Consumer Protection Bill: Initial Briefing by Department of Trade and Industry

NCOP Economic and Business Development

21 May 2008
Chairperson: Mr J Sibiya (ANC, Limpopo)
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Meeting Summary

The Department of Trade and Industry briefed the Committee on the Consumer Protection Bill. They dealt with the scope of the Bill and gave a background to its introduction. The Department explained that the Bill was necessary as the existing legislation did not address the changing economy in South Africa.

In providing background to the Bill, the Department focused on:
-Objectives of reform
-its policy context
-Policy principles informing the Bill
-Comprehensive law reform; and
-Consumer rights

The Department described the Bill as a rights- based piece of legislation. These rights included the right to equality; privacy; choice; disclosure and information; fair and responsible advertising; fair and honest dealings; fair, just and reasonable terms and conditions; fair value, good quality and safety.

Members were interested in the consultation process undertaken prior to drafting the Bill. There were also questions around language requirements of contracts and the fact that they did not have to be in all the official languages. Members also were interested in the process consumers needed to follow in order to obtain redress.

Meeting report

Presentation by the Department of Trade and Industry (DTI)
Ms Zodwa Ntuli (Deputy Director-General: Consumer and Corporate Regulation Division [CCRD]- DTI) said that the purpose of the meeting was to:
-provide the Committee with a brief overview of the Bill,
-request the Committee to consider the Bill and
-request the Committee to provide guidelines with regard to timelines of the process to follow.

The DTI had in 2004 realised that there was a need to review the consumer protection framework, since the Unfair Business Practices Act had remained unchanged despite the drastic changes in the South African (SA) economy in recent years. These changes included an increase in the middle class and new entrants into the market. Furthermore the enforcement of the Unfair Business Practices Act was ineffective. There was also fragmentation regarding the way in which the issue of consumer protection was handled. The old Act had introduced a system which was biased toward suppliers and assumed the buyer to have been aware of terms of the contract irrespective of the fact that the supplier had not made the customer aware of these terms.

The elements necessary for a well-functioning market had been absent from the old dispensation. There were no provisions for disclosure by suppliers, and it was therefore clear that interventions were needed. The Act had tipped the scale in favour of suppliers. This Bill therefore sought to bring the issue of consumer protection into the context of existing market conditions in order to ensure a better functioning economy.

In updating existing legislation, the Department was careful to balance consumer interests with those of business.

Ms Ntuli read through the policy principles informing the Bill. These were
-Equity and accessibility
-Market integrity and transparency
-Competitiveness
-Business innovation
-Consumer safety
-Economic sustainability
-Regulatory and institutional efficiency; and
-Empowerment of consumer and civil society

Chapter 1 of the Bill dealt with:
-Definitions and Interpretation
The definition of ‘consumer’ was expanded beyond the person buying to consume. It would also include business to business transactions. It included the relationship where there was a power imbalance between supplier and consumer. It therefore also referred to franchisees and small businesses (subject to a certain threshold). Thus the Bill would protect businesses where they were unable to protect themselves. In addition the definition of consumer was extended to include the user of the product (and not merely the person who purchased the product).

-Purpose and Policy of the Bill
The principle of fairness was subject to interpretation, but the Bill provided guidelines on how to approach this.

-Application
The Bill would not apply to the State where it was the consumer, since Government was, by virtue of its position, able to protect itself. In cases where certain sectors were exempted, the reason was that those sectors were governed by legislation, which addressed consumer protection issues adequately.

-Exemptions
It was important to note that the exemptions applied for on behalf of a sector had to be done by the sector regulator. Despite the fact that the Bill did not apply where Government was the consumer, provisions regarding product safety and liability would still be applicable to the State.

Chapter 2
The Bill codified a set of rights based on internationally accepted and UN adopted consumer rights. These were:

-Right of equality to consumer market: Although the issue of equality was dealt with in the Equality Act, the legislation allowed for further regulation in other legislation. If the Consumer Courts were presented with issues involving the right to equality to the consumer market, these cases would be referred to the Equality Courts.

