The Consumer Protection Act

Transcription

1 The Consumer Protection Act September 2010 advisory

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3 page Introduction 2 Construction of the CPA 3 Determining whether the CPA applies 3 Right of equality in consumer markets 4 Right to privacy 4 Right to choose 5 Right to disclosure and information 8 Right to fair and responsible marketing 10 Right to fair and honest dealing 12 Right to fair, just and reasonable contract terms 12 Right to fair value, good quality and safety 13 Suppliers accountability to consumers 14 Non-compliance 14 Managing the implications of the CPA 15 KPMG Services 15 A value-adding team with a combined skillset 16 Contacts 17 Endnotes and references 18 Consumer Protection Act: Decision Tree 19 Our commitment to our clients 20 1

4 Introduction All of the provisions of the Consumer Protection Act of 2008 (CPA or Act) will come into full force and effect shortly. Initially, many organisations seemed to think that the CPA would not have a material impact on their business activities, because they either don t operate in the consumer to business space or operate in a highly regulated environment such as financial services. Also, on a first reading of the CPA, it seemed that organisations would mostly be complying with many of the provisions of the CPA due to similar common law, statutory or self regulatory provisions (for example, industry codes of conduct). Closer analysis has shown that this is not the case. In fact, the CPA has a significant impact on most businesses. For example: While the credit side of banking activities is regulated in terms of the National Credit Act (NCA), the provisions of section 11 of the CPA regarding fixed term agreements has significant implications for banks in terms of their deposit-taking activities Retailers are imposing additional obligations on their suppliers due to the obligations they are now required to assume in terms of the CPA. For example, if a supplier to a retailer has a return policy that is in contravention of the CPA, the supplier may be called on to amend its policies so that the retailer is able to comply with the goods return requirements of the CPA. As such, there are implications across the supply chain. While certain transactions will be exempted from the ambit of the CPA, the provisions regarding marketing, trade coupons and loyalty programmes may still be applicable. This booklet briefly highlights some aspects of the CPA. It should be noted that the regulations to be promulgated in terms of the Act were not officially published at the time of this publication i (Regulations). 2

5 Construction of the CPA The CPA has a number of Chapters: Chapter 1 deals with the interpretation, purpose and application of the CPA. This section is used to interpret the CPA as well as determine whether the CPA applies to a particular transaction or not Chapter 2 deals with fundamental consumer rights. This chapter is further divided into Parts with each part dealing with a particular consumer right, such as the Right of Equality in Consumer Market, the Consumer s Right to Privacy and so on. A discussion of certain of these rights will be the main focus of this publication Chapters 3, 5 and 6 deal with the Protection of Consumer Rights, National Consumer Institutions and Enforcement of the CPA Chapter 4 regulates Business Names and Industry Codes of Conduct Schedule 2 contains certain transitional provisions dealing with, for example, effective dates for the CPA and when the CPA will apply to pre-existing agreements (i.e. transactions that occurred prior to the effective dates as defined). As the CPA is consumer-protection legislation it will not apply to all transactions. Determining whether the CPA applies As the CPA is consumer-protection legislation it will not apply to all transactions. As such, the Act sets out which activities (i.e. the marketing or supply of goods or services) fall within or outside the ambit of the Act. For example: Large entities have the resources to protect their interests when transacting. Therefore, where two large JSE top 100 companies transact for the supply of goods, the purchasing company is not afforded the protection of the CPA and will not be treated as a consumer in terms thereof. Therefore, juristic persons with a specific turnover or asset value will not fall within the definition of consumer. The thresholds in terms of the turnover and asset value of the consumer for transactions that will fall outside of the CPA have not yet been determined but are expected to be R5 million A credit agreement in terms of the NCA is not subject to the CPA. However, the goods or services that are the subject of the credit agreement will be subject to the CPA. For example, if a car is purchased in terms of an instalment sale agreement, the sale of the car will still be subject to the CPA whereas the financing agreement with the bank is subject to the NCA Services supplied under an employment contract are exempted. The CPA decision tree at the back of the booklet can be used as a starting point for determining whether and how the CPA applies to the activities of a business. 3

