Bills Digest no. 38 2008–09
Trade Practices Amendment (Clarity in Pricing) Bill
2008
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
Trade Practices Amendment (Clarity
in Pricing) Bill 2008
Date
introduced: 25
September 2008
House: House of Representatives
Portfolio: Competition Policy and Consumer
Affairs
Commencement:
Sections 1 3 on the day of
the Royal Assent; Schedule 2 on the day after the Royal Assent; and
Schedule 1 on a day to be fixed by Proclamation or six months after
the Royal Assent, whichever is the earlier.
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The purpose of the Bill is to
amend the Trade Practices Act 1974 (TPA) to require
corporations to prominently specify a single figure price that a
consumer must pay to obtain a product or service.
The Bill does contain some exceptions to this
requirement such as:
- for charges relating to sending goods from a supplier
to a customer
- where a single price is not quantifiable
and
- for business to business transactions.
Section 53C of the TPA requires advertisers to state the cash
price in relation to advertisements for goods and services. The
Explanatory Memorandum for the Trade Practices Revision Bill 1986,
which inserted section 53C into the TPA states that:
The new section 53C prohibits a corporation
advertising part only of the consideration payable for goods or
services without disclosing the total consideration for which the
goods or services may be purchased outright. This provision is
directed at a trader advertising that a consumer may buy a product
for a low deposit without disclosing the total price
payable.[1]
In Trade Practices Commission v Autoways Pty
Limited[2] the
Court observed:
the policy [of section 53C] is to cause
advertisers to tell the whole story and at least in one respect if
selling goods on time payment they must say how much you could buy
the good for by paying the cash price. This is likely to be of
assistance, particularly to the less sophisticated buyers, in
determining whether a purchase is desirable, and also in comparing
the desirability of one purchase against that of another.[3]
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Despite this intention, the decision of the Federal Court of
Australia in Australian Competition and Consumer Commission v
Dell Computer Pty Ltd (the Dell Computer case)[4] suggested that section 53C of the
TPA does not require a single figure
price to be specified.
In that case, advertisements by Dell Computer Pty Ltd had a
prominent display or statement of the price for computer products
and, elsewhere in the advertisement, a reference to an additional
charge for delivery. The complaint to the Australian Competition
and Consumer Commission (ACCC) was that the advertisements did not
make it sufficiently clear to potential customers that the delivery
fee that was charged by Dell was compulsory and not
optional.[5]
The question for the court was about the definition in the TPA
of price , that is, whether the sums of
money which were specified in the advertisements as the price of
the computer products, constituted part only of the consideration
for their supply, having regard to the fact that a compulsory
delivery charge was payable.[6]
The court decided that there was no
breach of section 53C. Justice Branson considered
that it was not necessary to specify a whole price in dollar terms.
In her view a cash price specified as $1 999 plus $99 is as much a
specification of the whole price as a statement that the single
cash price is
$2 098.[7]
Similarly, in the case of Australian Competition and
Consumer Commission v Signature Security Group Pty
Limited[8] the
court determined that the expression $295 plus GST is a compound
statement of price which did not breach section 53C of the
TPA.[9]
This Bill seeks to address the issue of compound statements of
price, also referred to as component pricing . Component pricing
occurs when a trader advertises a price in its component parts,
rather than as a single all-inclusive figure.[10]
Complaints were aired in the media in 2005 about businesses that
suck consumers in with a cheap price, then bump up the final bill
with taxes, fees and other charges .[11] The motor vehicle industry, the
airline industry and the rental car industry were singled out for
particular criticism.
Draft amendments to the TPA to respond to component pricing were
released for public consideration by the former government on 10
March 2006. Those draft amendments were expected to be part of the
Trade Practices Legislation Amendment Bill (No 3) 2006. They were
intended to implement the Australian Government s announcement in
April 2005 that it would amend the TPA to respond to the increased
use of component pricing.[12]
However, the proposed legislation was not introduced. Instead,
on 11 December 2006 the Hon Chris Pearce, then Parliamentary
Secretary to the Treasurer announced that the Productivity
Commission would commence a year long public inquiry into Australia
s consumer policy framework and its administration stating
that:
[The] inquiry reflects the Australian
Government s commitment to leadership in consumer policy reform and
will build on the Government s ongoing reform agenda, including
reform of Australia s consumer product safety system and the laws
governing component pricing.[13]
The Terms of Reference of the inquiry do not make specific
mention of component pricing.[14] The Productivity Commission issued a draft report
on 12 December 2007. Its final report
was published on 8 May 2008. However it does not appear to make
specific recommendations about component pricing.
