Watching China’s move to a new Law on the Protection of Consumer Rights and Interests (“CPL”) in May 2013, we reported on the first draft of the Amendments to the Law on the Protection of Consumer Rights and Interests (“First CPL Draft”), which was released to solicit public comment. In the meantime, the First CPL Draft has been discussed and revised by the National People’s Congress (“NPC”). On 6 September 2013, the NPC issued the second version of this draft (“Second CPL Draft”) for public comment. The deadline for submitting comments expires on 5 October 2013.

The Second CPL Draft includes certain changes which, if implemented in the new CPL, will be highly important for business operators selling consumer products in China. We have set out the main changes compared with the First CPL Draft below:

  1. More clarity for online sales returns

The most significant innovation in the First CPL Draft was a new seven-day unconditional right of return for products bought online or through other means of long-distance selling, with full refund of the purchase price. The First CPL Draft only excluded this right for products that are not suitable for return due to their nature.

As could have been predicted, such an unconditional right of return raised concerns among various business operators who were afraid of customers intentionally abusing their rights. In response, Article 28 of the Second CPL Draft now lists a range of products for which the right of return is excluded. These exceptions are:

  1. Products customised for the consumer;
  2. Fresh and perishable commodities;
  3. Audio-visual products and computer software if the packaging has been opened by the consumer;
  4. Newspapers and magazines; and
  5. Other goods which are not suitable for return due to their nature.

It remains to be seen once this round of public comments on the Second CPL Draft has been assessed whether the above exceptions are sufficient for the needs of the business community, or whether more restrictions to the return rights will need to be included.

One further important change was made in Article 28 of the Second CPL Draft: consumers must return the product within seven days of submitting the return request to the business operator. The First CPL Draft had not stipulated any time limit for the actual return.

  1. Two repair attempts before return of defective products

According to the First CPL Draft, consumers would be allowed to return defective products within the first seven days of receiving them. Thereafter consumers may only return the goods if they do so promptly and in line with the PRC Contract Law. Otherwise they are limited to the right of replacement or repair of the product.

Article 24 of the Second CPL Draft stipulates this more precisely by including a former requirement from the original CPL which was omitted from the First CPL Draft: Return of defective products after the seven-day period shall only be permitted if the item still malfunctions despite being repaired twice within the warranty period, and if it is returned promptly. Otherwise, it is only possible to have the defective product replaced.

The mandatory two repair attempts make it more burdensome for consumers than intended by the First CPL Draft to return defective products and have the purchase price refunded after the initial seven-day period.

  1.     Liability of online platform providers further extended

The current Article 38 of the CPL already imposes a backup liability on the organisers of trade fairs and lessors of sales counters if consumers’ rights and interests have been infringed in purchasing commodities or receiving services and the trade fairs have already closed or the lease of the counters has expired. The First CPL Draft extended this backup liability to providers of online sales platforms in the event that the sellers or service providers no longer use the online transaction platforms.

The Second CPL Draft now goes a step further and introduces a genuine liability for providers of online sales platforms. According to Article 43 of the Second CPL Draft, providers of online transaction platforms who know that sellers or service providers are infringing consumers’ legitimate rights and interests via their platforms and fail to take necessary measures against it will be jointly and severally liable for damages together with such sellers and service providers.

This means that in the above cases the affected consumers do not need to try to claim against sellers or service providers, but can raise their claims directly against the online platform providers. If implemented in the new CPL, such liability could substantially affect the risk management needs of online platform providers operating in China.

  1. Liability for fraudulent recommendations

According to the First CPL Draft, consumers affected by fraudulent advertisements are entitled to demand compensation from business operators. Advertising agents and advertisement publishers who cannot provide the real names and addresses of the business operators would also be liable to pay compensation.

Article 44 of the Second CPL Draft now extends this liability to social groups, other organisations and individuals that participate in the above fraudulent advertisement by recommending goods or services. If such advertisements cause losses to consumers, the above social groups, other organisations and individuals will be jointly and severally liable together with the seller or service provider.

  1. Increased punitive damages

The First CPL Draft granted consumers the right to claim punitive damages of twice the price paid for the goods or services, but at least RMB 500, if the seller or service provider engages in fraudulent activities. Article 25 of the Second CPL Draft increases the punitive damages to three times the price paid, but at least RMB 500.

The further increase in the penalty is apparently intended to have a deterrent effect on business operators.

  1. Publication of infringements

Article 55 of the Second CPL Draft introduces the publication of infringing activities. Where business operators commit certain infringements of the CPL, they will be fined in accordance with the laws and regulations, and the relevant departments will record the violations and make them public.

Such publication of infringements by the authorities is a feature of the PRC Food Safety Law, for example. Since this can severely damage a business operator’s reputation, it will be even more important for all companies operating in China to comply with the new CPL in future.

  1. Conclusion

The Second CPL Draft introduces additional burdens and potential liability for business operators. In short, it reveals Chinese legislators’ intention to provide a legal framework which is more focused on consumer protection. On the other hand, in the interests of business operators some important issues, such as exemptions from the seven-day unconditional right of return and the two repair attempts requirement before returning defective products, have been clarified. Over the next weeks and months, we will keep an eye on further evolution of the draft until final release of the new CPL.