ACCC 2020 Compliance and Enforcement Priorities

Speakers: 
Mr Rod Sims, Chair
Conference: 
Committee for Economic Development Australia (CEDA)
25 February 2020

ACCC Chair Rod Sims announced the ACCC’s compliance and enforcement priorities for 2020 in a speech to the annual Committee for Economic Development Australia (CEDA). These priorities provide focus to the ACCC’s enforcement and advocacy work, as well as develop solutions to deliver benefits for all consumers.

Transcript: 

Check against delivery

Introduction

Thank you again to CEDA for the opportunity to launch the ACCC 2020 Compliance and Enforcement priorities. This is my 9th such speech, and all hosted by CEDA, which is much appreciated.

A CEDA audience allows a wider view of what the ACCC does.

What we do at the ACCC is driven by a fundamental belief in markets. Under most circumstances, free and open markets work in favour of consumers and businesses of Australia.

The ACCC is one the strongest voices advocating for a market economy and market-based solutions to issues.

We also have a strong understanding of the tensions at play. We understand, for example, that there are circumstances where markets do not operate effectively.

Put another way, while the profit motive underpinning market behaviour is a key driver of economic wealth, the pursuit of profit does not always promote the interests of Australian consumers.

Firms with market power have the ability and incentive to ‘give less and charge more’, and to engage in behaviour that restricts competition. Other firms will be attracted to using cartels to deprive customers of the benefits of competitive rivalry. There are also incentives to mislead consumers about a good or service. Firms that ‘cut corners’ and supply unsafe products put the health of consumers at risk.

Australia’s competition and consumer laws are essential to a market economy being successful; one that works in the interests of Australian consumers.

Our aim is to only intervene where there is a clear problem and a clear benefit. We recognise that there are risks involved. We are alive to both the potential negative effects of over enforcement, but also to the potential harm caused by under enforcement.

We take an evidence-based approach to our decision making. This requires detailed and often forensic investigation that sometimes has the public wondering why the ACCC is slow to act. And we realise our actions impose burdens on the businesses involved to provide documents and information. But the collection and analysis of evidence is the key to getting to the heart of what is going on.

While this is the case, the consequences of intervening (or not intervening) are uncertain. Deciding whether to commence court proceedings or oppose a merger involves judgements as in all things economic. While the courts ultimately determine whether conduct breaches our laws, the ACCC has vital judgements to make about which cases to bring before the court.

A number of factors can affect our judgements. What are the risks and consequences of deterring legitimate market behaviour? Will the market ‘self-correct’ if we don’t intervene, and how long might that take? What is the likely harm if we do not intervene? What signal will a decision to intervene or not intervene send to the broader business community? Are we applying our discretion to intervene consistently?

As I have already stressed, these judgements are informed by evidence. But they are also influenced by the deep experience the ACCC has in seeing how markets work in practice and the consequences of the decisions we make.

The ACCC’s judgement calls on these issues see us as a strong enforcer. While we have a fundamental belief in markets, we also observe markets can often be slow to correct.

Cartel behaviour, anticompetitive mergers or conduct, and misleading and deceptive conduct do great harm to consumers and the economy. Incentives to engage in such behaviour are strong.

Fundamentally — and this is a key point — rather than risk chilling investment or innovation, our enforcement action is more likely to focus corporate behaviour on actions that benefit consumers rather than harming them.

Many here today may disagree with our judgement calls. We understand that. But let’s recognise that enforcing our competition and consumer laws involves making decisions where outcomes are uncertain. Facts that can be clearly proven one way or the other reduces this uncertainty, but cannot eliminate it. Judgements must be made.

I hope this introduction sets the scene for discussing the ACCC 2020 Compliance and Enforcement Priorities.

This is where we need to make difficult choices about where we target our work. Given our limited resources we also need to work out the most efficient and effective interventions in these pivotal areas.

As I always say, the dominant criticism of the ACCC from consumers and small business is that we do not do enough. The obvious problem is that our focus on one investigation means no focus on another possible breach of the law. There are many likely breaches of the law that we simply cannot get to.

I will spend most time today on these priorities, but I will also talk about our enduring priorities and our market studies advocacy.

Enduring priorities

Our 2020 Compliance and Enforcement Priorities complement a set of enduring priorities which include cartels, anticompetitive agreements and unilateral conduct such as misuse of market power.

In 2019 we were busy and had some successes that are important to highlight.

