Could Aussie businesses be facing $10 million penalties for breaching consumer law?
Thursday, December 8, 2016/
Businesses that are found to have breached the Australian Consumer Law (ACL) could be hit with penalties of at least $10 million, under one reform proposed by the Productivity Commission this week.
The Commission is now seeking feedback on the proposal and others, as part of a review that commenced earlier this year.
In April 2016 Treasurer Scott Morrison outlined the terms of reference for the Commission to investigate how effectively the ACL, established in 2011, was being enforced across the country. The current framework extends protections to consumers across the country but is enforced by a variety of different national, state and territory regulators.
Over the past year regulatory bodies have questioned the adequacy of penalties for breaching the laws, with Australian Competition and Consumer Commission chair Rod Sims expressing doubt last year that the penalties did enough to stop businesses from running foul of the rules.
“Are our penalties strong enough and are they keeping pace with deterrence?” Sims asked in an address at the Consumer Law Roundtable in 2015.
The current maximum penalties stand at $220,000 for an individual and $1.1 million for a company per breach of the ACL, which some consider too low to pull big businesses, like the supermarkets, in line. In 2014 Coles paid $10 million over an ACCC case over “unconscionable” dealings with suppliers.
The draft report of the Productivity Commission’s recommendations released this week says the current penalties can seem “insignificant” when compared to the commercial gains on offer for bigger businesses in some circumstances of a law breach.
The review suggests the maximum penalties could be brought in line with those under the Competition and Consumer Act 2010. This would boost the maximum penalties to whichever is the greater value of: $10 million per breach, three times the benefit the company received from the breach if that can be calculated, or 10% of the company’s past 12 month’s turnover if the value of the breach cannot be determined.
While the proposal, if adopted, would mean higher penalties for businesses that breach the law, it could also help small businesses, according to LegalVision principal Ursula Hogben, as the ACL protections apply to all goods and services purchased for $40,000 or under.
“Increased enforcement should decrease consumer law breaches, which [affect] both individuals and SMEs as consumers, as many SME transactions fall within the ACL,” Hogben told SmartCompany.
The Productivity Commission found that while the multiple regulator model actually appears to be working effectively to enforce the ACL across the country, it recommends the states and territories give up their powers to recall or ban products, instead handing that power over to the Commonwealth.
It also suggests establishing a national database of complaints and product safety measures to better track key issues in the space.
Regulators are watching all businesses closely
Rohan Harris, principal in corporate and commercial law at Russell Kennedy, believes SMEs should take note of the sustained focus from regulators and governments on compliance with the ACL.
“I think if you’re a consumer-facing organisation, you’ve just got to expect there’s going to be more reforms in the area, more tools in this area over time,” Harris told SmartCompany.
The concept of “a consumer” is very broad, meaning the law “can cover goods and services purchased under $40,000 if they’re not being purchased at least twice [and not being purchased for resale]”, and Harris says SMEs should take note of the scale of the potential changes for penalties and ensure they have strict compliance measures in place, which will help in the event of a breach.
Harris points to proposals in the report to increase the penalties to in line with competition breaches, which could have significant implications for smaller operators. He also believes the push for a database of complaints is a significant move.
The Productivity Commission report also recommends that an expansion of enforcement tools be considered, so that all states and territories have the power to issue infringement notices to businesses for breaches.
“At a minimum, given that infringement notices provide scope for regulators to deal with minor offences in a cost‑effective manner, the state and territory governments should revisit their regulators’ powers to issue them and the range of breaches to which they apply,” the report says.
Harris says the scope for issuing infringement notices should be watched closely by businesses, because once a company is issued an infringement notice it is responsible for responding to the claims made against them.
While any changes to consumer law would have to be passed by parliament after this consultation, Harris says there are things businesses can do now to ensure they are in the best position to stop breaches before they happen.
“Having a compliance and risk management plan in place, whatever sort of business you are operating, to limit the risk of any breaches to the consumer law. It puts you in the best position if there is one,” Harris says.
When it comes to the final penalty paid, being able to show what plans were in place to prevent breaches could also influence the amount a business is ordered to pay, Harris says.
Submissions in response to the Productivity Commission’s draft report are now open.