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In March 2008, without waiting for the final Productivity
Committee report, the current government circulated draft
legislation to address the issue of component pricing in
advertising to consumers.[15]
A number of formal submissions were made to Treasury in response
to the draft legislation. In particular, the submission by the
Business Council of Australia[16] was not supportive of the proposed amendments to
the TPA on the following grounds:
- the absence of a clearly articulated problem at which the
proposed amendments are aimed
- the absence of clear cost-benefit analysis
- practical problems associated with businesses attempting to
comply with these provisions which will, in turn, impose costs on
business and create uncertainties for consumers and
- the possibility for disproportionate penalties, given that the
proposed amendments are likely to be difficult to implement in
practice, which may result in businesses inadvertently contravening
the law.[17]
Many of the drafting issues raised in the submissions by
Choice[18] and the
Law Council of Australia[19] were incorporated into the current Bill.
It is important to note that this Bill is different from the
draft bills which were circulated both by the former and current
governments. In particular, the 2006 draft bill proposed that
similar amendments would be made to the Australian Securities
and Investments Commission Act 2001.[20] This Bill does not affect financial
services. No formal explanation for this has been given. However,
it is noted that financial services are already covered by the
financial disclosure provisions of the Corporations Act
2001.[21]
The current Bill will particularly target the advertising of
cheap air fares. The Hon. Chris Bowen is reported as stating:
It is not appropriate that additional
compulsory fees and charges are disclosed in fine print
disclaimers, particularly when those additional compulsory charges
may be significantly larger than the component price that is
highlighted.
The Australian Competition and Consumer
Commission received 430 complaints over confusing component pricing
last year. Many other consumers were probably misled, but had not
complained to a regulator[22]
At its meeting of 25 September 2008, the
Selection of Bills Committee deferred consideration of the Bill
until its next meeting.[23]
According to the Explanatory Memorandum, the Bill has no
significant financial impact on Commonwealth expenditure or
revenue.[24]
Schedule 1
Schedule 1 of the Bill makes changes to the TPA in relation to
component pricing.
Item 1 of Schedule 1 repeals the existing
section 53C and substitutes proposed section 53C.
Proposed subsection 53C(1) introduces the term
relevant person which is repeated in
various subsections of proposed section 53C. Proposed
subsection 53C(1) applies to a corporation in connection
with:
- the supply (or possible supply) of goods or services[25] to a person (the
relevant person ) or
- the promotion by any means of the supply of goods or services
to a person (the relevant person )
or
- the promotion by any means of the use of goods or services by a
person (the relevant person ).
The corporation must not, in trade or commerce, make a
representation about an amount that, if paid by the relevant
person, would constitute only part of the total amount to be paid
for the supply of goods or services unless the corporation also
specifies in a prominent way, and as a single figure, the single
price [26] for the
goods and services: proposed paragraph 53C(1)(c).
These two concepts of a single figure and a single price are
repeated throughout the Bill.
Proposed subsection 53C(7) defines the term
single price as the minimum quantifiable
consideration for the relevant supply at the time of the
representation to the relevant person and is to include each of the
following amounts that can be quantifiable at that time:
- a charge of any description, payable by the relevant person,
other than a charge that is payable at the option of the relevant
person: proposed paragraph 53C(7)(a)[27]
- the amount of any tax, duty, fee, levy or charge imposed on the
corporation making the representation in relation to the relevant
supply: proposed paragraph 53C(7)(b)[28]
- the amount paid or payable by the corporation in relation to
the relevant supply with respect to any tax, duty, fee, levy or
charge: proposed paragraph 53C(7)(c).[29]
The submission by Choice took issue with the use of the term
quantifiable in proposed subsection 53C(7), citing
the motor vehicle industry as an example. Choice strongly
recommended that where a charge is unquantifiable , and thus
excluded from the single price, the advertiser should be required
to state in a prominent way the fact that the charge is payable and
the nature of the charge.[30]
There is an exception to the requirement that the corporation
must specify the single price, namely,
where the supply relates to goods for which a delivery charge may
apply: proposed subsection 53C(2).
However, where the corporation knows, at the time of making the
representation about the amount to be paid for the supply of the
goods, the minimum charge for sending the goods to the relevant
person , then the corporation must also specify
that minimum amount: proposed paragraph
53C(1)(d).
A corporation will not have satisfied the requirement that the
single price be specified in a prominent way unless the single
price is at least as prominent as the most prominent of the
component parts of the consideration: proposed subsection
53C(4).
