CCA compliance in interesting times

Speakers: 
Mr Rod Sims, Chairman
Conference: 
CEDA, Sydney
24 February 2017

In his annual CEDA address, Chairman Rod Sims launched the ACCC's 2017 Compliance and Enforcement policy, saying 2017 will see a focus on misleading and deceptive practices, anti-competitive conduct and unfair contract terms affecting small businesses.

Transcript: 

Check against delivery

As always it is great to be back at CEDA. Thank you again for providing this platform for me to announce our enforcement and compliance priorities for the year ahead.

The Australian Competition and Consumer Commission’s (the ACCC’s) mandate is crucial. It is to make markets work as they should, and for people to have faith that our market economy works for them.

We hear a lot these days about people losing faith in the benefits of a market economy. This is extremely worrying for our living standards and household budgets.

History demonstrates that a well functioning market economy benefits us all with more productive jobs and lower prices, and so higher living standards. The ACCC is a passionate believer in the benefits of a well functioning market economy.

The need for strong competition in particular is increasingly being questioned, despite Adam Smith and many others after him showing the vital role it plays. The clearest examples are rising protectionism, support for national champions and, related, preferences for incumbent firms over those who seek to challenge them.

Perhaps fuelling the pushback have been some prevailing views; for example, those that assert that involving the private sector will always lead to better outcomes, even when there are inadequate protections in place or policy design flaws, and that our largest firms should be allowed to maximise shareholder value by any means.

An example of the former view is what we have seen in vocational education with the VET-fee disaster resulting in billions of taxpayers’ dollars being lost. The latter view has seen behaviour that is increasingly out of line with public and shareholders’ expectations.  

It is in this environment that I make my argument today that for our market economy to work properly, and importantly, to be seen to be working properly, we need high levels of compliance with the Competition and Consumer Act 2010 (the Act).

Our market economy works badly when consumers are misled, when there are unlawful restrictions on competition, and when there are cartels. The best example of consumer detriment from cartels is surely the OPEC cartel which again recently has seen consumers paying more for petrol than they should.

Perhaps more important is the harm breaches or alleged breaches of the Act can do to public perceptions of the benefits of a market economy. 

Consumers feel aggrieved, for example, when they are lied to about products, when confronted with drip pricing and when consumer guarantees on goods and services are not honoured.

Small businesses, likewise, lose out from anti-competitive conduct and from misleading conduct, unfair contracts, and the like. And we have seen how the treatment of suppliers by supermarkets, and dairy farmers by milk processors, can cause widespread anger and frustration.

Having priorities is vital. It signals externally, so that companies can look to address their conduct early, and it helps focus our activity.

The ACCC covers a wide spectrum of activity yet we are, for example, significantly smaller than ASIC and the Reserve Bank of Australia.

This means the numbers we have in each area are small; for example, around 65 investigators in each of our competition and consumer enforcement areas, around 40 people in consumer product safety, and around 15 in consumer and small business compliance.

We cannot, and do not, deal with all breaches of the Act. Clearly we are not resourced to do so, by a long way. We receive around 200,000 reports form businesses and the public, and around 500 of these are escalated for further consideration and investigation and a much smaller subset for in-depth investigation.

We need to make choices and our 2017 Compliance and Enforcement Policy I am releasing today is our main vehicle for doing this.

Making such choices up front and then fitting in issues that come at us during the year are the hardest part of this job. During last year, for example, the issues at Murray Goulburn and Fonterra came up. We had to slow up many investigations to accommodate this which is unfortunate particularly for both complainants and also those being investigated.

You will see that the priorities I will list today in part respond to what we see as community concerns and, closely related, also to new legislation. Overall we believe they cover areas which need to be addressed to improve the functioning of our market economy.

Today I will cover three areas:

  • first, I will make general remarks on some overall priorities and approaches
  • second, I will deal with our competition priorities, and
  • third, I will cover our consumer priorities.  

1. Some General Priorities

Penalties

When the ACCC takes action, it sends a message. Our enforcement record against anti competitive or anti-consumer behaviour lets businesses know that we are serious about bringing them to account.

However, one issue that continually emerges is whether the penalties against large businesses are enough of a deterrent and more than just the cost of doing business.

We see companies breaching the Act, or coming very close to it, and too often not, in our view, understanding the seriousness of the issues involved. We believe the current low civil penalties contribute to this.

