After a long gestation process1 the Consumer Law Reform Bill ("Bill") yesterday passed its third reading in Parliament.2  The Bill, which represents the most significant change to New Zealand's consumer law in more than 20 years, will now receive Royal Assent over the next few days and be law, although many of the most significant changes do not immediately enter into force.  Consumer Affairs Minister Hon Craig Foss stated that the Bill will strengthen consumer rights, simplify business compliance and ensure consumer protections are clear and accessible.3

A number of the changes will have a significant impact on businesses, particularly the three-fold increase in Fair Trading Act ("FTA") penalties,  the hotly debated provision on unfair contract terms in standard form contracts (which will not take effect until 15 months after the Bill is passed), and the new regime requiring businesses to substantiate representations they make to consumers.  Given that the majority of the proposed changes commence either immediately or within six months of the Bill coming into force, businesses will need to familiarise themselves with the changes and ensure that their existing practices comply  before the relevant provisions come into force.   

Three-fold increase in FTA penalties

The Bill increases the fines for contravention of Part 1 (misleading and deceptive conduct, false representations, and unfair practices), Part 3 (product safety), and the new Part 4A (consumer transactions and auctions) of the FTA.  Increases are $60,000 to $200,000 for individuals, and $200,000 to $600,000 for bodies corporate, with the new penalties taking effect six months after the Bill receives Royal Assent.4  Although the increase is not as great as that sought by the Commerce Commission, the Select Committee agreed that increasing the penalties would act as a deterrent and bring the penalty regime closer to that of comparable consumer laws and the Australian Consumer Law.

Given that FTA breaches are strict liability offences (for which no mental element need be proved) and that the Commerce Commission generally lays multiple charges to increase the total penalty achieved, these increases are likely to significantly increase risk profiles and compliance costs for businesses.

Unfair contract terms

The hotly debated prohibition on unfair provisions in standard form contracts5 will not take effect until 15 months after the Bill is passed.  This is intended to give businesses extra time to review their current contracts and to allow a period for case law guidance on the equivalent provision in Australia to develop.  Under the new provision, the Commerce Commission will be able to seek a court order declaring that a term is unfair, in that it causes one party (usually the consumer) to be disadvantaged and is not needed to protect the interests of the other party (usually the business).

Given the late addition of this significant new provision to the Bill and the potential lack of clarity in the section, businesses will need to apply extra caution in reviewing their standard form contracts to ensure compliance.  Further information on the scope of the new provision is set out in our April 2013, October 2012 and March 2012 Alerts.6

Unsubstantiated claims regime

The Bill imposes a prohibition on making "unsubstantiated representations" that will require businesses to substantiate all claims that are made to consumers with evidence of that claim, but makes it clear that the provision does not include representations that a reasonable person would not expect to be substantiated.  This removes the need for the Commerce Commission to test the representation to prove a breach of the FTA, and will take effect six months after the Bill receives Royal Assent.7

Immediate change

A number of sections of the Bill will apply immediately after it receives Royal Assent.  These include:

  • a regime for consumers that reject faulty goods purchased on credit arranged by the trader to apply to the Disputes Tribunal to have the responsibility for the credit vested with the trader;
  • new powers under the FTA for the Commerce Commission to compel interviews, enforce undertakings and seek management bans for individuals that repeatedly breach the FTA;8
  • enabling the Minister to make safety statements and require prompt notification of product recalls; and
  • the appointment of product safety officers with powers to inspect goods and business premises.

Other delayed changes

Most other sections of the Bill will apply six months after it receives Royal Assent.  These include:

  • provisions enabling parties to negotiate out of their Consumer Guarantees Act 1993 ("CGA") and FTA obligations in business-to-business transactions;
  • the extension of CGA coverage to all transactions (including online businesses, auction sites like Trade Me, tenders and mobile applications) where the seller is a "trader", with traders required to identify themselves as such;
  • liability for traders if goods don’t arrive on time, or are damaged;
  • disclosure requirements for extended warranties and a five day cooling off period;
  • introduction of a five working day cooling off period for uninvited direct door-to-door and telephone sales; and
  • the ability of the Commerce Commission to issue infringement notices and fines of up to $2,000 for clear-cut offences.

Conclusion

Given the untested nature of a number of the provisions, the general increase in the obligations of businesses and the significantly increased penalties for breach, it seems unlikely that the Bill will simplify business compliance in the manner intended by the Minister.  With Royal Assent likely to occur over the next few days, now is the time for businesses to consider whether their existing practices are likely to increase their risk profile when these changes take effect.