Hefty fines for businesses breaching new consumer law reforms

Companies that don’t comply with new consumer law reform changes risk substantially increased fines and penalties for any breach.

Glenn Baker

June 15, 2014 2 Mins Read

Companies that don’t comply with new consumer law reform changes risk substantially increased fines and penalties for any breach. The changes, which came into effect on June 17, will impact virtually all businesses dealing with consumers.

The updated legislation affects the Fair Trading Act 1986 and Consumer Guarantees Act 1993 and will be followed by further changes in March next year.

Richard Smith, a commercial law partner with Duncan Cotterill, says the changes relate to claims that companies make about goods and services, including online sales, and extend to facets such as delivery time post sale or auction. Plain English information on extended warranties is also required.

Backing up claims about goods and services

“Companies need to be able to back up claims that they make about their goods and services. 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.”

Smith says the focus is on the steps taken to substantiate claims but there is no precise test. 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.

“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.”

More changes to come

Smith says that further changes which will come into effect in mid March 2015 relate to any ‘unfair’ wording in consumer contracts. Terms in contracts deemed to be unfair will not be enforceable by businesses

“In the lead up, 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 and businesses standard terms and conditions.”