Empowering consumers in the digital age

Speakers: 
Mr Rod Sims, Chairman
Conference: 
National Consumer Congress
13 March 2014

ACCC Chairman Rod Sims addresses the 2014 National Consumer Congress in Sydney. Mr Sims discusses the ACCC’s consumer protection activities as new technologies have emerged. He also provides an update on the ACCC’s work in the areas of consumer guarantees, credence claims and unfair contract terms. The Chairman also outlines priorities for 2014 and discusses the Root and Branch review.

Transcript: 

Check Against Delivery

Introduction

Welcome to the National Consumer Congress. Once again, we have a packed program and a timely theme: consumer rights in the digital age.

Online trading has flourished in Australia in the past few years. The Australian Bureau of Statistics recently reported that three quarters (76 per cent) of Australia's 15.4 million internet users made a purchase over the internet in 2012-13.[1]

The digital economy has much to offer consumers. It can deliver increased choice, improved services and provides people with the convenience to shop whenever and wherever they like. The high-tech consumer world, however, also provides us with many consumer protection challenges.

When discussing these challenges, it is helpful to look back at the ACCC’s consumer protection activities as new technologies have emerged.

In the past year or so we have been working to uphold the integrity of online reviews as well as looking into conduct which may limit competition in the online retail environment. The ACCC has taken action in the area of group buying and we have been active in looking at in-app purchases and attempting to curb online dating scams.

A couple of years ago, as some of you will recall, we took on Apple over its iPad 4G claims, and there was further action in relation to 3DTV promotions and the advertising of broadband plans. And, who can forget the ‘your computer has a virus’ scam.

Stepping back another five or so years, the ACCC was in the midst of tackling issues such as mobile phone handsets warranties and misleading ring-tone promotions, not to mention keyword advertising and the Google and Trading Post case. In terms of our own communications, we made our first foray into social media using Twitter to alert consumers about product recalls.

In the earlier 2000s, the ACCC hosted events on e-commerce and we warned about dodgy domain name renewals. We also moved to protect consumers from misleading advertising for mobile phones and even took court action against an internet café for attempted price fixing.

In the late 90s, when the internet was still in its infancy, the ACCC was concerned about the accuracy of advertising by the ISPs. At the time, our joint news release with the TIO said there is a risk that customers who had bad experiences in the early days ‘such as unexpectedly large bills’ may never return.

In the 80s, the predecessor to the ACCC was alerted to concerns about ‘AM/FM stereo’ claims. It seems some consumers expected their new radio set to transmit in stereo sound on both the FM and AM band, when stereo was only available on the FM dial. We deemed that an industry led consumer education program was the best approach.

Over the years, the ACCC has moved to help protect consumers from misleading and deceptive conduct giving them the confidence to embrace new technology. As part of our role we have also worked to help empower consumers and small businesses by combining enforcement with education and awareness activities.

Along the way, we have been greatly assisted in our endeavours by many of the consumer groups represented here today. We continue to rely on your contributions whether it is through our Consumer Consultative Committee or by bringing matters directly to our attention or by taking part in joint education and outreach initiatives.

We, of course cannot do everything, but must focus our efforts. What we do achieve is magnified because of your efforts, and we thank you for that.

Today I will cover three topics:

  • First, I will provide an update on the ACCC’s achievements and actions in past year.
  • Second, I will discuss our compliance and enforcement priorities for 2014, and
  • Third, I will touch on the Root and Branch review and some international issues.

Achievements and actions in the past year

My constant refrain is that the ACCC must be an active enforcer, and be seen to be, so that our market economy works as it should.

By taking action in cases where we believe there is significant detriment, we make it clear where the boundaries are and what the consequences are for crossing the line.

This is essential to our overall effectiveness, particularly in the area of consumer protection.

Sometimes a simple phone call from the ACCC to a business is enough to change their behavior. Why? Because the call carries the weight of our previous enforcement work and our position is clear.

As I have said on many occasions, our work has been made much more effective by the introduction of the Australian Consumer Law.

Through court action we can seek maximum civil pecuniary penalties of $1.1 million and through non-court action we have the power to issue infringement notices for certain contraventions of the ACL. We now have 13 cases where the Federal Court has awarded penalties of $1 million or more, and these cases have been well noticed by the Australian business community

These types of penalties are clearly improving compliance with the ACL.