-Right to privacy

-Right to choose
Instead of contracts being automatically renewed, they would run on a month to month basis upon expiry. Consumers had the right to obtain quotes for maintenance work being done. Where additional work was necessary, the customer would have to give authorization for any excess sum to be charged.

-Disclosure and information
There was an obligation on the supplier to alert the consumer to terms and conditions in the contract.

-Fair and reasonable advertising, marketing and promotion
This included the prohibition of bait advertising, according to which the supplier advertised an attractive item or service (which did not really exist) in order to lure the customer to the shop.

-Fair and honest dealings
While the Common Law provided for this right, it was not qualified anywhere. Also consumers were unaware of their Common Law rights. The prohibition on unconscionable conduct included the practice of placing pressure on a consumer to enter into a transaction.

-Right to fair, just and reasonable terms and conditions
The inclusion of this right in the Bill would necessitate the amendment of the standard terms and conditions clauses in the contracts of many businesses. This right required the interests of the consumer and supplier to be balanced.

-Right to fair value, good quality and safety
This was based on the principle that a supplier putting a product on the market would be liable for damage caused by that product. This liability was limited where the supplier could show that s/he could not reasonably have been aware of the damage.

Chapter 3
This deals with the Protection of Consumers’ Rights and the Consumers’ Voice. It would ensure that consumers were not victimized and felt free to raise grievances regarding suppliers. It covered the following areas:
-Consumer right to be heard and obtain redress
It provided various access points for consumers to lodge complaints. This increased accessibility for consumers to obtain redress, since consumers no longer needed to approach courts. It provided for alternative dispute resolution.

-Consumer investigations
The National Consumer Commission (NCC) did not have to wait for complaints before investigating. It could initiate an investigation if it suspected that consumer rights were being violated. The Bill also sought to decriminalize issues of consumer rights violations and instead introduced a system of administrative enforcement through compliance orders.

-Redress by the Courts
The Bill introduces the possibility of consumers instituting class action, even though this was not very well developed in SA.

-Support of the Consumer Protection Groups
This provision supported consumer activism, as it allowed accredited consumer groups to act on behalf of consumers.

Chapter 4
-Business Names
These provisions were aimed at ensuring that the consumer was always aware of who the supplier was with whom they were dealing.

-Industry codes
This provides for self regulation and gives it statutory backing. Industry codes had to be approved by the Minister who would check that it was in line with the Act. In this way the broader principles of the Bill were put in the context of that particular industry.

Chapter 5
This deals with the Regulatory Agencies and the Administration of the Act.

Chapter 6
This chapter, which deals with Offences and Penalties in the Bill, decriminalized conduct and dealt with it through a system of administrative enforcement through compliance notices. The courts would retain jurisdiction over contractual matters, but would have to interpret contracts in the light of this legislation.

Ms Ntuli referred to the concurrent jurisdiction of the Bill and said that the Minister would have to get the co-operation from provinces, many of whom were still operating under the Unfair Labour Practice Act. It was important that the transition was managed properly.

Discussion
The Chair firstly outlined the programme as from 26 May 2008 to 13 June 2008. Firstly the Members would brief their provinces on the Bill. The provinces would then convene public hearings. On the basis of these hearings the provinces’ initial mandates would be prepared. The provinces would have to submit their initial mandates to the Committee by 18 June 2008. The Committee would then deliberate on the Bill. On 25 June 2008 the NCOP would require the provinces to prepare what would culminate in their final mandates. On 30 July 2008 provinces would submit their final mandates. On 6 August 2008 the Committee would look at any amendments which arose and then decide whether to give the Bill their approval.

Ms B Dlulane (ANC- Eastern Cape) asked what impact the Bill would have on the financial services sector.

