Here, we provide a snapshot of the ACCC's recent enforcement activity in relation to consumer guarantees and highlight common risk areas for suppliers and manufacturers.
The ACCC's recently published ACCC Compliance and Enforcement Priorities for 2019, targets consumer guarantees as a top priority for the regulator over the new year. This focus continues a wave of enforcement activity against a wide variety of companies in relation to consumer guarantees under the Australian Consumer Law (ACL) – in particular, with respect to express and implied representations that companies make in a range of contexts regarding the existence of the consumer guarantees regime and a consumer's rights and remedies under the regime. With a substantial increase in the level of pecuniary penalties that can flow from misrepresentations of this nature, the stakes have just gotten higher.
Here, we provide a snapshot of recent enforcement activity, to highlight common risk areas for suppliers and manufacturers. These highlight that suppliers and manufacturers must be aware of and focus not only on ensuring they comply with the regime when there is a problem with their goods and services, but also on written and verbal representations around:
- their responsibilities when there is a problem with a product or service;
- their liability in respect of a problem with a product or service;
- what remedy is available;
- who decides what remedy applies; and
- how the regime interacts with any express warranty a company may offer.
1. Consumer guarantees cannot be excluded, restricted or modified
Consumers who have purchased a faulty product have rights under the consumer guarantees regime to a remedy such as a repair, replacement or refund. The ACCC has made clear that businesses cannot seek to restrict or alter those rights under the ACL.
In ACCC proceedings against Thermomix, the Court ordered a penalty of $4.6 million against Thermomix for making false or misleading representations and misleading the public in relation to its Thermomix kitchen appliances. In particular, Thermomix sought to exclude or modify the consumer guarantees regime by misrepresenting that a customer's entitlement to a refund or remedy was conditional upon signing a non-disclosure agreement (in effect, seeking to exclude or restrict a consumer's rights). Thermomix also misrepresented to consumers that refunds or replacements were not available.
2. Avoid blanket 'no refund' representations
A blanket representation that 'no refunds' are available will be misleading under the ACL.
Jetstar, Virgin Australia, Tigerair and Qantas came under ACCC scrutiny over, amongst other things, blanket statements that some (generally cheaper) flights were non-refundable. The ACCC accepted a court-enforceable undertaking from each of the four airlines for them to amend their policies and practices in relation to the ACL consumer guarantees. In addition, proceedings were brought against Jetstar over its claims that some fares were not refundable, and that consumers could only get a refund if they purchased a more expensive fare. Jetstar and the ACCC jointly submitted that Jetstar should be ordered to pay a penalty of $1.95 million.
In taking action against the companies, the ACCC highlighted that no matter how cheap the fares are, airlines cannot make blanket statements to consumers that flights are non-refundable because flights (as services) come with automatic consumer guarantees, and these rights cannot be excluded, restricted or modified. Under the consumer guarantees regime, consumers have a right to a remedy if services, including flights, are not supplied within a reasonable time frame. If a flight is cancelled or significantly delayed for a reason that is within the airline's control, passengers may be entitled to a refund under the ACL. A representation that 'no refunds' are available misrepresents the remedy potentially available to a consumer and is therefore misleading.
3. Overseas based companies selling products to Australian consumers are caught by ACL.
Any overseas business that supplies products to consumers in Australia is subject to the ACL, including the consumer guarantees regime.
Online sporting goods retailer Wiggle paid an infringement notice (totalling $12,600) and provided a court enforceable undertaking to resolve ACCC concerns over its refund policy, which represented that the company was not subject to the ACL because it was based in the UK. The ACCC has emphasised that the law applies to companies that sell products to consumers in Australia, including those based overseas. As discussed above, statements by retailers which seek to limit or exclude the ACL consumer guarantees regime may also be seen as misleading and likely to contravene the ACL.
4. Retailers cannot redirect responsibility to the manufacturer
Wiggle's infringement notice also addressed concerns that it engaged in misleading or deceptive conduct by representing that customers needed to contact manufacturers directly to obtain a remedy for faulty products. The ACCC has made it clear that, under the ACL consumer guarantees regime, consumers are entitled to remedies from the business that sold them the product.
5. Consumer guarantees apply to used items and to sale items
The ACCC was also concerned that Wiggle engaged in misleading or deceptive conduct by representing that it would not provide a full refund for a faulty product where the product had been used. The ACCC highlighted that, where a product is faulty, it does not matter that a consumer has used the goods.
In another matter, Lululemon paid an infringement notice (totalling $32,400) to resolve concerns that it represented, on its website, that consumers were not entitled to a refund or a replacement for faulty products if they were sale items. This included website representations relating to sale items that “We made a little extra – don’t be shy, help yourself. It’s yours for keeps so no returns and no exchanges”. The ACCC has made clear that a consumer's rights under the consumer guarantees regime are not limited to items that are purchased at full price.
6. Consumer guarantees have no expiry date
The ACL consumer guarantees regime are not limited to a specific time period. A returns policy or other representation which specifies a time limit for customers to qualify for a remedy is likely to be misleading.
