Consumer Policy Framework: Department briefing

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Trade and Industry

21 June 2005
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
22 June 2005
CONSUMER POLICY FRAMEWORK: DEPARTMENT BRIEFING

Chairperson:

Mr B Martins (ANC)

Documents handed out:

Progress Report on the Consumer Policy Framework
Summary of Public Comments on Consumer Policy and Law Reform
Draft Green Paper on Consumer Policy framework-2004

SUMMARY
The Department of Trade and Industry (DTI) briefed the Committee on the Consumer Policy Framework. The current legislative framework was very fragmented and outdated and did not cover new market developments. There was no statute that contained a clear statement on consumer rights. The policy was aimed at promoting a fair and efficient market place for consumers. This would require a comprehensive consumer law that would regulate the whole purchasing cycle and would provide for basic rights. The policy would also promote customer responsiveness in both the private and public sectors.

Three regulatory options had emerged from public consultation. The first was to focus on better enforcement of the current legislation. The problem with this option was that the existing mechanisms might not be able to handle increased volumes and it did not give enough powers to deal with some of the problems. The second option was to allow for self-regulation. This had proven to be a risky option for consumers as most codes were of a voluntary nature. The last option was a comprehensive new regulatory framework that would re-regulate the existing consumer protection system by repealing or amending existing legislation and enacting a new Consumer Protection Act. This was the preferred option for the Department because it would address most of the problems that had been identified with the current system. In implementing this option, care would be taken to minimise unintended consequences and to avoid over regulation and massive regulatory burdens, especially for small businesses.

Members appeared to support option three, but felt that there should be further consultation on the policy. The Department should be careful not create regulatory burdens. Some Members felt that the Department should tread carefully on price and quality regulation. Consumers should be made aware of their rights and should become active in defending their rights.

MINUTES

Department briefing
The Department was represented by Mr M Moeletsi (Chief Director: Policy and Legislation) and Ms M Mphahlele (Project Manager). Ms Mphahlele made the presentation. (See document attached). The purposes of the presentation were to outline the steps followed in the drafting of and consultation on the consumer policy framework. It provided an overview of the policy and the response to the policy proposals by various stakeholders; and to outline the way forward with regards to incorporating comments from the public, drafting and consulting on the Consumer Protection Bill. A number of entities had commented on the policy. It was disappointing that only six people had commented in their individual capacities.

The current legislative framework was very fragmented and outdated and did not cover new market developments. The Department administered up to 23 pieces of legislation that regulated various aspects of consumer protection. Various Departments (Health, Treasury and Transport) were also responsible for sector regulation that had some aspects of consumer protection. Sector regulation mostly looked at licensing issues and not providing redress for consumers. There was uneven regulation, with heavy regulation in some industries and reliance on self-regulation in other areas. There was no statute that contained a clear statement on consumer rights. There was widespread abuse in the areas of advertising, contract terms, guarantees, selling methods, inferior product standards, liability, abuse of personal information and product disclosure. Certain aspects of the purchasing cycle were not explicitly regulated leaving consumers and businesses (especially small businesses) vulnerable and subject to widespread abuse. Access to redress and essential products and services was limited for low-income consumers. Enforcement capacity was limited and uncoordinated. Sanctions were more criminal rather than administrative and this limited redress. Rights within the public sector were not enforceable due to the voluntary public service ethos of Batho Pele.

The policy was aimed at promoting a fair and efficient market place for consumers. This would require a comprehensive consumer law that would regulate the whole purchasing cycle and provide for basic rights. The policy would also promote customer responsiveness in both the private and public sectors. To this end mandatory standards would be set for service delivery. The Department intended to harmonise consumer protection laws in SA by reviewing, repealing and harmonising various Acts. It would also provide a consistent, predictable and effective regulatory framework by establishing a Consumer Commission that would be responsible for compliance and enforcement.

The Department intended to make certain consumer rights real. This included the right to basic goods and services, right to information, the right to choose and the right to safety. Various legislative measures would be taken to realise these rights. It would deal with the issue of unfair and discriminatory practices in marketing, selling and transacting and differential pricing and availability of goods and services. It would also focus on disclosure requirements, misleading advertising and terms and conditions pertaining to guarantees and warrantees. There would be explicit recognition of product safety and liability rules.

The right to have consumer interests represented in the making and execution of government policy and in the development of products and services was important. The Department was looking at funding and capacity building of non-governmental organisations (NGOs). It was exploring the possibility of using Lottery funding for this purpose. The Regulator would also play a strong advocacy role to ensure consumer representation in various decision-making forums.

