Australian Consumer Law Review Recommends Much Stronger Penalties for Breaches

Thursday 20 April 2017 @ 10.54 a.m. | Corporate & Regulatory | Legal Research | Trade & Commerce

The three year Australian Consumer Law Review (the review) which concluded in March 2017, delivered its final report yesterday (19 April 2017), and, as one of its key findings, has recommended that Ministers for Consumer Affairs should consider imposing tougher financial penalties on companies that breach the law.

Background to the Review

The review was initiated in June 2015 when the Consumer Affairs Ministers of Australia agreed that Consumer Affairs Australia and New Zealand (CAANZ) should conduct a review of the Australian Consumer Law (the ACL).

The review's Terms of Reference outlined that the review would be required to consider the effectiveness of the current ACL and whether the ACL was sufficiently flexible to address new and emerging issues.

This review was the first broad review of the national legislation , the ACL, since it commenced on 1 January 2011. The review was concluded in March 2017 with CAANZ providing the Consumer Affairs Ministers with its Final Report on 19 April 2017. In conducting its review, CAANZ also carried out an Australian Consumer Survey, which was a national survey of more than 5400 consumers and 1200 businesses looking at their understanding of and experience with the ACL. It also did comparative analysis of overseas consumer policy frameworks, commissioning QUT to undertake a study of consumer policy frameworks in comparable countries such as; the European Union, the United Kingdom, United States, Canada and Singapore. Finally, it undertook an independent assessment of the enforcement and administration arrangements underpinning the ACL using the services of the Productivity Commission. For more on these projects conducted for the review, click here.

General Findings and Observations

In its Media Release, CAANZ indicated that the Final Report followed a year-long public review process, with more than 260 submissions being made, 130 face-to-face consultations being conducted, and research including the already mentioned Australian Consumer Survey 2016 being carried out. CAANZ Chair and Director of Consumer Affairs Victoria Simon Cohen says the review of:

“. . . the ACL has found that the ACL introduced in 2011 has both empowered consumers and reduced compliance costs for business, . . ”.

Further, Mr Cohen says the review:

“. . . has identified a number of opportunities, including higher penalties and better product safety laws that align with community expectations. This will further improve the ACL and provide for a fair, safe Australian consumer marketplace, . . .”.

The Review's Key Findings

In its final report, CAANZ proposes a package of 19 legislative reforms to strengthen and clarify the operation of the ACL, for the purpose of improving consumer wellbeing.

The measures proposed by CAANZ include:

aligning the penalty regime under the competition provisions of the Competition and Consumer Act 2010 by increasing the financial penalties for ACL breaches:

for individuals from $220,000 to $500,000, and
for companies from $1.1 million to the greater of:

the maximum penalty of $10 million, or;
three times the value of the benefit received; or
10 percent of the annual turnover in the preceding 12 months;

making it easier for consumers to get a refund for a faulty product;
adding new requirements for extended warranties, which include a 10 working day cooling-off period;
introducing a general safety law so that traders are required to ensure their products are safe before they enter the market;
making online shopping fairer by ensuring any charges associated with pre-selected options are included in the headline price;
extending the protections against unfair contract terms to insurance contracts; and
making it clear that the protections available in the ACL for unsolicited sales can apply to public places.

Reaction and Comment

Certainly, the changes proposed to penalties for companies, if adopted, would see a different outcome in cases like the Reckitt Benckiser matter, where misleading claims about "targeted" pain relief, would have been hit with a $60 million penalty and not the current $1.1 million penalty for a breach.

The ABC reports the Australian Competition and Consumer Commission (the ACCC) as having welcomed the proposal to increase penalties, a matter the ACC had strongly advocated for, even prior to the Final Report. ACCC chairman Rod Sims is quoted by the ABC as saying:

"If these changes go through, when companies breach the law there will be serious penalties rather than the rather low penalties we see at the moment, . . ."

As well as affecting penalties, the recommendations also suggest changes to the safety law making it illegal for companies to sell unsafe goods and tightening current laws which only require a recall. On this point, Mr Sims is reported as saying:

"This is a profound change and it would, I think, cause companies to make sure that the goods they're selling are safe, . . ."

The recommendation on consumer guarantees and clarifications regarding some faulty product refund entitlements are also supported by Mr Sims, who is reported as saying that where,

". . . a good comes with a fault within a certain period of time, you would be entitled to a refund or replacement without having to demonstrate that the failure was a major one, . . ." .

The Federal opposition is reported as saying that increased maximum penalties were one of its election promises, and were needed urgently. The Shadow Consumer Affairs Minister Tim Hammond is reported as saying:

"Following on from last week's Productivity Commission report into the Australian consumer protection regime, there is a clear agenda for reform in the national interest, . . . So far we have just seen the Government dither and do nothing. It's time for meaningful reform."

Whats Next

The review's Final Report sets out a forward program of research and policy work for consumer affairs agencies over the next four years, with CAANZ Chair and Director of Consumer Affairs Victoria Simon Cohen saying:

“Confident and well-informed consumers are key to an efficient market. After five years, the review has given us the opportunity to improve the legislation and strengthen our commitment to best practice, . . . The CAANZ review sets out a clear and evidence-based program of reform to ensure the ACL remains relevant into the future.”

The Commonwealth, State and Territory Consumer Affairs Ministers will consider the CAANZ review of the ACL and proposals for reform at the next meeting of the Legislative and Governance Forum on Consumer Affairs to be held in Melbourne in the second half of 2017.

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