This is the second half of our article on how the new-look Consumer Protection Act should look. (See here for Part I.)
6. Fair and honest dealing
Pyramid schemes, multiplication schemes and chain letters that involve the payment of money are defined in the Act and banned outright, Evert van Eeden, the author of A Guide to the Consumer Protection Act, says.
- A multiplication scheme
is defined as a scheme in which someone offers, promises or guarantees you an effective annual interest rate that is at least "20 percent above the repo rate" at the date of your investment, irrespective of whether you become a member of the lending institution.
Maseti says with the repo rate at six percent at the time of going to press, any scheme that offers you a guaranteed annual interest rate of more than 26 percent would be classified as a multiplication scheme.
- A pyramid scheme
is a scam in which:
* You receive money or compensation primarily as a result of recruiting new participants, rather than from selling goods or services;
* The emphasis in the scheme is on recruiting new participants;
* Each new participant is required to pay money, which is distributed to one, some or all of the existing participants, irrespective of whether the new participant receives any goods or services;
* You are automatically assigned to the lowest level of the scheme and move to a higher level only once you have recruited new participants; and
* Once you have recruited new participants, you are able to receive some of the money that is paid over by the new participants in the scheme.
- Chain letter schemes
are a variation of pyramid schemes. On joining, recruits are required to pay a "consideration", which is distributed to other participants, Van Eeden explains. The recruit, in theory, receives a payout when he or she reaches a particular level, after which he or she exits the scheme. It is different from being asked to forward a "feel-good" email to 10 people, because a chain letter scheme involves payment in some way.
- Alternative work schemes.
You may be familiar with advertisements that say you can work from home and earn tens of thousands of rands a month. Some turn out to be scams in which recruits are required to send money for "training materials", which turn out to be duds.
Under the CPA, work-from-home schemes are allowed, but promoters cannot charge you a fee for getting any work or investment unless you have actually been assigned and performed the work or have received the investment. There can be no false representation as to the availability or profitability of the work involved.
And any advertisement for a work-from-home scheme must carry:
* The name of the person or business that is promoting the scheme;
* The address and contact number of the person's primary place of conducting that business; and
* The nature of the work, activity or investment.
- Fraudulent schemes.
Any scheme that promotes unlawful activity or intends to disguise the nature, location, source of ownership or control of the proceeds of an unlawful activity is regarded as a fraudulent scheme.
An example of a fraudulent financial transaction is money laundering: moving money offshore and then bringing it back into South Africa to hide the fact that you are earning money in this country illegally. Money laundering is also governed by other Acts, but, as is the case with negative option marketing, the CPA gives the ordinary consumer easier access to redress than the existing legislation.
Melville says an example of a fraudulent currency scheme would be a person who pretends that he or she can turn something into money by treating it with a chemical substance.
The CPA also outlaws practices in which a scamster says he or she can create or increase money through "invocation or any juju".
Fraudulent property schemes are outlawed. An example is the fraudulent Money Skills investment scheme, which was liquidated in 2007. The supposed property investment company encouraged consumers to buy properties that it sourced from developers at lower prices than the buying price. Consumers were required to mortgage the full buying price, and the developer would then pay Money Skills the difference.
You will have redress under the Act if a person tries to obtain a property from you by false pretences or with the intention to defraud you.
Misleading advertising is prohibited. Companies are not allowed, directly or indirectly, to:
* Imply any false information to you,
* Use exaggeration, innuendo or ambiguity;
* Fail to disclose a material fact if that amounts to deception; or
* Fail to correct any misapprehensions on your part as the consumer.
These provisions place more onus on financial services companies to make sure that you correctly understand financial products that are sold to you and to clear up any possible misunderstandings you may have as to how the product works.