6 Right of equality in consumer markets The Act contains provisions dealing with protection against discriminatory marketing (i.e. the activity of unfairly discriminating against a person when marketing goods or services on one or more grounds of unfair discrimination as contemplated in section 9 of the Constitution or Chapter 2 of the Promotion of Equality and Prevention of Unfair Discrimination Act (PEPUDA)). In this regard, the section sets out what will and won t constitute discriminatory marketing. It should be noted that the defined term marketing in the CPA includes both promotion and supply and is therefore broader than what one would ordinarily understand from the word marketing. In terms of this section, for example, it would be discriminatory not to supply golf clubs to women on the basis that golf is a sport that is only for men this is discrimination on the grounds of gender in terms of PEPUDA. It is acceptable though to only market goods to men where only a man can use the product in question, for example, mens deodorant. In terms of these provisions, business may need to consider current rebate arrangements. For example, if large organisations receive significant rebates from suppliers due to their buying power when smaller organisations do not. The answer to this question will turn on the meaning of unfair and whether the treatment is grounded on any provision in PEPUDA Right to privacy Various media (for example, sms, and telephone) are used by businesses to market their goods and/or services. In terms of the CPA, as part of the consumer s right to privacy, this activity will be regulated as the consumer will have the right to restrict unwanted direct marketing i.e. the marketing of goods or services that is conducted either in person or electronically. (Interestingly, canvassing for donations is also captured in the definition of direct marketing.) A consumer, who has been contacted by a supplier, for the purposes of direct marketing, can demand that the supplier no longer contact that consumer. In this regard, the National Consumer Commission can establish a registry or recognise a registry that enables consumers to register a pre-emptive block In certain circumstances the consumer has a five day cooling-off period which generally entitles the consumer to cancel the agreement without penalty. against direct marketing. This can be generally or for a specific purpose. Pre-emptive blocking is already in existence in South Africa. For example, the Direct Marketing Association of South Africa (DMA) has an Opt-Out Register which allows consumers to remove their details from mailing lists used by direct marketers. Consumers may also not be charged a fee for registering a pre-emptive block or for requesting a supplier to desist from initiating any further communication. If a supplier concludes a transaction with a consumer as a result of direct marketing, the consumer has a five day cooling-off period which generally entitles the consumer to cancel the agreement without penalty. The supplier must notify the consumer of this right upfront before conclusion of the transaction. 4

7 Right to choose The right to choose contains a number of sections that are aimed at preventing the supplier from unilaterally imposing goods or services on the consumer. In addition to the above, a supplier is prohibited from contacting consumers for the purposes of direct marketing during specified periods unless the consumer has otherwise consented. These times have not been regulated as yet (the DMA timelines are currently 8am to 7pm Mondays to Fridays, 9am to 12pm on Saturdays and no marketing on Sundays and Public Holidays). Practically, the direct marketing provisions mean that businesses may need to adjust their marketing strategies and ensure that adequate processes are put in place to give effect to the demands of consumers as legislated. In terms of the CPA, a person conducting any direct marketing must implement appropriate procedures for facilitating the receipt of demands by consumers to opt-out from direct marketing communications. Should the DMA register be accredited by the National Consumer Commission, direct marketers would have to compare their mailing lists to that of the Opt-Out Register maintained by the DMA and ensure that names of consumers that appear on the DMA register are deleted off their databases (to the extent that this process is not already being conducted). The CPA only deals with the right to privacy in relation to direct marketing. However, the Protection of Personal Information Bill will regulate an individual s right to privacy comprehensively. Bundled or tied arrangements Bundled goods or services or tied arrangements will be regulated under the consumer s right to select suppliers. Tying or bundling is the practice of making the sale of one good (the tying good) conditional on the purchase of a second distinctive good (the tied good). Examples of bundled goods are value meals, bundled computer packages (i.e. the purchase of hardware and software) or requiring that a motor vehicle purchased from a particular dealer is serviced by the same dealer. These types of arrangements are also regulated globally because consumers are being forced to buy an undesired good (the tied good) in order to purchase a good they actually want (the tying good), and so would prefer that the goods be sold separately. These types of arrangements can also be anti-competitive in certain circumstances in terms of the Competition Act There is a general prohibition in the CPA against bundled or tied-arrangements. The general prohibition is then tempered with when bundling or tying will be permitted i.e. the supplier is able to show that the convenience to the consumer of having the goods bundled outweighs the limitation on the consumer s right to choose, there is an economic benefit or the goods or services are also offered separately. The right to choose contains a number of sections that are aimed at preventing the supplier from unilaterally imposing goods or services on the consumer. 5

