Your rights as a consumer will receive a major boost when the Consumer Protection Act takes effect in October. Personal Finance looks at some of the key provisions of the Act and how they will benefit you.

If you are thinking of switching bank accounts or making a big purchase, you might want to delay signing on the dotted line until after October 24 this year, when the long-awaited Consumer Protection Act (CPA) comes into full force, increasing your rights as a consumer.

Consumers have benefited to some extent from the Act since April 24 this year, when a few provisions of the CPA kicked in (see "You can sue for damages", below).

Much of the detail on how the CPA will work in practice will be contained in regulations issued in terms of the Act, which had not been published by the time this article went to print. An initial draft of the regulations was due to be released for public comment towards the end of May but had not appeared by early June.

The long-term and short-term insurance industries were granted a temporary exemption from adherence to the CPA, provided that the Financial Services Board (FSB), working through the Department of Finance, brings the Long Term Insurance Act and the Short Term Insurance Act in line with the CPA by April 2012, which is 18 months after the CPA comes into full effect. Alternatively, these industries can apply to the Minister of Trade and Industry for an exemption, which will probably be granted only if the alignment exercise is carried out successfully.

Nomfundo Maseti, the director of consumer and competition law at the Department of Trade and Industry (DTI), says this does not mean that insurers and assurers have to wait until April 2012 to comply with the CPA.

"Companies in the insurance industry should be taking steps already to change their processes so that they are compliant with the CPA. They are not exempt from the CPA, but the intention is that the two insurance Acts must give consumers exactly the same level of protection, and April 2012 is the cut-off date for this to happen. If by April 2012 it is not done, the CPA and the insurance Acts will apply concurrently to the insurance industry, and the CPA will take precedence where there is insufficient consumer protection in the insurance legislation," Maseti says.

Max Ebrahim, a partner at law firm Webber Wentzel, says: "Looking at the CPA, both the Long Term and Short Term Insurance Acts do not appear to go as far."

The 10 most important things you should know about the CPA are:

1. Equality

You have a right to equality, So suppliers cannot discriminate against you on the grounds of race, gender, age, disability, pregnancy (intended pregnancy, potential pregnancy or termination of pregnancy), marital status, ethnic or social origin, sexual orientation, religion, conscience, belief, culture, language or birth (whether or not you are illegitimate). The basis on which you cannot be discriminated against is the same as that set out in the Promotion of Equality and the Prevention of Unfair Discrimination Act (Pepuda).

Suppliers may not use any of the grounds listed above to give consumers:

  • Exclusive rights to their goods or services;

  • Different prices for their goods or services; or

  • A different quality of goods or services.

    Companies will not be allowed, directly or indirectly, to treat you differently from other consumers on the above grounds when they are:

  • Assessing your ability to pay;

  • Deciding whether or not to transact or enter into an agreement with you;

  • Deciding any aspect of the cost of a transaction;

  • Proposing or agreeing to the terms and conditions of a transaction; or

  • Assessing or requiring your compliance with the terms of a transaction.

    However, the Act does specify the following "reasonable grounds" for differential treatment:

  • Companies are allowed to refuse to supply goods or provide services to minors (children under the age of 18) where it is considered best to protect the health, welfare or safety of a minor.

  • Companies are allowed to offer goods or services at discounted prices to minors and to people over the age of 60. So financial products such as bank accounts designed for children or for senior citizens are protected under the Act.

    Typically, South African banks offer preferential products and interest rates to people who are aged 55 and older, Clive Pillay, the Ombudsman for Banking Services, points out.

    "It is conceivable that in the future consumers may only be able to access ‘senior' bank accounts and preferential rates from the age of 60.

    "However, if you are between the ages of 55 and 60 and are already using a bank account aimed at seniors with preferential rates, you will not be affected, because the CPA does not apply retrospectively."

    Pillay suggests it would be a sensible move, if you are between 55 and 60, to take advantage of the preferential banking rates on offer if you do not already do so. You will not lose those privileges if you do so before the Act takes full effect in October. But from that date, banks may not be able to offer accounts with preferential rates for people aged from 55 to 60.

  • Companies can provide "separate but substantially equivalent" facilities for the exclusive use of persons of each gender. This safeguards separate change-rooms at, say, a gym, but what about products that give preference to one gender over the other?

