Consumer Law ReformImplications for your business

In December last year the Consumer Law Reform Bill passed into law. The legislation incorporates the most significant developments into New Zealand consumer law in more than 20 years. This article looks at how businesses will need to comply with the changes.

The new laws will strengthen consumers’ rights, simplify business compliance and ensure consumer protections are clear and accessible. The changes are also designed to achieve alignment with Australian consumer law by amending several consumer related acts, the Fair Trading Act 1986 (FTA) and the Consumer Guarantees Act 1993 (CGA). Other changes reflect advances in modern business practices and technology, such as internet and credit card transactions, online auctions, increased selling of extended warranties and sales campaigns conducted via social media, telephone and text.

How long to comply?

Most of the changes don’t come into effect until 18 June 2014 so your business will have time to change contracts and trading practices in order to comply with the legislative changes. The key changes which you will need to consider are summarised under three key dates.

Changes that took immediate effect (from 18 December 2013) include:

  • Enforcement: The Commerce Commission has attained new powers under the FTA to conduct interviews and have a court enforce undertakings given to it. The District Court can seek management bans for people who have repeatedly breached the FTA.
  • New liability for collateral credit agreements: Consumers who reject faulty goods which have been purchased by way of a credit facility arranged by a seller can apply to the Disputes Tribunal to hold the seller liable.
  • Consumer product safety requirement: The Ministry of Business, Innovation and Employment (MBIE) can enter businesses to carry out inspections of goods believed to be unsafe. Businesses are now also required to notify the MBIE within two days of voluntary product recalls. The Minister of Consumer Affairs can make safety statements regarding goods if it’s reasonably foreseeable that the misuse of the goods might cause injury.
  • Vendor bids: Vendor bids in auctions must be clearly identified as a vendor bid. These must be made before the reserve price for the auction is met.

From 18 June 2014

Changes taking effect on 18 June 2014 include:

  • Contracting out of the FTA: In certain circumstances, parties in trade can contract out of the terms and obligations of the FTA. The requirements are that the agreement is in writing, the goods or services are both supplied and acquired in trade (business-to-business transactions) and it’s fair and reasonable that the parties are bound by the provision to contract out of the agreement.
  • Unsubstantiated representations: You must substantiate with evidence all claims, which a reasonable person would expect to be substantiated. A representation is unsubstantiated if the person making the representation does not, when the representation is made, have reasonable grounds for believing the representation. The proposed new provisions on unsubstantiated representations are intended to target traders who make representations without reasonable grounds.
  • An example of unsubstantiated representations is where a shop advertises ‘New Year Sale – 50% off’. This claim represents a special buying opportunity to purchase goods at a 50% discount for the New Year trading period. To avoid this claim being an unsubstantiated representation, it would be expected that businesses have sufficient pricing and sales data to establish that during the sale period, the relevant goods are for sale at a price that is 50% less than the usual price. This information must show the goods were offered for sale at the usual price for a reasonable time before the sale period began.
  • Extended warranties: The legislation addresses pressure applied by suppliers in trade when selling extended warranties to consumers. A consumer who has just made a purchase may be easily convinced to take out an extended warranty. The consumer may do so without properly thinking about their existing rights under the CGA, and also whether an extended warranty purchase is appropriate. There are new disclosure requirements for warranties in excess of the CGA and a five day cooling off period.
  • Unsolicited goods and services: Businesses cannot demand payment for goods a consumer has not asked for.
    Uninvited direct sales (formerly ‘door to door sales’): The intention of the uninvited direct sales provisions is to protect consumers from personal, uninvited sales pressure. A five day cooling off period for uninvited direct door to door and telephone sales has been introduced.
  • Delivery relating to guarantee: A customer can reject goods and/or obtain compensation from a seller responsible for delivering those goods if the goods arrive substantially late.
  • Extension of CGA: This now covers all transactions (including online businesses, auction sites like Trade Me, tenders and mobile applications) where the seller is a professional trader. Professional traders will be required to identify themselves if they are selling goods or services covered by the CGA.
  • Layby sales: Businesses will have to give consumers written information about the terms of their laybys, including cancellation rights.

Next year

From 18 March 2015 there will be some changes to unfair contract terms in standard form consumer contracts. This is a significant change as the legislation introduces a new prohibition relating to unfair contract terms in standard form consumer contracts.

Generally, the unfair contract term regime will apply to standard form contracts where the terms are not negotiated by the parties and are often presented to the consumer as a final form standard contract. A term may be unfair if it causes a significant imbalance in the parties’ rights and obligations (usually the consumer). Common commercial clauses which might be considered to be unfair include clauses that allow one party to unilaterally terminate, vary or renew the contract, penalise one party for breach, but not the other, allow one party to avoid or limit performance, but not the other, allow one party to effectively reserve the right to determine the interpretation of the contract, or to sue upon it, and have the effect of limiting a party’s liability for its agents. Other types of terms cannot be declared to be unfair if they define the main subject matter of the contract or set the upfront price.

What do you need to do?

You will need to think about a number of issues before the changes in June 2014 and March 2015 come into effect. We recommend that you:

  • Ensure that any standard form consumer contracts do not include unfair contract terms, noting that this may also cover some business contracts if they relate to goods or services which are also consumer goods and services.
  • Consider whether to adopt a standard practice of contracting out of the FTA in business-to-business contracts.
  • Update extended warranty agreements and materials to comply with the new mandatory requirements for these agreements.
  • Update layby sale agreements and direct sales agreements to comply with the new mandatory requirements for these agreements.
  • Ensure you have the applicable licences in place if you are dealing with second-hand goods on a routine or trade in basis, and
  • Consider if you have robust processes and guidelines to ensure that you retain supporting evidence that all representations that you make in trade are substantiated.

The consumer law reform amendments have introduced a number of additional disclosure and inspection requirements for businesses. A careful review of your existing practices now will ensure there’s plenty of time to plan and ensure your business is compliant during the transitional periods before the more significant amendments take effect.

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