8 Expiry and renewal of fixed-term agreements This section regulates all fixed-term agreements i.e. agreements that are for a specific period, for example, leases, fixed deposit agreements, cellphone contracts, gym contracts etc. In this regard, the section imposes a maximum period for these types of agreements, provides for when a consumer may cancel the agreement, imposes obligations on the supplier to notify the consumer that the agreement is about to expire, what happens on expiry of the agreement and what cancellation penalties may be imposed. The maximum period for fixed-term agreements is yet to be regulated. As noted elsewhere, this section has a significant impact on most service providers or suppliers, including banks in relation to fixed-deposit arrangements. A supplier is entitled to refuse to accept the return of goods in certain circumstances. Consumer s right to return goods The consumer has the right to return goods to a supplier and receive a full refund (less any permitted charge), within 10 business days after delivery of the goods, in the following circumstances: 1. where the supplier has delivered goods to a consumer arising from direct marketing and the consumer has cancelled the agreement during the cooling-off period 2. where the consumer has not had an opportunity to examine the goods as they were purchased solely on the basis of a description and/or sample, and the consumer has rejected the goods because the goods did not correspond with the description and/ or sample (for example, mail-order products) 3. where the supplier has, in addition to the goods purchased by the consumer, also delivered goods that the consumer did not ask for and the consumer has rejected the unwanted goods or both 4. where the goods delivered are found by the consumer to be unsuitable for a particular purpose. A supplier is entitled to refuse to accept the return of goods, in the following circumstances: if the return of those goods is prohibited by public regulation for reasons of public health the consumer has, in relation to the goods, partially or entirely disassembled, physically altered, permanently installed, affixed, attached, joined or added to, blended or combined with, or embedded within, other goods or property. 6

9 If the goods are in their original condition and repackaged in their original packaging (i.e. but have been opened for example), the supplier may charge the consumer a reasonable amount for: use of the goods during the time they were in the consumer s possession any consumption or depletion of the goods necessary restoration costs to render the goods fit for re-stocking. The supplier will not be able to charge the consumer for restoration costs if it was necessary for the consumer to destroy the packaging to determine whether the goods: conform to the description or sample provided (where the consumer has not had an opportunity to examine the goods) were fit for the intended purpose. This right of the consumer to return goods under the above mentioned circumstances is in addition to the consumer s right to return goods that are unsafe or defective. As the consumer can return the goods within 10 business days after delivery, suppliers will need to ensure that their return policies are aligned with this requirement. For example, currently certain suppliers will only exchange electronic products if they are found to be defective and returned within a 7 day period. If a fault is discovered after 7 days of purchase, the consumer has no right to return the product and the product is sent in for repairs. Consumer s rights with respect to delivery of goods or supply of service This section imposes an implied condition in every transaction that the supplier must supply on time (or within a reasonable time when no time has been specified), at the agreed place and that the goods are at the supplier s risk until the consumer has accepted delivery in accordance with the provisions of the section. The section then goes on to specify what will constitute acceptance of delivery of the goods. As such, suppliers will need to evaluate their current delivery policies and procedures as well as their contractual provisions regarding the passing of risk in the goods. This section has an impact on the section dealing with unsolicited goods, discussed in further detail below. Unsolicited goods or services This section regulates what is also known as inertia selling i.e. the sale of goods or services to consumers that relies on the consumer s inertia not to return the goods. As the consumer has taken possession of the goods, there is a perceived sale and the supplier is entitled to demand payment. This practice is to the disadvantage of the consumer as he or she has not been able to choose the goods or services (hence the inclusion of this section in the CPA under the broader right of the consumer to choose ). This practice is also regulated extensively in countries such as the United Kingdom, Australia and New Zealand. Unsolicited goods or services are defined in the CPA to include, for example leaving goods with the consumer during direct marketing without arranging for payment, the introduction of new goods or services under an existing agreement, to deliver other goods, services or continuing to supply goods or services when the agreement with the consumer has expired or delivering larger quantities of goods than the consumer required or the delivery of goods contrary to the consumer s specific instructions as to the date, time and place of delivery. For example, if a contract with a security company has terminated and the security company continues to respond to alarms and debits the customers account. Other In addition to the sections above, the right to choose also encompasses: Pre-authorisation of repair or maintenance services i.e. a service provider cannot charge the consumer for goods or services unless its estimate is approved by the consumer, the consumer has waived the right to an estimate (in writing) or the consumer has pre-authorised charges up to a specified amount. There are limitations as to when this section will apply The right to cancel advance reservations, bookings or orders The right to choose or examine goods. As the consumer can return the goods within 10 business days after delivery, suppliers will need to ensure that their return policies are aligned with this requirement. 7

