New Consumer Protection Act will come into effect on 1 April 2011
28 Mar 2011
On 1 April this year, the new Consumer Protection Act comes into force.Western Cape Minister of Economic Development and Tourism, Alan Winde, said, "The Consumer Protection Act will radically overhaul the manner and form in which business is conducted within our country. One of the important elements introduced by the Act is the acknowledgement of the rights that all of us as consumers will now be able to enjoy. Previous legislation ignored these principles and for the first time we have statutory recognition of our right to confidentiality, information, disclosure, fairness, transparency, choice, safety and redress. From 1 April onwards, it will not only be disrespectful, but illegal, to ignore consumers’ rights."
The legislation will furthermore create a far better environment within which the various consumer protection authorities, both at national and provincial level, will be able to effectively regulate and enforce the various provisions aimed at enhancing the relationship between consumers and business.
Winde continued, “It is imperative for companies to determine the extent to which the Act applies to them so that the new business risks can be mitigated." The solution will have to be organisation wide, working through each of the company's functional areas so as to standardise compliance while optimising business productivity and the operational requirements of the organisation.
More information on the Act:
How the new Act will improve the consumer's situation when dealing with retailers
The Consumer Protection Act will now radically overhaul the manner and form in which business is conducted within our country. This is primarily because the Act now formally entrenches which types of business conduct between consumer and business is deemed acceptable or not. Previously, this was not the case and many types of conduct were often unfair but as there was no legislation on these issues certain questionable practices were often a common occurrence. This was often to the detriment of consumers. The Act now formally entrenches the rights and obligations of both consumers and business.
The following demonstrates some of the practical protection measures afforded to consumers by the Act:
Direct marketing: This type of marketing is fast becoming one of the major avenues through which businesses transact with consumers because of the simplicity of the transaction process. Consumers have however often complained about certain practices employed by direct marketing companies. The Act now addresses some of these main concerns. For example one of the major complaints from consumers related to the "invasion of space and privacy that often occurred when a direct marketing company would approach a consumer. This "approach" often took place at a place and time which did not suit the consumer.
The Act will therefore now provide for the establishment of an "Exclusion Register" whereby a consumer can now register a so called pre-emptive block against receiving any electronic communication. The effect of this is that a direct marketing company will be prohibited from contacting a consumer to offer a product or service if such a consumer has recorded his/her name on this register. This will greatly assist consumers as they will be able to prohibit unwanted electronic communication. Any business that contacts a consumer who is on the exclusion register will find themselves facing possible sanction.
In addition, the Regulations of the Act now stipulates the times and days during which consumers may be contacted for direct marketing. This will ensure that a direct marketer will only be allowed to make contact with consumers during certain periods. Also, the Act now prescribes that a salesperson visiting a consumer must now wear an identification device (badge, etc) that authenticates his/her identity. However, one of the most important provisions as far as direct marketing is concerned, is the right of a consumer to cancel any direct marketing agreement entered into, within five business days.
This will ensure that a consumer will now have the right to "change his/her mind" about a direct marketing purchase within five business days. This is a real improvement as often consumers have signed up for a service or product without having thought about the purchase carefully and the possible effects it would have on their budget and other financial commitments. In some cases it has been found that consumers are subjected to pressure to the extent that they enter into an agreement merely to end a sales pitch. It would thereafter be difficult to cancel the agreement as the business would rely on the contract that was signed.
The Act now ensures that a consumer that has entered into a contract after a direct marketing engagement may cancel such agreement within five business days. The cancellation will however have to be done in the correct manner i.e. either in writing or any other recordable manner. This provision therefore offers substantial relief to consumers that may have "second thoughts" after entering into a contract that was facilitated through direct marketing.
Unfair contract terms: The Act now formally prescribes that a supplier may not enter into an agreement with a consumer that is patently one sided, unreasonable or unfair. In order to assist business and consumers the Act outlines a number of issues that will be considered to constitute unfair or unreasonable contract terms. For example, a supplier cannot include a provision in a contract which provides that the consumer now waives any rights afforded to him/her in the Act. Also, a consumer will now have recourse should they feel that a supplier has misrepresented a material fact regarding the goods or service. The Act now also obligates suppliers to use clear and understandable language within contracts so as to ensure that consumers are not misled.