    First for Women, for instance, offers women lower premiums on short-term insurance - although it does not exclude men from becoming its clients.

    Trudie Broekmann, who is a senior associate at Webber Wentzel, says it is not unfair to charge women less for motor vehicle insurance if research indicates that female drivers are less likely to be involved in car accidents.

  • Where companies market goods or services that satisfy the interests common to a particular group, such as a religious group. However, the goods and services must be available to people who do not belong to that group.

    Suppliers are allowed to treat you differently from other consumers if they do not discriminate on any of the grounds outlined by Pepuda or in the CPA. A company is allowed to give you a discount if you place a large order, because it is discriminating on the basis of size, which is allowed. Early booking discounts would also be acceptable.

    Privacy

    The Act entrenches your right to privacy as a consumer. This means that the days of telemarketers calling you in the middle of your dinner to offer you a "fantastic timeshare opportunity" may be coming to an end.

    You will have the right to restrict direct marketing and appeals for donations of any kind.

    The Act does not define a direct marketer, but it does define "direct marketing". It says direct marketing is an approach in order to offer you goods or services for sale, or short-term loans at high interest rates. Direct marketing can take place:

  • In person;

  • By mail; or

  • By electronic communication (phone, fax, email or SMS).

    Broekmann says direct marketing does not involve only bothersome phone calls. It even takes place in the context of the following examples:

  • You are involved in a car accident and a tow-truck operator stops and offers to tow your vehicle;

  • A new acquaintance collars you around the braai and starts to sing the praises of his company, which provides consumer goods or services; and

  • An estate agent drops a flyer in your postbox that says something like this: "Dear Homeowner, these properties have been sold in your area in the past few months. If you want to sell, contact us."

    The Act says that if you are approached for the purposes of direct marketing, you can tell that person at the time "or within a reasonable time after that communication" that you do not want to hear from him or her again - ever! And that includes receiving a flyer or other junk mail in your postbox. The exercise of this right will be free of charge, and the responsibility is on the direct marketer to have a mechanism in place to note and act on your demand.

    You will also be able to register, free of charge, a pre-emptive block against being contacted by a direct marketer. Once you have been listed on the still-to-be-established national register, a marketer risks punishment if he or she contacts you by mail or electronic communication. (But you cannot use the register to stop a handyman who walks down your road from asking if you need a splash of paint on your fence, because that is an approach in person and is not covered by the register.)

    It is within the ambit of the National Consumer Commission (which is similar to the Competition Commission) to set up the register, but the commission is not obliged to do so.

    Broekmann says "plans to establish a national register are afoot, but the commission also has the power to accredit an existing register or a company to operate the national register". The Minister of Trade and Industry will announce a date on which the national register will come into effect.

    The Direct Marketing Association (DMA) has already set up a register on the website www.optout.co.za. You can register your details on the website, and thereafter all members of the DMA will be obliged to remove your contact details from their databases.

    The national register that will be created for the same purpose in terms of the CPA will apply to all companies, regardless of DMA membership.

    The CPA also restricts marketers' access to you by allowing the minister to proscribe specific days, dates, and/or times of days. During these restricted periods, companies will not be allowed to contact you for direct marketing purposes.

    Even at this stage of the CPA's life, Broekmann believes there are significant implications for your privacy. "I think direct marketing is largely going to disappear because the legal risks are too big," she says.

    Choice

    The CPA makes it illegal for suppliers to make the purchase of goods or services conditional on the purchase of additional goods or services, or conditional on an agreement or transaction with a third party. This is commonly called "bundling".

    The only exceptions the Act allows are where the convenience of such an offer outweighs your reduced choice or where you benefit from a reduced cost as a result of the bundling.

    Neville Melville, the past banking ombudsman and the author of The Consumer Protection Act Made Easy, says an example of bundling that will not be allowed is a supplier requiring that a maintenance contract be entered into when you buy a product.

    If you make a purchase on credit or take out a loan, the supplier can ask you to take out credit life assurance for the relevant amount. Credit life assurance ensures that your debt will be paid off if you die or find yourself in financial difficulties due to retrenchment, critical illness or disability.

    However, in terms of the National Credit Act (NCA), the credit provider is not allowed to stipulate with which company you must take out the credit life assurance policy. This is reinforced in the CPA, which states that a supplier cannot ask you to buy a secondary product or service with "the same supplier or a designated third party".

