Championing the rights of consumers

Speakers: 
Mr Rod Sims, Chairman
Conference: 
Consumer Congress
15 March 2013

On World Consumer Rights Day, Chairman Rod Sims, outlines the ACCC's consumer priorities. At the Consumer Congress, he also announces the findings of the review into unfair contract terms and discusses the challenges in taking unconscionable conduct cases to court.

Transcript: 

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Introduction

It is terrific to be at this forum, and with you all today.

As watchdogs and consumer protection agencies, we all have our own patch and take our own actions, but we also take strength from collective advocacy, especially on days like this.

As the regulator responsible for issues with a national dimension, collaboration across the network of government and other specialised consumer bodies is vital for us.

It is, in addition, not sufficient that we simply act on what is presented to us; we must also actively look for the main problem areas and seek to address them. In reviewing our compliance and enforcement priorities the Australian Competition and Consumer Commission (ACCC) was greatly assisted by the input and advice from many of you here today.

As part of our strategic review, we relied on strong evidence based consumer advocacy to help us identify and focus our efforts on the most important problems. We set some new priorities and re-focused some existing ones.  Today, I will:

  1. Outline some of those consumer priority areas for the ACCC.
  2. Release the findings of the ACCC's review into unfair contract terms, and
  3. Briefly mention the challenges in taking unconscionable conduct cases to court.

Our consumer priority areas

Establishing our priorities and making them clear is important. Over time companies will take our warnings on problematic behaviour even more seriously if we say what we will do, and then do what we say.

Our work, of course, has been made much more effective by the introduction of the Australian Consumer Law which has brought with it new provisions to help tackle problematic conduct.

Most important are the new sanctions such as million dollar civil penalties and the flexibility of infringement notices that better provide the spectrum of deterrence required.

In the past two years, the courts have ordered pecuniary penalties in 33 cases, with penalties totalling almost $22 million.

Penalties in the order of $1 million or more have been obtained in eight matters with larger traders such as:

  • Apple Pty Limited for misleading 'iPad with WiFi + 4G' claims
  • Cotton On Kids Pty Ltd for selling unsafe children's nightware
  • Harvey Norman Holding Ltd in relation to its catalogue advertising and 3D TV promotions, and
  • Optus for misleading advertising of its internet broadband plans.

To date, more than 100 infringement notices have been issued, some comprising multiple notices to the one company, with over $620,000 in penalties paid. Some recent examples include:

  • three notices to Nissan Motor Co (Australia) in relation to misleading representations in Nissan Dualis ‘Paintball’ advertisement, where drive-away prices displayed were not for the pictured vehicles.
  • three notices to G & R Wills Holdings for supplying baby walkers and offering for supply models of strollers which did not comply with the relevant mandatory product safety standards.

As I recently told our New Zealand counterparts, the increased range of tools and remedies afforded by the ACL means that Australia moved from lagging in the world to providing among the strongest protections for consumers and small businesses.

Credence claims

As a new priority, we have highlighted credence claims, particularly those in the food industry, with the potential to have a significant effect both on consumers and the competitive process.

Consumers are increasingly placing weight on premium claims and are likely to value the types of claims that directly affect the integrity of the product, such as where something was made, grown or produced and how it was made, grown or produced.

These claims can give a company a distinct competitive advantage above their competitor and be used as an important marketing strategy.

As consumers rely on the honesty and accuracy of businesses’ representations we must ensure that consumers are not misled by these claims.

The ACCC has already taken action in a number of credence claim matters, including court action against ‘free range’ claims in meat and egg products, and court and non-court action against country (or region) of origin claims in products including honey, sheepskin and meat.

Late last year, the Federal Court ordered Pepe’s Ducks to pay $375,000 in penalties after they had engaged in false, misleading or deceptive conduct in relation to the promotion and supply of its duck meat products. Pepe’s Ducks used the phrases ‘open range’ and ‘grown nature’s way.

We have also sought to address these types of issues by providing information to consumers on olive oil and country of origin through the ACCC Shopper app.

