30th March 2011
ASA - South Africa's Leading Accountancy Journal
CONSUMER PROTECTION ACT
Overview of the main features of the Act1
Background
The Act sets out the minimum requirements to ensure adequate consumer
protection in South Africa.
This Act constitutes an overarching framework for consumer protection, and
all other laws which provide for consumer protection (usually within a
particular sector) will need to be read with this Act to ensure a common
standard of protection.
All suppliers of goods and services will need to take note of the new
measures and ensure that they are able to comply once the Act becomes
effective. It is foreseen that the Act will become effective towards the
end of 2010.
Application of the Act
The Consumer Protection Act affects a wide range of consumers and
transactions. The definition of a “consumer” includes not only the person
(either a natural or juristic person) to whom goods or services are
promoted or supplied, but also the actual user of the goods or the
recipients or beneficiary of the services. In other words, a consumer may
be a person other than the person who entered into an agreement with a
supplier and paid for the goods or services. In practice this would mean
that if you are given a spa treatment as a birthday present, you will be
entitled to the consumer protection measures set out in the Act, even
though you never entered into an agreement with the spa.
With regard to juristic persons, the Act will only provide protection to
small businesses (in other words, where the consumer is a juristic persons
with an asset value or annual turnover below a threshold determined by the
Minister). This approach is in line with the approach in the National
Credit Act. In terms of the National Credit Act the threshold is set at
R1000 000. However, we'll have to wait and see exactly what the threshold
will be for purposes of the Consumer Protection Act.
In terms of section five of the Act, certain transactions will be excluded
from the application of the Act. Exempted transactions include those
where:
goods or services are supplied to the State (transactions where the
State will be the consumer); or
where the transaction constitutes a credit agreement under the National
Credit Act (the goods or services that are the subject of the credit
agreement are not excluded from the ambit of the Act); or
a transaction pertaining to services under an employment contract; or
a transaction which gives effect to a collective bargaining agreement
within the meaning of section 23 of the Constitution and the Labour
Relations Act.
The Act further provides for a mechanism in terms of which a regulatory
authority may apply to the Minister of Trade and Industry (the Minister)
for an industry wide exemption from certain provisions of the Act. The
application for such an exemption must be based on the fact that there is
an overlap between the provisions of the Act and the regulatory scheme
administered by the relevant regulatory authority. The Minister may only
grant an exemption if the applicable regulatory scheme provides better, or
at least similar, consumer protection than the protection provided for in
the Act.
The provisions in the Act regarding safety monitoring and recall (section
60), and liability for damages caused by goods (section 61) apply to ALL
transactions, even those transactions exempted from the application of the
Act. Thus, in our example above, the distributor will be entitled to
protection where she suffered damage as a result of defective goods – even
where the transaction was exempted.
The Act will not apply to services which constitute advice or an
intermediary service that is subject to regulation in terms of the
Financial Advisory and Intermediary Services Act, 2002 (FAIS), or services
in terms of the Long-term Insurance Act, 1998 or the Short-term Insurance
Act, 1998. However, it should be noted that the Act prescribes that the
Long-term Insurance Act and the Short-term Insurance Act must be aligned
with the consumer protection measures in this Act within 18 months from
the commencement of this Act. If this is not done, the provisions of this
Act will apply to all services rendered in terms of the two insurance
Acts.
Threshold
The Act will not apply to transactions where the consumer is a juristic
person with an asset value or annual turnover of more than a threshold
value determined by the Minister (section 6).
Direct marketing
The provisions in the Act which regulate direct marketing extend to all
communication for the purposes of direct marketing (not only direct
marketing via electronic communication). In terms of section 11, a
consumer may either refuse to accept, pre-emptively block, or require
another person to discontinue any communication which may be seen as
direct marketing. This may include telephone calls, e-mails, brochures or
letters in the mail, etc. The National Consumer Commission will facilitate
the establishment of a registry where a consumer may register their
particular preferences (for example, that a consumer wishes not to receive
any direct marketing (a pre-emptive block) or, where he previously agreed
to receive marketing material, he now wishes to change his mind and
requires the marketer to stop marketing to him directly). Businesses will
have to ensure that they have measures in place to receive and record
consumers' specific preferences (at no cost to the consumer), and abide by
these expressed preferences. In addition, the Minister may prescribe
certain times when consumers may not be contacted, for example, on public
holidays or after a certain time at night.
Cooling off
The Act provides for a 5 business day cooling off period in instances
where transactions resulted from direct marketing, in other words,
transactions which were not initiated by the consumer (section 16). The
five business day period will commence on the latter of the day on which
the transaction or agreement was concluded, or the day on which the goods
or services were delivered to the consumer. This section does not apply to
transactions which are governed by section 44 of the Electronic
Communications and Transactions Act, 2002 (in terms of which consumers
have a seven day cooling off period (normal days, not business days)).
