Although the Bill was officially introduced first into the National Council of Provinces, the Department provided a briefing workshop on the Bill to both the Portfolio Committee on Trade and Industry as well as the Select Committee on Economic and Foreign Affairs. The Department said that the Bill was a rights-based piece of legislation. It would replace the Unfair Business Practices Act, which was reactive and did not provide sufficient protection to consumers. The Bill focused on monitoring and enforcement of consumer rights.
Members expressed concern that contracts were expected to be in plain and understandable language, but did not have to be in all the official languages. They felt that an inability to understand contracts would mean that consumers would be unable to understand their contractual rights. Thus the Bill would not be enforceable unless this issue was addressed. The Department focused on the advocacy role of the various stakeholders, especially the National Consumer Commission. This role would include educating consumers on their rights and on this consumer protection legislation, in order to ensure that the Bill was properly enforced.
Mr Martins explained that the purpose of the meeting was to ensure that both Houses had adequate knowledge about the content of the Bill. The process would then continue with the National Council of Provinces where public hearings would be held on the Bill. The Bill would then proceed to the National Assembly where further public hearings might be held in order for the Portfolio Committee to ascertain stakeholders’ views. He felt that this workshop would be useful to give both Houses the necessary background to deal with the Bill.
Consumer Protection Bill: Background
Ms Magauta Mphahlele (National Consumer Tribunal) said that although she was currently a full-time member of the Tribunal she would be conducting the presentation as she had been involved in the initial drafting and consultation processes.
Ms Mphahlehle said that the Bill was a thoroughly negotiated document. Consumers had also been consulted in the process and the document had also been tabled at NEDLAC. Although much consultation and negotiations had taken place, one could still expect much disagreement among the different stakeholders once parliamentary hearings took place.
The problem with the Unfair Business Practices Act 71 of 1988, which has governed consumer matters since 1989 was that it was a reactive piece of legislation and did not outlaw anything up front. A consumer first had to report a problem before recommendations would be made to the Minister and certain actions then prohibited. The process was largely in the hands of the police and the courts and the DTI was not really involved. This further meant that consumers issues were not often dealt with since very few could afford access to courts. Although business models were developed to address the issue these were not good enough.
A further reason for this Bill was the changing economic environment with goods flowing into the country to be sold to South African consumers. It was necessary to ensure that these goods met with safety requirements and were of a good standard.
Consumers investing in the financial services sector, however, enjoyed a reasonable amount of protection due to legislation such as the Financial Advisory and Intermediary Services Act (FAIS). This applied to long and short-term insurers and not to banks who were only subject to prudential regulation, but were largely self-regulated in matters of consumer rights. There was therefore a need for another level of enforcement in that sector.
To date this environment in SA has been biased toward suppliers and based on the ‘buyer beware’ principle. It also relied on criminal sanctions and private remedies through the courts. It involved the consumer having to rely on outdated common law principles, and very often suppliers/retailers expected them to contract out of these common law rights.
The Consumer Protection Bill would codify consumers’ common law rights. It also focused on the monitoring and enforcement of these rights. Previously the problem was also that the common law rights had to be enforced in courts. Consumer protection matters were not a high priority in SA courts. Also, the ‘buyer beware’ principle meant that the consumer was expected to be aware of certain information, while in reality the supplier was in possession of all the information about their products/services.
The issue of competition had become important with the recent increases in food prices. The Competition Commission had exposed collusion in certain sectors. This had highlighted the need for consumers to possess information and to understand terms and conditions of contracts, as well as consumer rights and possible redress. Public hearings would most likely reflect the views of business that the Bill would place an undue burden on them. On the other hand one should examine the burden on consumers if this area was not properly regulated. It was necessary to strike a balance between the needs of consumers on the one hand and business on the other. Currently, untrue information about a product could be provided to a consumer purchasing such product. This misrepresentation could in no way be challenged by the consumer.
The Bill was not intended to duplicate any existing legislation dealing with these issues, but merely to close gaps where they existed. The aim was to bring all consumer protection issues under one Bill. Since much of the legislation examined predated 1994, they did not comply with the constitutional principles (especially that of equality) and therefore needed to be revised. The issue of redress was important since the old Acts did not allow for the consumer to return a product, nor did it provide for the consumers’ right to a refund. It provided for criminal sanctions, which were not effective since consumers were not interested in seeing a non-compliant supplier go to prison, but were instead more interested in getting a refund where they were unhappy with a product. The Bill therefore sought to decriminalise the actions of non-compliant suppliers.