Communications and energy

The ACCC continues to place priority on consumer protection in the telecommunications and energy sectors.

In the area of communications, actions against Apple Pty Limited last year and the continuing proceedings with TPG Internet Pty Ltd are the type of interventions you can expect from the ACCC.

On the energy side, we continue to drive energy retailers to fix what has been, in our view, reprehensible treatment of consumers by many involved in door to door sales.

Actions against two traders last year has recently been followed by more action this year, with investigations continuing into some other traders.

Just last week, the ACCC instituted proceedings against EnergyAustralia and four marketing companies it engaged in relation to their door-to-door selling practices. The ACCC alleges the companies engaged in misleading and deceptive conduct and made false representations in the course of door to door selling.

The decision of some retailers to cease door to door selling is a matter for them. The ACCC has never called for energy companies to cease door to door sales. It has simply required that when attending a person’s home, whether directly or through an agent, to act honestly and fairly. This is not a difficult concept and one that industry should be able to deliver.

As well as enforcement, we have also used education. Last year, at the same time door to door investigations and proceedings were being progressed, we launched our ‘Knock! Knock! Who’s there?' awareness campaign.

The focus was to put the word out to consumers about their rights and ability to refuse door to door sales. We have provided close to 70,000 ‘Do Not Knock’ stickers, 39,000 door hangers and 16,000 consumer guides.

The next instalment in our activities will be a set of short videos which shows how consumers can put their door to door sales rights to action. We anticipate these videos will be available on our website in the near future.

Price comparison

The ACCC has raised concerns with a number of traders operating online energy price comparison services following court proceedings last year against Energy Watch Pty Ltd and its CEO.

The Federal Court found that from January and September 2011, Energy Watch misled consumers about its energy price comparison service and the savings that could be achieved using the service.  

As a result of these findings, the ACCC was concerned that several other online energy price comparison traders were engaging in similar conduct on their websites including representations about:

  • the nature of the service each provided in terms of the number of energy retailers whose rates and plans are compared by the service, and
  • the savings that could be achieved by residential and business energy users as a result of using the service and switching energy retailers.

These traders have now removed the various representations of concern following extensive consultation with the ACCC.

Consumer guarantees

The ACCC continues to focus on the new consumer guarantees, though you will see some changes in our activities. There is more we can do to ensure consumers and businesses alike have an awareness of consumer rights; this remains a key to ensuring these important provisions have the effect intended.

Late last year, a national project on extended warranties, led by Queensland Office of Fair Trading, was announced. The aims of the project are:

  • to investigate extended warranties to see whether they offer any benefits above that provided by the ACL, and
  • to educate consumers to ensure they are aware of their rights to then make an informed decision about whether to purchase an extended warranty.

In December last year, building on the work done by Consumer Affairs Victoria, the ACCC Shopper app was released. It is a consumer focused application which provides information on consumers’ rights and allows users to set reminders for their gift vouchers and lay-bys.

Ensuring we act where we believe consumers may be misled is another way we can drive that awareness and adjust business behaviour.

Late last year, proceedings were instituted against Hewlett-Packard Australia Pty Ltd in relation to a number of alleged misrepresentations about statutory warranties and consumer guarantee rights.

Proceedings soon followed against a number of Harvey Norman franchisees in which we alleged those businesses engaged in misleading or deceptive conduct by making false or misleading representations to consumers about their rights under the consumer guarantee provisions.

There will be more proceedings to follow.

Indigenous

Identifying and addressing consumer protection issues affecting Indigenous communities continues to be a priority for all ACL regulators.

For the ACCC’s part, it continues to take enforcement action whether it be related to selling phone plans in out of coverage areas or misrepresentations about art.

We believe it is crucial in this process, however, to develop relationships with Indigenous communities and consumers with a view to empowering them in their dealings with business and in providing confidence for matters to be reported and actioned. We have stepped up our activity on this front with increased outreach and projects with specific communities.