    When you make a purchase as a result of a direct marketing approach (see point 2), you will have a cooling-off period of five business days. During that time, you will have the right to cancel the transaction and return the goods without any reason - and you cannot be penalised. The period of five business days starts from either the day on which the transaction was concluded or the day on which the goods were delivered, whichever is later.

    For example, if you are contacted by a cellphone service provider and offered a new contract, which you agree to take, you can - without reason or penalty - cancel the contract and return the cellphone within five business days of receiving it.

    The supplier can bill you for costs in the following situations:

  • If you have made use of the goods (but not if you were only trying to find out if the goods were acceptable); and

  • If there are costs involved to make the goods fit for sale to another consumer (but not if it was necessary for you to destroy the packaging in order to examine the goods or to ascertain if they were fit for their intended purpose).

    You can cancel any advance booking, reservation or order, although the Act gives no specific cut-off time by when this must be done. The supplier cannot impose a cancellation fee if you are unable to keep a reservation because of your death or hospitalisation, but in other circumstances the supplier can impose a reasonable charge for cancellation.

    A Webber Wentzel briefing on the CPA says it would be unreasonable if the penalty for cancellation "exceeds a fair amount in the circumstances", taking into account the:

  • Nature of the goods or services;

  • Length of notice you gave of cancellation;

  • Reasonable potential of a diligent supplier to find an alternative buyer; and

  • General practice in the industry.

    You also have rights when it comes to fixed-term contracts, such as those that govern cellphone contracts (see "Contracts more mobile").

    4. Right to disclosure and information

    Many insurers are already required to use simple, plain English.

    Both the Long Term and Short Term Insurance Acts have policyholder protection rules, which are designed to protect consumers. Although the short-term insurance rules provide for policies to be issued in a clear and understandable format, the long-term rules apply the plain language requirements only to direct marketers. Ebrahim says this is an area for development.

    "Policy provisions are often unclear - hence we have litigation as to the meaning of certain provisions," he says.

    The CPA extends the existing protection to state that any advertising or documentation that is provided to you must be in plain language that can be understood by the class of consumer for which it is intended and by a person with minimal experience of that industry, Karen Naidoo, the senior legal adviser at the South African Insurance Association (SAIA), says. This means that insurers may have to change the terms and conditions of their policy documents to ensure they are understandable.

    Paul Esselaar, of Dingley Attorneys, says this may extend to printing policy documents - and terms and conditions - in the home language of the consumer.

    Companies may choose to have interpreters on hand to explain a contract to a consumer in his or her home language, but they will need to record that such an explanation was made to the consumer.

    If there are any special terms and conditions that may not be immediately obvious to you and that may result in your claim being repudiated, these must be pointed out to you at the point of sale or when you sign the policy agreement.

    For example, if you are buying a motor vehicle insurance policy, you should be told whether your policy specifies a nominated driver or a regular driver and the implications of each condition.

    (If your policy specifies a regular driver, the onus is on you to inform your insurer who drives the car most often, but you will also be covered if another licensed driver uses your car. If, on the other hand, your policy specifies a nominated driver, you will have insurance cover only when specifically named drivers on the policy, such as you and your spouse, are driving the car - so don't use a valet service.)

    You also have the right to a written record of any transaction. This record should include the supplier's full contact information, business name and VAT registration number, the date of the transaction, and the name or description of the goods or services supplied to you.

    The CPA says there has to be proper disclosure of prices. When it comes to the price of financial pro-ducts, cost disclosure is covered by the Financial Advisory and Intermediary Services Act.

    A "non-financial" retailer cannot display any goods for sale without displaying their price as well. "Aha," Personal Finance's always-on-the-ball readers may interject. "An end to SQ on menus and ‘price on application' in property adverts."

    Ebrahim says that, practically, this might not apply in all instances "even if it seems to be the case on the face of the Act". If you are looking at a restaurant menu, a prawn dish may be priced as SQ, but this simply means that the price varies depending on the season, and all you have to do is ask the waiter for the current price. "It could hardly be anticipated that the Act is designed to do away with this custom," he says.

    The Act stipulates proper disclosure so that prices are readily available to you, Ebrahim says, but in some instances it would probably be acceptable - practically - for suppliers to expect you to inquire about the price.

    Adverts for luxury purchases typically carry "POA" (price on application) instead of the price.