In addition, businesses previously did not focus on customer service and sought to retain their customers by binding them to contracts instead of doing so by providing good service. The Bill sought to bring consumer protection in SA in line with international best practice. Consumer protection was well-developed in developed countries and certain developing countries such as
Whereas certain Acts were repealed by the Bill, parts of these had sometimes been retained for incorporation into this Bill. In addition, parts of the Lotteries Act (No 57 of 1997) were moved to this Bill. Ms Mphahlele referred to the recent cellphone competition in terms of which a BMW car could be won. SMSes were exceedingly expensive and people were spending thousands on entering the competition. The Lotteries Act declared the competition invalid due to it creating what amounted to another lottery. Such competitions would be declared illegal in terms of this Bill, but for reasons of customer protection. In addition, even though the Lotteries Act could declare the competition illegal, it could not order redress for entrants, which this Bill could.
The Electronic Communications and Transactions (ECT) Bill adequately dealt with the issue of consumer protection and the Bill sought to harmonise its provisions with those of the ECT Bill. As stated earlier, the long and short-term insurance industry was excluded from the application of this Bill, since this issue was effectively covered in FAIS. Cabinet had however decided that this legislation governing that sector would have to be updated so that it reflected the standards of this Bill. The Genetically Modified Organisms Act 23 of 2006 was also excluded from the application of this Act when it came to the labeling of genetically modified foodstuffs.
Ms L Ntembe (ID:
Ms Mphahlele agreed, saying that it was for this reason that Cabinet had stated that these laws would have to be revised.
Ms Ntembe said that something should be done about the fact that shops often sold goods of poor quality. When customers returned these goods, they were sent back to the factories, which was a problem since customers needed the goods immediately and could not wait for the matter to be investigated at factory level.
Ms Ntembe added that some people were of the opinion that SA consumers were not sophisticated enough to deal with these consumer protection laws. She believed that if South Africans were sophisticated enough to trade globally, then they were sophisticated enough to receive what they paid for.
Ms M Ntuli (ANC) emphasized the importance of proper labeling of products and referred to the situation where children drank paraffin, mistaking it for water. This was due to lack of labeling. She noted that GMOs were being excluded from the application of this Bill. She felt that GMO food should be labeled to protect the consumer as it had side-effects which would impact on the health of consumers.
Ms Mphahlele replied that this was a difficult issue and that there were different opinions on this matter. The Department had initially been in favour of labeling GMO products, but was then informed that this was already being dealt with by the Departments of Health and Agriculture. However there was perhaps a need to raise it so that other government departments too could take it on board.
Ms Ntuli referred to the SMS competitions, saying that recently an elderly woman who had entered the Win IKhaya competition had won a house but could not claim due to her age. She added that very often the claims made during advertising were untrue and misleading.
Ms Mphahlele responded that companies would no longer be able to charge higher rates for the SMS itself, which would be charged at the normal rate. She compared this marketing ploy to that used in the timeshare industry and said that this would no longer be possible as companies would be forced to deliver items promised to consumers. The Bill also dealt with the issue of misleading advertising and the principle that a product must do what it was supposed to do.
Mr S Rasmeni (ANC) asked which legislation governed Consumer Affairs officers. They had been expected to attend a presentation by the National Credit Regulator the previous day and had not arrived. If they continued to conduct themselves this way, there would be problems in future.
Ms Mphahlele answered that there were provincial officers whose functions also included the promotion of consumer protection. The problem was that only three out of the nine provinces had consumer courts. Some provinces have committed themselves to taking steps to promote consumer protection within their provinces. In terms of the Bill, the Minister could negotiate with the provincial MECs to ensure that provincial officers operated effectively to ensure the promotion of consumer protection.
Mr Rasmeni asked what the relationship was between the National Credit Act and this Bill.
Ms Mphahlele replied that the National Credit Act dealt with the financing of an asset while the Bill dealt with issues surrounding the underlying asset itself, for example issues of guarantees and warranties where the asset did not function properly.
Ms Rasmeni asked what would happen to institutions established in terms of Acts that were being repealed by this Bill.
Ms Mphahlele responded that although there had been laws, these had not been enforced. The Department dealt with complaints via the Office of Consumer Protection (which would be moving out of the Department, since a specialised agency was required for consumer protection).