The ACCC continued to take forward a number of important cartel cases and currently there are five criminal cartel cases before the courts. We support the prosecution of these matters. Two relate to the financial sector, one is about the supply of aid for people with disability, another is our third roll-on roll-off shipping case. We also support a case against the CFMEU in the commercial construction sector. The most recent cartel cases are a civil proceeding against Bluescope Limited and a criminal prosecution of a former Bluescope executive.

Every five years or so we review the operation of our cartel immunity and cooperation policy. It is one of our key tools for detecting cartels. Last year we released a revision of this policy.

In October last year when we launched the revised cartel immunity and cooperation policy we also opened a new anonymous hotline for whistleblowers. It is proving to be quite useful.

We now have a small number of active investigations in an early stage that have been reported to us anonymously by whistleblowers. The tool we use allows our investigators to communicate with the whistleblower anonymously. In the past we often received reports but had no way of following up with requests for further information.

We are also concerned about the potential impact of collusive behaviour on public procurement, and we are working on a plan to enhance our capacity to detect this.

Overall, we expect at least two new cartel cases to be put before the courts this year.

Last year I stood in front of this audience and said that I was confident that we would have a section 46 misuse of market power case before the courts in 2019. In December last year we instituted proceedings against Tasmanian Ports Corporations which has 99 per cent of the Tasmania’s freight moving through its ports. We also accepted an enforceable undertaking from a number of roofing contractors for engaging in a concerted practice. This also marked our first announcement of an enforcement outcome using this new provision.

Evidence gathering in the misuse of market power investigations can be difficult. While the TasPorts investigation was completed in record time, in 2020 I’m keen to ensure that we are more efficient and speedy in our approach to anti-competitive conduct investigations. This will also include the need for injunctions.

During 2020 we plan to institute at least four new competition cases.

An enduring priority for the ACCC is addressing consumer protection issues impacting vulnerable and disadvantaged consumers. Last year we saw another VET-FEE Help decision by the Federal Court in the Cornerstone Investments Aust Pty Ltd, trading as Empower Institute. In addition to the $26.5 million in penalties ordered, the Federal Court also ordered Empower to repay more than $56 million to the Commonwealth for funding it had received to provide VET FEE-HELP funded courses.

We also saw the Courts impose some important penalties and provide consumer relief in a number of other cases. The $125 million penalty in the Volkswagen matter is the standout example, albeit now under appeal.

It’s not just about court outcomes. Our outreach work with consumer groups, including many Indigenous communities, is an important way in which we seek to help consumers and prevent misconduct from occurring.

Our 2020 Compliance and Enforcement Priorities

We annually undertake a review of the key competition and consumer concerns raised by small businesses and consumers, as well as doing our own research and market studies to examine issues in the marketplace. This provides focus to our enforcement and advocacy work, and the basis for the best allocation of our resources in the upcoming year.

The funeral industry

Competition and consumer issues in the funeral services sector have long provoked complaints from the public, governments and generated stories in the media. Not least because many consumers engage with the funeral sector at a time when they are grieving, vulnerable and thereby at a disadvantage.

This is a concentrated sector with some players having significant market power. As some funeral service providers also have a large share of different services across the funeral home, cemetery and crematoria markets, there is an opportunity for these providers to bundle services and block new entrants to the market. There have been reports from people within the sector of anti-competitive conduct such as misuse of market power and exclusive dealing. We strongly encourage whistleblowers to come forward.

Funerals are expensive. Many consumers have limited or no experience with the sector until they need to arrange one. There is growing criticism about the lack of price transparency for funeral services and the difficulties consumers face in making an informed decision.

There are also complaints from consumers about misleading and deceptive practices in the sector. These include hidden fees, add-on services not included and misrepresentations about what will be covered. Additionally there are allegations of unfair contract terms within funeral service and pre-paid funeral contracts.

Most concerning are allegations of unconscionable conduct. There are allegations that some funeral operators inflate the price of services, and take advantage of consumers at a vulnerable time. Complex and opaque pricing, product bundling and other strategies adopted by some funeral operators are also issues we will be examining more closely.

By selecting this as a priority, we aim to improve our understanding of the market and undertake targeted action.

Digital issues

As outlined in the final report of our 2019 Digital Platforms Inquiry, the ACCC has concerns about consumers being misled over the collection and the use of their personal data, as well as a range of important competition issues, some also linked to data. It’s vital that we devote considerable resources to these issues given their dominance in all our lives and their effect on economic activity.

Following the report’s release, the Federal Government has now funded the establishment of a permanent Digital Platforms Branch at the ACCC to ensure proactive scrutiny of the sector.

