This Alert looks back at some of the interesting trends and developments in New Zealand's consumer law in 2012. While 2012 was a busy year for the Commerce Commission ("Commission"), 2013 promises more of the same for the Commission and businesses alike, with significant change to consumer law set to be introduced in 2013.
The Consumer Law Reform Bill
The Consumer Law Reform Bill ("Bill") proposes the most significant changes to consumer laws in more than 20 years, including substantial changes to the Fair Trading Act 1986 ("FTA") and the Consumer Guarantees Act 1993 ("CGA").1 Key reasons for reform include simplifying and modifying New Zealand's consumer laws and harmonising them with those in Australia.2
The key changes proposed to the FTA include:
- introducing a prohibition against "unfair contract terms" in standard form consumer contracts;
- introducing a prohibition against "unsubstantiated claims" made in trade;
- introducing a regime allowing businesses to contract out of their obligations under the FTA in business-to-business transactions, provided such an exclusion is in writing and is "fair and reasonable";
- tripling the maximum penalties for breaches of the FTA, from $60,000 to $200,000 per offence for individuals, and from $200,000 to $600,000 per offence for companies; and
- introducing compulsory interview powers for the Commission in FTA investigations, and mirroring the Commission's existing powers under the Commerce Act 1986 ("Commerce Act") and the Credit Contracts and Consumer Finance Act 2003 ("CCCFA").
The Bill underwent its Second Reading on 12 December 2012, and is expected to pass into law early next year.3
A Christmas message from the Commerce Commission
The Commission has recently urged retailers to be aware of their responsibilities under the FTA as the Christmas shopping season heats up.4 Key messages include:
- remembering that the FTA applies to online businesses as much as traditional bricks and mortar stores;
- recognising that failure to deliver goods purchased online by the promised date is a common cause of complaints;
- taking care when using "was/now" pricing: raising prices and quickly lowering them to give the impression of larger 'savings' is misleading;
- claiming a product is New Zealand-made in order to boost sales is a breach of the FTA.
Commission fires shots across the bows
A number of examples in 2012 have emphasised the importance and benefit of full and timely cooperation with the Commission in cases of a suspected breach of the Fair Trading Act:
- IAG on shaky ground - The Commission reached a settlement with insurer IAG after they informed the Commission in October 2011 of potential FTA breaches discovered while assessing claims relating to the Canterbury earthquakes. An internal error resulted in the sum insured for more than 150,000 policy holders being less than it should be. The insurer has promised to account to customers who have already been paid the incorrect amount and resolve the problem with the remainder of affected policy holders. The Commission has commended IAG for its prompt notification of the error and its willingness to resolve the matter to the satisfaction of all affected policy holders.5
- Sky TV warned over possible FTA breach - Sky TV launched a promotion offering existing subscribers an upgrade to a premium channel for $1 a month, with the $1 being donated to the Starship Foundation. Following a complaint, the Commission discovered that 2,633 customers had been incorrectly charged. When Sky TV was contacted by the Commission, it promptly conducted its own investigation and found that its automated customer service line had not been updated with the $1 promotional price. Affected customers were credited the sum of $55,990, and the correct sum was donated to the Starship Foundation. Sky TV's full cooperation and prompt action resulted in the decision to issue a warning letter rather than bring charges.6
- Compare apples with apples - Progressive received a warning from the Commission for possible FTA breaches in relation to beer sale advertising in late 2010 and early 2011.7 Progressive had advertised that customers could save "at least 20%" or "at least 25%" off all beer at its Countdown, Foodtown and Woolworths supermarkets. Progressive confirmed that in some cases, the discount was calculated from the "standard shelf price", despite the fact that the beer had not been sold at that standard price for months. The Commission warned that using the standard shelf price as the basis for a discount when it had not been displayed or charged for months was misleading. Willingness to cooperate with the Commission and evidence that the practice was widespread in the industry, resulted in a warning being issued on this particular occasion.
- Whose vine is it anyway? - In September and October Kiwi Pollen sold pollen imported from Chile, re-packaged and re-labelled with 'Kiwi Pollen New Zealand" stickers. The Commission alleged that this misled customers into thinking that the pollen was from New Zealand. In considering whether to take action against Kiwi Pollen the Commission considered the possible harm to consumers, given the allegations that the imported pollen was a potential source of the Pseudomona syringe actinidiae outbreak. Lack of conclusive evidence as to this fact, as well as the short and seemingly unintentional nature of the misleading conduct, resulted in the Commission's decision to warn Kiwi Pollen rather than prosecute.8
- Don't take the bait - In April Qupon, a start-up company offering daily deal vouchers, received a warning from the Commission for bait advertising.9 The Commission received complaints relating to Qupon offers for Z Energy petrol vouchers and The Warehouse gift cards. Qupon's website could not cope with the demand for vouchers, and crashed. Even if their website could have coped it was unlikely Qupon could have honoured the deals, due to insufficient funds and credit arrangements. The Commission has targeted daily deal websites this year due to the volume of complaints from consumers regarding this industry.
Vodafone cops record FTA fines
In September of this year, Vodafone was ordered to pay fines totalling nearly $1.5 million for 21 charges of breaching the FTA. The breaches related to various advertising campaigns run from October 2006 to February 2009, including Broadband Everywhere, Supa Prepay Connection Pack and Largest 3G Network.10
The products advertised were relatively new to the market at the time, so consumers had no easy way of verifying claims made by Vodafone regarding the products. The Court described Vodafone's conduct as "gross carelessness" and noted that Vodafone had not acted on the concerns raised with the level of seriousness required, despite having the necessary technology and resources.
The Commission reminded businesses that the initial impression given by an advertisement is important, and fine print qualifiers will rarely be a saving grace when an advertisement is misleading at first glance.
Overhaul of credit contracts and consumer finance in the pipeline
The Credit Contracts and Consumer Finance Amendment Bill Exposure Draft ("Exposure Draft") was released by the Ministry of Consumer Affairs on 2 April 2012. The aim is to make significant changes to consumer credit laws under the CCCFA, as the Government seeks to crack down on loan sharks and irresponsible lenders.11
The Exposure Draft seeks to increase borrower protection through various initiatives, including:12
- introducing a series of responsible lending principles, to be accompanied by a Responsible Lending Code;
- requiring up-front disclosure of loan terms and extending the cooling off period for consumers to cancel their loan from three to five working days;
- amending the substantial hardship and oppressive contract provisions to remedy existing deficiencies; and
- providing that lenders who are not registered financial service providers will no longer be able to recover the costs of interest or fees from their customers.
The Bill is currently at the top of Parliament's agenda, so is expected to pass early in the New Year.