10 Right to disclosure and information According to the Green Paper ii, information disclosure allows consumers to make informed choices consumers can compare products and prices. Standard disclosure also enhances consumer protection because basic information is presented in a standard format. Plain language As is the case with other consumer protection legislation such as the NCA, the CPA also requires that certain notices, documents or visual representations are in plain language a definition of plain language has been included in the CPA and must be used as a basis to determine compliance. In certain instances the form of the notice or document may be prescribed in the regulations, in which case it will not be necessary to evaluate the definition of plain language as the prescribed form must be used. Pricing This section applies specifically to retailers and suppliers. It imposes requirements around the display of prices in relation to goods and services. It also sets out what happens where there is no price displayed, or there are two prices displayed, errors in prices, pricing in relation to sales items etc. As most retailers and suppliers already have policies in place to deal with price display errors, it should be a matter of ensuring compliance with these provisions going forward. Product labelling and trade descriptions Product labelling is critical to information disclosure. There are three types of trade descriptions in the CPA (1) those that are on the goods themselves, (2) those that are displayed near the goods, or (3) those that are contained in various forms of media such as signage, brochures, wine lists, invoices, business paper or other commercial communications. A trade description is defined to include information relating to, for example, the producers name, the origin of the goods (for example, made in South Africa), how the goods were made (made in a factory with nuts), the weight or amount of the goods and the ingredients. 8

11 The Act provides that: No person may apply trade descriptions to goods that could mislead the consumer or change a trade description so that the consumer is mislead Retailers cannot display or supply goods if it knows, reasonably could determine or has reason to suspect that the trade description could mislead the consumer or has been altered so as to mislead the consumer The Minister may prescribe categories of goods that must have trade descriptions, rules for determining country of origin of goods or components and what information must form part of the trade description. The extent by which this section of the CPA impacts upon producers and importers and retailers will be largely dependent upon whether: There is any existing regulation governing their labelling activities e.g. foodstuffs and pharmaceutical products and the differences between the regulation and the requirements of the CPA The trade descriptions are already in compliance with the requirements of the CPA. Producers, retailers and importers may also need to adjust the content of their labels once, for example, the Minister issues regulations on specific categories of products. In addition, retailers will need to evaluate how to deal with their specific obligations under this section. Gray goods Reconditioned, rebuilt or remade goods containing the trade mark of the original supplier or producer must have a conspicuous notice that states that they have been reconditioned, rebuilt or remade. Goods imported without the approval or licence of the registered owner that have a trade mark must have a conspicuous notice (to be prescribed) notifying the consumer that they are reconditioned or gray market goods. The purpose of the notice will presumably be to draw the attention of the consumer to who is liable for repairs and other risks. Intermediaries Agents that act on behalf of other persons in selling goods or services or that store goods for sale must notify consumers upfront that they are intermediaries, and will need to comply with the requirements regarding intermediaries once the information has been prescribed in the Regulations. All direct marketers, deliverers and installers must wear identification or be able to produce identification if requested to do so. Reconditioned, rebuilt or remade goods containing the trade mark of the original supplier or producer must have a conspicuous notice that states that they have been reconditioned, rebuilt or remade. 9