We are advancing many investigations. There is already one matter before the Court. We are now working very closely with our overseas counterparts on various theories of harm.

Pricing and selling practices of essential services

The pricing and selling practices of essential services continues to be an area of concern for the ACCC, and has been retained as a priority in 2020.

The misleading and deceptive selling practices of essential services, combined with the lack of transparency in their pricing, can have a detrimental impact on consumers and small businesses.

Whilst some business have improved their selling practices, there are a number of enforcement matters currently underway.

We are also making good progress in respect of electricity with the Default Market Offer reform, as we recommended in our 2018 Retail Electricity Pricing Inquiry.

Anti-competitive conduct and failures to pass through cost reductions will also be targeted through the Federal Government’s new energy market misconduct laws. The ACCC will have a crucial role in monitoring conduct. This work will commence in 2020, with the current and anticipated falls in wholesale electricity prices likely to be a particular focus.

There are similar concerns regarding misleading and deceptive selling practices of goods and services in the telco sector. Indeed, we are taking enforcement and other actions against our major telecommunications companies more often than is consistent with a well-functioning market. In particular, we are disturbed about the poor selling practices in remote Indigenous communities.

Misleading claims in food marketing

There has long been an increased demand for the ACCC to take a more active role in preventing misleading representations or deceptive conduct in the marketing of food products.

The growing community attention to health-related issues such as obesity has been paralleled by rising mistrust of claims by many food producers of purported health or nutritional benefits.

Misleading claims about health or nutritional benefits harms consumers as it often results in paying a higher price for products, without receiving any benefits from them.

Honest and accurate claims about food products is important. When choosing which product to buy consumers focus on claims about origin, manufacturing processes and nutritional representations.

We are concerned some business either confuse consumers or deliberately make misleading claims to gain an advantage in the market over suppliers who make honest claims about their products.

We have already seen the Court order Heinz to pay penalties totalling $2.25 million for making a misleading health claim about products for young children.

In selecting this as a priority we are focusing on those products that make misleading claims about the health or nutritional content of foods, either on the product itself and/or in its associated marketing, and have capacity to cause substantial consumer detriment.

We will also work closely with other regulators to improve compliance in this area.

The commercial construction sector

The construction sector is central to our economy, and it will continue to be a focus.

We have a dedicated Commercial Construction Unit looking at conduct affecting competition and poor trading practices in the commercial construction sector, including conduct impacting small businesses and large public and private projects.

The fear of reprisal and unwillingness of complainants or whistleblowers to come forward is, however, a fundamental problem we must overcome. We are working with the sector to improve this in a range of ways.

We also have investigations underway into secondary boycotts, activity aimed at damaging individual small businesses and unfair contract terms.

Small business

The ACCC has had a significant focus on the small business sector for many years, including the enforcement of the Franchising Code of Conduct. Indeed, the recent Parliamentary inquiry into the franchising sector highlighted a number of practices of concern impacting franchisees.

The ACCC remains concerned that many franchisees cannot freely operate their business because of the prevalence of some questionable industry practices. We have a number of important cases we want to bring before the courts which we think will highlight some of the significant problems in the sector.

However, enforcement cases alone will not address the many issues which have been identified in the franchising sector. We are concerned that some franchise systems do not focus on running a viable system, to the benefit of both franchisees and franchisors. We will continue to work with the Government’s Franchising Taskforce to address some of the concerns.

We will also continue to focus on general small business and industry engagement in 2020.

Enforcement cases will be progressed for significant breaches of the small business protection provisions of the Competition and Consumer Act.

Dairy

We welcomed the Government’s introduction of a new mandatory Dairy industry code which was the key recommendation from our 2018 Dairy Inquiry.

The Dairy Industry Code of Conduct came into effect on 1 January 2020. The ACCC will be working closely with the affected dairy farmers and processors to ensure a smooth implementation, and to educate them about their rights and obligations under the Code. The ACCC will also enforce the Code where significant non-compliance issues arise. A review of the Code’s role, impact and operation will take place after 12 months.

Consumer guarantees

As I said last year, consumer guarantees remain the number one issue that the ACCC and the Australian Consumer Law regulators have to deal with. Over the last year, we’ve received 25 000 reports from consumers who want help trying to resolve a dispute involving a motor vehicle or white goods; these two are the most complained about sectors to the ACCC.