Ms Magauta Mphahlele (Full time member of the National Consumer Tribunal) responded that certain sectors had been identified as being sufficiently regulated when it came to issues of consumer protection. Thus credit transactions were excluded as this area was sufficiently dealt with in the National Credit Act. The same applied to the long and short term insurance sector, as consumers in this sector were adequately protected by legislation in that sector. National Treasury had agreed that there might be gaps in that legislation, but since the Bill would not take effect for eighteen months, it would allow for transitional arrangements and the review of insurance laws. It had been necessary to exempt certain sectors in order to avoid issues of concurrent jurisdiction. The laws governing those sectors could be improved where there were gaps. It was important to note that Banks were not excluded from the application of the Bill.

Ms Dlulane disapproved of the Department’s proposal that gaps could be allowed. This process was supposed to address gaps in the legislation. She did not agree that gaps could be left to be amended later.

Ms Mphahelele answered that financial services and communications sectors had been excluded from the Bill because they already had legislation dealing with consumer protection issues. When a regulator applied for exemption from this Bill, the Minister of Trade and Industry (the Minister) could insist on certain conditions being met before granting such exemption. Thus the Minister could require that particular sector to fill gaps in their legislation before granting such exemption. Those sectors would have eighteen months during which to bring their laws in line with this Bill.

Ms Dlulane asked for details on their consultation processes.

Ms Mphahlele said that extensive consultation had occurred in the drafting of this Bill.  There had been consultations with NEDLAC, Business Unity SA, Labour groups and community groups. There had also been input from retailers, Industry Associations, Banks, Airlines, car manufacturers, ombudsmen, banking adjudicators, the Advertising Standards Authority, Sector Regulators, Provincial Authorities, Provincial Consumer Affairs Offices, non- governmental organizations, etcetera. There had been workshops held in the provinces to gauge the views of consumers.

Ms Dlulane asked if the Committee would complete their work on the Bill in accordance with the required six week cycle.

The Chair replied that there had been shortcomings with the initial gazetting of the Bill, which had meant that they had been unable to follow proper procedure. The Bill had been re-gazetted on either 19 or 20 May 2008. The Members would be attending to their duties in their constituencies as well. In order to complete the work by 6 August 2008 it might be necessary for Members to return from their constituencies early.

Mr D Gamede (ANC-KZN) asked if justice would really be accessible to the consumer, as s/he might still have to approach the Tribunal or court.

Ms Ntuli replied that the process set out in the Bill sought to shorten the period between the complaint and the redress. The NCC would conduct investigations on behalf of consumers and refer it to the Tribunal for redress. If the matter needed to be taken to Court the consumer groups could assist with costs (especially where the complaint of one consumer affected other consumers as well). The role of the NCC was to facilitate quick redress.

Ms Mphahlele said that access to redress had been simplified, as consumers no longer needed to go to Court. The Tribunal was also an inquisitory body, which meant that they too could pose questions to the consumer if s/he did not present sufficient evidence. There however needed to be education around the process outlined in the Bill. Consumers needed to be informed about whom to approach to lodge a complaint. The NCC could represent the consumer at the Tribunal proceedings. This would be done at no cost to the consumer. However where it was decided that the matter referred by the consumer had no merit, the Tribunal could make a cost order against the consumer.

Mr Gamede asked how the Department could say that the Bill applied to Government institutions as well, but then later that it would not apply to the State. This did not make sense to him.

Ms Mphahlele explained that Government as a service provider was not exempt from the Bill. However where Government was the consumer, they were not covered by the Bill.

Mr Gamede did not agree that contracts which expired should continue to run on a month to month basis. He felt that it should be terminated completely.

Ms Ntuli responded that in accordance with the disclosure requirements set out in the Bill, the supplier would have to alert the consumer if the contract was expiring. The Bill provided that it could not be renewed automatically and the best that could be done for the consumer was to allow it to run on a month to month basis.