12 Right to fair and responsible marketing General standards for marketing goods or services In terms of the Green Paper: Fair business practices in respect of advertising and selling ensure that real competition between businesses can occur, which in turn leads to lower prices and better products One of the most important fair business practices is telling the truth in advertising and selling. Presumably, for this reason, a general standard for marketing goods and services has been incorporated into the CPA. Therefore, producers, importers, distributors, retailers or service providers are not permitted to market goods or services in a way that implies a false or misleading representation of the goods and services in question. The impact of this section (as read with the section on false, misleading and deceptive misrepresentations) will need to be considered in relation to the common law principle of puffery in advertising and other advertising standards. Puffery is a statement that is subjective (rather than objective) to such an extent that it is not believable. Internationally, puffing is acceptable whereas false or misleading advertising is not. In this regard, for example, an American Court was asked to determine whether America s Favorite Pasta was false advertising or puffing. Other potential examples of what may or may not be puffing are Good as New and Excellent Sugar Farm (a South African Court held on the facts that this was a warranty or representation and not puffing). Various marketing practices The section also regulates specific marketing practices: Type of marketing Bait marketing for example, advertising products at a specific price if it could be anticipated that those products would not be available in reasonable quantities and for a reasonable period at that price. Negative option marketing Direct marketing Catalogue marketing requirements or impact If the advert states that goods are on offer at a certain price subject to express limits, then the amount of the limit must be available. Deemed sales of goods are no longer permissible i.e. arrangements where if you accept goods that are delivered, you are deemed to have bought them or an agreement or amendment comes into existence unless the consumer declines. Consumers must be informed of the right to rescind the agreement in accordance with the provisions of the Act. This is with reference to the cooling off period discussed above. Protections have been incorporated into the CPA to protect consumers where they purchase goods without having the opportunity to inspect them i.e. through choosing the goods in a catalogue. If the Electronic Communications and Transactions Act applies to the transaction in question, then the provisions of the CPA will not apply. 10

13 Customer loyalty programmes As is the case with trade coupons, there are a number of disclosure requirements as well as obligations and restrictions that are imposed on either the sponsor of the loyalty programme or a supplier who accepts payment of loyalty credits or awards as payment. For example, the supply of goods or services must be sufficient to meet all reasonable anticipated demands. Current loyalty programmes will need to be evaluated against the requirements of the Act. Promotional competitions This section replaces the section in the Lotteries Act dealing with competitions. Trade coupons and similar promotions, customer loyalty programmes and promotional competitions The Act differentiates between promotional offers (for example, goods sold at a discount, if you buy one item you get a second free, shopping vouchers), customer loyalty programmes (for example, air-miles ) and promotional competitions. Trade coupons and similar promotions A person cannot make a promotional offer with the intention of not fulfilling it or fulfilling it other than as offered. Documents dealing with promotional offers must contain certain prescribed information regarding the nature of the prize or voucher, the goods or services to which the offer relates, the steps that the consumer must follow to accept the offer etc. In addition, the section contains particular requirements / prohibitions that must be complied with, for example, the quality of the goods or service must be the same as that offered to paying customers, there must be sufficient capacity available and no charge may be levied in respect of trade coupons. Agreements with persons lacking legal capacity A transaction is void at the option of the consumer where he or she is a minor. There are however certain instances where agreements will not be void for example, where the consumer induced the supplier to believe that he or she was a major. It will be important to assess what measures are in place to ensure that the consumer is not a minor or that parent consent is obtained. In this regard, a consumer may be able to return goods if he or she can show that they were a minor. A transaction is void at the option of the consumer where he or she is a minor. A person cannot make a promotional offer with the intention of not fulfilling it or fulfilling it other than as offered. 11