The ACCC has matters before the courts involving motor vehicles manufacturers. Last year, we instituted court proceedings against Mazda. This is on the back of other court cases involving Jayco and Ford, with other enforcement proceedings involving Holden, Hyundai and Volkswagen.

It is clear from the high number of complaints received about this sector that consumers are still having problems enforcing their right to a consumer guarantee for these products. If consumers purchase a high-value product and are unable to obtain an appropriate remedy if that product turns out to be broken or does not work as it is supposed to, this can have a significant detrimental impact on consumers and households.

It is hoped that further enforcement and compliance initiatives will result in the long anticipated change in industry behaviour and drive increased compliance with consumer guarantee obligations.

Button batteries

Button batteries, also known as coin cell batteries, are flat, round, single cell batteries, used in personal and household products, such as children’s toys, hearing aids, lights, watches, remote controls, digital thermometers and bathroom scales.

They can cause significant injuries if swallowed by children, and have already caused two deaths in Australia in the past six years. At least 64 children have died globally, and hundreds of children suspected of swallowing button batteries have ended up in hospital emergency rooms.

Last year we established the Button Batteries Taskforce to review whether industry actions to mitigate these risks were sufficient and to consider what regulatory options might be available. Options being considered include requirements for secure battery compartments on products containing button batteries, child resistant packaging and warnings.

The work of that Taskforce is being prioritised in the first half of this year and we will soon release a Draft Recommendation outlining proposed regulatory options available under the ACL to address the hazard of these batteries for public comment.

Finalising the Takata airbags recall

The Takata airbag recall is one of the most important, and by far the largest product safety project the ACCC has undertaken. While we have made good progress with the largest-ever recall in Australia, with 2.6 million of the 3 million affected vehicles now repaired, our work is not yet complete.

The most difficult part of this recall, dealing with those that have not yet complied, is upon us. We want to ensure the remainder of those vehicles are located and dealt with as required under our compulsory recall notice.

We have also been working with the Department of Infrastructure, Transport, Regional Development and Communications to assist the transitioning of full responsibility for motor vehicle safety from 1 July 2021, when the Department gains compulsory recall powers for motor vehicles.

We are also assisting the Department on other significant airbag recalls not covered by the compulsory recall notice. This work continues to be our highest priority.

Market studies and advocacy

The ACCC continues to have a heavy load of vital market studies or inquiries. In the context of today’s topics these provide an evidence-based foundation for much of our enforcement and compliance work. This is best illustrated by our recent market studies and inquiries into motor vehicles and digital platforms, and the electricity and dairy industry, where these inquiries or studies have influenced this year’s priorities.

Many investigations have come out of inquiries; for example, such as the Gas Inquiry which saw action ending with BHP and Esso required to separately market their gas.

Importantly, these market studies provide us with the expertise to understand complex issues, such as with our work in the financial services sector.

The ACCC is also conducting inquiries into Northern Australian Insurance and the Murray Darling Basin Water Markets, and they may also raise enforcement issues.

There is also much going on under the heading of competition and consumer advocacy. At the most basic, for example, when we remind consumers that they can save a lot of money by regularly shopping around for new home loans and electricity supply as new customers clearly pay less than loyal customers.

As Australia’s general infrastructure regulator we are also pointing out that we have no general regulatory regime for infrastructure monopolies that are not vertically integrated. We have Part IIIA for vertically integrated infrastructure, but no ‘Part IIIB’ where the monopoly owners are not vertically integrated.

There are advanced Government processes underway to consider laws covering unfair contract terms and a national safety provision, which we are contributing to. And the debate has just started on having Australia follow the US, the UK, Europe and others, and introduce a law against unfair practices by large businesses against consumers and small businesses, where significant detriment is involved.

I cannot, of course, fail to mention the debate Australia needs to have about how concentrated an economy we want, and so how we approach assessments of the competition effects of mergers. I will have more to say on this later this week.

Conclusion

Of course, the ACCC’s work is not limited to what I have mentioned today. I have not, for example, discussed our work on communications and transport, and the huge amount of work we are doing on the Consumer Data Right.

New challenges also keep coming from the most unexpected sources, often without warning. The dramatic and sudden escalation of the summer bushfires led us into investigating, and seeking to stop, some of the appalling scams taking advantage of people’s generous charity donations. The large number of scams led to establishment of a Bushfire Hotline earlier this year.

And even now, the ACCC and other consumer law regulators are needing to respond to scams, as well as consumer guarantee queries, associated with the Coronavirus.

2020 looks will be another busy but exciting year for the ACCC. As I am sure it will be for you all as well.

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