Ms Mphahlele added that the provision had been included at the request of consumers. In consultations, the consumers had indicated that because they often had so many contracts, it was difficult to remember when each one expired. It became problematic with regard to essential services, for example telephone accounts, as forgetting to renew a contract could result in the termination of this service. Instead the Bill provided that the service provider would have to inform the consumer about the impending expiry, after which the contract would run on a month to month basis in order to prevent the service from being terminated.

Mr Gamede could not see why the Department was recommending the standard of proof to be on a “balance of probabilities”.

Ms Ntuli answered that the use of “reasonable doubt” as a standard of proof was applicable in criminal proceedings. It was more burdensome than that of “balance of probabilities” and would have been more difficult for the consumer to prove.

Mr Gamede asked how one could prevent the suppliers from contracting out, since many suppliers sub-contracted the work to other companies.

Mr Fungai Sibanda (Chief Director- Policy and Legislation- DTI) said that this provision referred to the fact that the supplier could not contract out of liability. The supplier could not contract out of his/her statutory obligations. It seemed as if Mr Gamede was referring to the situation of the sub-contractor. He assured the Member that the provisions of the Bill would apply to the sub-contractor as well.

Mr Gamede asked whether the Courts were ready to enforce the provisions of the Bill.

Ms Ntuli responded that some Consumer Courts had yet to be established in provinces in order to increase access for consumers. In addition the NCC and Tribunal would have to be beefed up. Government would have to make the resources available to ensure that this could happen.

The Chair explained the scenario where a consumer purchased an item on credit. He wished to pay his fifth installment, but the systems were not functioning and this payment was not recorded. Upon paying the price of the item in full, the supplier let him know that there was still one installment outstanding (as the fifth payment had not reflected in their records). The Chair asked what recourse this consumer had and which body he could approach.

Mr Sibanda said that this was a credit transaction, which meant that the provisions of the National Credit Act would apply. The consumer would in this case have to contact the National Credit Regulator.

The Chair referred to the fact that some countries imported goods and then repackaged them. They then changed the wording to reflect that the goods came from the importing country. He asked how the Bill could prevent this.

Ms Mphahlele responded that the Minister could in regulations require the supplier to disclose the country of origin of goods. Where goods are repackaged this would have to be disclosed as well. In addition where goods were reconditioned, the labeling would have to show that the goods were not in their original state.

The Chair asked how the work would be divided between the NCC, the National Consumer Tribunal (NCT) and the courts.

Ms Mphahlele explained that the NCC played a different role to the courts. The Office of the Consumer Protector would complete the investigation and then refer it to the Consumer Court. The Consumer Court enjoyed the same status as the Tribunal, as they both were involved in adjudication. The NCC played the same role as the Office of the Consumer Protector. Both these structure were involved in monitoring compliance. Where the Provincial Authority did not have the capacity to conduct investigations, they could request the NCC to investigate and refer these matters.

Mr N Mqungquthu (ANC-Free State) noted that much conflict arose from people misunderstanding language. Although the Constitution provided for eleven official languages, all contracts were either in English or Afrikaans.

Ms Mphahlele said that one had to take into account the cost of implementing that requirement. One therefore had to consider that one was dealing with millions of transactions and contracts, which would be affected by implementing this requirement. Businesses were using this to gain competitive advantage over others who could not provide contracts in the various official languages. Also, having a contract in one’s own language did not mean that it was necessarily understandable, as language used in contracts was generally complicated for the ordinary consumer. There was therefore a duty on the supplier to explain these terms to the consumer in a language understood by the consumer. Disclosure was a very important issue in this Bill. Failure to do so could make the supplier guilty of unconscionable conduct. Thus although this was a Constitutional requirement, one had to bear in mind that huge economic cost to business.

Mr Sibanda agreed, adding that the requirement of plain and understandable language applied irrespective of the language in which the contract was printed. It therefore did not matter in which language the contract was printed, as long as such language was ‘plain and understandable’.

The Chair thanked the Department for their valuable input and hoped that the Committee could rely on their participation throughout the process.

The Chair adjourned the meeting.

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