According to proposed subsection 53C(5) the at
least as prominent as requirement in proposed subsection
53C(4) does not apply to services supplied under a
contract in the following circumstances:
- the contract provides for the supply of services for the term
of the contract
- the contract provides for periodic payments for the services to
be made during the term of the contract
- if the contract also provides for the supply of goods the goods
are directly related to the supply of the services.
The Explanatory Memorandum provides the following example of the
circumstances in which this proposed subsection would apply:
a corporation may offer telecommunications
services at a cost of $20 per month, provided that the customer
enters into a contract for provision of those services for a
minimum of 24 months. The single price for those services is $480
($20 x 24 months). The corporation is still required to state the
$480 single price prominently, but it may also display the $20 per
month more prominently, if it chooses to; however;
if the contract also provides for the supply of
goods, for subsection 53C(5) to apply those goods must be directly
related to the supply of the services (for example, a mobile phone
would be directly related to a mobile telecommunications service
but a DVD player would not be).[31]
Proposed subsection 53C(6) provides that a
reference to goods or services is a reference to goods or services
of a kind ordinarily acquired for personal, domestic or household
use or consumption. This means that the Bill does not apply to
supplies by a corporation in trade or commerce with another
corporation or non-corporate business or a government. It does not
apply to business to business transactions.[32]
Item 2 of Schedule 1 repeals existing
subsection 75AZF(1) which is in similar terms to existing section
53C. The subsection provides for criminal penalties in cases where
a corporation fails to specify the cash price in relation to
advertisements for goods and services. Item 2 also
substitutes proposed subsection 75AZF(1) which is
a criminal offence provision. As with its predecessor, it is in
similar terms to proposed section 53C, that is, it provides that a
corporation must not, in trade or commerce, make a representation
about an amount that, if paid by the relevant person , would
constitute only part of the total amount to be paid for the supply
of goods or services. The maximum penalty for making such a
representation is 10,000 penalty units.[33] According to existing (and unchanged)
subsection 75AZF(3), the offence is one of strict liability.
Item 3 of Schedule 1 repeals existing
subsection 75AZF(2) and substitutes proposed subsections
75AZF(2) (2D) which provide exceptions to rule in
proposed subsection 75AZF(1). It will
not be a criminal offence if a corporation fails
to make a representation of the single price to be paid by the
relevant person for a supply of goods and services in the following
circumstances:
- if the corporation specifies both the single price for the
goods or services and where, there is a delivery
charge for sending the goods to the relevant person, the minimum
amount of the delivery charge, if that amount is known to the
corporation at the time of making the representation:
proposed subsection 75AZF(2)[34]
- where the representation is made exclusively to a body
corporate: proposed subsection 75AZF(2B)[35].
- in the circumstances set out in proposed subsection
53C(5), that is, in relation to contracts that provide for
the supply of services for the term of the contract, which also
provide for periodic payments, and if goods are also supplied under
the contract that those goods are directly related to the supply of
the services.
Item 4 inserts proposed subsections
75AZF(4) and (5) which are in the same terms as
proposed subsections 53C(6) and (7) and
effectively insert mirror provisions into the offences section of
Part VC of the TPA.
Item 5 of Schedule 1 is an applications
provision which confirms that amendments made by Schedule 1 of the
Bill apply to conduct engaged in after its commencement.
Schedule 2 of the Bill contains miscellaneous amendments to the
TPA.
Items 1 and 2 are minor consequential
amendments.
Existing section 65E sets out the power of the Minister to
declare by notice in writing published in the Gazette, product
safety or information standards. Item 3 amends
existing subsection 65E(2) so that where such a notice is
published, the standard referred to in the notice is taken to
be:
- for section 65C[36] a prescribed consumer product safety standard:
proposed paragraph 65E(2)(a)
- for section 65D[37] a prescribed consumer product safety information
standard: proposed paragraph 65E(2)(b)
- for section 75AZS[38] a consumer product safety standard prescribed by
regulations: proposed paragraph 65E(2)(c)
- for section 75AZT[39] a consumer product safety information standard:
proposed paragraph 65E(2)(d)
Items 5 and 6 add notes to existing sections
75AZS and 75AZT to clarify that a breach of a notice about a
standard which has been published in the Gazette under existing
section 65E may be a criminal offence.
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[21]. Part 7.9 of
the Corporations Act 2001 contains financial product
disclosure and other provisions relating to issue, sale and
purchase of financial products.
Paula Pyburne
13 October 2008
Bills Digest Service
Parliamentary Library
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