy, driven by technological change, trade liberalisation and consumer preferences. Among the areas raised in the Issues Paper are:

  • selling away from business premises: particularly whether there is adequate protection from unsolicited sales, as emerging sales practices seem to blur the distinction between solicited and unsolicited agreements;
  • online shopping: whether changes could be made to improve pricing transparency, and better regulate comparator websites and online reviews; and
  • emerging business models: whether consumers in the “sharing” economy are adequately protected, and whether participants understand their rights and obligations.

What happens next?

The Issues Paper is the next step in a review process that will continue through 2016. Submissions to the Review are due by Friday, 27 May 2016.

Given this is the first opportunity for businesses and the public to give feedback and propose changes to the current law, we expect there will be a significant number of submissions to the Review. As mentioned in our previous Alert on this topic, some parties have already made their views clear.

The interim report will be released in the second half of 2016, and the Final Report will be provided to the Legislative and Governance Forum on Consumer Affairs by March 2017.