23/07/2020

Next financial year, more consumers will be able to rely on the consumer guarantee protections in the Australian Consumer Law (ACL) when buying goods and services. The definition of “consumer” in section 3 of the ACL will be expanded when the monetary threshold increases from $40,000 to $100,000 on 1 July 2021.

The Treasury Laws Amendment (Acquisition as Consumer – Financial Thresholds) Regulations 2020 (Financial Threshold Regulation) represents another significant reform aimed at strengthening the protections under the ACL following the recommendations from the Australian Consumer Law Review.

Businesses have 12 months to update their compliance programs and ensure their staff understand that a wider range of goods and services will be captured by the consumer guarantees regime come 1 July 2021.  Given the long lead time before the reform takes effect, businesses should expect the ACCC to take a more aggressive approach to enforcement of any non-compliance. For this reason it is important that businesses already start consider what changes to their operations may need to be made.

Background

In June 2015, the Commonwealth, State and Territory Consumer Affairs Ministers agreed that Consumer Affairs Australia and New Zealand (CAANZ) would conduct a review of the ACL. After a broad-reaching review that spanned almost two years, CAANZ published its findings in the Australian Consumer Law Review – Final Report (CAANZ Report) in March 2017.

In August 2017, the Commonwealth, State and Territory Consumer Affairs Ministers agreed to 15 recommendations from the CAANZ Report, resulting in two phases of reform including increasing the maximum penalty for breaches of the ACL. For more information about the 2018 reforms, see our update “Australia’s consumer law gets a makeover” here.

The Ministers also agreed that a regulatory impact statement should be prepared on the recommendation to increase the monetary threshold in the definition of “consumer” from $40,000 to $100,000. As the current threshold of $40,000 was introduced in 1986, the level of protection for consumers has been eroded by inflation. The Decision Regulation Impact Statement published by CAANZ in 2018 (DRIS) found that the change would ensure the definition of “consumer” would remain fit for purpose.

“Consumer” under section 3 of the ACL

The definition of “consumer” in section 3 of the ACL applies to the consumer guarantee provisions as well as other consumer transactions provisions in Part 3-2 (i.e. unsolicited consumer agreements and lay-by sales agreements). This definition does not apply to the unconscionable conduct or unfair contract term provisions in the ACL.

Currently, section 3 of the ACL provides that a person is taken to have acquired goods or services as a “consumer” where the amount paid does not exceed $40,000. If the goods or services do not exceed $40,000, it will not matter whether the goods or services are of a kind ordinarily acquired for personal, domestic or household use or consumption. The Financial Threshold Regulation will increase this monetary threshold from $40,000 to $100,000.

“Consumer” under section 12BC the AISC Act

The Financial Threshold Regulation also amends the definition of “consumer” in the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

Currently, section 12BC of the ASIC Act provides that a person is taken to have acquired financial services as a “consumer” if the price of the services did not exceed $40,000. The Financial Threshold Regulation will also increase this monetary threshold from $40,000 to $100,000.

From 1 July 2021, a person will be taken to be a “consumer” under section 12BC of the ASIC Act where they have acquired financial services not exceeding $100,000.

The CAANZ Report recognised that the definition of “consumer” in section 12BC of the ASIC Act needed clarification given that it does not expressly refer to “financial products”. However, the Financial Threshold Regulation does not reflect this recommendation.

Future changes to the consumer guarantees regime

CAANZ also considered the impact of other recommended reforms to the consumer guarantee regime in its 2018 DRIS.

  • Clarifying the consumer guarantee regime – CAANZ found that the proposal to clarify that multiple non-major failures can amount to a major failure received broad support and represented the most appropriate response to consumers faced with “cycles of failed repairs”. However, the number of non-major failures required to amount to a major failure was not specified.  CAANZ also found that it was preferable to maintain the status quo where there is a single failure within a short period of time (i.e. a consumer’s remedy is dependent on whether the failure is major).
  • Enhancing disclosure for extended warranties – CAANZ found that the greatest net benefit would be an enhanced disclosure regime, through written information, oral disclosure at point of sale and a 10 business day cooling off period. This would require a legislative definition of “extended warranty”.
  • Extending consumer guarantee protections to goods sold at auctions – CAANZ found that it was preferable to maintain the status quo regarding auctions, being that consumers who purchased goods via auction (whether online or in person) did not have access to the consumer guarantee of quality and fitness. However, existing protections regarding title, undisturbed possession and undisclosed securities would remain.

Although these recommendations are yet to be implemented, it is important that businesses who sell goods or services to consumers are aware of these impending reforms.

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