If you are a buyer at an auction, including a sale in execution, the auctioneer must give notice in advance if there is a reserved price or if the owner or auctioneer or his or her representative intends to bid. If notice is not given in advance, the owner or auctioneer cannot employ anyone to bid at the sale and the auctioneer cannot accept such a bid. This means that a bank, at sale in execution auctions, cannot have a representative bid to increase the price unless a notice of the bank's right to bid has been made in advance.
From October 24 this year, suppliers will no longer be allowed to oversell or overbook goods or services (except in relation to franchise agreements or special orders). So airline overbooking of seats should become a thing of the past. However, there are defences that a supplier, including an airline, can use. The supplier can offer comparable goods or services, or can get another supplier to offer you comparable goods or services. If you accept, that is a defence the supplier can use if you later complain. If you unreasonably refuse the offer, that is also a defence.
In addition, the supplier is not at fault if the shortage of stock is due to circumstances beyond the supplier's control and the supplier took reasonable steps to inform you of the shortage as soon as it was practical. In addition, the shortage that arises from circumstances beyond the supplier's control cannot result from a failure to diligently carry out its routine business. The failure of airlines to carry passengers while the ash cloud hung over northern Europe in April would be a clear case of circumstances beyond their control.
Esselaar says the CPA provision against overselling is not clear-cut. An example would be the issuing of shares in a black economic empowerment share offer to the public. Let's say the company's shares are currently listed at R10, and the share offer is for 100 000 shares to be sold to black people at R5 a share. What happens if the offer is oversubscribed?
"The sale of shares is regulated by several different pieces of legislation (the impending Companies Act and the JSE rules).
"If a share offer is made to the public, the company making the share offer has to indicate both to the JSE and to the public why shares are being issued, what the funds raised will be used for and how many shares will be issued.
"Once the shares have been allocated, the company then has to explain how the shares were allocated and the reasons for the allocation. If, for example, there is an oversubscription of shares, the company has to write to each applicant explaining that there was an oversubscription and how the shares were allocated," he says.
Esselaar says there definitely would be scope for a listed company to carefully word such a share offer so that it does not fall foul of the CPA, but the "devil would be in the details of the share offer".
The company that issues the shares would have to refund you any money you may have paid in advance for the shares - which is also a provision of the CPA in such a case. However, companies historically have refunded participants the exact amount they paid. If you applied for 100 shares and paid R500, but the offer was oversubscribed and the company issued you with only 50 shares, the company would then refund you the balance of R250. Under the CPA, the company would also have to pay you interest at the prescribed rate (the rate will be prescribed in the regulations) from the date you deposited the money to the date you were repaid.
Esselaar says as a general rule it would be fair to say that a share offer can avoid the potential pitfalls of the CPA by ensuring that it does not accept consideration for any shares in excess of the number of shares available in terms of the share offer.
"This might be accomplished if there was a way to sell the share offer in a real-time transaction and shut down the offer as soon as the maximum number of shares available is sold."
A supplier that finds itself out of stock must:
* Not have been able to reasonably expect to be out of stock; and
* Immediately react to the problem by informing consumers that it is out of stock.
Esselaar says companies might consider doing a survey before making this kind of public share offer so as to ascertain demand and avoid overselling.
He warns that such a survey would not be a "cure-all solution" but rather an example of one of the steps that might assist a supplier to avoid the extended liability provided for in terms of the CPA.
"Unfortunately, this type of issue is likely to be decided by precedent," he says.
7. Fair and reasonable terms and conditions
Every now and then the writers of the CPA let slip their indignation with the ways of the world. Their use of the words "unconscionable conduct" is one such instance. Melville points out that it means "shocking and morally unacceptable".
He says that for the purposes of the Act, "it consists of the use of physical force, coercion, undue influence, pressure, duress or harassment ".
It is defined in the Act as any instance where a supplier knowingly takes advantage of your inability to protect your interests due to illiteracy, physical or mental disability, ignorance or an inability to understand the language of the agreement.
For example, if an insurer or bank realises that English is not a consumer's first language and fails to explain a policy or contract to him or her clearly, perhaps with the help of an interpreter, the company may be found guilty of unconscionable conduct under the CPA.