Accordingly the ACCC welcomed the recent High Court ruling in the TPG case which affirmed the importance of deterrence in assessing penalties under the ACL. The High Court recognised that penalties should not be regarded as an acceptable cost of doing business.

There are many activities to update you on, but I will only focus on a few.

Consumer guarantees

Complaints about consumer guarantees represent about a quarter of our consumer contacts, so I am particularly pleased to report some successful outcomes in this area.

Consumer guarantees are your rights to a repair, replacement or refund when you buy something that isn’t right. It should be clear that these guarantees cannot be modified or limited.

In July last year, the Federal Court ordered by consent that Hewlett-Packard Australia pay a $3 million civil pecuniary penalty for making false or misleading representations to customers and retailers about their consumer guarantee rights.

This penalty sends a strong message, particularly to large multi-national companies, that compliance with the Australian Consumer Law is not negotiable.

Towards the end of last year we achieved a great outcome for Apple’s Australian customers. Apple provided a court enforceable undertaking after the ACCC raised concerns that it was applying its own warranties and refund policies, effectively to the exclusion of the consumer guarantees provisions. As part of the undertaking, without limiting a consumers’ rights under the ACL, Apple will provide remedies equivalent to those in the consumer guarantee provisions of the ACL at any time within 24 months of purchase. To avoid any doubt, Apple has also acknowledged that the Australian Consumer Law may provide for remedies beyond 24 months for a number of its products.

The ACCC also has been in court against various Harvey Norman franchisees. This series of court actions relates to alleged misleading representations made to customers about their consumer guarantee rights.

Another case to watch will be the ACCC’s current court proceedings against Fisher & Paykel and Domestic & General. This is an important case for the ACCC as the allegations involve false or misleading representations in the context of offering extended warranties.

More generally, the ACCC has concerns that consumers may be misled by businesses into thinking that they are required to pay for rights that are automatically provided by the consumer guarantees. There are large sums of money involved, and this will be a focus for us in 2014.

The ACCC also used the creative talent behind The Checkout to produce a short video for consumers in the digital age. The YouTube clip provides consumers with entertaining as well as sound advice on shopping online.

Credence claims

Misleading credence claims is another area where we have covered much ground.

The ACCC has taken a range of actions against misleading labelling and promotional claims, particularly in the food industry. This includes:

  • poultry and egg production claims — eg free range; free to roam
  • food premium claims — Extra virgin olive oil; organic water
  • Country of Origin — Australian Made

The most well-known example is probably our court action against Coles which relates to claims made about partially baked bread.

The ACCC has alleged false, misleading and deceptive conduct in the promotion of bread that was partially baked and frozen off-site, transported to Coles stores and ‘finished’ in-store. These products were promoted as ‘Baked Today, Sold Today’ and/or ‘Freshly Baked In-Store’ at Coles stores with in-house bakeries. This matter is still before the court.

Our actions in the area of misleading claims not only benefit consumers. There is a competition side to credence claims as well; businesses should be able to compete on their merits. Misleading credence claims tilt the playing field away from suppliers who are innovating and doing the right thing; the consumer loss is then compounded.

This year we will be particularly interested in representations, including marketing and labelling, which portrays large manufacturers as small niche businesses. This type of behaviour, called 'craft washing', has the potential to mislead consumers, particularly those who prefer to support Australia’s small business community.

Unless we send some clear enforcement messages such behaviour will only increase.

Unfair contracts

Last year, we looked closely at unfair contract terms. Following the ACCC’s intervention, a range of businesses amended their standard form contracts, removing potentially unfair terms.

At the congress last year, we released our initial report on unfair contract terms. The report highlighted the ACCC’s concerns in the telecommunication, hire car, domestic airline, online shopping and fitness sectors.

For us the report also marked the end of the compliance phase of the ACCC’s unfair contract terms work and the start of our enforcement approach. Our first result didn’t take long.

In its first judgment on unfair contract terms, the Federal Court deemed that a number of clauses in the standard form consumer contract for Bytecard Pty Limited were unfair. Specifically, the court found that if these standard clauses were applied they would cause detriment to ByteCard’s customers.

There is more work for us in relation to unfair contract terms and we will be taking further enforcement action.

Consumer protection issues involving vulnerable consumers

Perhaps, the main case involving vulnerable consumers in 2013 was the Full Federal Court’s decision that Lux had engaged in unconscionable conduct in relation to the sale of vacuum cleaners.