Mr Sibiya noted that the expiry date on certain canned fish brands had previously been engraved on the tin itself, but were now merely stamped on with an ink stamp. This was problematic as the stamp could be wiped off and the tin restamped by retailers once the product expired.
Ms Mphahlele replied that while the details on how labeling should happen did not appear in the Bill, the issue was dealt with by the principle that if a consumer got sick from consuming a product, the retailer/supplier would be liable for consequential damages. Currently, there was a need to prove that the manufacture was liable. This meant that the consumer would have to examine the manufacturing process to show exactly where this negligence occurred. In terms of the Bill, the consumer simply had to show that s/he became sick due to eating the food purchased. Although the Bill did not deal with it specifically, this could be raised if Parliament so wished.
Mr U Moiloa (ANC- Gauteng) felt that as signatories of various World Trade Organisation agreements, SA was bound to comply with the standards set in them.
Ms Mphahlele answered that SA law could hold the retailer or wholesaler responsible for defective goods, but could not stop imported goods from entering the country.
Mr Moiloa referred to the fact that well-known brands usually came with some sort of guarantee or warranty. There were however shops like Hi-Fi Corporation that sold brands but one had no idea from where they came. In addition the right to return goods, which usually applied to the purchase of well-known brands, did not apply to these goods.
Ms Mphahlele said that parallel imported goods referred to goods that were imported by wholesalers who were not the official distributers of that brand and therefore could not provide the manufacturer’s guarantee. However, as in the case of Hi-Fi Corporation, there were sometimes customers who wanted the goods even though it was imported this way and who were aware that the goods did not carry this guarantee. This was therefore acceptable as long as the customer was informed of this fact before purchasing the product. This could be done by the product carrying the appropriate labeling.
Mr Brian Muthwa (Director of Legislative Drafting: Consumer and Corporate Affairs Division: DTI) said that the impact of the Bill was that it introduced rights-based legislation to deal with the issue of consumer protection. The consumer would be advised of their rights up front and was entitled to good service. In addition, if a consumer purchased a product, such product would have to be fit for the purpose for which it was purchased. The issue of product liability would also be extended beyond the supplier to include the distributor or importer as well.
Consumer Protection Bill: Content of the Bill
Ms Mphahlele said that the Bill codified consumer rights. The consumer was not just the person who bought a product but also the user. This was important with regard to the issue of product safety and liability. Thus, for example the purchaser’s child injured due to the use of a defective appliance, would also be able to hold the supplier of the appliance liable.
There were numerous complaints with regard to franchisees and this was dealt with in the Bill. The Bill also protected small businesses up to a certain turnover threshold (which had yet to be determined). There have been proposals that this figure be the same as that provided for in the National Credit Act. There was however no threshold limit applicable to franchisees. The only time the State was excluded from the Bill’s application was when the State was the consumer.
On the matter of exemptions discussed in the presentation document, Ms Mphahlele pointed out that while a regulatory authority could apply for exemption from the Bill, an entire industry or sector could not apply. For example, while the Independent Communications Authority of SA (ICASA) could apply for this exemption, the communications sector could not do so. The Bill dealt with the pre-contractual stage, how the contract was entered into and how to exit from the contract. Exemptions also could be granted where the Bill duplicated existing law/treaties, international law, conventions or protocols to which SA has assented. This was important since some industries were not regulated only nationally but also internationally, for example the airline industry. One should remember that even where exemptions were applicable, transactions could not be exempted when it involved issues of safety and liability.
The Bill was also based on rights-based and internationally accepted principles of consumer rights, which had been adopted by the United Nations. Ms Mphahlele referred to the presentation document and read through these rights. With regard to the right to equality (Part A) she said that this was particularly relevant in SA where there had still been instances of racism where resorts had refused to permit entry to ‘black’ people. Although the issue of equality was dealt with in the Equality Act, the Bill allowed for further regulation in other legislation. If the Consumer Courts were presented with issues involving the right to equality in the consumer market, these cases would be referred to the Equality Courts.
The right to privacy (Part B) was included due to use of consumers’ personal information for unsolicited direct marketing. In discussions with the Direct Marketing Association, they informed the Department of a register on which consumers could be included if they did not want to be contacted for the purpose of direct marketing. Thus before any of their members contacted a consumer they would first have to check if his/her name appeared on this register.