Strict liability: One of the issues that has led to the most debate revolves around the issue of strict liability. In terms of section 61 of the Act a producer, distributor, importer or retailer can now in certain instances be held strictly liable for any harm or damages suffered by a consumer flowing from the use of a product. This is irrespective of whether negligence can be attributed to the producer, distributor, importer or retailer. This is a drastic shift from the previous situation where a consumer was lumped with the onus of proving negligence on the part of the producer, distributor, importer or retailer. It is however important to note that a consumer will need to approach the courts to institute any claim for damages based on "strict liability".
Warranties: Consumers will be able to return and claim refunds for poor quality goods because there is now an implied warrantee of six months for any goods purchased. This is another area that the Act will drastically change as a consumer will now be entitled to return a product if it is not suitable for the purposes for which it was intended or it fails to comply with certain requirements. The Act therefore acknowledges that a consumer is entitled to return a product and obtain a refund or have the product repaired if the product is no longer suitable for the purpose intended or if the product does not meet certain criteria.
This however does not mean that a consumer can insist on a refund if he/she no longer wants the product because it is cheaper at another store or the design no longer fits in with the consumer's décor. Also, if a consumer has tampered with the goods in any way e.g. consumer attempts to repair the product themselves, and then a demand for a refund or replacement can be denied. The requirements as listed above i.e. the product is not suitable for the purposes for which it was intended or it fails to comply with certain requirements must therefore be met before any refund or replacement can be done. The Act also states that the consumer must return the product within six months of it being delivered.
A practical example would be the following: You purchase a kettle for use in your home and the kettle can no longer boil water. The kettle is therefore no longer suitable for the purpose for which it was bought. If this has happened within six months of you taking delivery of the kettle you will now be within your rights to take the kettle back to the store and request a refund, repair or replacement. Importantly, the choice is the consumers and not the business. As such, the consumer has the power to decide whether he/she wants a refund, repair or replacement. Remember, the six month warranty mentioned above is in addition to any other warranty provided by the supplier. So, if a product has a 12 month warranty provided by the supplier then this 12 month warranty is still valid.
Cancellations of an advance reservation, booking or order: Complaints are often received from consumers when they are charged a cancellation fee by a business. For example, a consumer reserves accommodation at a hotel for two nights. On the day of the reservation, the consumer changes his/her mind as the hotel around the corner is offering a cheaper rate. The hotel then charges a 100 percent cancellation fee and the consumer is unhappy with the fee charged. In terms of the Act, a consumer does have the right to cancel a reservation. However, the business will similarly have the right to charge a cancellation fee. The Act however introduces the concept of a "reasonable cancellation fee" and what will constitute a reasonable fee will depend on:
- The nature of the goods or services
- The length of notice of cancellation provided by the consumer
- The reasonable potential of finding an alternative consumer
- The general practice of the industry.
As such, what constitutes a reasonable cancellation fee will depend on the merits of each case and the percentage of a cancellation fee that will be levied must be carefully considered by a business. The above are only a few examples of how the Act will alter the manner in which business transactions are concluded in our country.
The major differences between the old Legislation Governing Consumer/Retailer Relations and the new Consumer Protection Act
The advent of our Constitution and the subsequent democratic dispensation has resulted in much needed review, amendment and in some cases the radical overhaul of legislation. The Constitution, as we all know, is the Supreme Law of our country and it enshrines a number of key principles which guide us as a government when addressing the legislative needs of our country and its people.
In the last decade our country has seen a general upturn with regards to its economic performance. Despite the economic challenges that we may face in the future all factors point towards the positive enhancement of our economic growth trend. This general upturn in economic growth has been good for our country but at the same time a number of challenges have resulted due to this growth. In the context of consumer protection one of the key challenges that consumers have experienced due to this growth relates to the issue of exploitation and abuse that is often perpetrated against the most vulnerable members of our society.