At perhaps a more subtle level than unconscionable conduct is the use of contract terms that are unreasonable, unfair and unjust. A supplier cannot offer you prices that are regarded as unreasonable, unfair or unjust, or offer you terms that are unreasonable, unfair or unjust. And a supplier cannot ask you to waive any rights, to assume any obligation or to waive any liability of the supplier.
Naidoo says this provision of the CPA will have an impact on disclaimers routinely used by insurers. For example, the following clause in a life assurance contract would no longer be allowed under the CPA: "If no objection is sent within 30 days of receiving the policy, the policyholder agrees to be bound by the terms and conditions of the policy. The policyholder then gives up the right to object to the policy's terms and conditions later."
Danny Joffe, a senior legal adviser at Hollard, says there could be serious clashes between short-term insurers' underwriting practices and the CPA's provisions for fair terms and conditions.
"For example, most motor insurance policies specifically exclude damage to your tyres in an accident. While this is acceptable in terms of the Short Term Insurance Act, it will not necessarily be considered fair under the CPA, and consumers buying comprehensive car insurance may well expect their tyres to be covered against all damage," he says.
Alexia Christie, a partner at Webber Wentzel, says examples of terms that will be deemed unfair, unreasonable or unjust include those that are:
- Excessively one-sided to the advantage of the supplier;
- So adverse to you as to be inequitable;
- Where a special term or condition-limiting risk has not been drafted in plain language and specifically called to your attention before you sign on the dotted line. For example, if your homeowner's insurance policy includes a condition that damage to your pool caused by a rising water table will not be covered, this condition should be pointed out clearly and explained to you before you accept the policy.
A notice or provision must be called to your attention if:
- It limits the supplier's liability or risk;
- It means that you assume any risk or liability;
- It places an obligation on you to indemnify the supplier; or
- It is an acknowledgment of a fact by you.
Ebrahim says this means that private hospitals, for example, may no longer be able to use the condition that you waive all liability when you sign in at the admission desk without drawing this clause to your attention in some conspicuous manner.
Pillay says banks, similarly, will no longer be able to have clauses in their contracts that exclude them from all liability and risk. "This will apply, for example, in your contract with the bank to use their ATMs and internet banking. It will also apply to situations where banks clear cheques and when the cheque is later dishonoured or turns out to be fraudulent, then debit your account. The banks will now have to shoulder some or all of the responsibility if they do not have a proper system in place to identify or intercept fraud," he says.
Pillay says banks can limit their risk, for example with regard to debit orders you authorise on your bank account, provided that the condition that limits their liability:
- Is written in plain language;
- Is pointed out to you upfront; and
- You are given adequate opportunity to read and comprehend the condition before you enter into the agreement.
Christie says the Minister of Trade and Industry may still publish a list of prohibited terms and conditions in the regulations.
If a court finds that a term or provision of an agreement is unfair, the CPA gives the court power to cancel that particular provision, to alter the provision to the favour of the consumer or to declare the entire agreement null and void.
Professor Tjakie Naude, of the law faculty at the University of Stellenbosch, says unfair or unreasonable terms and conditions include requiring you to hand over your identity document, debit card, credit card or ATM card, or to provide the personal identification number (PIN) used to access your account as a prerequisite to conducting a transaction.
Maseti says that although the NCA makes such practices illegal in the case of microlending, they have also been outlawed in the CPA so that you will be protected against any other instances where they may occur.
However, a subsection in the Act states that "this section does not preclude any supplier to require any personal identification code or number in order to facilitate a transaction that in the normal course of business necessitates the provision of such code or number". This means that banks, which require you to enter your PIN at ATMs or when you transact online, will still be able to do so without contravening the Act.