We are seeking to change this, and we are seeing encouraging signs from the courts to assist us.

Following an appeal lodged by the ACCC last year, Reckitt Benckiser was forced to pay a revised penalty of $6 million for making misleading representations to consumers.

The original penalty was $1.7 million.

We believed, and the Full Court agreed, that $1.7 million was manifestly inadequate given the need for deterrence and the impact of Reckitt Benckiser’s conduct on consumers.

More important, in their joint decision, Justices Jagot, Yates and Bromwich stated:

“The objective of any penalty in this case must be to ensure that Reckitt Benckiser and other ‘would-be wrongdoers’ think twice and decide not to act against the strong public interest”.

In his judgement on our proceedings against ANZ Bank and Macquarie Bank last December, Justice Wigney expressed reservations about the amount of the agreed penalty; an agreed penalty case being one where each of the parties make a joint submission to the court on the appropriate penalty.

He said that the agreed penalties were “at the very bottom of the range of agreed penalties” and that he would have ordered a much higher penalty had there been no agreed penalty. He also said:

“A very sizable penalty is plainly required to deter a financial institution of the size of ANZ from engaging in such conduct again. Equally, a very sizeable penalty is required to deter institutions in positions similar to ANZ who might be tempted to engage in similar contravening conduct”.

The ACCC welcomes the message from these Federal Court judges that we must work to ensure that penalties are sufficiently high to deter large companies from contravening the law.

In 2017 we will be making concerted efforts to ensure that the penalties we seek make larger companies and individuals who work in them consider their business practices, and how their business practices meet their obligations under competition and consumer law.

This approach may lead to fewer agreed settlements, at least initially.

We will also continue to advocate for legislative penalties under Australian Consumer Law (ACL) that effectively deter larger businesses from misconduct, particularly through our participation in the current ACL review.

Areas of responsibility

As I mentioned earlier, the ACCC receives around 200,000 reports of potential misconduct a year. Of these, around 30 lead to us taking court action.

We focus on conduct that not only results in greater consumer detriment but that may also influence the behaviour of other market participants.

The ACCC will increasingly emphasise, however, that we are not always best placed to deal with particular consumer and small business issues. State and territory fair trading agencies and ombudsman services, small business commissioners and even police agencies, are often best placed to handle issues or complaints. 

It should not be a surprise that our focus will increasingly gravitate towards larger businesses. Their footprint and impact will be more significant, and their influence on market behaviour is often telling. It is also part of our reason for being, to focus on the national landscape.  

It is also critical that we recognise the important role that specialist regulators play.

We will continue to work with specialist regulators such as the Therapeutic Goods Administration (the TGA) for medicines and building and electrical safety regulators in product safety.

In recent years our work on Infinity cables, Samsung phones and hoverboards makes it clear that they can and do play a lead role in ensuring the safety of electrical consumer goods.

While we can complement that work, we do not and cannot have the technical expertise to duplicate that of the specialist regulators. We are encouraged by recent State and Territory reform proposals that would strengthen the powers of electrical safety and building regulators to help them get their job done.

Market studies

Market studies are a vital tool for the ACCC. Sometimes it is not enough to only consider explicit and immediate breaches of the Act; a wider look can be necessary.

In the past year, we commenced three major market studies examining issues in the cattle and beef sector, the new car retailing industry, and the communications sector.

We recently completed our market study into the private health insurance industry, which examined how consumers faced harm by not being informed as their policies changed.

We have now also started a formal inquiry into Australia’s dairy industry following a ministerial direction under subsection 95H(1) of the Act and are currently holding a series of forums in dairy farming areas.

These market studies help us and the Australian community understand industry practices and dynamics, identify what is not working well and how we, and other agencies or industry can address issues in the market.

2. Competition priorities

Criminal cartels

Cartel conduct is an enduring priority for the ACCC and unfortunately we continue to see too much of this activity. I fear that only jail sentences for individuals in prominent companies will send the appropriate deterrence messages.

Criminal cartel conduct attracts not just pecuniary penalties, but also the possibility of jail sentences of up to 10 years per offence.

Last year was significant for us with two companies charged under the criminal cartel provisions of the Act.

This is the first time criminal cartel charges have been laid in Australia in a little over 100 years. That is, since a coal mining and shipping cartel prosecution in 1910.  

Our investigations into other alleged cartel participants are well advanced, and we expect to see more criminal prosecutions over the next couple of years.