In terms of the institutional framework, it was envisaged that the National Consumer Commission and Tribunal would be the champion of consumer protection. There was already provision for the Tribunal in the National Credit Bill and this would hear credit and other consumer issues. It would be proactive in the identification and prosecution of consumer abuses and contraventions. It would deal primarily with national businesses, systemic problems and cross border issues. It would provide a single entry point for consumers. Sector Regulators would deal with consumer complaints and education in their sectors. The National Regulator and self-regulators would have to enter into co-operation agreements to clarify jurisdictional issues and enforcement responsibilities. NGOs might be given specific rights in law to allow them to play roles in advising, and counselling consumers more effectively.

An analysis of the comments showed that there was broad support for the need to undertake consumer law reform in South Africa and for a comprehensive legal framework. However, some people had reservations. They were of the opinion that self-regulation would no longer be allowed. They felt that a comprehensive legal framework would be too expensive and impose burdens on small businesses. There was also support for the entrenchment of consumer rights in law and the need for consumer education. There was also strong support for the inclusion of the public sector in the regulatory framework. Concerns had been raised on issues like the cost to individuals and the economy and the necessity of establishing a new regulator; how compliance burdens on business, especially small business would be minimised and how concurrent jurisdictional issues between Provinces and the proposed Regulator would be avoided.

Three regulatory options had emerged from the comments. The first was to focus on better enforcement of the current legislation. This would entail continued reliance on the existing legislative framework. Consumers would have to be made aware of their rights. The problem with this option was that the existing mechanisms might not be able to handle increased volumes and it did not provide enough powers to deal with some of the problems. The second option was to allow for self-regulation. Recognition should be given to self-regulation initiatives. Industry self-regulation would have to be promoted by encouraging the adoption of voluntary Codes of Good Practice across sectors. This had proven to be a risky option for consumers as most codes were of a voluntary nature.

Those Regulators that were working well could be given statutory backing or some form of government recognition. The last option was a comprehensive new regulatory framework that would re-regulate the existing consumer protection system by repealing or amending existing legislation and enacting a new Consumer Protection Act. This was the preferred option for the Department because it would address most of the problems that had been identified with the current system. It would also include option one and two. In implementing this option, care would be taken to minimise unintended consequences and to avoid over regulation and large regulatory burdens, especially on small businesses.

The original policy objectives remained intact but various parts would be expanded and recast to address and clarify the issues raised by the public and the National Economic Development and Labour Council (NEDLAC). This process was already underway. The amended policy would be published for final comments and possible public hearings. Alternative methods of reaching the public would be considered. The final policy would be submitted to Cabinet for approval and the target date for the completion of this process was October 2005.

Discussion
Mr S Rasmeni (ANC) supported option three in terms of the regulatory framework and encouraged the Department to adopt it. There was a need to strengthen the consultation process. Some answers to some of the problems should come from the people in rural areas. Community development institutions or workers and Parliamentary Constituency Offices could be used in ensuring that consumers in rural areas were reached. Government was not making adequate use of Constituency Offices.

Mr Moeletsi agreed that there was a need for further consultation.

Mr M Stephens (UDM) said that consumer protection was important in every society. In South Africa consumers were inactive and badly informed and this strengthened the importance of consumer protection. The Department should be careful not to protect consumers against themselves. They should make the ultimate decision on what and where to buy. There was no doubt that the Department should go with a comprehensive legal framework. The rules or laws should be made clear from the outset. The law should not create regulatory burdens. It should not become more difficult to start or run a business. It would be unnecessary to burden business with regulatory paperwork if people knew their rights and where to complain.

He noted the presenter’s statement that legislative measures would be taken to realise the right to choose products and services at competitive prices with the assurance of satisfactory quality. He hoped that the Department was not talking about price regulation. He asked what the Department had in mind in relation to legislating on prices. Quality was directly related to price. A mistake had often been in many countries where in order to establish quality goods, prices were increased and consumers were consequently unable to buy the goods. The Department should tread carefully on price regulation. Very high quality prescripts could lead to increase in prices. Information was more important than quality regulation. Consumers should be able to choose low quality goods as long as they knew that the goods were of a certain quality.

Ms Mphahlele replied that quality was related to the safety of the product. There was a need for some form of regulation. Testing should be done on products that came into the market.

