Part I: Proposed national consumer law
On 17 February 2009, a consultation paper outlining the proposed overhaul of the current consumer protection laws was released. The proposed changes will establish a new national consumer law (to be called the Australian Consumer Law (ACL)) and streamlined enforcement arrangements. Submissions in response to the consultation paper are sought by Tuesday 17 March 2009.
The ACL would be based on the existing consumer protection provisions of the Trade Practices Act (Cth) 1974 (TPA), which could be renamed as the Competition and Consumer Act to better reflect the focus of the legislation. The ACL would also include:
- the regulation of unfair contract terms (further discussed in Part II below)
- the implementation of a new national product safety regulatory and enforcement framework
- the development of enhanced enforcement cooperation and information sharing mechanisms between national and State/Territory regulatory bodies
- amendments to the current consumer protection provisions of the TPA based on 'best practice' in State and Territory consumer laws, which could include (among other things) changing the definition of 'consumer' and amendments to the prohibition of false representations under section 53 of the TPA
- introduction of civil pecuniary penalties of up to $1.1 million for corporations and $220,000 for individuals.
The ACLwould introduce an additional investigative tool for regulatorsin the form of substantiation notices. These notices would require a supplier, within a specified time limit, to provide a regulator with informationto substantiaterepresentations that the supplierhas madein relation toits supply of goods and services.In addition,the ACL will also arm regulators with a"naming and shaming" power in the form of a public warning system. This power, if not exercised with extreme caution, has the potential to cause substantial damage to a supplier's goodwill and reputation.
The ACL is proposed to apply at both the national and the State and Territory levels. This will be achieved by the ACL being included as a schedule to the TPA, which is adopted by the States and Territories passing legislation to apply the schedule as laws of their respective jurisdictions.
The changes are proposed to take effect by 31 December 2010.
The proposed reforms would have implications on the following:
- the form and content of the TPA
- existing State and Territory consumer laws – although each State and Territory will retain its Fair Trading legislation to deal with sector-specific issues, some provisions will be superseded and replaced by the ACL provisions where there are inconsistencies
- financial services laws – changes to these laws may result as part of the Australian Government's ongoing commitment to ensure that generic national consumer laws apply to all sectors of the Australian economy (as far as practicable), including the credit and financial services sectors.
Given the time frame within which the changes could come into effect, it would be advisable for businesses to begin reviewing their policies and approach to compliance with consumer protection laws and implement a national approach if one is not already in place.
Part II: Proposed national prohibition of unfair contract terms
Application of the proposed laws
The proposed laws, which are modelled on existing prohibitions in Victoria and will be comparable to those in Britain and the European Union, will apply to standard form, non-negotiated contracts. These include bank account terms and credit agreements, mobile phone contracts, software end user licenses, gym membership terms, contracts for utility services (eg electricity, water, gas) and contracts for professional services (such as lawyers, engineers, consultants etc).
Both consumers and businesses will be able to benefit from the proposed prohibition.
What are unfair contract terms?
Under the proposals, a contract provision is unfair if it causes a significant imbalance in the parties' rights and obligations and it is not reasonably necessary to protect the legitimate interests of the supplier. These include clauses which:
- allow the supplier to unilaterally vary the contract
- permit the supplier to change the price of goods or services without allowing the customer to terminate the contract
- exclude liability for harm resulting from the supplier's or its agent's actions
- allow the supplier to assign the contract without the customer's consent.
In addition, certain types of clauses may be banned as they could be considered unfair in all circumstances. These include:
- retention of title and repossession of goods clauses (where the nature of the goods means that they cannot be removed without causing significant damage to homes)
- terms allowing suppliers to retain, debit or set-off disputed amounts
- clauses that require customers to pay the supplier's enforcement costs, even if those costs are not reasonable
- terms under which customers acknowledge that they have read or understood the contract
- fixed early termination fee clauses and those requiring the paying out of the contract.
Remedies will be available where the customer has suffered, or is likely to suffer, detriment (financial or otherwise).
Companies should review their standard, non-negotiated customer contracts to ensure compliance with the proposed new regulations.
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.