The Commerce Commission (NZCC) today released its Consumer Issues Report 2016, the third such Report completed by the NZCC’s Intelligence Unit. As with the 2014 and 2015 Reports, the transparency provided by the NZCC is to be welcomed, particularly in identifying the areas of interest to the NZCC.
Our concerns around the NZCC’s decision to detail the number of complaints against specific named businesses, however, remain. As we noted last year, a complaint is not, of itself, evidence of any wrongdoing. Publishing statistics of this nature is open to manipulation and misreporting and is not necessary, or even useful, in the context of the broader objectives of the Report.
This Consumer Alert draws out the key themes of the NZCC’s 2016 Report.
The NZCC’s Consumer Issues Reports are now published on an annual basis and provide an insight into the methodology employed by the NZCC to identify potential Commerce Act, Fair Trading Act (FTA) and Credit Contracts and Consumer Finance Act (CCCFA) issues and prioritise work for the year ahead.
The 2016 Report
There are a number of useful insights into the NZCC’s work in the 2016 Report. This transparency into the issues exercising the NZCC and its areas of focus is to be commended.
Transparency around priorities
The NZCC’s analysis of potential current and emerging risks to consumers continues to be an interesting insight into its likely enforcement priorities for the year ahead. This includes a summary of key economic and social trends that may have flow-on effects in the consumer law space, such as the continued progression of digital convergence, which is leading to an ever-increasing number of complaints being generated in respect of online trading.
Perhaps most helpfully, 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. These colour coded lists, available (for FTA, CCCFA and Commerce Act issues respectively) at pages 28, 41 and 44 of the 2016 Report, continue to be valuable reference materials for those seeking to understand and anticipate the NZCC’s direction of travel as regards enforcement. Key risks identified this year include:
- CCCFA: The most complained about CCCFA-related conduct is non-disclosure, due to the way it can disadvantage consumers and place them under financial strain. The NZCC also expressed concern about the targeting of vulnerable consumers by some traders and lenders. The number of complaints about the practices of non-bank lenders is disproportionate to their market share.
- Fair Trading Act: Misrepresentation of products in the building industry as fit for purpose, safe or compliant with standards can cause significant detriment. Small numbers of traders can cause significant aggregated harm to consumers (eg a small overcharge on a popular item available nationally can have wide-reaching effects).
- Commerce Act: As they were in 2014, industry associations remain the highest-risk priority for the NZCC, to the extent that they can provide an environment facilitative of price fixing / cartel conduct.
Complaint volumes don’t tell you anything about wrongdoing – so why are they there?
It is unfortunate that the NZCC continues to publish the number of complaints levelled against specific businesses. This ‘naming and shaming’ risks reputational damage to those businesses that outweighs any benefit to consumers. This is particularly the case given the caveats to the disclosure of the number of per-business complaints acknowledged by the NZCC itself:
- complaints do not, in themselves, indicate that any law has been breached;
- complaints do not, in themselves, establish that any consumer harm has been generated by the conduct complained about;
- larger traders are more likely to generate complaints simply by virtue of their scale, rather than greater culpability, which is not adjusted for in the NZCC's table;
- orchestrated complaints campaigns against traders can inflate complaints numbers;
- where the public is aware the NZCC cannot act on a matter this can discourage complaints;
- complaints can be about a single matter or many matters, meaning that matters attracting greater publicity may yield greater numbers of complaints, regardless of actual illegality or extent of consumer harm; and
- some complaints on the same matter are likely to have reached other complaint bodies instead of the NZCC.
In relation to its Trader Compliance Programme, a voluntary programme created to monitor the compliance with consumer laws of its participants, the NZCC noted:1
"Considering candidates on complaint numbers alone would result in an unbalanced selection process. For example, it is not unknown for complaints to the Commission to be motivated by an orchestrated campaign about a matter not considered to breach the legislation we enforce. In some cases a trader may generate a high number of complaints about a single event, which would not in itself mean participation in the Trader Compliance Programme would be appropriate".
As we noted in respect of the 2015 report, the numbers and lists of names also do not give sufficient prominence to the context in which complaints arose. For example, the 2016 Report lists Harvey Norman as the fourth most complained about trader under the FTA, only noting via footnote that 84 of Harvey Norman's 117 complaints (72%) were a result of a single instance of online pricing error.
The reporting in the media of last year’s Consumer Issues Report is clear evidence of the likelihood of error, despite the caveats to the numbers and lists of names noted in the report.
Regardless of the caveats, publishing the number of complaints received about individual named companies in an official report about NZCC enforcement gives the impression those companies have done wrong, or are more likely to have done wrong, than other companies who are not listed.
It is hoped that in the next iteration of the report, the NZCC elects to present this information in a more balanced way, for example by:
- listing the number of complaints by industry;
- only naming businesses where the NZCC has proven (or the business has admitted) engaging in conduct in breach of the law; and
- adding more detail and priority to the valuable colour-coded risk matrixes prepared by the NZCC.
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.
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.