The Act provides for a number of defences which the producer,
importer, distributor and retailer may use when a claim for damages
is instituted against them by a consumer.
It should be noted that it is not a requirement for the transaction to be
concluded at the home of the consumer for the cooling off period to apply
(as is the case in the National Credit Act). The cooling off period will
apply to all transactions that resulted from direct marketing.
Product liability
Section 61 of the Act effects a major change with regard to the position
of the consumer in cases where he suffers damages as a result of unsafe or
defective goods. This provision determines that producers, importers,
distributors and retailers of goods will be liable for any harm caused as
a result of the supply of unsafe goods, a product failure, a defect or
hazard in the product, or interestingly, inadequate instructions for the
use of the goods or warnings related to any possible hazard that might be
associated with the product. (Although the Act determines that labelling
of products and trade descriptions are optional, it might be necessary for
producers, importers, distributors and retailers of goods to ensure that
proper instructions for use, and warnings of potential danger or hazard
are provided, as this may prevent a claim for damages by consumers.)
Probably the biggest change to the current legal position is the fact that
the Act determines that producers, importers, distributors and retailers
of goods will be liable for damage caused by unsafe or defective goods
whether or not the harm resulted from their negligence. This means that
the consumer will no longer have to prove that the damages suffered as a
result of defected goods was due to the fault (negligence or otherwise) of
the producer, importer, distributor or retailer (this is referred to as
strict liability). Rather, the shoe is now on the other foot: where a
consumer claims for damages, the producer, importer, distributor or
retailer will have to prove that they are not responsible, and thus not
accountable, for the resulting damages.
The Act determines that a consumer may hold the producer, importer,
distributor and retailer jointly or severally liable, and a consumer may
claim for damages related to death, injury, illness, loss or damage to
property, or economic loss as a result of death, injury, illness or, loss
or damage to property. The Act provides for a number of defences which the
producer, importer, distributor and retailer may use when a claim for
damages is instituted against them by a consumer.
Term, renewal and cancellation of contracts
The Act regulates the term, renewal and cancellation of fixed term
contracts. In terms of section 14, there can be no automatic renewal of
the fixed term contract. The consumer (this section applies to natural
persons only) is entitled to cancel the contract when the contract term
expires, or at any other time, given that he gave the supplier 20 business
days notice in writing. Where the consumer cancels the contract before the
expiry date, the supplier will be entitled to any outstanding amounts, as
well as a reasonable cancellation fee.
At the expiry of the term of a fixed term agreement, the contract will
automatically continue on a month to month basis, until the consumer
either cancels the contract or renews the agreement for another fixed
term. The Act requires the supplier to remind the consumer of the expiry
date at least forty business days prior to the expiry date of the fixed
term. The Act also allows the Minister to prescribe the maximum duration
of fixed terms agreements in general or for specific categories of
agreements.
Language
The Act does not contain a provision for information to be in an official
language. However, section 22 requires that all information should be in
plain language. The Act further requires that the language used should be
appropriate to the class of persons the goods or services are aimed at,
and as understandable to someone of that class with average literacy
skills and experience. Where technical specifications are set out in any
agreement or on a product label, this requirement might prove difficult to
comply with.
Written agreements
There is no general requirement for agreements to be in writing. However,
the Act allows the Minister to require certain categories of agreements to
be in writing. It is foreseen that the Minister may require fixed term
contracts to be in writing. Section 50 requires that where an agreement is
set out in writing (whether this is required in terms of this Act or
voluntary) the supplier must provide the consumer with one free copy (or
access to an electronic copy) of the terms and conditions, that the
agreement must be in plain and understandable language, and that it should
contain a breakdown of the consumer's financial obligations under the
agreement. However, if a consumer agreement between a supplier and a
consumer is not in writing, the supplier is obliged to keep a record of
the transactions entered into over the telephone or any other recordable
form.
Customer loyalty programmes
Section 35 of the Act determines that a supplier who sponsors a consumer
loyalty programme, or accepts loyalty credits in exchange for goods or
services (for example frequent flyer miles), may impose a partial or
complete restriction on the availability of the goods or services during
specific periods of the year. However, the restriction may not exceed 90
days in a calendar year. In addition, the Act requires that certain
information be made available to the consumer when an offer to participate
in the loyalty programme is made.
The information should include the nature of the programme, the goods or
services to which it applies, the steps required to receive benefits, and
the time, venue and persons from which consumers may obtain access to
either the programme or benefits in terms of the programme. This means
that a supplier that has a loyalty programme, such as an airline, may
restrict the use of frequent flyer miles during certain periods of the
year (not exceeding 90 days). However, at any other time of the year, the
airline must accept loyalty credits in return for a service as if the
consumer offered any other form of consideration (such as cash). The
supplier may not benefit consumers who offer to pay cash over consumers
who use loyalty credits.
