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When consumers have a right to compensation
Under consumer law, businesses must meet a set of basic rights known as consumer guarantees when they sell products or services.
If a product or service does not meet the consumer guarantees, the consumer has a right to a repair, replacement or refund.
If the problem causes the consumer to suffer other loss or damage, they also have a right to compensation. This is in addition to getting a repair, replacement, or refund.
It is misleading and against the law for a business to say that it is not responsible for the foreseeable losses a consumer suffers from using the business’s product or service.
What is and isn’t covered
Loss or damage a business must pay for
Businesses must pay for loss or damage that is:
- caused by the failure to meet a consumer guarantee
- reasonably foreseeable.
Example of damage that a business must pay for
A consumer’s washing machine breaks down due to a manufacturing fault. Water leaks out of the machine and damages carpet in part of the house.
It is reasonably foreseeable that a leaking washing machine may damage flooring. Therefore, the business must pay to replace the damaged carpet.
Loss or damage a business doesn't have to pay for
A business does not have to pay for damage or loss that:
- was not caused by its products or services
- relates to something independent of the business, after a product left its control.
Example of damage that a business wouldn't have to pay for
A consumer’s new car has a fault that causes it to leak oil on her driveway. Her dog runs through the oil and into the house, dirtying the carpet.
Although the car dealer would have to pay for any cleaning needed to the driveway, it would not have to pay for carpet cleaning.
The actions of the dog were unrelated to the issue with the car and the car dealer could not have predicted a dog would run through the oil and into the house.
How much compensation must be paid
The compensation should cover the costs that the consumer faced because of the problem with the product or service. Most costs are financial, but there can be other costs, such as lost time or productivity.
Compensation should put the consumer back in the position they would have been in if the problem hadn’t happened.
Example showing factors in working out compensation to be paid
A consumer takes their curtains to a dry cleaner for cleaning. During cleaning, the curtains are badly damaged.
As well as a refund for the dry cleaning service, the consumer is entitled to compensation for the damage to their curtains.
As the curtains already had some wear and tear, it would be reasonable for the dry cleaner to pay part, but not all, of the cost of new curtains.
How to claim compensation
To seek compensation, a consumer contacts the business, verbally or in writing, to explain the problem and ask for compensation.