Mr Moeletsi replied that most of the questions that had been asked by Members would be answered in the Bill itself. He was not prepared to give answers since they might not be included in the Bill. It seemed that Members were in full agreement with the policy and its principles but had questions about implementation. Price was an important issue in South Africa. There was no intention to regulate prices. It was surprising that in some cases prices had escalated despite the fact that inflation had gone down. The question was whether one could say that people had access to food despite the soaring food prices. There was a need for some kind of a monitoring mechanism. The price of land in South Africa was increasing at an alarming rate and this was a challenge to realising the right to access to shelter.

The problem in South Africa was that people had been taught not to complain. Even those who knew their rights were not prepared to defend them. Mere awareness creation would not be sufficient. He agreed that it was important not to create unnecessary regulatory burdens and that the laws should be clear from the outset. Business would always talk about regulatory burdens in cases where they did not want to comply with something. There was a need to strike a balance between the needs of business and consumers.

Ms D Ramodibe (ANC) also supported option three. Business would always look after their own interests. They had always been worried about costs. The priority should be consumers, especially previously disadvantaged people who had no access to information. There was a need to ensure that rural areas were covered and this called for a second round of consultations. The Department should look at how to reach all those people who had not commented on the policy.

Mr L Labuschagne (DA) said that South Africa consumers were not good at complaining. People did not know what they could or could not do. A Bill would not solve the problem if people were not informed. The Bill should provide cheap redress and people should not be expected to go to lawyers every time they had a problem. He did not understand what the Department meant when it said that rights within the public sector were not enforceable due to the voluntary nature of the Batho Pele principles.

He wondered how the rights to basic goods and services fitted into a Consumer Bill. He felt that the government would have a problem in dealing with these rights in a Consumer Bill. A person who had acquired a house had a right to see that it was properly built and would not collapse. He asked how the Department would be able tell a person to have his or her business in a particular locality. He was aware that big banks had been forced to have the Mzantsi account. He also asked the Department to distinguish between a warranty and a guarantee. The warranties and guarantees should specifically state what they excluded or covered. Some people would say that the rights that a consumer had in terms of the common law were better than the protection offered under warranties or guarantees. He agreed with the views expressed by Mr Stephens on price and quality regulation. He was sceptical about self-regulation because in some cases justice had not been seen to be done. In some cases, certain doctors had done a lot of bad things only to get a slap on the wrist.

Ms M Ntuli (ANC) asked how the Bill would deal with the right to basic goods and services. She asked if the Department would monitor the prices of food. Prices were not the same in rural and urban areas. She asked if the Bill would deal with developers who built poor standard houses on untested ground. This was the only way in which the right to shelter would be relevant in a Consumer Bill. She would agree with the regulation of quality. People should exercise their right to choose between different quality goods or services.

Responding to questions raised by Mr Labuschagne and Ms Ntuli, Mr Moeletsi said that the right to basic goods and services was already enshrined in the Constitution and the intention was to affirm it. The question was whether one could say that a person who had acquired a low quality house had received access to shelter or housing. How could one say that a person had received access to a house when it was collapsing? People might be forced to build plastic houses instead of living in collapsing and dangerous houses.

He agreed that there should be simple and accessible redress. People should feel that there was someone who was always ready to assist. The Batho Pele principles were yielding results in some areas. The problem was that some local governments were still dragging their feet in implementing the principles. One could complain about electricity bills only for local government to do nothing. However, they were quick to disconnect electricity if one was in arrears. The distinction between guarantees and warrantees would be clarified in the Bill.

Ms Mphahlele replied that the government would not be able to force people to operate their businesses in particular areas only. The concern was around accessibility and differential pricing.

Mr J Maake (ANC) asked if the word "consumer" included a business that bought goods from other businesses. Would the Bill cover such business or only be concerned with individuals?

Mr Moeletsi replied that the definition of a consumer would be included in the Bill. Big businesses would be included in the Bill to some extent.

The Chairperson said that the Department would have to look at third generation rights especially given the Grootboom judgement on housing provision. The Committee would conduct public hearings on the Bill.

Ms Ramodibe asked how closely the Department was working with provinces.

Mr Moeletsi replied that there was a Working Group composed of consumer offices from all provinces. The poor response could be due to the culture that prevailed in most South Africas. The most effective way to reach consumers was to discuss issues live on radio. The Department was working with provinces and a lot could still be done.

Mr S Njikela (ANC) said that perhaps some people were intimidated by the sheer size of the policy document.

The meeting was adjourned.


 

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