14 Right to fair, just and reasonable contract terms Right to fair and honest dealing Certain conduct is defined to be unconscionable i.e. the use of duress, physical force, undue influence when marketing or supplying goods or services, knowingly taking advantage of illiterate or mentally disabled consumers. In addition, certain information regarding goods or services is not permitted if it is false, misleading or deceptive or exaggerated or ambiguous (if the information relates to a material fact). Internationally, the following has been held to be false or misleading information: Some products are sold with fillers which increase the weight of the product with something that costs the producer very little compared to what the consumer thinks that he or she is buying. Food is an example of this - where chicken meat is injected, tv dinners are filled with gravy or other sauce instead of meat Many terms do have some meaning, but the extent is not legally defined, leading to abuse. For example light food can mean low in calories, sugar, salt texture, thickness or in colour. According to the Green Paper: The inequality in bargaining power between consumers and businesses is particularly pronounced in sale contracts. In many cases, consumers, knowing that they have very limited recourse enter into contracts without reading them While the caveat subscriptor principle provides that consumers can be held liable for signing a contract they did not read, this is because their contracts are written in a language that is difficult to understand and consumers have little recourse or ability to negotiate the terms. Examples of unfair contract terms in the Green Paper are: The head of a homeless family signs a lease which gives the lessor the right to raise the rent unilaterally and at will A man from a rural area purchases furniture only to find out later that he has waived all his rights relating to latent defects in the goods sold. For this reason, the CPA contains a general provision regarding what would constitute unfair, unreasonable or unjust contract terms as well as specific provisions regarding: Notices for certain terms and conditions, for example, if the supplier limits its liability or risk this must be drawn to the consumers attention in a certain way Certain agreements must be in writing Transactions or terms and conditions that are prohibited, such a limiting liability for gross negligence, requiring that the consumer give his identity document, bank card PIN number, credit or debit card to the supplier, a provision that authorises a person acting on behalf of the supplier to access the premises of the consumer to take possession of the goods. This section also defines and regulates fraudulent schemes and offers, pyramid schemes, auctions, over-selling and over-booking. 12

15 Right to fair value, good quality and safety Practically, liability arises as a result of, for example: Manufacturing defects for example a bicycle which was built with a small crack in the frame, which breaks when used, causing an injury to the rider Failure to warn, or inadequate warning. These cases refer to injuries caused as a result of a product known to be potentially dangerous which was sold without a proper warning to the consumer. An example would be an overthe-counter drug sold lacking a warning on the hazards of use with certain other drugs, excessive consumption, or possible side effects from its use. While there are sectoral regulations in place (such as Phamaceutical regulations), there is currently no general statutory provision in the law that explicitly recognises the consumer s right to safe products or any liability of manufacturers in cases of defective or unsafe products. This section therefore contains provisions dealing with the consumer s rights to demand quality service, the consumer s right to safe, good quality goods, an implied warranty of quality, warranties on repaired goods, warnings concerning facts and nature of risks, recovery and safe disposal of designated products and components, safety monitoring and recall and liability for damage caused by goods. The implied warranty of quality Every consumer has the right to receive goods that are suitable for which they are generally intended, are of a good quality, in good working order and free of defects, are useable and durable for a reasonable period of time and comply with applicable standards in terms of the Standards Act. This quality standard is incorporated as an implied provision in regard to transactions in respect of goods and applies to producers, importers, distributors and retailers. There are also statutory consequences where the quality is not at the requisite standard. Liability for damage caused by goods The CPA introduces a provision into our statutory law (product liability has always been governed by our common law) that makes a producer, importer, distributor or retailer liable for any harm caused as a result of the supply of unsafe goods, product failure, defect or hazard or inadequate instructions or warnings being given about the goods. Of interest is that while in the past, negligence on the part of one or more of these types of entities would need to have been proven, negligence is now no longer a requirement. This provision is however tempered by the fact that the section provides that liability will not arise in certain circumstances (as listed in the section). In terms of the transitional provisions in schedule 2 to the CPA, the product liability provisions apply to goods supplied on or after 24 April There is however currently no general statutory provision in the law that explicitly recognises the consumer s right to safe products or any liability of manufacturers in cases of defective or unsafe products. 13

