The Commerce Commission is proposing to make public its 2014 Strategic Intelligence Assessment (the Report), 14 months after it was produced. The Report records a careful, well reasoned, analysis of priority areas for enforcement, drawing on international trends and specific New Zealand market concerns. However, the fact its release was triggered by a Stuff reporter's request raises questions about the Commission's standard approach to transparency of its activities and its use of information.
What is it?
The Report was prepared by the Commission’s Intelligence Unit, following the introduction of a new risk-based approach to target consumer harm. This initiative is intended to address underlying issues that continue to affect consumers by identifying high-risk sectors and those traders who cause the greatest consumer detriment.
The Report uses data from a wide range of sources, including private organisations, such as Consumer New Zealand, and other government agencies, such as the Ministry of Business, Innovation & Employment’s Loan Complaints Line, as well as from “knowledge from Commission staff”, to identify sectors, industries and traders with the greatest levels of non-compliance. The Commission notes that its analysis should enable it to focus its limited resources on areas where it can have maximum impact, and best protect vulnerable consumers,1 while simultaneously reducing the number of investigations undertaken and increasing the Commission’s overall effectiveness.2
The Commission’s 2014 briefing to the incoming Minister suggests that similar reports will be prepared each year.
What's in the Report?
The Report is oddly entitled “Consumer Issues” but does not just cover consumer law matters. Rather, it spans a full range of Commerce Act, Fair Trading Act, and Credit Contracts and Consumer Finance Act issues, including complaint statistics for each of these areas.
The analysis starts with an examination of the broader economic environment the Commission is operating in and then identifies and prioritises risks to consumers. Enquiry and complaints data from consumer-oriented organisations appear to have been heavily relied upon. A broad initial pool of risks were then validated or discarded in the analysis through assessing the frequency of occurrence, multiplied by the likely degree of detriment to consumers (although some of these ratings, especially around emerging risks, appear to be based on limited evidence).
The process led the Commission to identify a list of the 22 most harmful issues affecting consumers and markets, as well as a list of the 25 traders with the highest levels of complaints. Although the rankings and identities of traders are redacted from the copy of the report released under the Official Information Act, some of the more prominent issues in the report include:
- consumer issues in domestic appliance retailing, including practices around extended warranties;
- increased opportunities to mislead consumers through social media;
- consumers being charged excessive fees by some lending institutions (with lower tier lenders causing the most financial harm); and
- industry associations potentially facilitating cartel or exclusionary type arrangements.
This is the type of analysis we would hope and expect the Commission, as a resource constrained, cost effective enforcement body, to be undertaking. So the question is, why was it not made public from the outset?
Why is Report being released now?
Given the Commission appears to have dedicated a considerable amount of resource to the analysis, the value of the Report would have been maximised by making it available at around the same time it was released internally. This approach would have been consistent with the Commission's stated intent to make day-to-day operations transparent and be held accountable for its performance.3
If, on the other hand, the Report was not released at first instance due to the sensitivity of its content, it is not clear why that has now changed.
Use of information held by Commission
The analysis is informed by, inter alia, “knowledge from Commission staff”. The knowledge of Commission staff will naturally be based on information received by staff in the course of carrying out the Commission’s work in other contexts. In particular, staff are inevitably informed by briefings voluntarily provided by businesses in, for example, merger enquiries and competition law/consumer law complaints.
The use of such information in this way serves as a reminder of the fact that the Commission will hold information provided to it and use it for its broader responsibilities. To be clear, however, nothing in the Report suggests any specific confidential information relating to any particular business has been inappropriately disclosed.
Implications for Commerce Act reform of section 36
The Report’s analysis of Commerce Act complaints in 2013 reveals that the highest number of complaints (37%) were for misuse of market power (section 36), followed by contracts, arrangements and understandings substantially lessening competition (section 27), which made up 20% of complaints. While the Commission has stated that it does not have the necessary tools to successfully enforce the misuse of market power prohibition,4 the lack of any material section 27 enforcement activity by the Commission might also suggest that legislators should not expect a step change in enforcement activity if an effects test is adopted for section 36. The evidence based on section 27 cases, which is already an effects test, reveals the complexities in proving anticompetitive effects. While we do not believe there is necessarily a problem with this, it is important to be clear about what is sought to be achieved with the proposed reform of section 36 in that context.
It remains to be seen whether the Commission will release subsequent reports. In our view, if the Commission is going to disclose these reports, it would be a welcome move towards greater transparency of the considerations which are guiding the Commission's enforcement priorities.
This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.