New Zealand: Consumer law reform - key compliance tips for your business

Companies that don't comply with new consumer law reform changes risk substantially increased fines and penalties for any breach. The changes, which come into effect on June 17, will impact virtually all businesses dealing with consumers. In this note we provide tips on how to deal with key aspects of the updated legislation in relation to the Fair Trading Act 1986 and Consumer Guarantees Act 1993.

Extended scope with respect to Auctions

Under the amended legislation, businesses that sell goods via auction to consumers (including on the internet) will be subject to the provisions of the Fair Trading Act and Consumer Guarantees Act. For example, a business which sells its vehicle fleet through Turners will be a 'supplier in trade' for these purposes.

Backing up claims about goods and services

Representations made about goods or services (including land) in the course of trade will need to be "substantiated" at the time they are made. Generally speaking, that means businesses must have reasonable grounds for believing every claim made about their products or services is true. Even if it later turns out that a claim made is true, a breach of the Fair Trading Act still occurs if proof is not obtained before the claim is made.

The focus is on the steps taken to substantiate claims. However, no precise test is set. What will satisfy the "reasonable grounds" test will likely depend on the circumstances of each case, including the types of goods or services involved and the nature of the claims being made.

There is an exception for claims that "a reasonable person would not expect to be substantiated," which is intended to cover those expressions of opinion that are so obviously exaggerated or overstated that they are unlikely to mislead anyone. The scope of this exception remains to be seen in practice and there are likely to be some grey areas. In addition, it is worth noting that the new provisions will not apply to claims already covered by other industry-specific legislation governing representations.

Key points

To ensure on-going compliance, businesses should be reviewing and updating their approach to marketing, and making sure there is a step in the process for checking reasonable grounds are held for any claims being made.

We suggest:

  • Don't make any claims about your product or service unless you have reasonable grounds for believing them to be true.
  • Seek to rely on facts, figures and credible sources of information to back up representations – not guesses and opinion.
  • Keep documentation recording the sources you use to back up your claims and of any representations made to customers.
  • Seek legal advice if in any doubt.

Selling goods and services online

Anyone who, in trade, offers goods or services (including land) online will be required to make it clear to consumers that they are in trade. This disclosure of "trader" status must be prominent and in every place online where a customer can complete a purchase, including intermediaries such as TradeMe.

Businesses should ensure that they update their websites accordingly and include this disclosure on all platforms through which goods are sold or services offered.

New guarantee as to delivery under the Consumer Guarantees Act

Where suppliers are responsible for delivery of goods to consumers, the delivery will need to take place at or within any agreed time or, if none is specified, within a reasonable time. If that does not happen, customers will be able to seek redress – including the right to reject goods if the failure is substantial or seek damages..

Businesses that deliver (or arrange delivery of) goods to consumers (whether they are sold in-store or over the internet) will need to consider their terms with respect to delivery and amend procedures to ensure compliance with agreed or standard timeframes.

Extended warranties

New disclosure and plain-English requirements will apply to extended warranties from 17 June. In addition, consumers will have a five day cooling-off period within which to cancel any extended warranty agreement and receive a full refund of any money paid for it.

New disclosure requirements include:

  • A plain-English summary of rights and remedies under the Consumer Guarantees Act;
  • Identification of the additional benefits the extended warranty provides; and
  • Information about the cooling-off period and rights to cancel.

Those offering extended warranties will also, where practicable, be required to provide the customer (e.g. where the agreement is entered into in store or over the phone) with oral disclosure about the right to cancel and how to do this.

Businesses should review any existing extended warranty agreements to ensure compliance with the new disclosure requirements. In addition, procedures will need to be established to ensure that, where practicable, sales staff inform consumers verbally of their cancellation rights.

Contracting – out

Amendments to both the Consumers Guarantee Act and Fair Trading Act mean that businesses will be able to contract out of the Consumers Guarantee Act and certain provisions of the Fair Trading Act where:

  • Both parties to the agreement are in trade;
  • The agreement is in writing; and
  • It is fair and reasonable for them to do so.
Businesses should review their existing terms of trade and consider adding provisions to take advantage of the new contracting out provisions in relation to any business to business transactions.

Wait – there are more changes to come!

With effect from 17 March 2015, the Commerce Commission will be able to apply to Court for a declaration that a provision in a standard form consumer contract is "unfair." Contracts alleged to be standard form consumer contracts will be presumed to be such unless proven otherwise. There will be exceptions for certain key terms in various types of contracts (including insurance contracts) AND the legislation will include examples of the types of terms that could be classed as being unfair. If a term is found to be unfair, it will not be able to be enforced or relied upon. If it is, fines and penalties can be imposed.

In the lead up to 15 March 2015 businesses should review all their standard form consumer contracts to identify any provisions that could potentially be considered unfair. This review could result in substantial changes needing to be made to existing forms of contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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