    "An expensive house in Camps Bay might be listed as POA because the seller wants a price between R25 million and R30 million but does not want every buyer to know the range he is willing to consider. This could also apply to luxury cars, such as a Lamborghini, which are usually listed as POA. The dealer may be able to give you a substantial discount but may not be keen to reveal the discount to the public. In both cases, a simple phone call will tell you what price the seller is looking for. If one has regard to the purpose of the Act, namely to protect vulnerable citizens, this is not the evil the Act is attempting to cure," Ebrahim says.

    If two prices are displayed for the same item or service, you have the right to pay the lower price. This is subject to exceptions. Melville says if there is an obvious error and the supplier corrects the error or takes steps to inform customers, the supplier is not bound by the displayed price. He gives the real example of Swiss Air, which mistakenly priced flights between Toronto and Europe at $0. (Although, when budget airline Ryanair advertises flights for £1, consumers may legitimately wonder how low a price has to go to be a mistake.)

    You also have the right to:

  • Products that are labelled properly. The intention is to ensure you are not misled, so the information you need to be told includes the country of origin of any goods; the presence of genetically modified components (see "Contracts more mobile"); and the ingredients/components of which any goods are made.

  • Information about grey market goods and reconditioned goods. Melville says suppliers have to display conspicuous notices that warn consumers that goods have been imported without the approval or licence of the registered owner of the trade mark (in other words, they are grey market goods) or that branded goods have been reconditioned.

  • Written records of all transactions. However, transactions conducted through a call centre are not covered by this provision.

    5. Fair and responsible marketing

    The Consumer Affairs Act already outlaws negative option marketing, which occurs when companies make products or services available to existing customers, either by post or email. If you do not expressly reject the offer, the company assumes that you have accepted the offer and charges you accordingly. Under the Consumer Affairs Act, any complaints regarding negative option marketing had to be directed to the Unfair Business Practices Committee at the DTI.

    Now, the CPA gives you clear access to redress on the issue of negative option marketing through a far broader and more accessible range of dispute-handling options, such as ombuds, the National Consumer Commission, consumer courts and the Consumer Tribunal. And if a supplier uses negative option marketing, any resulting agreement or contract automatically becomes null and void. (An article on remedies and the enforcement of the CPA will be published in the next edition of Personal Finance.)

    Earlier this year, Absa's management was called to a meeting with the DTI after the bank sent 21 000 customers letters in November 2009, informing them that their homeowner's insurance would be increased unless they objected. Absa later agreed to contact all the affected customers and to reverse the increased insurance where customers indicated they did not want an increase.

    In the section dealing with agreements with persons who lack legal capacity, the CPA says a court can rule an agreement null and void if the agreement was entered into by a consumer whom a supplier knew to be mentally unfit. For a supplier to be in breach of this section, the person has to already have been found mentally unfit by a court and the supplier has to know, or could reasonably have determined, that the consumer was mentally unfit. This section does not apply if the consumer, or someone who acts on behalf of the consumer, led the supplier to believe he or she was fit to enter into a contract.

    You can also choose to have an agreement rendered null and void if:

  • The agreement was made when you were an unemancipated minor or you did not approve the agreement after becoming an adult.

    (An unemancipated minor is a child under the age of 16 who still requires parental consent to enter into legal agreements.)

  • The agreement was made without the consent of, or was not approved by, an adult responsible for you, as an unemancipated minor.

    This protection falls away if the supplier can prove that directly, or indirectly, you made the supplier think you had a legal capacity to enter into the contract or you tried to hide the fact that you did not have a legal capacity to enter into the contract.

    The CPA sets out standards for fair and responsible marketing that state suppliers may not market goods or services in a manner that is reasonably likely to imply a false or misleading representation or is misleading or deceptive in any way about:

  • The nature, properties, advantages or uses of the goods or services;

  • The conditions under which those services may be supplied;

  • The price at which the goods or services may be supplied;

  • Any other material aspect of the goods or ser-vices; and

  • The sponsoring of any event.

    For example, if a life assurance company advertises a retirement annuity product, the marketing material should make it clear that the product is intended to be used to save for your retirement and is a long-term, not a short-term, savings product.

  • See here for Part II of this story.


    This article was first published in Personal Finance magazine, 3rd Quarter 2010.
    See what's in our latest issue