ACL redefines “consumer” up to $100k: how will your business be impacted?
Currently, a party will be a “consumer” under the Australian Consumer Law (ACL) if the party purchases goods or services that are:
- valued at less than $40,000; or
- valued at more than $40,000 but are of a kind ordinarily acquired for personal, domestic or household use or consumption; or
- a car or trailer.
If however, a party purchases goods or services for re-supply or goods are transformed into another product for sale, the party will not be a “consumer” for the purposes of the ACL.
From 1 July 2021, the definition of “consumer” will be exactly the same except the monetary threshold of $40,000 will increase to $100,000.
This means that businesses that supply goods or services to end-customers up to $100k will need to know what legal obligations they must comply with under the ACL given that these customers will be considered “consumers” for the purposes of the ACL. For example, a construction company that purchases building products for $80,000 will be considered a “consumer” under the ACL from 1 July 2021. Likewise, a supplier that purchases industrial equipment for $50,000 for its manufacturing facility will also be a “consumer”.
What are the key obligations under the ACL you should know about?
There are two key areas of the ACL where the change in the definition of “consumer” is likely to have a significant impact on your business: the consumer guarantees regime and express warranties against defects.
Consumer guarantees regime
The ACL imposes mandatory guarantees in relation to the supply of goods or services to consumers.
These guarantees include that:
- goods will be of acceptable quality; be fit for purpose; match the description or sample; meet any promises as to performance; and be supplied with access to spare parts and repairs
- services will be supplied with due care and skill; fit for purpose; and supplied within a reasonable timeframe.
The guarantees do not apply to goods or services purchased for the purposes of re-supply.
If a supplier does not comply with one of the above guarantees, the regime establishes what remedies are available to the consumer depending on whether the non-compliance is major or minor. In short, a consumer has statutory rights to seek a replacement, refund or compensation for major issues and repair or replacement for minor issues.
In addition to the consumer guarantees regime, it is a breach of the ACL to falsely represent the rights or remedies available to another party. This means that a supplier (including its employees and complaints centre) that is subject to the consumer guarantees regime must not make any false statement as to whether a customer is entitled to refund or other remedy. The maximum penalty for doing so is the greater of $10 million, three times the amount gained from the conduct or 10% of annual turnover.
Express warranties against defects
A warranty against defects is a representation or promise by a supplier to a consumer that if goods or services are defective, the supplier will repair or replace the goods, resupply or fix the problem or provide compensation. A representation or promise will only be a warranty against defects if it is made at or around the time that goods or services are supplied. A warranty against defects is often evidenced by statements on packaging such as ‘2 year warranty’ or ‘12 month replacement guarantee’.
A supplier that provides a warranty against defects must include with the goods or services, at the time of supply, certain prescribed information to ensure consumers understand the warranty and know how to make a claim. This information includes what remedy the supplier will provide if there is a defect, what the consumer must do to claim the warranty, the identity and contact details of the supplier, the warranty period and who bears the expenses with a claim. In addition, there is certain mandatory text that must be included to ensure consumers understand their ACL rights.
If a supplier fails to include any of the prescribed information, there is a penalty of $50,000 for corporations. If the supplier misleads consumers as to their rights and remedies, the maximum penalty is the greater of $10 million, three times the amount gained from the conduct or 10% of annual turnover.
What you should do now
Increasing the monetary threshold to $100k means a vast array of large commercial transactions that were previously not subject to the ACL will be subject to the consumer guarantees regime and express warranties against defects requirements from 1 July 2021.
If you are a supplier in this position, you should immediately ascertain the price of your goods or services and whether customers are resupplying those goods or services. If the price is below $100k and the goods or services are not being resupplied, your customers will be considered “consumers” under the ACL. In such circumstances, you should:
- understand what consumer guarantees will be implied into your transactions and be comfortable that your goods or services comply with these guarantees. This may include checking the descriptions of goods or services in promotions or samples to ensure they match the goods or services to be provided
- determine whether you need additional contractual protection from manufacturers in the form of indemnity clauses
- ensure that your employees (especially front line staff and complaints centres) understand what rights and remedies consumers are entitled to under the ACL for a breach of a consumer guarantee. This may include preparing scripts for employees to respond to request for refunds or other remedies and targeted compliance training. The ACCC has taken many cases against companies where the wrong response about remedies has been provided to consumers
- amend all packaging to comply with the mandatory information required for express warranties against defects in circumstances where you make such warranties
- update your consumer law compliance program and materials and undertake additional compliance training for affected staff.
What will happen if you are not compliant on 1 July 2021?
There is approximately 10 months to ensure that you are compliant with the ACL – this is not a long period of time especially if you need to amend packaging for warranties against defects or update compliance programs.
While the ACCC may provide a 6 to 12 month grace period for businesses to comply with the change, it is more likely that they will seek to enforce the new laws from day one. In doing so however, we expect the ACCC to resolve initial cases by administrative means (e.g. court enforceable undertakings and negotiated outcomes) before enforcing the ACL through court proceedings and large fines.