16 Suppliers accountability to consumers This section of the CPA deals with lay-bys, pre-paid certificates, credits and vouchers, prepaid services and access to service facilities. In addition, the section deals with the suppliers obligations when holding property of the consumer. Currently, when a consumer is required to pay a deposit in terms of an agreement (for example, a lease agreement), there is no statutory requirement on the lessor to ensure that the deposit is kept separate from its business assets. As such, if the deposit is paid into the business bank account of the lessor (i.e. it commingles with the funds of the business) and the lessor goes into liquidation, the funds have not been adequately ringfenced as belonging to the consumer. The provisions of the CPA would now require the lessor to adequately protect the lessees funds by, for example, creating a separate trust bank account for deposits. In addition, obligations are imposed on liquidators regarding the property (including money) of the consumer. Administrative fines can be imposed for prohibited conduct (i.e. an act or omission in contravention of the Act) or required conduct. Non-compliance The Act establishes the National Consumer Commission, which will have certain enforcement functions including the ability to issue compliance notices and to conduct investigations. In addition, certain conduct will result in criminal liability (albeit that liability will only arise in limited instances) as well as administrative fines. Administrative fines can be imposed for prohibited conduct (i.e. an act or omission in contravention of the Act) or required conduct. The amount of the fine can be as much as 10% of the respondent s annual turnover or R1 million (whichever is the greater). In determining the amount of the fine, the Tribunal (The Consumer Tribunal) is required to consider, for example, the nature, duration, gravity of the contravention, loss or damage arising as a result thereof etc. 14

17 Managing the implications of the CPA Once a determination has been made that the CPA applies, the following approaches are suggested: The potential business implications of the CPA should be understood, from a strategic, operational and risk management perspective. Initially, a high level gap analysis could be conducted to tease out which are the key risk areas. Thereafter, a detailed gap analysis could be used to determine which areas of the business that are not compliant. This could include a determination of where certain activities may already be regulated by, for example, the Financial Advisory and Intermediary Services Act or the NCA. The board and senior management should be apprised of these implications The potential impact of the CPA on proposed new businesses or products should be assessed before the launch Training requirements should be considered and implemented All consumer interactions should be adjusted to comply with the CPA. This includes ensuring that all marketing and advertising consultants or agents are fully apprised of the requirements of the CPA The implications across the supply chain, in particular, of the product liability provisions should be assessed, contracts amended and, where appropriate, insurance cover adjusted. KPMG Services Gap analysis Whenever new legislation is to take effect, it is advisable to conduct a gap analysis i.e. what are the existing practices of the organisation and how do these differ from the requirements of the new legislation. In this regard, most organisations will have complied with regulation (Acts, common law, industry rules etc.) governing consumer protection. In addition, many organisations that ascribe to the international principles that treating customers fairly makes good business sense, will have sought to meet international standards around consumer protection. It will still however be crucial to: a. assess how the Act changes the current body of consumer protection regulation and it does b. what areas of the businesses need to be adjusted to meet the requirements of the CPA Awareness training Whenever new legislation is to take effect, it is advisable to conduct awareness training to senior management to ensure that all business areas are considered to ensure a complete impact analysis. Implementation Implementing any new legislation will result in interpretation issues. We can provide legal opinions on the CPA as it relates to your specific business. We are also able to assist with all other implementation aspects such as, for example, changes to notices and contracts and policies and procedures. Post Implementation reviews Once the CPA has been rolled-out, we can review whether the CPA has been implemented appropriately. For example, while a code of good practice for a particular industry or the marketing policy of the organisation itself may already provide that misleading or deceptive marketing is not permitted, the provisions of the CPA regarding general standards for marketing of goods or services will still require assessment. This gap always can be conducted on a high level or detailed basis. 15

