2011 has seen the introduction of the Australian Consumer Law (the ACL), which contains numerous restrictions relating specifically to unsolicited consumer agreements (UCAs). These restrictions have affected the way direct selling organisations conduct their businesses.
The most onerous of the restrictions is contained in section 86 of the ACL which prohibits the supply of goods and services and the acceptance of payment for goods and services during the cooling-off period.
So long as direct selling organisations (and their salesforces) comply with relevant pre-existing State and Territory laws in respect of the supply and acceptance of payments during the cooling-off period, these section 86 prohibitions only become operational on 1 January 2012.
Accordingly, from 1 January 2012, direct selling companies are expected to comply fully with all requirements of the ACL, including the section 86 prohibitions, in respect of sales which result from UCAs.1
What are the section 86 prohibitions?
Section 86 contains two restrictions which apply to direct selling organisations when entering into UCAs with consumers, namely they must not:
- subject to the comments below, supply the goods or services (Supply Prohibition); or
- accept or require payment for the goods or services (Payment Prohibition),
the subject of the UCA during the cooling-off period. This commences on the first business day after either:
- the agreement is made (if made in person); or
- a copy of the agreement is received (if negotiated by phone).
Generally, the cooling-off period is 10 business days. However, the cooling-off period can be extended if there is a failure, in respect of the relevant UCA, to comply with other obligations in the ACL. The cooling-off period may be extended to 3 months if, for example, a consumer is visited or called outside the permitted hours.
Information about the Prohibitions must be given in a prescribed form to the consumer in writing before the agreement is made. Currently, consumers are also required to be informed in writing that, if a direct selling company and/or a member of its salesforce breach the Prohibitions, the cooling-off period will be extended to 6 months commencing on the first day of the cooling-off period.
Changes to the Supply Prohibition
Understandably, there has been considerable industry pressure for changes to be made to the Supply and Payment Prohibitions to lessen their impact on the direct selling industry.
On 1 November 2011, the Council of Australian Governments (COAG) Legislative and Governance Forum on Consumer Affairs announced that the section 86 prohibition would be amended so that goods purchased under a UCA to the value of $500 or less may be supplied to a consumer as soon as the UCA is made.
The Federal Government has announced that it intends to amend section 86 before the end of 2011 so that the amended Supply Prohibition is operative before 1 January 2012. From that date, all direct selling companies will be required to comply with the Prohibitions, if relevant.
However, the Payment Prohibition will remain, as will the prohibition on supplying services. Therefore, a direct selling organisation and its salesforce may be in an unusual position where they can supply goods but not accept payment for those goods during the cooling-off period.
So what does this mean for direct selling companies and their salesforces?
Direct selling companies must ensure that they are sufficiently familiar with the UCA prohibitions in the ACL as of 1 January 2012. This is required so that a conscious decision is made whether, in respect of sales arrangements entered into by the direct selling organisation (or its salesforce) with customers:
- the UCA provisions apply; or
- their arrangements do not constitute a UCA.
In either case, that company, if it has not already done so,
must ensure that its salesforce is made aware of the UCA
Many direct selling companies conducting business in Australia have taken the view that the UCA provisions do not apply as a result of their business model not falling within its scope. It is essential that those companies take care to ensure that dealings with customers (whether conducted by the company or its salesforce) are conducted in a manner that none of the UCA restrictions apply to selling arrangements with those customers.
We would recommend that all direct selling companies implement procedures (which may include training programmes and compliance manuals) to provide information to their personnel and their salesforce relating to the UCA prohibitions (including the Prohibitions) and address, as appropriate, the circumstances where UCA documentation and cooling-off periods are required.
If and when further changes are made to the UCA requirements, this documentation and procedures can then simply be updated to reflect any changes.
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.