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Competition Update – Commerce Commission Consumer Issues Report 2015: Where there's smoke there's ... hot air...

Home Insights Competition Update – Commerce Commission Consumer Issues Report 2015: Where there's smoke there's ... hot air...

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Contributed by: Sarah Keene, Troy Pilkington and Sam Holmes

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Published on: September 25, 2015

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The Commerce Commission (NZCC) today released its Consumer Issues Report 2015 (the "2015 Report"), which is a report identifying issues on the NZCC’s radar for the previous year and areas it will be prioritising in the coming year. While the report is useful in identifying the areas of interest to the NZCC, we have concerns about the NZCC’s decision to detail the number of complaints against specific named businesses. A complaint is not, of itself, evidence of any wrongdoing and publishing statistics of this nature is open to manipulation and misreporting.

This Consumer Alert explores the NZCC’s 2015 Report.

Background

The NZCC’s inaugural Consumer Issues Report (the “2014 Report”) was completed by the NZCC’s Intelligence Unit early last year, following the introduction of a new risk-based approach to targeting consumer harm. The 2014 Report was intended to be an internal document to assist the NZCC to identify potential Commerce Act, Fair Trading and Credit Contracts and Consumer Finance Act (CCCFA) issues and prioritise work for the year ahead. In May 2015, following an Official Information Act request by a Fairfax reporter, the NZCC published its 2014 Report.

After publishing the 2014 Report, the NZCC decided that from 2015 it would publish its Consumer Issues Report on an annual basis to provide an insight into the consumer issues of potential concern to the NZCC.1

The 2015 Report

There are a number of useful insights into the NZCC’s work in the 2015 Report, and on the whole this transparency into the issues exercising the NZCC and its areas of focus is to be commended. 

The good

In particular, the NZCCs analysis of potential current and emerging risks to consumers makes interesting reading. The report includes a list of current issues the NZCC is considering, with colour coding indicating the priority it is giving those issues based on a model that assesses the potential likelihood of risk and, if so, the potential detriment to consumers. Key risks identified include:

  • CCCFA: Some lending institutions charging unreasonable fees, which creates financial strain for borrowers. Interestingly, the NZCC noted that the major trading banks only account for 2% of complaints, despite representing the bulk of consumer lending.
  • Fair Trading Act: Misrepresentation of country of origin labelling, and selling practices in low income areas to vulnerable consumers.2
  • Commerce Act: The fact that industry associations continue to be a feature in the NZCC’s investigations into price fixing / cartel conduct.

The breakdown of the number of applications that the NZCC receives under its Cartel Leniency Policy also made interesting reading. To encourage reporting of price fixing conduct the NZCC, under its Cartel Leniency Policy, offers immunity from prosecution to the first member of a cartel that tells the NZCC about the cartel and provides evidence and full cooperation. While leniency applications from international businesses are decreasing, the number of applications in respect of domestic cartels has increased significantly over the last two years - with eight domestic applications across 2013 and 2014, in comparison to just three in the three years prior.

The bad

While this type of disclosure on an industry-wide basis is a useful guide for businesses to identify potential issues, the NZCC’s decision to detail the number of complaints against specific named businesses is a concerning development.  The decision to publish business specific information can be contrasted with the NZCC’s approach in its 2014 Report where it chose to redact the names of specific businesses prior to publication.

A serious concern is that the NZCC’s “naming and shaming” of identified companies by listing the number of complaints gives a misleading impression that those companies are doing wrong - when in fact the NZCC found no wrongdoing in relation to a number of the matters where the complaint tally was high. 

A complaint is not, of itself, evidence of any wrongdoing by a business. Complaints may be misguided or frivolous, or a business may generate a larger number of complaints simply due to its consumer facing presence. The way the 2015 Report lists businesses in order of complaints will appear, to the casual, even relatively educated observer, as if it is supposed to be read as a list of non-compliant businesses.

The numbers and lists of names also do not give sufficient prominence to the context in which complaints arose. For example, the 2015 Report refers to certain businesses being the subject of a high number of complaints without detailing that two cases, which accounted for almost half of all complaints under the Commerce Act, were as a result of specific NZCC requests for complaints/submissions:

  • In the first case, the complaints were in the context of a NZCC clearance process in which the NZCC actively sought submissions (which will inherently increase the number of complaints); and
  • In the second case, the NZCC (in unprecedented move) issued a media release proactively seeking complaints in respect of a specific named business.

The fact that, in both of these cases, the NZCC decided there was no illegal conduct, should have also been given more prominence. The context that these complaints were in response to NZCC requests, and ultimately the complaints did not evidence any illegal conduct, will likely be lost in subsequent media that chooses to report on the numbers of complaints detailed in the 2015 Report.

... and the ugly

The publication of names and complaint numbers alone, without context on the quality of complaints is plainly open to manipulation - a business might well be incentivised to corral a group of people to make a large number of anonymous complaints, or circulate a pro-forma complaint to friends and family, to see a competitor end up on the list in a future report.

There are also better and more balanced ways to present this information - for example, the NZCC could achieve its transparency goals, while balancing the legitimate interests of businesses, by listing the number of complaints by industry and then only name specific businesses where they have proven (or admitted) to be engaged in conduct in breach of the law.

Concluding comments

The NZCC’s new approach of publishing an annual Consumer Issues Report provides a useful guide for businesses to be able to see the issues that the NZCC is focussed on, and the conduct it considers might potentially breach one of the statutes that it enforces. We commend the NZCC for this guidance, and encourage the greater transparency it provides.

That said, it is important that interests of greater transparency are balanced against the legitimate interests of businesses that have not been involved in any breach of the law.

 


 

 

FOOTNOTES

  1. www.comcom.govt.nz/the-commission/consumer-reports/consumer-issues-report/
  2. The NZCC identified the mobile traders, also known as “truck shops”, as being prevalent in low income areas where a high number of consumers have limited financial literacy.   
 

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.

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