Anti-competitive conduct

As we have focussed our work on criminal cartels, we have been less involved in investigating conduct associated with a substantial lessening of competition (SLC). However, such conduct can cause more detriment than cartels.

We will now be devoting more resources to SLC cases, and we have undertaken considerable work in assessing past judicial decisions in SLC cases and training our staff.

Some of the sectors I will now list will be a particular focus in this regard.

Price parity deals

We are focussing this year on commercial arrangements which impose a ‘price parity’ obligation where these lead to reduced price competition. These price parity deals are often associated with online markets. They can cause great anti-competitive harm through higher prices or reduced innovation.

The recent Flight Centre case in the High Court has strengthened our resolve in this area. In that case the Flight Centre CEO tried to stop airlines from undercutting airfares that Flight Centre sold.

Flight Centre sought to rely on a defence that as agent of the airlines it was not “in competition” with the airlines. The High Court rejected this defence taking the view that agents can compete with their principal and in the circumstances of Flight Centre, they did.

Energy Sector

Currently we have two substantial investigations underway in the energy sector. These flow on from our market study into the East Coast Gas Market.

Energy is a critical sector yet it is facing enormous challenges. It will remain an area of focus.

Health

Competition in the health sector has been an enforcement priority for some years.  We expect to continue to have significant resources allocated to cases in this area in 2017 and some of our investigations are at a very advanced stage. 

Commercial construction

There has been considerable recent interest in the commercial construction sector. A newly established team will focus on competition issues in this sector across Australia.

We have some continuing investigations and we will put additional resources into some of those matters, and additional inquiries we have been scoping, to investigate fully some serious allegations of anti-competitive conduct.

Agriculture

Following the creation of a dedicated team in October 2015 as an outcome of the Australian Government’s Agricultural Competitiveness White Paper, we have undertaken a significant amount of work examining competition and fair trading in the agriculture sector.

Consulting widely across the industry, through a new consultative committee, forums and formal submissions processes, we have initiated inquiries in agricultural markets such as cattle and beef, grains and horticulture.

We will build on this work over the next 12 months.

Late last year, we commenced an inquiry into price competitiveness, trading practices and the supply chain in the Australian dairy industry. Our issues paper received many submissions and we are currently holding forums in major dairy production areas in each state. 

We will deliver a report of the inquiry’s findings by 1 November 2017.

We also expect to launch some cases alleging breaches of the Act by some firms in the agriculture sector.

3. Consumer and small business practices

Unfair contract terms

Some contracts presented to small business have often been unfair, and so it is not surprising the Government has responded. The behaviours of a number of companies brought this issue to a head.

In 2017 it will be a priority to establish the breadth of the new unfair contract terms law protecting small businesses, which came into effect in November last year.

Our report, Unfair terms in small business contracts[1], identified three types of problematic terms that are amazingly widespread in business-to-business standard form contracts. These were terms that allowed the large contract provider:

  • to unilaterally vary terms in an unconstrained manner
  • potentially broad and unreasonable powers to protect themselves against loss or damage at the expense of the small business by imposing broad indemnities or excessive limitations of liabilities
  • an unreasonable ability to cancel or end an agreement as it suits them.

And previous research has shown that almost two thirds of small businesses have experienced some harm as a result of unfairness in contact terms and conditions that they have signed.

To date, we have seen businesses such as Australia Post and Optus amend or remove contract terms in response to the new law and we will be looking to ensure that other businesses follow their lead.

In addition to the terms identified in our report, we have also identified common issues with roll over clauses, extended payment terms and exclusivity requirements.

In 2017 we will take enforcement action in relation to some of these matters.

Country of origin labelling

Over the next 16 months we will continue our education activities to support businesses during the transition period for new country of origin labelling laws.

Consumers expect clear and truthful information about where their food comes from. They are indignant when they do not get this.

The new labelling system is comprehensive, giving consumers more detailed information than previously available to help them make informed purchasing decisions.

Businesses have until July 2018 to implement the new labelling arrangements.

Payment surcharges

In September last year, we began enforcing the ban on excessive surcharges as outlined in the Competition and Consumer Amendment (Payment Surcharges) Bill 2015.  

The ban stops businesses from charging payment surcharges on debit and credit card purchases that exceed the costs of accepting that payment type. The continuing behaviour of some prominent companies saw this ban come about.

