- 'Just 20 easy payments of $19.95'.
- 'Only $100 plus GST and delivery'.
- '$24.95 (15% surcharge applies on public holidays)'.
On 25 May 2009, the Trade Practices Amendment (Clarity in Pricing) Act 2008 (Cth) comes into effect making the use of wording like this to describe prices a possible criminal offence, unless the total price of the goods or services is displayed equally prominently as a single figure.
The Trade Practices Amendment (Clarity in Pricing) Act 2008 (Cth) has introduced a new rule for 'component pricing' by amending section 53C and section 75AZF of the Trade Practices Act 1974 (Cth).
The new rule requires that, if businesses choose to represent parts of the price for particular goods and services, they must also specify equally prominently as a single figure the total price for the good or service. There are, however, some major exceptions to the new rule as explained in this update.
A breach of the rule is a criminal offence and can result in a maximum fine of $1.1 million for a corporation and $220,000 for an individual, so care must be taken to comply with it.
WHAT ARE THE REQUIREMENTS OF THE NEW COMPONENT PRICING RULE?
A supplier must not, in connection with the supply, possible supply or promotion of goods or services, make a representation with respect to an amount that, if paid, would constitute a part of the consideration unless the supplier also specifies, in a prominent way and as a single figure, the single price for the goods or services.
We discuss below each of the key concepts in the new rule.
The new component pricing rule applies to any representation of a price or a component of price, no matter how it is made. This includes statements relating to prices in advertising (whether press, radio, website, or other medium), on price tags, point of sale materials, price lists and quotations.
IN A PROMINENT WAY
The single figure price must be at least as prominent as the most prominent of any other representations of component parts of the price. For example, '$100 plus $10 installation and $10 delivery: Total cost $120' complies.
The 'at least as prominent' requirement does not apply where a contract for the supply of services for a term requires periodic payments. In such a case, the single price must be specified but it need not be equally prominent.
A mobile phone contract for a minimum period of 12 months requiring payment of $20 per month plus usage charges may be advertised as '$20 per month for a minimum period of 12 months (total $240)'. This is permissible even though the total minimum price is not equally prominent. The usage charges should also be adequately disclosed.
The single price is the minimum quantifiable consideration for the supply at the time of the representation. A price will be quantifiable if it can be readily converted into a dollar amount.
Minimum quantifiable consideration
The 'minimum quantifiable consideration' includes all amounts the customer must pay in order to obtain the goods or services, including:
- charges of any description payable by the consumer to purchase the good or service (including any administration fees, booking fees or compulsory service charges);
- taxes, duties, fees, levies or charges payable by the consumer for the supply of the good or service (for example, GST).
However, the following are not included in the minimum quantifiable price:
- delivery or sending charges, including postage, courier fees and packaging charges;
- costs and charges that are not passed on to the consumer;
- charges that are payable at the option of the consumer;
- components of price that are not quantifiable.
- A product costs $100 and a compulsory delivery charge of $10 is payable. The supplier need not include the $10 in the single price but must specify it. For example, the price could be stated as '$100 plus $10 delivery' or '$110 including delivery'.
- A supplier advertises lounge suites for sale at $900 with the option of fabric protection for a further $100. The $100 need not be included in the single price because fabric protection is optional.
- An airline collects passenger movement charges on behalf of the Commonwealth. These charges must be included in the single price.
- A restaurant imposes a 15% surcharge on public holidays. The menus on public holidays must specify prices inclusive of the surcharge.
- A consumer must use a credit card to purchase a product and a surcharge applies for the use of a credit card. The surcharge must be included in the single price. However, if the consumer has a choice of paying cash or using a credit card, the compulsory surcharge need not be included.
If the price is partly non-quantifiable
If the total price is partly quantifiable and partly nonquantifiable, the quantifiable part must be stated as a single figure and the customers must be made aware of the additional amounts payable.
If a rental car is offered for hire at $50 per day plus a usage rate of $1 for each kilometre the customer drives, the usage rate cannot be quantified in advance. The minimum quantifiable amount must be specified and the customer must be made aware of the usage charge. The price could be advertised as '$50 per day plus $1 per kilometre usage'.
IF THE PRICE IS WHOLLY NON-QUANTIFIABLE
The total price will be wholly non-quantifiable if it depends on the number of units purchased (weight, volume, distance). Here, the single price should be specified as a per unit price. For example, the price of fruit bought per kilo should be specified as an amount per kilo.
WHEN DOES THE NEW COMPONENT PRICING RULE APPLY?
The rule will apply to any price representation relating to the supply or promotion of goods or services if:
- the goods or services concerned are consumer-type goods or services (other than financial services), and
- customers or potential customers for those goods or services include an individual or an unincorporated entity.
The new rule is subject to important exceptions:
- It only applies to consumer-type goods: The new rule only applies to goods or services 'of a kind ordinarily acquired for personal, domestic or household use or consumption' (consumer-type goods or services). For example, even though cars are often acquired for business purposes, they are consumer-type goods because they are ordinarily acquired for personal, domestic or household use. By comparison, delivery vans are not consumer-type goods even though some people may buy them for personal use.
- It does not apply to financial services: The rule does not apply to 'financial services' as defined in the Australian Securities and Investments Act 2001 (Cth) (they are subject to their own separate rules). Consequently it does not apply to banking, finance and insurance services, other than in relation to some medical insurance services.
- It does not apply to supply to a body corporate: The rule does not apply to supply to a body corporate (that is, an incorporated entity). This excludes most business-to-business dealings and transactions with governments and government departments. But if a representation of price is made to an unincorporated entity, such as a partnership or an individual trading under a business name, the rule will apply.
Negotiation of lower prices
The new rule is not intended to preclude negotiation of a lower price between the consumer and the supplier. For example, if a motor vehicle dealer advertises the price of a vehicle at $32,990, and a particular consumer negotiates with the dealer to pay only $31,500, the lower price does not become the new price (unless in fact the dealer routinely sells at that lower price).
WHAT SHOULD YOU DO NEXT?
- Determine whether the new rule applies to any of the goods or services you supply.
- Review your pricing practices in respect of those goods or services.
- Ensure that an appropriate compliance program is established and implemented.
- Contact us if you are unsure about whether the new rule applies to your goods or services, or if you are unsure whether your proposed advertising is compliant.
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