The Commerce Commission recently released its Consumer Issues Report 2016/17, the fourth such report to be completed by the commission's intelligence unit. As with previous consumer issues reports, the transparency that the commission provides is to be welcomed, particularly with regard to identifying its areas of interest.
In the consumer law area, the number of complaints has increased, particularly in relation to pricing practices, online selling and responsible lending.
However, for the third time in as many years, there are concerns regarding the commission's decision to detail the number of complaints against specific named businesses. The concerns remain principally because a complaint is not evidence of any wrongdoing. Publishing statistics of this nature is open to manipulation and misreporting and is neither necessary nor useful in the context of the report's broader objectives. This has already been demonstrated by recent media headlines.
The Commerce Commission's consumer issue reports are now published on an annual basis and provide an insight into the methodology that it employs to identify potential issues regarding the Commerce Act, the Fair Trading Act and the Credit Contracts and Consumer Finance Act and prioritise work for the year ahead. The 2016/17 report was published in light of the Commerce Commission Vision and Strategy for 2017 to 2022, which states that the commission will look to "seize opportunities to have the greatest impact".
The 2016/17 report provides a number of useful insights into the Commerce Commission's work.
Transparency around priorities
The Commerce Commission's analysis of potential and emerging risks to consumers continues to be an interesting insight into its likely enforcement priorities for the year ahead and summarises key economic and social trends that may have flow-on effects in the consumer law space. For example, the commission notes that New Zealand's online spending continues to grow by double-digit percentages annually and that there has been a correlated increase in complaints concerning online trading.(1)
As in previous years, the commission has structured its report in three main sections concerning:
- consumers (and associated activity in relation to the Fair Trading Act):
- the consumer credit environment (as addressed through the Credit Contracts and Consumer Finance Act); and
- competitive environments (which the commission examines through the Commerce Act).
Each section of the report includes a list of issues that the commission is considering and these lists continue to be valuable reference points for those seeking to understand and anticipate the commission's direction as regards enforcement. The report also includes a new section summarising the commission's key observations from complaints and discusses its red flag initiative in the Credit Contracts and Consumer Finance Act space. Red flags include:
- mobile traders (which have their own section within the report) and door-to-door sellers;
- irresponsible lending practices; and
- high-cost, short-terms loans.
The key risks identified in the 2016/17 report include the following.
Fair Trading Act
As in 2015, pricing practices, including in industries which have large numbers of daily transactions (eg, supermarkets), continue to attract a large number of Fair Trading Act complaints. This helps to explain the commission's open letter to retailers in May 2017, although it was hoped that the number and scope of such complaints would enable the commission to provide more definitive guidance on such issues.
Online communications now represent 42% of all Fair Trading Act complaints (up from 34% in 2015), perhaps indicating a growth in online shopping. At a time when online buying in New Zealand looks to increase further, the report provides a timely reminder that consumers must be careful when buying online, particularly from overseas online retailers.
Telecoms service providers received a total of 603 complaints (although, as discussed below, the pure volume of complaints is an unreliable gauge of which area poses the most harm to consumers).
Credit Contracts and Consumer Finance Act
The number of complaints regarding the practices of non-bank lenders continues to be identified as significantly disproportionate to their market share. Finance Companies received 24% of Credit Contracts and Consumer Finance Act complaints while representing only 2% of the New Zealand credit market.
The utilities and infrastructure sector generated the most Commerce Act complaints, suggesting that this will be an area that continues to be monitored by the commission. The report also notes that the year under review was absent of any spike in multiple complaints concerning the same conduct.
It is disappointing that the Consumer Commission continues to publish the number of complaints filed against specific businesses. Naming and shaming risks causing reputational damage to the businesses in question and outweighs any benefit to consumers. The caveats to the disclosure of the number of per-business complaints acknowledged by the commission are numerous and comprehensive. For example:
- complaints do not indicate that any law has been breached;
- complaints do not establish that any consumer harm has been generated by the conduct complained about;
- larger traders are more likely to generate complaints simply by virtue of their scale, rather than greater culpability, which is not adjusted for in the commission's table;
- orchestrated campaigns against traders can inflate complaint numbers;
- where the public is aware that the commission cannot act on a matter, this can discourage complaints;
- complaints can be about a single matter or many matters, meaning that matters attracting greater publicity may yield greater numbers of complaints, regardless of actual illegality or the extent of consumer harm; and
- some complaints on the same matter are likely to have reached other complaint bodies instead of the commission.
As seen in previous years, media reporting of the commission's findings tends to lead with the list and volume of complaints. The commission's own caveats are hidden within the body of any reporting (or not commented on at all).(2)
Regardless of the caveats, publishing the number of complaints received about individual named companies in an official report gives the impression that those companies have done wrong or are more likely to have done wrong when compared with other companies that are not listed.
It was hoped that the commission would present this information in a more balanced way – for example, by:
- listing the number of complaints by industry; and
- only naming businesses that the commission has proven (or the business has admitted) engaged in unlawful conduct.
Unfortunately, these suggestions have not been implemented or have been implemented in some industries (eg, airlines), but not others (eg, telecoms).
Also of interest in the 2016/17 report was the Consumer Commission's acknowledgement of a material increase in the number of merger applications declined over the past year. The commission was at pains to point out that this increase in the number of declined applications was not a result of a change of process within the commission.(3)
The Consumer Commission's approach of publishing an annual consumer issues report provides useful guide for businesses to identify the issues on which the commission is focused and the conduct that it considers could potentially breach the statutes that it enforces.
However, although greater transparency is to be commended, a failure to balance this against the legitimate interests of businesses that have not been involved in any breach of the law, but which are still named and shamed, risks turning the consumer issues report into a publication which does more harm than good.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
For further information on this topic please contact Sarah Keene or Troy Pilkington at Russell McVeagh by telephone (+64 9 367 8000) or email (firstname.lastname@example.org or email@example.com). The Russell McVeagh website can be accessed at www.russellmcveagh.co.nz.
(2) See, for example, "Vodafone tops New Zealand's most complained about traders".