Penalties on the horizon for breaching consumer guarantees?

“One important reform the ACCC considers is necessary is for failure to honour consumer guarantees to be a contravention of the ACL incurring penalties,” says ACCC Chair, Gina Cass-Gottlieb.

The ACCC has obtained almost $30 million in Court-ordered pecuniary penalties in the past 12 months through suing companies which have made false representations about consumer guarantee rights under the Australian Consumer Law. Those companies include:

  • Mazda (February 2024) – $11.5 million penalty;
  • Fitbit LLC (December 2023) – $11 million penalty; and
  • Booktopia (March 2023) – $6 million penalty.

The ACCC continues to be hugely active in the area, reporting that “Consumer guarantee issues persistently represent a significant proportion of contacts received by the ACCC, and have remained roughly around this level since 2020.”

In March 2024, the ACCC commenced proceedings against one of Australia’s largest specialty fashion brands, Mosaic Brands Limited, for failing to deliver goods within the time frame advertised online and for representing to consumers that they were not entitled to a refund for faulty goods unless the refund was sought within six months of purchasing the product from Mosaic.

However, as far as the ACCC is concerned, none of this goes far enough.

The ACCC wants the law to be amended to prohibit businesses from failing to provide an appropriate statutory remedy under the consumer guarantee regime and to incorporate significant penalties for breach. According to the ACCC, “This would dramatically change business incentives to comply with their consumer guarantee obligations and more effectively support consumers to secure their statutory consumer guarantee rights”.

The Australian Consumer Law is, without a doubt, one of the most dynamic pieces of legislation in Australia. In less than 10 years, there have been two major uplifts to the maximum penalties available for breaching key consumer law provisions – from $1.1 million to $10 million per breach in 2017, followed by a further increase to $50 million per breach in 2022. There have also been significant expansions to the unfair contract term regime, including the introduction of penalties for breach. That’s not to mention the recently announced shift to a much stricter merger regime, which will include reforms such as mandatory notification thresholds. The ACCC has been hugely instrumental in bringing about each of these changes. That means that if a reform is on the ACCC’s radar, then it needs to be on yours too.

What does this mean for you?

Here are some key questions you should ask yourself to get your house in order.

Are you supplying goods or services to consumers?

The definition of “consumer” for the purposes of the consumer guarantee regime is broader than you might think. A person will be deemed to acquire goods or services as a consumer as long as the purchase price does not exceed $100,000, regardless of the nature of the good or service. The definition also captures all traditional supplies of consumer goods and services, being goods which are ordinarily acquired for personal, domestic, or household use, irrespective of their value. There is therefore scope for a very broad range of supplies, including B2B supplies, to be captured by the consumer guarantee regime. There are limited exceptions to the application of the consumer guarantee regime, such as where goods are acquired for the purpose of resupply in trade or commerce.

Do you have an effective customer complaint handling process?

Your sales teams and customer care teams should be trained on what consumer guarantees are and how to respond appropriately to customer complaints regarding faulty products. For instance, representatives should be trained not to make false or misleading statements such as, “Your product is out of warranty, so we can only repair it for a fee,” “No refunds under any circumstances,” and, if you are a supplier, “You will need to contact the manufacturer to have this issue resolved.” Providing sales teams and consumer care teams with ACL-compliant scripts of how to respond to consumers and template response letters are also good steps to take to minimise risk and ensure consistency in your messaging to consumers.

Does your team understand that the consumer guarantee regime operates in addition to any other warranties you give?

Let’s say that a consumer comes to you with a faulty product. In working out what remedy to provide, you must consider whether you have any consumer guarantee obligations on top of the express warranties or manufacturer’s warranties that you provide. This means that if your express warranty has expired or otherwise does not apply, then you still need to consider whether any consumer guarantees are likely to apply. Remember, consumer guarantees often operate for longer periods and with broader terms than any other express warranties that may be reflected on warranty cards for your products.

Do you make any claims about delivery times?

Check your website to see whether you are making any claims about delivery times for the goods you supply. You must make sure you have reasonable grounds to make those claims – otherwise, you could end up in the same place as Mosaic.

Check your returns policies

Make sure that consumer guarantees are not excluded or limited under your website returns policy. You should also refrain from marking any “final sale” items as “cannot be returned for exchange or refund”. The fact is that all items can be returned if they are defective or faulty, unless the consumer has had the opportunity to examine and agree to the specific fault prior to purchase. That can be especially difficult to prove with website sales.

Need help navigating your consumer guarantee obligations? Contact the Addisons Competition, Consumer & Antitrust team.

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