The Act provides for possible defences that a supplier may use when a
consumer alleges that the supplier did not have sufficient goods or
services available in return for loyalty credits. In essence, it will be a
defence where the supplier offers to supply comparable goods or services
to the consumer, and the consumer either accepts the offer, or
unreasonably refuses the offer.
Overselling and overbooking
The Act provides for the reasonableness test for overselling and
overbooking. In terms of this test a supplier may not accept payment for
goods or services where it has no reasonable intention to supply the goods
or services, or where it intends to supply goods or services that are
materially different to the goods or services for which the consumer has
paid.
With regard to damages suffered as a result of a supplier's inability to
supply goods or services due to overbooking or overselling the Act
provides for a refund of the amount paid plus interest (usually, this
would be the deposit plus interest), as well as any consequential damages
which directly resulted from the breach of contract.
In practical terms, this would mean that where you -
booked a flight from Cape Town to Durban for which you paid a deposit of
RX,
booked and paid for a rental car in Durban in the amount of RY, and
set up a meeting with a business associate in Durban to sign a contract
valued at RZ, after which the business associate will leave for India,
and you are bumped from the flight as a result of overbooking, you will
be entitled to claim
RX plus interest for the deposit you paid for the flight, and
RY plus interest for the rental car, which amounts to a consequential
loss that is directly resulting from the overbooking.
However, the fact that you suffered a loss because you were not able to
sign the contract before your business associate left for India amounts to
loss of anticipated use or enjoyment, for which the Act does not provide.
Implied warranty of quality
The Act provides for an implied warranty of quality. In terms of this
warranty the producer or importer, the distributor and the retailer each
warrant that the goods comply with the requirements and standards
contemplated in the Act. However, the implied warranty will not apply
where goods have been altered contrary to the instructions of the
producer, importer, distributor or the retailer, or altered after leaving
the control of the producer, importer, distributor or the retailer.
Failed, unsafe or defective goods may be returned to the supplier within
six months after the delivery of the goods to a consumer. In such a case
the supplier has to either repair or replace the goods, or refund to the
consumer the price paid by the consumer. It is important to remember that
the Act allows the consumer to choose whether to be refunded, or to have
the goods replaced or repaired.
In instances where the supplier repairs the failed or defective goods (or
any component of the goods) and within three months after that repair, the
failure or defect was not fixed and it recurs, or another failure or
defect is discovered, the supplier must replace the goods, or refund the
price to the consumer. It should be kept in mind that the Act specifically
determines that an implied warranty, as provided for in the Act, is in
addition to any other implied warranty or condition imposed by the common
law, any other legislation, and any express warranty or condition
stipulated by the producer or importer, distributor or retailer.
Warranty on repaired goods
The Act provides for a three month warranty on repaired goods. This
warranty includes all new or reconditioned parts installed during the
repair or maintenance work, as well as the labour to install such parts.
However, where a consumer subjected goods to abuse or misuse, the warranty
will be void. Also, the warranty does not extend to ordinary wear and
tear.
Safety monitoring and recall
The Act introduces a streamlined approach to safety monitoring in that it
obliges the National Consumer Commission to promote the development and
adoption of industry wide codes of practice in terms of which industries
will monitor safety of their products. This includes the introduction of
systems to receive and investigate complaints, recall goods, and reporting
on certain matters to the National Consumer Commission.
However, the National Consumer Commission may require the importer or
producer of particular goods to carry out a recall of the product where
the National Consumer Commission has reasonable grounds to believe that
goods are unsafe, and the producer or importer of the goods has not taken
the necessary steps in terms of the applicable industry code to ensure
public safety.
Prepaid certificates, credits and vouchers
The Act determines that gift or similar vouchers expire either upon
redemption or after three years.
Industry codes
The Act provides for procedures to be followed before the Minister
approves and publishes an industry code in the Government gazette. The Act
requires the National Consumer Commission to consult the public and
relevant stakeholders before it recommends a proposed industry code to the
Minister for his approval. In turn, the Minister is provided with the
authority to prescribe, approve or withdraw a previously approved industry
code. The Minister may withdraw an industry code on the recommendation of
the Commission, who has the authority to review the effectiveness of a
code at intervals of five years.
Also, where an industry code provides for an alternative dispute
resolution scheme, the Act allows the Minister to accredit such a scheme
as an “ombud with jurisdiction”. This means that the scheme will be
officially recognised in the whole scheme of redress as provided for in
the Act. For example, where a consumer has a dispute with a supplier
within the particular industry, the consumer may lodge a complaint with
the industry ombud, before he approaches the National Consumer Commission
for assistance.
1. Purpose of this document: This document provides insight into the
Consumer Protection Act, 2008.
Dr Johan Erasmus, BLC, LLB, LLD is a Regulatory Analyst at Deloitte and
also chairman of the SAICA Legal Compliance Committee.
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