While the ban currently only applies to large businesses that meet certain revenue and size thresholds, from 1 September 2017 it comes into effect for all businesses.

We have developed online guidance that outlines how businesses can comply with the new ban, how consumers can complain and what the ACCC’s enforcement role is. In these early stages, we will continue our education and awareness activities.

But we will also act on possible breaches particularly for larger businesses who have had time and the resources to make the necessary adjustments.

We also examine related surcharging behaviour that may breach component pricing provisions.

Broadband performance and speed claims

The communication sector’s rapidly changing landscape has led to concerns that internet providers are not presenting accurate, comparable consumer information about broadband speeds, and this is triggering high levels of consumer complaint, confusion and dissatisfaction.

As a result, we have issued new principles for advertising speeds available on retail fixed line broadband plans, and a consultation report outlining how consumer information can be improved.

The six principles guide retail service providers (RSPs) on best practice marketing for broadband speeds, including labelling their plans by download speed offered, and providing a clear statement of the typical speeds consumers can expect during busy hours.

Improving consumer information will also lead to better outcomes in the broadband market by:

  • assisting consumers to make informed purchasing and switching decisions
  • encouraging RSPs to compete on performance as well as price and inclusions.

We anticipate our best practice broadband speeds advertising guidance for industry will be available in the first half of 2017.

We are also working with government on the introduction of a Broadband Performance Monitoring and Reporting program.

This would provide verified, comparable information about the typical performance of retail broadband services. Perhaps more important, it will enable us to see if broadband speed issues are due to the NBN itself, or inadequate provisioning by retail services providers.

Following a successful pilot program in 2015, we are currently working on securing funding to support this program.

Consumer guarantees

Consumer protection laws are a key element of a successful market place and this year we will be particularly examining consumer guarantees as they apply to more complex products and, particularly, their application to services.

As you may know, CHOICE has raised with the ACCC several concerns relating to the conduct of airlines. Some of these go to the application of consumer guarantees, appropriate remedies and getting what you paid for.

For example, do representations in relation to limitations on refunds for inflexible fares sit well with consumer guarantee remedies? We will also examine how airline terms and conditions apply to airline initiated cancellations, and compare this with where the consumer guarantee line might sit with delayed flights and cancellations both within and outside an airline’s control.  

These matters were already on our radar but the CHOICE complaint has reinforced our interest.

Similarly our work in the telecommunication sector will expose us to other instances of the interaction between consumer guarantees and services. For example, our work on speed claims might ask the question as to whether consumers always get what they paid for and what consumer guarantee redress might apply.

Further, service drop out or delay are also fundamental issues that don’t always attract the consumer guarantee attention that they might and we expect to explore this in the year ahead.

Our work in relation to new motor vehicles, both through our existing market study and current investigations, will explore the application of consumer guarantees to high cost items that can experience a number of problems.

Misleading conduct and non-compliance with consumer law are two issues that have dogged the new car retailing industry in recent years.

More than one million cars are sold in Australia every year. The ACCC and our state and territory counterparts continue to receive a high volume and broad range of reports that indicate many consumers find it difficult to enforce their rights under Australian Consumer Law.

The ACCC alone received more than 1,300 reports in 2015-16.

This year, as part of our new car retailing industry market study, we will closely examine a number of issues that have been raised, such as:

  • consumers’ options for seeking a remedy if their new car is defective; the issue is the interaction between consumer guarantees, and manufacturers’ warranties or dealers’ extended warranties
  • how complaints are handled by the industry; there have been several issues raised about this, including recurring failures not resolved by repeated repairs, refusal to repair particular defects or to provide a refund or replacement for significant failures, and consumers having to engage in protracted negotiations to have issues resolved
  • consumers having difficulty enforcing their consumer guarantee rights and non-compliance by car manufacturers and dealers
  • unclear and inconsistent information on what is covered under manufacturers’ warranties and dealers’ extended warranties, and
  • the use of non-disclosure agreements in relation to the remedy provided for a defective new car.

Private health insurance

This year we will intensify our focus on the private health insurance industry to improve compliance with the Act.

Our latest report on the industry[2], was the outcome of a market study into information provided to consumers. It found that some insurers are not adequately notifying consumers of cuts to their insurance coverage and benefits, leading to:

  • bill shock
  • inadequate cover, and
  • reduced access to health care.