18 A value-adding team with a combined skillset KPMG personnel in both Compliance Services Advisory and the Corporate Law Advisory Practice work together on these types of assignments. This unique offering ensures that both the business operations and the interpretation of the law are addressed in your solution. Compliance Services Advisory KPMG has developed a Regulatory and Compliance Arrangements Methodology (RCA) to assist our clients in setting up and enhancing their regulatory and compliance arrangements. The methodology was developed based on both local and international best practice principles and is reviewed regularly to stay abreast with the latest development within compliance. Corporate Law Advisory Practice The Corporate Law Advisory Practice comprises of a group of 15 admitted attorneys that focus on providing corporate and commercial legal services to medium to large corporate clients and Government. As an integrated business unit of KPMG, the Corporate Law Advisory Practice: functions as part of a multi-disciplinary organisation thereby integrating the legal services that we provide with professional services provided by, for example, our Corporate Finance, Financial Risk Management, IT Advisory, Compliance Services, Regulatory, Tax specialists, Forensics and other professional colleagues in accordance with the overall KPMG strategy, aligns its legal services with the particular market within which its services are being provided has built on the methodologies created by our local and global service lines. We have been the lead legal advisers on a number of large multi-disciplinary assignments which had stringent deadlines. We pride ourselves on meeting deadlines without compromising on the quality of the deliverable. It is important to note that although we operate outside of a traditional law firm, our clients enjoy legal privilege. Young and dynamic, our team will offer you a fresh and flexible perspective as well as experienced and established lawyers. Our team combines a culture of energetic and entrepreneurial legal experts with solid commercial knowledge. It is important to note that although we operate outside of a traditional law firm, our clients enjoy legal privilege. Why KPMG? KPMG has many years of local and international experience in the regulatory compliance field. We pride ourselves on the following: KPMG advising large international companies as well as local entities on compliance related matters we deliver our services through multidisciplinary teams of former regulators, compliance and operational professionals, lawyers as well as auditors, therefore ensuring that a broad spectrum of experience is applied to compliance assignments our strong global compliance network, across Europe and in all significant centres, helps to ensure that we have the capability to undertake international assignments and to apply accepted practice to local assignments we strive to stay abreast of all relevant issues and we ensure that our advisors continue to improve their subject matter knowledge and experience. 16

19 Contacts Karin Rathbone Director Corporate Law Advisory Practice Tel: +27 (0) Cell: +27 (0) Aneesha Chetty Senior Legal Manager Corporate Law Advisory Practice Tel: +27 (0) Cell: +27 (0) Bibi Loonat Senior Consultant Corporate Law Advisory Practice Tel +27 (0) Cell: +27 (0) Gustav Von Bratt Associate Director Compliance Services Tel: +27 (0) Cell: 27 (0) Stephan Kemp Manager Compliance Services Tel:+27 (0) Cell: +27 (0)

20 Endnotes and references i Draft Green Paper on the Consumer Policy Framework on 09/04 Driving Competitiveness Consumer Confidence and Business Excellence ( the Green Paper ). ii The Regulations to be prescribed by the Minister in terms of section 120 of the Act. Examples obtained from Wikipedia. 18

21 Consumer Protection Act: Decision Tree 1 Does the business enter into transactions 1? YES NO 2 Does the business promote goods or services or the supply of goods or services? YES NO 3 Are the goods or services supplied or performed in terms of a transaction (for example, tied arrangements)? YES NO Evaluate if exemption 2 applies Is the transaction with the State? Is the transaction with a juristic person? Does a ministerial exemption apply? Is it an employment contract? Has a partial exemption been granted due to a regulatory overlap? (Turnover threshold/asset value exemptions still to be regulated) No exemption applies YES Evaluate role in supply chain Producer, Importer or Distributor Distributor Retailer Consumer 1 For example, an agreement to supply goods, (eg. music, gas, software etc) or services, (eg. provision of accommodation, transportation of individuals or goods etc) in exchange for consideration (not limited to money) and includes a franchise agreement. (This is not an exhaustive list.) 2 This is not an exhaustive list of all the exemptions in the CPA. 19

22 Our commitment to our clients Innovation and industry leadership is demonstrated in our continued investment in thought leadership. We believe that providing timely information and insightful perspective is a vital part of serving our clients in the various sectors. Where there is a need for innovation, KPMG s original thinking leads the way in addressing those areas that are having a major impact on the industries today. KPMG has contributed significant thought leadership which range from white papers and surveys through to opinion pieces and regulatory analyses. Innovation and industry leadership is demonstrated in our continued investment in thought leadership. 20

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