May 1, 2016
Five years after the enactment of new Australian consumer regulations, the ACCC, Government, and other regulators have identified key areas of review for 2016. Insurance, information and data access and vocational education have been highlighted as key industries requiring heightened consumer protection, and will be subject to increased regulatory scrutiny this year.
In a move to bolster consumer protection, the Federal Government has commissioned a comprehensive review of consumer protection legislation in 2016, on the back of the recent “effects test” introduction into competition legislation in March 2016. Regulators are moving towards more onerous obligations on big business to encourage competition and increased transparency for all consumers.
International businesses operating in Australia will also be subject to stricter regulations, with respect to the enforcement of consumer guarantees. ACCC Chairman, Rod Sims, has praised the Federal Court’s recent decision against US gaming operator, Valve, stating that the decision would have far reaching consequences for other companies claiming to operate outside Australia, and will increase international companies’ accountability under Australian consumer law.
Mr. Sims was reappointed to his role as ACCC Chairman for an additional three year term in March 2016, reiterating the legislature’s ongoing support for increased big business regulation. Federal Treasurer Scott Morrison, who nominated Mr Sims for his additional term, praised Mr Sims’ understanding of competition policy issues, describing his active role in enforcement as very effective.
With significant and substantive regulatory reform expected for 2016, it is essential that businesses participate in consultation processes and engage with stakeholders to assist in mitigating potential prohibitions of their commercial practices, and fully understand the implications for their business.
The Australian Consumer Law (ACL) is a schedule of the Competition and Consumer Act 2010 (Cth), which was introduced in 2010 to act as the primary source of consumer protection and fair trading regulation in Australia.
The ACL imposes obligations upon suppliers of goods and services as well as product manufacturers to govern their conduct in advertising, providing quality guarantees and product safety and liability. Consumer and regulators are given various statutory causes of action under the ACL which can be utilised should a manufacturer or supplier contravene its provisions.
Consumer Affairs Australia and New Zealand (CAANZ) are facilitating a wide-ranging review of the ACL in 2016. CAANZ will consult extensively with State Governments, consumer representatives, businesses and the wider public, with the view to understanding the ACL’s effectiveness and improving the consumer protection. CAANZ released its issues paper in late March, which outlines the various areas of consumer law under focus. They are now calling for submissions and consultations, due by Friday 27 May 2016. Results from the review are expected to be delivered to the Consumer Affairs Minister at the beginning of 2017.
The timing of CAANZ’s review is particularly important as it will occur across the Federal election cycle. Consumer action groups will likely utilise the extensive consultation process to leverage political trigger points with State Governments, giving consumer groups a more influential advocacy platform which could potentially result in tougher consumer protection policies.
At the recent ACCC National Consumer Congress (NCC), Chairman Rod Sims encouraged far-reaching community consultation throughout the ACL review process. He confirmed the ACCC would inform the review by providing insight into their “experiences of the breadth of the ACL issues drawn to its attention.”
Mr Sims has highlighted the following key areas of concern for the Review:
In March 2016, the Federal Government introduced the controversial “effects test”, amending section 46 of the Competition and Consumer Act. This test prohibits big business from engaging in behaviour that will have the effect, or likely effect, of substantially lessening competition without any economic justification. The proposed test has been approved by the Liberal Government, but is yet to be tabled and passed into law.
Since its introduction, Mr Sims has stated that the effects test “is about large players excluding their smaller rivals, which are coming in with new technology”. He emphasised that the provisions will have the most significant impact in fintech innovation, assisting to protect smaller companies from anti-competitive behaviour from the big four banks.
The effects test aligns with the ACCC’s policy of increased protections for small businesses, and arose on the back of recommendations from the Harper Competition Policy Review (Harper Review). Commissioned by the Federal Government in 2015, the Harper Review independently studied Australia’s competition policy, laws and institutions to assess their fitness for purpose.
Recommendations from the Harper Review favoured increasing small business protections against big business’s misuse of market power. Commentators and the Business Council of Australia have complained that this test will disadvantage big business, which makes it more difficult for big companies to leverage their financial strength against their smaller competitors.
ASIC’s enforcement priorities for this year align with the ACCC, with ASIC Commissioner Greg Tanzer reaffirming the agency’s focus on enhancing consumers’ trust and confidence in financial markets and the financial services industry. Mr Tanzer has recognised the challenges facing ASIC with increased digital disruption and structural changes in financial markets through the growth in superannuation, highlighting these areas as an ongoing concern for the agency.
