In the fight for customers and survival, retailers may be tempted to push the boundaries of Fair Trading Act (FTA) compliance with aggressive marketing strategies.
Retailers should, however, take note that the Commerce Commission (the Commission) seems very keen to live up to the Letter of Expectations issued by the Minister of Commerce in April 2024. There, the Minister encouraged the Commission to "be brave" – an active regulator that is confident in using all the tools in its regulatory arsenal.
The Commission confirmed in response that it had substantial enforcement work planned and underway, and, seizing the day, called for the urgent review of penalties under the FTA on the basis that they currently risk failing to deter harmful conduct. This continues a theme, with the Commission pushing for higher penalties in recent cases to incentivise compliance.
It would therefore be a brave retailer who would risk pushing the Commission. Some key focus areas for retailers to be alert to are:
- Pricing and promotion claims - Overstating the extent of a sale or discounts continues to be an area of focus for the Commission. Issues include frequent discounting that misleads consumers about the amount they’re saving off the usual price (eg through was/now pricing or “x% off” claims). A recent Commission warning to a retailer (in liquidation), for example, raised concerns with claims about the extent of a sale, like “60% off almost everything” when significant exclusions applied, and promotion limitations and T&Cs that were not properly disclosed and did not fully explain the terms of the sale.
- Claims about consumer guarantees - A common area of misunderstanding is how the Consumer Guarantees Act (CGA) applies when there is an issue with a product. This includes confusion about how it applies when there is also a manufacturer warranty, who is responsible between a retailer and manufacturer, and what remedies a customer can seek. Misleading customers about their rights (whether in store, online, or in T&Cs) can result in action under the FTA. The Commission recently warned a ferry service operator for alleged misleading claims in its T&Cs which excluded liability in full for cancellations and delays, without disclosing the potential right for compensation under the CGA.
- Greenwashing and environmental claims - If making claims about the environmental impact of your business and the products you sell, careful review is needed to make sure the claims can be backed up and are not misleading. Vague, exaggerated, or unsubstantiated green claims are a particular target of the Commission. See our recent update for more details.
- Delivery promises and delays - Under the CGA, products must be delivered within the time period agreed with a customer or a reasonable time if no time is agreed. Misleading representations about delivery timeframes also raise issues under the FTA, so it is important to give clear and accurate information about product availability and timeframes. A recent case taken against a large fashion retailer in Australia highlights this issue, with the regulator alleging the retailer failed to deliver several hundred thousand products to customers within the delivery timeframes advertised on its websites.
- Product safety - The Commission has been focused on securing higher fines for product safety breaches recently. If you sell products that are subject to product safety or consumer information standards, it is important to have a robust compliance system in place. The failure of a retailer to do so was highlighted in a recent case, and taken into account in setting the level of fine. The High Court also issued an apt reminder in another recent case, stating that product safety compliance is “not a once and done exercise” and that compliance requires “ongoing assessment for updates on the applicable regulatory regime”.
Changes to the FTA relating to gift card expiry requirements are also currently going through Parliament.
The Commission's approach in recent cases highlights the importance of having a compliance programme. The costs of a Commission investigation (and potential prosecution and penalties) will generally far outweigh the costs of adopting an effective consumer law compliance and quality assurance programme. Making sure staff are aware of key legal obligations and when to escalate issues, through training, is a core part of any compliance programme. Quickly managing and escalating customer complaints when appropriate also helps to reduce the risk of a Commerce Commission complaint or investigation.