The court’s decision provides important clarity regarding the scope and operation of the unconscionable conduct provisions in the Australian Consumer Law.

Identifying and addressing consumer protection issues impacting on Indigenous communities also continues to be a priority for the ACCC, and for that matter other ACL regulators who have worked closely with us on many fronts.

Continuing to develop relationships with Indigenous communities and consumers is a key aspect of our work in this area.

Our aim is to empower Indigenous consumers in their dealings with business and provide them with an avenue to report suspect behavior.

I am pleased to say the digital age is alive and well on Tiwi Island. Our ‘Your Rights Mob’ Facebook page, which is part of a pilot program, is proving popular with the island community.

Compliance and enforcement priorities for 2014

Each year the ACCC receives roughly 160,000 complaints and inquiries. From this pool we have to make a judgment on which matters merit an investigation.

This process narrows our scope to about 500 initial investigations, around 140 of which are then conducted at an ‘in-depth’ level.

From this activity we take around 35 cases to court each year, accept around 30 court enforceable undertakings and issue infringement notices in around 30 matters.

Like any other agency, we need to make important choices about where to allocate our resources.

The ACCC conducts an annual strategic review of consumer and competition issues to identify areas we should focus on.

As part of this process, consumer groups, ombudsmen and other fair trading agencies provide an excellent sounding board in helping us shape our priorities.

At the start of each year we publish a revised Compliance and Enforcement Policy which sets out our areas of focus and explains the factors we take into account when deciding whether or not to pursue particular matters.

This year the review confirmed many previously identified priorities, some of which I have already covered, but also revealed some new areas we intend to pursue.

Competition

Deterring cartels, misuse of market power and anti-competitive agreements are enduring priorities for the ACCC.

Consumers stand to benefit from our work in this area. When there is anti-competitive conduct consumers often bear the cost by paying higher prices.

For example, late last year we instituted proceedings against a number of parties relating to an alleged cartel in the laundry detergent industry. We argue that an industry-wide shift to ultra-concentrated laundry detergent products resulted in denying Australian consumers the benefits of lower prices for these products.

It is alleged by the ACCC that in a meeting with a retailer, one of the manufacturers involved estimated that, without the conduct, the value of the laundry detergent market would be $146 million lower over 2009-13. In our view this is one measure of the potential detriment to consumers flowing from the conduct alleged by the ACCC.

In a separate case, last month, the ACCC took court action against Pfizer Australia Pty Ltd. We are alleging misuse of market power and exclusive dealing in relation to its supply of atorvastatin to pharmacies.

Atorvastatin is a tablet product used to lower cholesterol. Prior to the expiry of patent protection, Pfizer’s brand, Lipitor was one of the highest selling prescription medicines.

The ACCC alleges that Pfizer’s purpose was deterring or preventing competitors in the market for atorvastatin from engaging in competitive conduct, as well as to substantially lessening competition.

Product safety

Product safety is another perennial priority for the ACCC. This year our campaign activities will focus on quad bikes and button batteries.

We have also observed a trend of greater direct sourcing of less expensive products from overseas by retailers of “fast-moving consumer goods” which correlates with an increase in consumer injuries and a sharp increase in the number of recalls of those goods.

We are concerned by indications that some major retailers appear not to have satisfactory processes in place to properly meet their responsibility to ensure the safety of the goods they sell. Quality assurance processes may be slipping resulting in consumers being injured.

Let me be very clear: if major retailers are discovered to have taken short-cuts in applying basic quality assurance and control measures, at the expense of consumer safety, we will take action in any way we can.

Emerging consumer issues in the online marketplace

The priority area which best fits the theme of the congress is our interest in comparator websites and drip pricing.

Delia Rickard will provide our thoughts on price comparators in the session later today, so I will leave that one.

Drip pricing is the other emerging concern. Drip pricing involves the incremental disclosure of fees and charges over an online booking process. It causes both competition and consumer detriment.

Consumers see a ‘headline’ price advertised at the beginning of the booking process but when they progress to the payment phase, additional fees and charges have been added.

Consumers purchasing airfares or event tickets are all too familiar with this practice.

Drip pricing involves a lack of transparency which may mislead consumers, and it can also make it difficult for businesses to compete on a level playing field.