In the short term, the ASIC Wealth Management Project will remain firm on the agency’s agenda for 2016. Established in late 2014, the Wealth Management Project is tasked with lifting the standard of financial advice and providing remediation for consumers who have suffered loss.
In addition, the ASIC is focused on increasing consumer protection standards through:
The private health insurance industry will be subject to extensive regulatory scrutiny in 2016. Mr Sims reinforced the ACCC’s focus on the private health industry in his recent NCC address, noting that he expected action would be likely in this area shortly.
This will form part of a broader insurance industry focus. Using the recent allegations against CommInsure as evidence, Mr Sims, and Nicole Rich, Chair of consumer activist group Choice, reiterated the need for heightened consumer protection in the industry.
The ACCC’s annual report to the Senate on private health insurance, delivered in October 2015, focused on “information provision, including the transparency, accuracy and consistency of information about policies, and the impact this has on consumer behaviour”.
The findings of this report align with the ACCC’s general focus on reducing unfair contract provisions in standard form contracts, and increasing transparency for consumers. Of key concern to the ACCC were:
Aligning with the aim to increase transparency for consumers, add-on insurance will likely be subject to investigation by the ACCC for the unfair contract clauses potentially contained in many of these standard form agreements.
At the recent NCC, the Consumer Action Law Center launched its “Demand a Refund” campaign, aimed at prohibiting the sale of add-on insurance, also known as “junk insurance”. This practice involves selling add-on insurance policies at the same time as the consumer purchases mortgages, motor vehicle finance and other credit products. Often, the add-on policies are life insurance, are of significantly lower value than policies sold separately, and are unknown to the purchaser.
Similarly, consumer advocacy group Choice also launched a campaign against “junk health insurance”, warning consumers against cheap health insurance policies which cover only one percent of hospital treatments, and fail to insure against common serious illnesses. Choice has called for health insurance reforms involving easier transfers between policies, better comparative data and potential reform of the Government private health insurance rebate and Medicare exemption levy, to re-empower consumers.
ASIC has recently published findings from its investigation into the practice of selling life insurance as part of consumer credit insurance policies sold through car dealers. Their investigation focused on five major car-yard life insurers (the names of which ASIC did not disclose), who comprise approximately 90 percent of the market. ASIC found that consumers paid up to 18 times more for life insurance purchased through car dealers when compared to similar policies which provided more cover.
Similar products, known as payment protection insurance (PPI) has attracted the attention of the courts in the United Kingdom in 2011. This prompted the UK’s Financial Services Authority to introduce a new regulatory regime prohibiting PPI from being sold for at least seven days after the original loan was agreed to, and requiring written notification of the optional extra policy, including a personalised quote.
Consumers’ access to their personal information was described by Mr Sims as a “huge issue” for the ACCC in 2016. Both the ACCC and the Federal Government have recognized that businesses are collecting increasing amounts of personal data about their customers, and action is required to empower consumers through increased information transparency and accessibility.
In his NCC address, Mr Sims referred to the Harper Review, which recommended that Government work with industry, consumer groups and privacy experts to allow consumers to access information in an efficient format to improve informed consumer choice. The Review also recommended establishing a working group to develop partnership agreements that both allows people to access and use their own data for their own purposes, and enables new markets for personal information services, drawing on lessons from the US and UK.
The CAANZ Consumer Law review focuses specifically on the issue of consumer access to data, particularly in the area of purchasing and consumption behaviour. As part of the review process, CAANZ will consult with consumer groups, industry and privacy experts, encompassing the recommendations of the Harper Review.
Further, the Government has indicated an upcoming review by the Productivity Commission into data access in 2016. The Commission will consider the costs and benefits of boosting the availability of data held by the private and public sectors, and potential regulations for safe data sharing.
Carrying on from its 2015 investigations, Mr Sims reiterated his concern of potential unconscionable conduct by education colleges, through vocational education training (VET) fees and sales conduct.
In December 2015, the ACCC initiated proceedings against Acquire Learning & Careers for allegedly engaging in unconscionable conduct, making false and misleading representations and breaching the unsolicited consumer agreements provision in the ACL. In light of this, the ACCC has introduced consumer information targeted at potential VET students, warning against “free gift” incentives offered by providers, and advising that prospective students undertake further research before enrolling.