Consumer Affairs Australia and New Zealand (CAANZ) released its long awaited Final Report on the Australian Consumer Law Review (Report) in April 2017.1 The Report makes a number of recommendations and proposals, which are of particular relevance to the direct selling industry. We outline some of those recommendations and proposals below, including those relating to unsolicited consumer agreements and a general prohibition in respect of unfair trading.

Background

The introduction of the Australian Consumer Law (ACL) in 2010 was underpinned by the ‘Intergovernmental Agreement for the Australian Consumer Law’ signed by the Council of Australian Governments (Intergovernmental Agreement). Among other provisions, the Intergovernmental Agreement required the enforcement and administration of the ACL to be reviewed within seven years of its commencement.

This review was recently completed by CAANZ with the release of its Report.

Unsolicited Consumer Agreements

The ACL contains very prescriptive requirements for unsolicited consumer sales including disclosure obligations, mandatory requirements as to agreement form and content and cooling-off rights. However, despite these requirements, CAANZ considers that pressure selling and consumer detriment continues to occur in some sectors where sales are unsolicited. CAANZ has concluded that:

  • the core protections in respect of unsolicited consumer agreements (UCAs) should not be diluted;
  • a degree of additional intervention may be required; and
  • while there is evidence of harm in some sectors, there is little information about the extent to which other sectors use unsolicited selling techniques. Therefore, CAANZ is unsure as to whether other sectors experience similar problems.

As a result, CAANZ considers that it is difficult to assess the impact of any economy-wide reforms on traders who comply fully with the law when making unsolicited sales.

Recommendation

CAANZ has indicated in its Report that its preferred approach is to:

a) maintain the current balance of protections; and

b) conduct an economy-wide study of unsolicited selling, the results of which would be used to inform future policy development.

In the meantime, CAANZ has proposed that the threshold requirements for UCAs be clarified so that it is clear that the UCA provisions in the ACL:

  • can apply to public places; and
  • capture suppliers in their negotiations with consumers where the suppliers obtain from a third party (sometimes referred to as a ‘lead generator’) a consumer’s contact details or permission to be contacted.

CAANZ’s Interim Report2 noted that a number of stakeholders had suggested a ban on all or some forms of unsolicited selling. CAANZ concluded that any ban would be an “extreme form of intervention that is generally reserved for significant and widespread misconduct where all other forms of regulation have failed”.3 Noting that the broader effects on the Australian economy would need to be better understood, CAANZ concluded there is little current information about the extent to which a broad prohibition would affect legitimate traders and their livelihoods.

An opt-in approach (instead of a cooling-off period) was suggested by some stakeholders and referred to in the Interim Report. Consumers would be required to opt in to confirm the sale within a limited time before an unsolicited sale agreement is valid. In its Report, CAANZ has stated that it believes that such a proposal would be best considered in light of the proposed economy-wide study (referred to above).

Therefore, any ban or opt-in approach appears to be “off the table” until the economy-wide study is completed.

CAANZ also did not accept submissions which suggested that additional rights were required in respect of higher risk UCA transactions (for example, enduring (or ongoing) service UCAs or UCAs with a higher purchase price (eg over $500)) on the basis that, for example, there would be difficulties in defining an “enduring service contract” and that the extent of any risk depends more on the particular conduct and consumer, rather than the type of product.4

General Prohibition on Unfair Trading

The Issues Paper, which was released at the commencement of the ACL review in March 2016, canvassed whether a general prohibition against unfair commercial practices was warranted.5

In its Report, CAANZ considers that there is no real clarity as to the extent to which the exploitation and/or taking advantage of vulnerable consumers is captured by existing protections contained in the ACL, including misleading or deceptive conduct, unconscionable conduct, unfair contract terms, pyramid selling and unsolicited selling. Given this, CAANZ considers that the merit of an additional general unfair trading prohibition is uncertain at this point in time.

CAANZ has committed to prioritising the investigation of whether a general prohibition on unfair trading would provide additional protections beyond those currently contained in the ACL and how the prohibition could be implemented.

Penalties

CAANZ has proposed that the maximum financial penalties for breaches of the ACL be increased significantly to align the penalties with the penalty regime under the competition provisions of the Competition and Consumer Act 2010, namely:

  • for companies, the greater of:
    • the maximum penalty (of $10 million), or
    • three times the value of the benefit the company received from the act or omission, or
    • if the benefit cannot be determined, 10 per cent of annual turnover in the preceding 12 months;
  • for individuals, $500,000.

Consumer Guarantees

CAANZ has made a number of recommendations in respect of the consumer guarantee provisions contained in the ACL including the clarification of the following matters, which have caused confusion:

  • the mandatory text requirements for warranties against defects;
  • when a major failure has occurred; and
  • the scope of exemptions for goods lost or damaged in transit.

CAANZ has also recommended that there be enhanced disclosures in respect of extended warranties.

Future Action – what next?

CAANZ has identified the following priority projects which are relevant to the direct selling industry:

Click here to view the table.

Given the above, we expect further attention to be focused on unsolicited selling and it may be that, in due course, further changes are made to the UCA regime contained in the ACL.