Consumer law predictions
2018 Litigation Forecast
In our 2017 forecast, we anticipated a forceful approach to consumer and credit law enforcement by the New Zealand Commerce Commission (NZCC), further prosecutions and test cases, and higher fines and penalties.
This prediction proved correct with an $800,000 fine against Bike Barn in the first half of 2017, then the first Fair Trading Act 1986 (FTA) fine over $1 million against Reckitt Benckiser for misleading packaging of Nurofen, rigorous Credit Contract and Consumer Finance Act 2003 (CCCFA) enforcement and the NZCC’s latest “case stated” proceeding against Harmoney on the application of the CCCFA to peer-to-peer-lending.
This strong enforcement trend looks set to continue in 2018.
Forceful approach to consumer and credit law enforcement by the Commerce Commission is set to continue in 2018.
More, and high profile, cases
The NZCC pursued nearly 40 consumer and credit cases in 2017. This included a number of high profile cases such as: the packaging and promotion of Nurofen; pricing claims made by Bike Barn about discounts and the duration of those discounts; and the ongoing investigation into Bunnings' claims to “lowest” prices. The NZCC issued an open letter to retailers on pricing practices in June and issued fact sheets on a number of these case examples.
The NZCC continues active enforcement of the CCCFA. It has progressed its prosecutions against mobile traders such as Bestdeals 4 You Ltd, Budget Warehouse Ltd and Best Buy Ltd. In addition, the NZCC has taken a range of enforcement actions against several finance companies, prosecuting Acute Finance Ltd for charging unreasonable credit fees, reaching an out of court settlement with Rapid Loans NZ Limited and issuing warnings in three other cases.
Increasing fines and exposures
The NZCC continues to seek higher fines and penalties from the courts – particularly where charges involve broad reach advertising, large corporate traders or reason to believe there is consumer harm or material gain from the conduct.
The NZCC is also focused on individual responsibility of business owners or directors where deliberate conduct appears to be involved. In October 2017, the owner of Lightweight Concrete Limited was fined $152,000 for claiming it supplied a premium brand of concrete cladding panels when it did not, and this fact was or must have been obvious to the owner of the business.
In very serious cases, Crimes Act charges have been laid. In March 2017, the sole director and shareholder of mobile trader, FlexiBuy Limited was sentenced to two years imprisonment for taking consumers’ money without any intention to supply goods.
In the CCCFA space, consequences of non-compliance reach beyond the imposition of penalties to include liability for statutory damages and, in respect of certain breaches (such as failures to comply with statutory obligations to provide consumers with certain information regarding their loans), orders requiring lenders to refund fees and interest charged. For example, in 2017 mobile traders Best Buys Ltd and Budget Warehouse Ltd were ordered to refund $37,180 and $33,419 in fees respectively.
Transparency and announced priorities
In July 2017, the NZCC announced its consumer priority focus areas of responsible lending; retail telecommunications; and credence claims.
The announcement of strategic priorities is a new initiative by the NZCC providing greater transparency on its work programme. The NZCC’s Consumer Issues Report published in August, reinforced messages about the NZCC’s areas of focus.
|At our 2017 Regulator Series the NZCC provided some further insight, noting it will prioritise:|
Overall complaints regarding compliance with the CCCFA have increased by 22% over the past year, with many of the complaints being referred to the NZCC by consumer agencies. We expect the NZCC to start focusing on responsible lending principles as set out in the CCCFA and the Responsible Lending Code, particularly how online processes permit a lender to:
- make reasonable enquiries so the lender can be satisfied that it is likely that the borrower’s requirements or objectives will be met and payments can be made without substantial hardship; and
- assist borrowers to make informed decisions and be reasonably aware of the full implications.
Credit fees and peer-to-peer lending – Commerce Commission v Harmoney
Following on from the key decision on how fees can be set under the CCCFA in the Sportzone case, the NZCC has sought guidance from the courts in relation to peer-to-peer lending fees.
In 2016, the NZCC asked the High Court to answer some questions of law regarding the CCCFA and peer-to-peer lending based on Harmoney Limited (Harmoney)’s fee structure. The NZCC asked whether a “platform fee” which Harmoney charges on its online lending website is a “credit fee” or an “establishment fee” under the CCCFA. If the platform fee is found to be a credit fee or establishment fee, then Harmoney would need to ensure that its fees were “reasonable” in accordance with the stringent CCCFA test requiring that costs recovered via the platform fee are only those costs which are “closely connected to the fees for which they are charged”.
In 2017, Harmoney attempted to strike out these questions arguing that these were, in reality, factual questions (not questions of law). The Court struck out two questions but decided that the other questions were permissible with the most interesting for the industry being: is the Harmoney Platform Fee a credit fee under the CCCFA? The judgment on these questions of law is likely to be released in the first half of 2018.
In August 2017, the NZCC also filed civil proceedings in the High Court against Harmoney and Harmoney Investor Trustee Limited seeking a declaration that the companies have charged fees in breach of the Act and seeking orders to compensate affected borrowers.
Retail telecommunications is a priority focus area for the NZCC across both its consumer and regulation work. This is an industry focus that was flagged in a “Warning for telcos” media release that the NZCC issued in February 2017, and reflected in four warning letters released in August as well as further discussion in the Consumer Issues Report. The NZCC has indicated that its areas of concern include:
- Misleading pricing such as hidden extra charges, undisclosed fees and complex pricing and terms
- Unsubstantiated or misleading claims about performance and coverage, particularly where comparisons are made
- Incorrect billing
- Unfair contract terms
- Failure to identify the subscription nature of mobile add-ons
- Incorrect calculation of broadband usage
Credence claims are claims such as “Free Range” that consumers take at face-value, on trust and cannot be easily verified. Breaching that trust is harmful to consumers, other competitors and New Zealand’s reputation with tourists and across export markets.
The NZCC took a precedent setting case to the High Court in 2016, to gain clarity on “New Zealand made” claims. The decision clarifies that presenting a product as “New Zealand made” may be misleading if the key ingredients do not come from New Zealand, even if they are packaged or processed in the country.
2017 decisions involving credence claims included:
- CC v Topline & Cook – In May 2017, Topline International, a health supplement company and its director were fined $405,000 and $121,500 respectively for 22 charges relating to representations that bee pollen was made in New Zealand when in fact it had been produced and processed in China. The fine imposed on Mr C, as Topline’s principal shareholder, director and person with ultimate responsibility for advertising decisions, is among the highest FTA fines imposed on an individual.
- CC v Fujitsu – In October 2017, Fujitsu General New Zealand Ltd was fined $310,000 for making unsubstantiated or misleading credence claims about some of its heat pumps. The case was brought under the substantiation provisions of the FTA. Fujitsu made a variety of claims about the energy efficiency and performance of some of its heat pumps, including that they were “NZ’s most efficient heat pump range”, “the most efficient heat pump ever”, and that its e3 heat pump delivered “$4.92 for $1 of power”. The NZCC said Fujitsu had no reasonable grounds to make the claims. In particular, some claims were based on performance only achieved under laboratory conditions, unlikely to be duplicated by consumers in real-world conditions.
What’s in the pipeline?
The announcement of the NZCC’s priority areas provides useful insight into its programme for 2018 – retail telecommunications, responsible lending and credence claims will be in the spotlight. Further test cases for unsubstantiated representations and unfair contract terms, following the NZCC’s industry reviews conducted for energy retail, telco retail, and gym contracts, can also be expected.
The NZCC continues to pursue the largest programme for consumer and credit enforcement in years, and we expect enforcement to continue throughout 2018.
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