Thursday, 25 September 2008
Trade Practices Amendment (Clarity in Pricing) Bill 2008
That this bill be now read a second time.
The Trade Practices Amendment (Clarity in Pricing) Bill 2006 enacts an important measure which will ensure that consumers throughout Australia can be certain of the total price they have to pay for goods and services, before they enter into a transaction.
Component pricing is the practice of displaying the price for a product as the sum of multiple parts. This practice has the potential to draw consumers in to purchases based on prices that do not fully reflect what they will ultimately have to pay.
This bill would clarify the existing approach to the regulation of component price representations.
Component pricing is currently regulated primarily by section 53C of the Trade Practices Act 1974. Section 53C provides that where a corporation makes a representation about part of the price of a product, it must also state the cash price. The term ‘cash price’ is not defined.
In 2002, the Federal Court held that section 53C does not require disclosure of a total price, provided that consumers do not have to make a complex calculation to determine the total price. The meaning of ‘complicated calculation’ is not clearly defined and what is complex will vary between consumers.
In April 2005, the Ministerial Council on Consumer Affairs discussed the potential detriment caused by the use of component pricing where a total price is not clearly identifiable and resolved to support reforms to the Trade Practices Act. This bill delivers on that commitment—a commitment that was not fulfilled by the previous government.
It is fundamental that every consumer knows how much they are going to pay when they make a purchasing decision. This bill will ensure that when a business states the partial price of a product they will also be required to state the total price as a single figure, to the extent that it is known and quantifiable at the time the representation is made.
This bill does not prohibit component pricing; businesses can continue to list components of a price. What this bill will do is ensure that, wherever it is quantifiable, a total single price must also be provided; and in general, it must be displayed at least as prominently as the most prominent of any component of price.
Currently the law may allow a business to state, for example, a price of $200. Then in the associated fine print it states that there are also taxes, fees and charges of $99. This could even be the case when the taxes, fees and charges are compulsory.
So the real cost of those goods is $200 plus $99, or $299—this is the minimum amount that a consumer could pay for that product.
This government believes that the total the consumer will pay must be prominently stated, not just lost somewhere in a footnote, but in most cases, as prominently as the headline price that is advertised. This means that if a consumer is drawn to the $200 price, the actual price of $299 is also abundantly clear.
When this is the case the consumer will know the true cost of the goods right from the start giving effect to the original intention of section 53C.
This is an important issue, which has a real impact on Australian consumers.
We are all familiar with the consternation that is caused when compulsory elements of a price are not included in representations to consumers. Advertising of cheap airfares is probably the most widely recognised form of component price advertising. It is not appropriate that additional compulsory fees and charges are disclosed in fine print disclaimers, particularly when those additional compulsory charges may be significantly larger than the component price that is highlighted.
There is evidence that consumers are frequently concerned by the misapprehensions that component pricing can create. The Australian Competition and Consumer Commission, the ACCC, have informed me that during 2007-08, they have received around 430 complaints relating to component pricing. In addition, during the current year to date, I understand that Consumer Affairs Victoria has also received around 250 complaints about component pricing. I am sure that the seven other offices of fair trading have received similar complaints. No doubt there are many other consumers who have been confused by the absence of a clear total price and who did not complain to a regulator at all.
This government wants to make sure that these consumers’ concerns are addressed by enacting a new provision which ensures that the total price is prominently stated wherever possible and not buried in the fine print.
Provisions of the Bill
This bill will replace the existing section 53C—and its associated criminal offence provision, section 75AZF—of the Trade Practices Act.
The new provision will apply to all representations about price made by a business to consumers. Where a representation is directed towards consumers and businesses, it will be within the scope of the provision. However, the provision will not apply to representations made exclusively between businesses.
The bill requires disclosure of a single figure minimum total price, to the extent that it is quantifiable at the time of the representation concerned. In practice, the total price that a consumer will pay may depend on optional extras or bundled products that the consumer chooses to purchase—clearly, these decisions cannot be known by a business in advance. Where there are a range of compulsory but varying charges which the consumer can choose from a disclosure of the type ‘from $500’ will remain an acceptable representation of price.
The total minimum quantifiable price must be stated as prominently as the most prominent of any other price amounts relating to the purchase. This prominence requirement does not only apply to written price representations. The total price must be as prominent in relation to television or radio advertisements where the price might be spoken as well as, or instead of, a written figure.
There is one exception to this prominence requirement in the bill, in the case of contracts for services which provide for periodic payment. In this case the total cost of the services over the life of the contract must be stated, prominently, but does not have to be as prominent as the periodic component price—for example, a company offering a one-year contract for services with monthly payments of $29.
This bill will require the business to state in a prominent way that the total payable is $348 for a year; however, the monthly figure of $29 may be more prominent in this case. This allows consumers to see how much that service is really costing them. It allows them to ask themselves if it is really what they want to spend their money on. In this regard the bill can help foster competition between substitutable goods and services by making the true cost more clearly known.
While the objective of these amendments is to prevent consumer detriment, there are a number of practical considerations that have been incorporated to assist business in complying with the new provisions.
First, businesses are only required to state the minimum quantifiable consideration for supply. This means that if a business genuinely cannot determine what the taxes—or some other component of the price—on a purchase will be when they make a price representation they would not be required to state them in the total price. Of course, businesses still have to comply with other sections of the Trade Practices Act. They would still have to make it clear what type of additional charges would be incurred.
Second, the bill provides an exemption for charges relating to sending the goods from the supplier to the customer. Such charges, which include genuine postage and handling charges, need not be included in the single figure total price, although they may be included if the business wishes to do so. However, where the only way the goods can be purchased is by delivery, and the costs are known, those costs must either be included in the total or disclosed in the representation as a separate amount.
Third, financial services will not be covered by this bill. Currently, section 12DD of the Australian Securities and Investments Act 2001 mirrors section 53C of the Trade Practices Act. The government does not propose to amend the ASIC Act. This will allow the current disclosure regime for the financial services sector to continue. Given the extensive disclosure regimes that apply specifically in relation to financial services, the government believes that amendments to section 12DD of the ASIC Act would create uncertainty for business about their disclosure requirements, without providing any significant benefit for consumers.
Fourth, this new provision will not apply to representations which are exclusively between bodies corporate. Generally, business customers are less likely to rely on headline prices than general consumers. Any benefits associated with clearer pricing strategies would be likely to be outweighed by reduced flexibility in businesses’ ability to determine the most appropriate format for representing prices.
So this is a balanced measure from a government which understands the regulatory burden and seeks to minimise its impact on business wherever possible while delivering the best outcome for consumers.
This bill will ensure that consumers will know how much they are really going to be asked to pay when they see an advertisement in the newspaper, on television, or are given a quotation.
This measure increases transparency in pricing and further empowers consumers to make the best purchasing choices possible.
Minor and technical amendments
The bill also makes minor and technical amendments to correct previous drafting errors in the Trade Practices Act. These can be categorised into three types.
First, the bill amends the extended application provisions at section 6 of the Trade Practices Act to cross-reference the pyramid-selling section provisions at division 1AAA of part V, rather than the repealed section 61.
Second, the bill clarifies that breaches of product safety and information standards made under section 65E may be a criminal offence.
I commend the bill to the House.
Debate (on motion by Mr Randall) adjourned.