Following an investigation by the ACCC, several AFL and NRL clubs amended their returns and refund policies to address concerns that they misrepresented that faulty products must be returned within a specified time period to qualify for a remedy. The policies that the items must be unworn and purchased at full price to qualify for a remedy were also misleading.
In another matter, Jenny Craig paid an infringement notice (totalling $37,800) to resolve concerns over misleading representations, including around consumer guarantees. In particular, Jenny Craig’s membership agreement represented that refund rights in relation to faulty products required the customer to notify Jenny Craig within three days and return faulty products within 10 business days in their original packaging.
7. Consumer guarantees do not require original proof of purchase
The ACCC has also highlighted that the ACL does not require consumers to present an original proof of purchase in order to exercise their rights under the regime. In addition to the concerns above around the returns policies, several AFL and NRL clubs also misled consumers by informing them that they needed to provide the original proof of purchase when seeking a remedy.
8. Companies are responsible for their faulty products, even where repaired by a third party
In ACCC proceedings, the Court fined Apple US and Apple Australia $9 million in penalties for making false or misleading representations to customers with faulty iPhones and iPads. This related to a representation by Apple that led customers to believe they would not be eligible for remedy for a faulty device because they used a third party repairer. The Court declared the fact that the product had been repaired by a third party did not result in the ACL consumer guarantees regime ceasing to apply, nor the consumer’s right to a remedy being extinguished. In addition to the penalty, Apple also offered a court enforceable undertaking and implemented an outreach program to compensate some 5,000 individual consumers.
9. Any manufacturers' warranty exists in addition to (and does not supplant) consumer guarantees
Manufacturers' warranties exist in addition to, and do not override, the ACL consumer guarantees regime, and consumers may have rights under the ACL regime even where a manufacturer's warranty has expired or does not apply. Representations that consumers only have rights under the manufacturer's warranty or that such a warranty replaces the ACL consumer guarantees regimes will be misleading.
In ACCC proceedings, the Full Federal Court found that LG had effectively misrepresented that no rights other than those under LG’s manufacturer’s warranty existed.
Fitbit provided a court enforceable undertaking under which it agreed to amend information about a customer's consumer guarantee rights. This followed concerns around Fitbit's representations over its own limited express warranty, where it told customers that its warranty against faulty products was only available for one year. Fitbit agreed to extend its warranty period from one to two years, and to amend the information on its website and product packaging to clarify that its express warranties apply in addition to the ACL consumer guarantees regime.
Pandora also recently provided a court enforceable undertaking following concerns that Pandora's website and staff provided inaccurate or misleading information about the consumer guarantee regime, including misrepresenting to customers that Pandora's warranty policy overrode the consumer guarantees regime. Pandora staff also told consumers that Pandora did not provide refunds. In addition, Pandora's product warranty failed to include the mandatory text required under the ACL.
10. Suppliers should inform customers of their rights under the ACL
In the proceedings against LG, the Full Federal Court noted that having a system in place of never mentioning the ACL consumer guarantee regime unless specifically invoked by the customer, risked being misleading conduct, as it may be very close to effectively denying the existence to the ACL consumer guarantees regime altogether. The ACCC highlighted that this should serve as a warning to businesses that they run a risk if they choose not to mention the ACL consumer guarantees regime to consumers. Businesses should review their policies and materials to ensure that there is clear and adequate disclosure of the ACL consumer guarantees regime and remedies under that regime.
11. New mandatory wording required for warranties against defects for services
Some businesses may choose to provide a warranty against defects to consumers, which applies in addition to the consumer guarantees under the ACL. On and from 8 June 2019, businesses supplying services, or goods and services together, must include new mandatory text in any warranty provided against defects. Previously, the mandatory text was only required when given in connection with the supply of goods. Amongst other things, the mandatory text informs consumers that the consumer guarantees set out in the ACL cannot be excluded by warranty. Businesses providing consumers with services, or both goods and services, should review their warranties to ensure that any warranties against defects include the new mandatory text.
12. Appliances and whitegoods in the spotlight
Manufacturers and retailers of electrical appliances and whitegoods should prioritise a review of their approach to consumer guarantees, after the ACCC announced this would be a priority area. In expressing concern that 'many manufacturers and large retailers are not complying with consumer guarantee laws and this will be an area of renewed focus for us this year', the ACCC highlighted that last year they received nearly 9,000 contacts about electrical appliances and whitegoods, with three quarters of those relating to breakdowns or other quality issues.
What you should consider next?
It is important to review and seek advice around your complaints and returns policies, terms and conditions of sale, packaging, website, advertising and other materials to:
- ensure you do not seek to limit, modify, exclude or otherwise misrepresent the existence of (rights and remedies under) the ACL;
- ensure that customers are able to easily access their rights under the ACL (eg by updating company websites to include this information in a prominent way);
- ensure that staff are trained at all levels to be able to accurately inform (and not misrepresent) consumer rights and remedies; and
- review any warranties that are provided against defects in connection with the supply of services, or both goods and services, to consumers to ensure the warranties include the new mandatory text before 8 June 2019.