For example, the ACCC has just launched the ‘ACCC – Your Rights Mob Tiwi Islands’ Facebook page on the Tiwi Islands, Northern Territory. This initiative is a source of great pride to all at the ACCC.

As part of this pilot program the ACCC produced five short films, which were filmed using Indigenous residents of the Tiwi community. These films cover topics such as consumer guarantees, telemarketing, door to door sales and product safety.

This is just one of the latest ways the ACCC is engaging with Indigenous consumers to help them confidently exercise their consumer rights and for the ACCC to identify, understand and respond to important consumer issues.

Releasing the findings of the ACCC review into unfair contract terms

National unfair contract terms were introduced as part of the ACL which came into effect on 1 July 2010.  Under these laws, a court may determine that a term of a standard form consumer contract is unfair and therefore void.

Standard form contracts are a regular feature in consumer transactions, for example hiring a car, joining a gym or booking travel. Good contract terms offer an opportunity for businesses to deal up front with areas of consumer dissatisfaction and dispute, thereby reducing complaints.

Three questions are used to determine whether a term is unfair:
 

  1. Does the term cause a significant imbalance in the parties’ rights and obligations under the contract?
  2. Is the term reasonably necessary to protect the legitimate interests of one of the parties?
  3. Will the term cause detriment to either party if applied or relied on?

All three limbs of the unfairness test must be proven to exist in order for a court to find that a term is unfair. In determining whether a term is unfair, the court must also take into account the extent to which the term is transparent, and the contract as a whole.

The ACCC has spent considerable time and resources reviewing standard form consumer contracts through the lens of these provisions in the airline, telecommunications, fitness and vehicle rental industries, as well as some contracts commonly used by online traders. A select number of standard form contracts used by travel agents were also examined. Fitness and online were conducted as part a national project led by the ACCC and CAV.

These industries were chosen due to a number of factors including relatively high levels of consumer complaints, feedback from consumer stakeholders and potential for widespread consumer detriment.

The aim of the industry review was two-fold. First we wanted to evaluate compliance, and secondly work with business to achieve positive changes to standard form consumer contracts.

As part of the review process, we have identified 8 types of terms which are of particular concern. They are:

  1. Contract terms that allow the business to change the contract without consent from the consumer
  2. Terms that cause confusion about the agency arrangements that apply and that seek to unfairly absolve the agent from liability
  3. Terms that unfairly restrict the consumer’s right to terminate the contract
  4. Terms that suspend or terminate the services being provided to the consumer under the contract
  5. Terms that make the consumer liable for things that would ordinarily be outside of their control
  6. Terms that prevent the consumer from relying on representations made by the business or its agents
  7. Terms seeking to limit consumer guarantee rights
  8. Terms that remove a consumer’s credit card chargeback rights when buying the service through an agent

The ACCC found that in most cases, the particular businesses under review chose to make changes to their standard form contracts. Problematic terms were identified and either amended or deleted.

I would like to highlight an example of a business that has done that in relation to one provision of a contract that was of concern to us.

Earlier this year, the ACCC met with Jetset Travelworld Group regarding concerns raised about their consumer contracts. A term of their contracts essentially contained a no liability clause unfairly restricting consumer chargeback rights which are generally available to consumer purchases with credit cards. After raising our concerns, Jetset agreed to make the necessary changes to their consumer contracts.

We are always pleased when businesses voluntarily change their business practices to make them fairer for their customers.

Some businesses have not fully cooperated with the ACCC during the review or have chosen not to change their standard form contracts to address problematic terms. The ACCC is now considering whether further actions and in some cases the possibility of court action is warranted against businesses to deal with specific provisions still in use which it considers may operate unfairly.

If a court makes a declaration that a term is unfair and a party subsequently seeks to apply or rely on the unfair term, the court may make orders including to vary the contracts or arrangements; an order refusing to enforce any or all of the terms of the contract; or an order directing the person to refund money or property to the injured person. Any court order is also likely to damage the public perception of the business involved.  