There will be enforcement action in this area shortly.

Consumer protection in the telecommunications and energy sectors

Our scrutiny of the telecommunications industry’s advertising and sales practices continues.

In relation to this, as I have already mentioned, we were pleased with the High Court’s decision last year to reinstate a $2 million penalty against TPG. The ruling reinforced the importance of accurately stating the full cost to consumers in headline advertising.

In the energy sector our focus in 2013 was on addressing unlawful door-to-door sales conduct by energy retailers. AGL and APG were ordered to pay penalties more than $1 million, and our proceedings against Energy Australia and Origin Energy are still before the Federal Court.

Our next area of focus in the energy sector is misleading discount claims. The ACCC is increasingly concerned about possible misleading conduct by energy retailers in their promotion of energy plans. These concerns relate to the promotion of discounts and savings off energy use and/or supply charges under those plans. We refer to this new focus of our energy work as ‘discounts off what?’

This new focus will not come as a surprise to the sector. In August 2013, the ACCC wrote to energy retailers about our concerns. In December 2013, the ACCC commenced legal action against AGL South Australia for allegedly misleading residential consumers in South Australia about electricity discounts.

It is likely that there will soon be further court action.

Scam disruption

For the past couple of years, the ACCC’s Infocentre has received around 80,000 contacts about scams. In 2012, consumers reportedly lost over $93 million. These statistics are very concerning and yet represent just the tip of the iceberg when it comes to the financial impact of scams.

The ACCC, as the national consumer protection agency, has an important role in helping protect Australians from scams. In the past we have focused on empowering consumers to spot a scam and how to avoid being scammed.

This year we are prioritising some level of scam disruption. We will seek to identify and contact scam victims in order to stop money being sent to scammers. We will also be working with money remitters, for example Western Union, to stop fraudulent funds transfers.

Given the size of the problem, this is not something that we can tackle alone. We will be working collaboratively with state and territory consumer agencies, many of which are already doing excellent work in this area.

Preview of competition and consumer developments

I would like to wrap-up with a couple of short comments about some of the key competition and consumer developments coming our way in 2014.

International

In this day and age, what happens in the Asia-Pacific region impacts on Australian consumers. China, Japan, Singapore, Thailand, Malaysia, Korea and New Zealand, in descending order, equate to 7 of Australia’s top 10 sources for goods and services imported into Australia.[2]

In addition to representations made about the quality and composition of goods and services sold, the safety of goods being imported to Australia from around the region is very important. As standards still differ around the world, Australian consumers’ increasing use of e-commerce makes for a challenging regulatory environment.

The ACCC has a three pronged approach to meeting this challenge.

First, we encourage compliance by all traders selling products in Australia, regardless of where they ship products from, and enforce the law to encourage this compliance.

Second, we work with our counterparts and through international organisations such as the International Consumer Protection Enforcement Network (ICPEN) and OECD to cooperate on identifying potential problems and fixing them through cross border cases. Recent international collaboration on in-app purchases targeting children is an example of this.

Third, we assist our counterparts in the region build their own capacity to enforce consumer laws, helping to stop conduct which may harm consumers at the source.

 However, there is still a lot to be done in the region.

Root and Branch Review

I will not steal the thunder of Bruce Billson and Alan Kirkland, but a highlight of 2014 will be the government’s broad ranging competition review. In part it will assess the many impediments to competition in our economy; and in part it will assess the effective working of mainly Part IV of the Competition and Consumer Act.

This review will generate considerable debate, and I believe it can and will deliver great outcomes for Australia. There will be many issues to debate in terms of impediments to competition and changes to the CCA.

One area that will need debate is Australia’s current price signalling laws. They currently only apply to the banking sector, but recent statements regarding airline capacity shows why these laws need to be extended to all sectors of the economy.

With only two players in the market, it is not healthy to have the sort of public signalling that we have seen recently. A cosy duopoly can lead to reduced competition and higher prices for consumers.

Thank you for your time today.

[1] ABS Media Release 25 February 2014 http://www.abs.gov.au/ausstats/abs@.nsf/mediareleasesbyCatalogue/180CCDDCB50AFA02CA257522001A3F4B?Opendocument

[2] http://www.dfat.gov.au/publications/trade/trade-at-a-glance-2013/trade_performance_at_a_glance/part03_australias_trade_and_economic_statistics.html