On the matter of the right to choose (Part C), Ms Mphahlele said that since automatic renewal of fixed term contracts were prohibited, the consumer would have to be informed of the expiry. Until the consumer opted to either renew or cancel, the contract would run from month to month from the date of expiry. With regard to maintenance and repair services, the consumer would have to authorize the quote. The consumer could also pre-authorise up to a certain amount. If it emerged that any additional work had to be done, the service-provider would first have to contact the consumer to obtain permission, informing him/her of the additional costs.
The right to disclosure and information meant that consumers had to be given information in plain and understandable language. This did not mean that it would be done in the different official languages as was the case with in the National Credit Act. This Act involved single transactions and would therefore not create such a huge burden to businesses. However the Bill covered millions of transactions for which there were numerous contracts. Providing each of these contracts in all the official languages would represent a huge burden for business and the economic impact would be substantial. The requirement was therefore simply that language be plain and understandable (irrespective of the language in which the contract was written). The requirement about the display of prices would ensure that suppliers/retailers were not simply charging customers random prices, for example based on the appearance of the customer. The Minister could exempt certain businesses from this requirement, which would probably be the case with flea-markets. Consumers also had to be provided with transaction records to enable them to exchange goods. These records did not have to be typed and could in fact just be written and signed. With regard to labeling, the Bill provided that labels should not be misleading.
The right to fair and responsible advertising, marketing and promotion prohibited unfair marketing practices. Thus the practice of baiting a customer by falsely advertising a product to be really cheap in order to get the customer to enter the shop, was prohibited. Referral selling was also prohibited. This involved offering a discount to a customer if he referred someone else who then had to buy from that supplier. Negative option marketing was also prohibited. Thus it was no longer legal for a company to send a customer an item for purchase, which would be considered purchased if the customer did not return it. The Bill also regulated promotional competitions and therefore ensured that the prices of SMSes were not inflated in these competitions. With regard to customer loyalty programmes in terms of which customers got points in exchange for loyalty, the Bill provided that these credits should be treated as currency. A customer would therefore be treated the same as if he/she was actually paying for the service/product.
The right to fair and honest dealings (Part F) captured whatever unfair and unjust dealings transactions were not covered in the rest of the Bill. Thus, while overselling and overbooking were not prohibited as such, when this did occur, the supplier/service-provider was compelled to refund the consumer with interest and consequential damages. The problem highlighted by airline industry was that a customer could possibly be on his/her way to conduct a million-dollar deal and then miss the flight and lose the deal due to over-booking. They felt that it would be unreasonable to expect the airlines to be held liable for consequential damage which would include money lost due to loss of the deal. Instead the airline should just be held liable for expenses directly incurred due to the customer missing the flight. This right also covered unconscionable and morally wrong conduct.
The right to fair, just and reasonable terms and conditions meant that consumers would no longer be expected to contract out of their rights. It also prohibited unfair, unreasonable or unjust contract terms. Whether or not a term was ‘unreasonable’ would have to be decided by the courts.
The right to fair value, good quality and safety meant that the customers had the right to products which were fit for the purpose for which they were intended, safe and of good quality. These were general rights and applied even where they were not specified in the contract. With regard to standards, the South African Bureau of Standards (SABS) could only take a product out of the market, while the Bill would go further to allow for redress. The Bill would not set technical standards, which would remain within the scope of the SABS. According to the Common Law only the manufacturer could be held liable, while the Bill provided that liability could be extended to the retailer as well. However the businesses were complaining that this placed an unfair burden on retailers, who could not be expected to take responsibility for all goods manufactured. However drafters felt that the retailers were better-placed to pursue the manufacturer than the consumer was. The Bill however did provide statutory defences to the retailers.
Ms Ntembe said that often suppliers charged the customer a higher price than that displayed on the item, saying that they had meant to change it earlier.
Mr Martins said that the members should try to focus on the aims and objectives of the Bill and ask questions on this. In conducting their advocacy role, members could deal with the detail arising from the Bill. The Bill would not be able to answer each and every question.
Ms Mphahlele said that where two prices were displayed on an item, the customer would be entitled to the lower price. This issue related to bait advertising where the customer was lured into the shop due to the lower price. There were guidelines in the Bill to address this.
Ms Ntuli referred to the five-day cooling off period and the customer’s right to return goods within fifteen days. These periods were too short for a customer from the deep rural areas who had very little money.