Today, I am very pleased to release the review, and we call on all businesses to consider the terms and conditions of their own standard form contracts in light of the ACCC’s findings, and to make changes where necessary to ensure their contract terms are compliant.

Exploring the challenges of taking unconscionable conduct cases to court

One of our continuing enforcement priorities are matters that demonstrate unconscionable conduct.

Unconscionable conduct is generally understood to be conduct that is so harsh that it goes against good conscience. This conduct does not have a precise legal definition as it has been developed on a case-by-case basis by courts over time.

In broad terms, the courts have considered the threshold for unconscionable conduct to be conduct that:

  • goes beyond robust commercial dealings or the notion of unfairness, to that
  • which shows no regard for conscience, and
  • is irreconcilable with what is right or reasonable.

Picture an elderly consumer that is suffering from a serious impairment to their mental ability, such as dementia, who is targeted by a mobile phone company. This mobile phone company may use unfair tactics by calling them with a headline claim that they can obtain a new mobile phone for free and using this claim to extract their oral consent to long term contracts they do not understand. This is done without the consumer even realising they have agreed to a contract, and having them sign away their rights under the cooling off period. We consider conduct of this nature to be unconscionable and would seek a remedy to prevent this behaviour and compensate the consumers affected.

The problems in taking challenging matters like this to court is that with cases involving health issues such as dementia, we face great difficulty in proving to the court the state of affected consumers at the time of the transaction.

In addition, as it does not have a precise legal definition, a judgment that certain conduct is unconscionable involves a great deal of subjectivity.  What is unconscionable conduct to one person might be considered as simply tough commercial dealings by another. So even if the ACCC is able to prove the existence of all the facts we consider constitute unconscionable conduct in a particular case, there is no guarantee a court will also consider that those facts constitute unconscionable conduct.

The ACCC has taken on a number of unconscionable conduct cases, some where we have been successful and few of late where we have been unsuccessful. While disappointing, these unsuccessful cases will not deter us in taking action in future cases as we must seek to protect these disadvantaged consumers.

Last week the ACCC appealed the recent decision in the Federal Court dismissing the ACCC’s allegation that Lux Distributors engaged in unconscionable conduct in relation to the sale of vacuum cleaners to five consumers. We have appealed on the grounds that the trial judge erred in fact and law by finding that the conduct of Lux in relation to three consumers was not, in all the circumstances, unconscionable.

We will continue to take enforcement action, including litigation where appropriate, in circumstances where the ACCC considers that companies have engaged in unconscionable conduct involving disadvantaged or vulnerable consumers.

 

Conclusion

In keeping with the congress theme, I want to quickly re-cap some basic consumer rights the ACCC is advocating.

When signing a standard form contract, consumers have a right to be protected from unfair terms.

When selecting one food product over another, consumers should be able to rely on the claims made on the packaging.

When at the returns counter, consumers who purchase a faulty product have rights or guarantees which may apply beyond the extended warranty period.

When at the front door, consumers have a right to say no or change their mind.  

Consumers, particularly our most vulnerable members of the community, have a right to be protected from unconscionable conduct.

Later this afternoon you will also hear from Delia about priorities and challenges relating to online consumer issues. The premise is that when researching and choosing between complex products and services, consumers have a right to base their decision on the facts.

I will finish by throwing my support behind the next session on the agenda. Energy, as you all know, is a 'hot topic' for Australian consumers today given the massive and unfortunate increases in electricity prices.

Traditionally, the complexity of the energy market and the regulatory processes have made it difficult for consumers and their representatives to make meaningful contributions in this area.

I am pleased that recent changes, both to the rules framework and the Australian Energy Regulator's own processes, as Andrew Reeves will outline shortly, will improve this situation.

For example, the AER will have the ability to look at the way in which network businesses have engaged with the customers when developing their revenue proposals as a factor in its assessment of those proposals.

I also see the cooperation between the ACCC and AER on door to door marketing and other consumer issues in the retail market as fundamental to better outcomes for energy consumers.

Thank you for your time today.

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