We also found that increasing complexity in the Australian private health insurance market is making it harder for consumers to understand when insurers change their coverage or benefits and what their options are when this happens.

Consumers should be given clear notice of changes to their insurance.

Unexpected out of pocket expenses and limits on their access to medical treatment can cause great harm and detriment.

The case against Medibank Private continues with further enforcement activity involving private health insurance companies expected in the year ahead.

Taking on large companies

As I have stated, the ACCC will naturally have a focus on the big players, especially in relation to allegations of misleading consumers.

Four relevant cases currently before the courts are:

  • Kimberly–Clark and Pental
  • Volkswagen
  • Heinz, and
  • Medibank Private.

We allege both Kimberly–Clarke and Pental made misleading representations in relation to “flushable” wipes. We allege these labels led consumers to believe these products were suitable to be flushed down the toilet, when this was not the case.

The Volkswagen matter needs no introduction, making headlines as it did around the world.

We allege that Volkswagen concealed software to cheat emissions testing and mislead consumers about their vehicle’s standards and emission levels during on road conditions.

Our action against Heinz concerns the alleged marketing of food products containing close to 70 per cent of sugar as a healthy food choice for toddlers.

While we believe that all consumers have the right to accurate health claims on food, potentially misleading health claims for products marketed to children is of particular concern.

We also allege that this conduct has wider ramifications for children developing a taste for nutritious food.

The Medibank allegations relate to its failure to notify members of its decision to limit benefits paid to members for in-hospital pathology and radiology services. This has the potential to place significant unexpected financial burden on consumers during a vulnerable period. We contend that not only was the alleged behaviour misleading, it was also unconscionable.

The matter is scheduled for trial next month.

These matters followed, for example, our successful prosecutions against Dulux and Reckitt Benchiser. 

Commission-based sales

Influenced by insights from past priorities and actions, this year we will be looking closely at misleading behaviour that may be driven by sales commissions including those paid to third party marketing firms.

Where salespeople or marketing firms are rewarded for simply signing up new customers without effective compliance or balancing incentives a culture of misleading or unfair selling practices can develop.

Without doubt this was what we frequently saw in our recent investigations into private colleges where marketing companies and salespeople were rewarded on the number of ‘students’ enrolled, regardless of whether they were suitable, or even at times willing, to undertake the course of study.

Similar incentives featured in our energy door-to-door sales matters.

Our interest is already alerted to a number of industries. Some involve participants that enjoy a high level of trust with consumers and where the existence of commissions may not always be expected. For example third party marketing of charities and the supply of health services or associated products.

Linked to the driver of commissions is access to leads, or what is known as lead generation. Businesses actively collect details of potential customers, often through methods such as direct response advertising or telemarketing. This in itself is not necessarily unlawful, or indeed a problem, but we will be looking closely at its role in behaviour of concern and whether consumers are properly informed about or protected from lead generation practices.

Product safety and working with platform providers

Product safety is a shared responsibility with States and Territories and is as critical when consumers shop online as it is when they shop in bricks and mortar stores.

We regularly survey products against mandatory safety standards and bans. Inspecting goods online is now embedded into our surveillance strategy, especially for products that that are sold online in higher volumes.

The ACCC has worked with some major online shopping platform providers to block unsafe products from being sold online to consumers on those platforms.

This is a compliance and enforcement priority for the ACCC in 2017 and we will expand this work to other online platforms as well. In our experience so far, they want to do right by the law and to help reduce the supply of unsafe products coming into Australia.

Our joint work with safety regulators in other countries on projects like the 2015 OECD global online product safety sweep assists in helping us address the challenge of product safety in the online market.

4. Closing remarks

The year 2017 is shaping up as a very exciting year for the ACCC. In addition to the above, we have the Harper law changes likely coming before Parliament and the ACL Review.

We also have a lot of issues beyond what I have mentioned above; for example, in communications we are conducting a declaration inquiry into whether to declare a wholesale mobile roaming service; in rail we are assessing revised access arrangements from the Australian Rail Track Corporation for its Hunter Valley rail network; and in fuel we are finalising our market study on the Cairns market.

Thank you for your time today.

 

[1] Unfair contract terms in small business contracts http://www.accc.gov.au/publications/unfair-terms-in-small-business-contracts

[2] Private Health Insurance report 2014-15 http://accc.gov.au/publications/private-health-insurance-reports/private-health-insurance-report-2014-15