Ms Mphahlele responded that these periods were standard throughout the economy but this could be discussed in the hearings.
Ms Ntuli referred to the customer’s right to choose and examine goods. She asked how an old person from the deep rural areas could examine goods when they usually sent someone to purchase the goods for them.
Ms Mphahlele said that accepting delivery did not mean that the consumer was necessarily accepting the goods. For example where the consumer purchased the item via catalogue and was seeing it for the first time upon delivery, the protection and rights mentioned would still apply despite the fact that the consumer was not physically at the shop when the item was purchased.
Mr Rasmeni referred to the requirement that the contract should be in plain and understandable language. He asked how language would be understandable if it was not in the language of the consumer. He assured the Department that the Portfolio Committee would fight for this issue. He said that people were able to deal with issues in their own languages in the rest of Africa and could not understand the reason that everything had to be in English, since this was not
Ms Mphahlele replied that he agreed that constitutional principles should apply. One could however not ignore the cost to business and while the Department promoted the use of plain and understandable language, it had to be implemented in a way that did not prevent people from growing their businesses.
Mr S Njikelana (ANC) asked the Department to give examples of where the Government had been guilty of providing shoddy service to the public.
Ms Mphahlele answered that municipalities were often guilty of incorrect billing. Very often the issue was not just the quality of goods and services received, but also that of access to services. The Commission had an important advocacy role to play in this regard.
Mr Fungai Sibanda (Chief Director: Policy and Legislation: DTI) added that because the State was a huge economic player it was bound by the consumer protection laws.
Mr P Nketu (ANC:
Ms Mphahlele agreed that it was a difficult matter since one could not impose SA laws on other countries. There were however agreements between countries, which provided guidelines on how to deal with those who escaped to other countries.
Mr Muthwa agreed, saying that the law would also not apply to an overseas supplier where the customer purchased the item over the internet.
Mr Nketu also referred to the fact that in most instances it was the illiterate person who was affected most through the sale of inferior products, for example the sale of Ambi skin lightener. Because of language barriers and education levels these consumers are unable to obtain redress for loss suffered.
Ms Mphahlele said that there were many entities playing an advocacy role. Consumers could rely on the Commission and other consumer protection interest groups to represent them in these proceedings. In this way, voiceless consumers were given a voice. In addition the Commission was had been given an educative role. She agreed that legislation was useless if people did not know their rights.
Mr Sibanda added that the Bill hinged on education and awareness-raising, without which implementation would be difficult. It was the responsibility of all stakeholders to see that this was done and the Commission was given the task of raising consumer awareness in Chapter 3 of the Bill.
Ms Ntuli asked who lacked capacity to contract. She asked if this referred to illiterate people.
Ms Mphahlele responded that legal capacity related to minors and mentally disabled persons, etcetera. However Clause 40 of the Bill related to unconscionable conduct in terms of which the relevant Court or Commission could examine the agreement to determine if the supplier was taking advantage of an old or illiterate person.
Mr Muthwa said that this term as used in this Act merely reflected the relevant principles in contract law.
Ms Nomfundo Maseti (Director: Consumer and Competition Law and Polic: DTI) added that the term ‘unconscionable’ could be interpreted by looking at whether the supplier acted in bad faith resulting in the consumer being disadvantaged.
Ms Ntuli asked how consumer rights were protected in the case of auctions.
Ms Mphahlele said that the issue of auctions was dealt with in the National Credit Act.
Ms Ntuli referred to consumers who lost both their money and the product where they were unable to effect payment on lay-byes. She asked if this was addressed in the Bill.
Ms Mphahlele said that the Bill provided that if a consumer purchased an item on lay-bye, the supplier could not give the consumer anything other than the item for which the consumer had agreed to pay. Should the item be sold (as very often suppliers sell an item to different customers on lay-bye) such consumer would be entitled to a refund of monies paid plus a penalty or interest. However where the consumer cancelled the contract, it was only fair that s/he also had to pay a penalty as the supplier had taken the item off the shelves and could therefore not sell it to anyone else during the period of the lay-bye.
Mr Muthwa added that the money would not belong to the supplier until the item was fully paid for and the item passed to the consumer. This would protect the consumer in the case of the supplier becoming insolvent.
The Chair said that discussions around the Bill would resume the following day and adjourned the meeting.
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