Commerce Commission releases 2017 Consumer Issues Report
The Commerce Commission (NZCC) today released its Consumer Issues Report 2016/17 (Report), the fourth such report completed by the NZCC's Intelligence Unit. As with previous Consumer Issues Reports, the transparency provided by the NZCC is to be welcomed, particularly in identifying the areas of interest to the NZCC.
In the consumer law area, the number of complaints have increased, particularly in relation to pricing practices, online selling and responsibly lending.
However, for the third time in as many years, we record our concerns around the NZCC's decision to detail the number of complaints against specific named businesses. Our concerns remain principally because 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 has already been demonstrated by the headlines featuring in today's media.
This Consumer Alert draws out the key themes of the 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. This year's Report has been published in light of the Commerce Commission Vision and Strategy for 2017 to 2022, which states that the NZCC will look to "seize opportunities to have the greatest impact".
The 2016/17 Report
The Report provides a number of useful insights into the NZCC's work. As in previous years, we note our appreciation to the NZCC for the insight it offers into NZCC's priorities.
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 and summarises key economic and social trends that may have flow-on effects in the consumer law space. For example, the NZCC notes that New Zealand consumers' online spend continues to grow by double digit percentages year on year1 and that there has been a correlated increase in complaints related to online trading.
As in previous years, the NZCC has structured its report in three main sections relating to consumers (and associated activity in relation the FTA), the consumer credit environment (as addressed through the CCCFA) and competitive environments (which the NZCC examines through the lens of the Commerce Act).
Each section of the Report includes a list of current issues the NZCC is considering, and these lists continue to be valuable reference materials for those seeking to understand and anticipate the NZCC's direction of travel as regards enforcement. The Report also includes a new section summarising the NZCC's key observations from complaints and discusses the NZCC's Red Flag initiative in the CCCFA space. Red Flags include mobile traders (who have their own section within the Report) and door to door sellers, irresponsible lending practices and high cost, short terms loans.
Key risks identified this year include:
Fair Trading Act
- As in 2015, pricing practices, including in industries which have large numbers of daily transactions (such as supermarkets), continue to attract a large number of FTA complaints. This helps explain the NZCC's "open letter" to retailers in May 2017, although we would hope that the number and scope of such complaints would enable the NZCC to provide more definitive guidance on such issues.
- Online communications now represent 42% of all FTA complaints (up from 34% in 2015), perhaps indicating an increased social trend in online shopping. At a time when online buying in New Zealand looks to increase further, the Report provides a timely reminder that New Zealand consumers need to be careful when buying online, particularly from overseas online retailers.
- By product sector, telecommunication service providers rule the roost with a total 603 complaints (although, as discussed below, pure volume of complaints is a highly unreliable gauge of areas which carry the most potential for consumer harm).
- The number of complaints about the practices of non-bank lenders continues to be identified as being significantly disproportionate to their market share, with Finance Companies being the subject of 24% of CCCFA complaints whilst only representing 2% of the New Zealand credit market.
- The utilities and infrastructure sector was noted as having generated the most Commerce Act complaints in the 2016/17 Financial Year suggesting this will be an area which continues to be monitored by the NZCC. The report also notes that this year was absent of any spike relating to multiple complaints in respect of the same conduct.
The continued publishing of complaint volumes – grabs the headline before anyone reads the "fine print"?
We maintain our view that it is disappointing 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. The caveats to the disclosure of the number of per-business complaints acknowledged by the NZCC are numerous and comprehensive. For example:
- 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.
As we have seen in previous years, media reporting of the NZCC's findings tends to lead with the list and volume of complaints with the NZCC's own caveats hidden within the body of any reporting2 (or not commented on at all).
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 when compared with other companies who are not listed.
In our update in respect of the Consumer Issues Report last year, we expressed a hope that the NZCC would elect to present this information in a more balanced way, for example by:
- listing the number of complaints by industry; and
- only naming businesses where the NZCC has proven (or the business has admitted) engaging in conduct in breach of the law.
Unfortunately, these suggestions have not been implemented, or have been implemented in some industries (such as airlines) but not others (such as telecommunications).
Also of interest within the 2016/17 report was the NZCC's acknowledgement of a material increase in the number of merger applications declined over the last year. The NZCC was at pains to point out3 that this increase in the number of declines was not a result of a change of process or view within the NZCC.
We continue to be of the view that the NZCC's 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 focused on, and the conduct it considers might potentially breach one of the statutes that it enforces.
However, we remain of the view that, although the greater transparency is to be commended, a failure to balance this against the legitimate interests of businesses that have not been involved in any breach of the law but are still "named and shamed" risks turning the Consumer Issues Update into a publication which does more harm than good.
This article 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. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.