2017 has been a busy and important year for consumer law matters. We have seen the recent major consumer law reforms gaining traction, and the Commerce Commission has proven very active in consumer-related enforcement areas.
The courts are reflecting the increase in FTA penalties
In 2014, the Fair Trading Amendment Act came into effect and increased the maximum corporate penalty for breaching the Fair Trading Act 1986 (FTA) from $200,000 to $600,000, as well as increasing the fine for individuals to a maximum of $200,000 per offence. As was the case when the penalties were last increased, the trebling of penalties has been reflected in several of the larger penalties ordered for FTA breaches this year, including:
- In January, Reckitt Benckiser New Zealand was fined $1.08m for 10 representative charges, for representations in relation to its specific pain products.
- In February, Bike Barn (Bike Retail Group Limited and Bikes International Limited) was fined $800,000 for misleading representations about its discounts.
- Throughout 2017, the Commission prosecuted 13 mobile traders who have collectively been fined almost $900,000 for a range of Credit Contracts and Consumer Finance Act 2003 (CCCFA) and FTA breaches. This follows the Commission's investigations into the mobile trader industry in 2014/15 and the compliance advice issued to traders at that time.
Unfair contract terms
The Commission has previously undertaken reviews of standard form consumer contracts in the telecommunications and retail energy sectors. Continuing this line of inquiry, in August the Commission completed a review of gym consumer contracts. This was in response to the Commission receiving complaints about that sector, as well as being based on the experience of overseas regulators and the Commission's assessment that unfair contracts in this sector could lead to significant consumer harm.
The Commission identified potentially unfair terms relating to:
- the duration of gym contracts and terms relating to automatic renewal;
- cancellation of contracts;
- variation of contracts; and
- liability under the contracts, including terms that appeared to contract out of the FTA or Consumer Guarantees Act.
The Commission provided compliance advice to the gyms that participated in the review, and the majority of the gyms involved agreed to amend their standard form contracts where the Commission considered it was necessary.
While the Commission has now undertaken several sector-wide reviews, the wait will continue until (at least) 2018 before we see any case law development in the unfair contract term space.
The Fair Trading Amendment Act 2014 also introduced provisions to prevent businesses making unsubstantiated representations. In November 2015, the Commission issued a warning to Baa Baa Beads for failing to substantiate its claims about the therapeutic benefits of its amber products.
This year saw the first unsubstantiated claims prosecution; in September, Fujitsu General New Zealand Limited was fined $310,000 for making unsubstantiated and misleading claims, such as that its heat pumps were "NZ's most energy efficient heat pump range", when it had no reasonable grounds to make those claims at that time. Fujitsu also made false/misleading claims about the efficiency of one of its heat pumps, claiming that it "delivered $4.92 heat for a $1 power", when this could only be achieved under laboratory conditions.
In December, the Commission issued a warning to NZ Fibre Communications Limited (Stuff Fibre) for claiming that it is "Probably NZ's Fastest Internet", with the Commission forming the view that there were no reasonable grounds to make that claim, as it was not based on broadband speed testing or other research.
First jail sentence for Commerce Commission prosecution
In March, the first jail sentence in a Commission prosecution was imposed on Vikram Mehta, the owner of Flexi Buy Limited (a mobile trader). Mr Mehta was convicted under the Crimes Act 1961 to two years imprisonment, after he took money from customers without intending to supply the goods promised. Instead, Mr Mehta used the sales proceeds for his own personal use. Mr Mehta's company, Flexi Buy, had entered into 300 contracts with customers, but only 9 customers ever received their goods. Mr Mehta's appeal against the decision was dismissed in November.
Consumer complaints on retail pricing
As signalled early in the year, retail pricing was an area of focus and active enforcement for the Commission. Retail pricing was also on consumers' minds; it was the category with the highest number of complaints in the Commission's 2017 financial year.
In May, the Commission published an open letter to retailers that highlighted problematic pricing practices, and also provided high-level guidance on how to avoid them. The guidance note includes advice on planning and advertising discounts, the use of fine print, and the use of superlatives such as "lowest" and "cheapest" prices. We expect to see more activity from the Commission in this area in 2018.
Uninvited direct sales
As noted above, the Commission's continued investigation and prosecution of mobile traders continued in 2017, with some of the charges related to vendors' failures to conform to the rules for uninvited direct sales.
In addition, in November, Auckland Academy of Learning Limited (AAL) was fined $351,000 for making misrepresentations during cold-calls with parents of school-aged children, to whom they were trying to sell an educational computer software programme. The parents were unaware that this was the true purpose of the call, as they were told AAL was offering an "evaluation and tutoring" session in maths and English. When parents were told their children were "behind", or had gaps in their knowledge, many parents felt "guilted" into buying the software programme.
One significant trend overseas is concern about the increasing role and impact of social media influencers and sponsored content in advertising to consumers. Advertising on social media is becoming an increasingly important aspect of marketing, evolving into a multi-million dollar industry over recent years. In the US and the UK, influencers are legally required to disclose that a social media post has been sponsored by a third party. The key focus of related decisions in those jurisdictions has been the need for transparency, as a connection between the influencer and the seller in the form of paid content could materially affect the weight or credibility a consumer gives the content.
New Zealand does not currently have specific rules around this form of advertising. However, social media advertising is subject to the FTA, which prohibits "misleading and deceptive conduct in trade". Additionally, the Advertising Standard Authority's Advertising Code of Ethics and guidelines on social media advertising recommend advertisements be clearly distinguishable from other (unpaid) content. This is a developing area of the law, which could significantly affect advertising on social media in future.
We expect 2018 to be another active year for the Commission. The Commission has shown that it is willing to take enforcement steps on multiple levels – from education to warning letters, and also taking more serious action such as prosecution.
The Commission's priority focus areas for 2017/18 include:
- The retail telecommunications sector: The Commission's view is that "[a]lmost every New Zealander uses a mobile or fixed-line phone and broadband, meaning the telecommunications sector has the potential to have a significant impact on consumers". The Commission intends to provide consumers with information to allow them to make informed purchasing decisions, as well as assisting consumers to realise when they have a legal issue.
- Responsible lending (including online lending):
- The Commission took steps this year to promote responsible lending, including its focus on the mobile trader sector.
- Credence claims (particularly country of origin and food product claims):
- Credence claims are claims made about a product that cannot be easily verified by customers. The Commission has taken action during 2017 against some false credence claims, including bringing claims against "Made in New Zealand" bee pollen that was in fact, made in China.
If you have any questions in relation to any of the issues discussed above, please contact any of the contacts listed below.