Unfortunately, the arena of consumer protection has lagged behind in terms of the legislative enhancements that were required to prohibit such abuse and exploitation and which also statutorily acknowledged the rights of consumers. In addition, the legislative measures that were in place to address such issues were often fragmented and administered across a broad cross section of sectors.
This fragmentation lead to uncertainty in a number of sectors and the result was that often many consumer protection issues were not effectively enforced. A number of these fragmented pieces of legislation were also outdated as it had not kept trend with the changing circumstances experienced within our economy. For example the changes in technology that we have experienced over the past decade have in some sectors drastically altered the way in which ordinary business was conducted. One of the more important challenges created by the sets of fragmented legislation was the fact that it had not kept pace with the changing Constitutional environment that had been created by the advent of democracy.
Our Constitution enshrines the principles of human rights, respect, dignity and transparency. Many provisions of the legislation, especially those that pre-dated our Constitution, failed to acknowledge and adhere to these basic democratic principles. One of the important elements introduced by the Act is the acknowledgement of the rights that all of us as consumers enjoy. Previous legislation ignored these principles and for the first time we have statutory recognition of our right to confidentiality, information, disclosure, fairness, transparency, choice, safety and redress. This legislation will therefore create an environment within which both consumers and business will be able to adequately respect the rights and obligations that the law vests in each party.
The legislation will furthermore create a far better environment within which the various consumer protection authorities, both at national and provincial level, will be able to effectively regulate and enforce the various provisions aimed at enhancing the relationship between consumers and business. Enforcement of consumer protection has always been an area of debate as often consumers felt that consumer protection authorities lacked "the teeth" to enforce protection measures. This argument will now be settled as the Act introduces a number of enforcement powers both at the national and provincial level of government. The establishment of the National Consumer Commission (NCC) and the National Consumer Tribunal (NCT) will ensure that the legislation will be effectively administered and enforced. The NCC will be a so called "public entity" that will have specific powers in terms of the Act to ensure that transgressions are attended to.
The National Consumer Tribunal will act as an adjudicating body and will have the power to grant certain orders after it has conducted a hearing. The aforementioned institutions, together with the Provincial Consumer Protector offices will therefore play an important role in ensuring that errant businesses will be addressed should they transgress the law. For example, the NCC and the provincial consumer protection offices will now be entitled to investigate transgressions of the Act and issue so called "compliance notices" should the allegations be proved.
The compliance notice will be an instruction to a business to comply with the specific provision of the Act e.g. process a refund. If a business does not comply with the notice the NCC may then request the National Consumer Tribunal to impose a fine against the business or the matter may be referred to the National Prosecuting Authority for formal prosecution of the business. As can be seen, the provisions of the Act will be adequately enforced by the institutions mentioned above and this will ensure that real protection is afforded to consumers that may be exploited by errant businesses.
What companies will have to do in order to comply with the new regulations
The major challenge facing business is to ensure that they comply with the new Act. The new Act will radically overhaul the manner in which transactions are entered into and concluded between business and consumer. A number of new measures have been introduced and this will imply that staff at all levels within a business will need to be familiar with the new way of conducting business. Staff training will therefore become a critical component for all businesses as this will ensure that staff members are aware of the provisions of the Act.
These new rules will necessitate significant changes to current business operating models as they regulate aspects such as marketing activities, contractual content, fixed term contracts, customer loyalty programmes, gift vouchers, franchises, auctions, pre-payments, stockholding, labeling, pricing, delivery and returns. The implication is that every aspect of companies will be affected, including procurement, legal, finance, risk, insurance and information technology. These provisions will apply to all organisations in their business dealings irrespective of the threshold exemption as determined in the regulations to the Act.
It is imperative for companies to take the first step to determine the extent to which the Act applies to them so that the new business risks can be determined and mitigated. The solution will have to be organisation wide, working through each of the company's functional areas so as to standardise compliance while optimising business productivity and the operational requirements of the organisation.
Tel: 021 483 9167
Source: Western Cape Provincial Government
Issued by: Western Cape Economic Development and Tourism
28 Mar 2011
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