Naude suggests other terms that could be considered unfair or unreasonable. These would include any term that:
- Requires you to forfeit money to the supplier if you exercise any right in terms of the CPA;
- Excludes or restricts your legal rights or remedies against the supplier in the event of a breach of contract;
- Entitles the supplier, if you exercise a right to cancel the contract, to keep sums that you have paid in respect of services that the supplier has yet to supply; and
- Entitles the supplier, without a good reason specified in the contract, to vary the terms of the contract.
She also suggests that South Africa's CPA should include the following term, from the Consumer Protection Act in the United Kingdom, as unreasonable or unfair: a term in a financial services contract of indefinite duration that allows the supplier to terminate the contract by either giving you relatively short advance notice or, if the supplier has a good reason for terminating the contract, without giving you any advance notice.
Broekmann says it is widely expected that there will be a list of unfair, unreasonable and unjust terms and conditions in the regulations when they are published, with the provision that such a list can be updated by the DTI when necessary.
If the consumer court rules that an unreasonable, unjust or unfair condition has been included in an agreement, the CPA gives the court the power to:
- Declare that condition invalid;
- Rewrite that condition to the favour of the consumer; or
- Declare the entire agreement null and void.
8. Fair value and service
You will be entitled under the CPA to the timely performance and completion of any services and to timely notice of any unavoidable delay in the performance of those services.
If a short-term insurer has agreed to or authorised the repair of your motor vehicle, the repairs must be carried out within a reasonable time-frame, and if there is any delay in the process, you should be informed by the insurer timeously. Although the CPA does not specify what "timely performance" is, this may be specified in the regulations.
In the interim, the SAIA earlier this year released a new code of conduct for its members, representing more than 80 percent of the short-term insurance market. According to the SAIA code of conduct, if your insurer undertakes to repair a motor vehicle as part of a claim, the repairs must be done within a reasonable time, and the code specifies a maximum time-frame of 10 business days.
The CPA provides that if a supplier does not perform or supply a service to the standards required, you can ask the supplier to refund a reasonable portion of the price you paid for the service supplied. For example, you move your bank account from Bank A to Bank B, and Bank B agrees to pay the costs and to arrange for the switching of your debit orders. But some of your debit orders are not switched timeously. In this case, you can claim from Bank B the costs of switching the debit orders, as well as the costs of re-running the debit orders.
Pillay says this provision of the CPA will impact significantly on the general service delivery of banks. "We receive so many complaints about poor bank service; the banks will definitely have to up their game," he says.
9. Administration and execution of estates
The CPA places greater responsibility on the shoulders of anyone who acts as an administrator, liquidator or executor of your estate. These people now have a duty in terms of the CPA to ensure that any money or property that belongs to your estate and is in the possession of a supplier (such as a bank) is dealt with to the benefit of your estate.
If there is any loss in this regard, the administrator/executor/liquidator can be held liable, unless they can prove that they acted in good faith or that they were unaware of the existence of your property or money. For example, your homeowner's insurance was with your bank and you paid the insurance upfront for a year in January but passed away in February. According to the CPA, the bank is not allowed to treat your upfront payment as its own money. It is instead required to have a separate holding account for the upfront payment and to transfer only the monthly premium to its own bank account each month. Any interest that accrues on the money in the separate holding account will be for your benefit as the consumer.
So the executor of your estate will have to liaise with the bank concerned and ensure that the requirements of the CPA have been met and the outstanding money that you have paid for the premiums from March to December is transferred to your estate, along with any accrued interest.
The supplier is also obliged to exercise due care and diligence in the care of your property, and can be held liable for any losses if it fails to do this.
For example, your bank safety deposit box contains jewellery. If the bank fails to take the necessary precautions and the jewellery is stolen by a bank employee, the bank could be held liable for the loss in terms of the CPA.
10. Electronic transactions
Electronic transactions and communications will be governed jointly by the CPA and the Electronic Communications and Transactions Act (Ecta). The general rule under the CPA is that where the CPA conflicts with another piece of legislation, the provision that affords consumers the greater protection will apply.
But Christie says the CPA specifically highlights certain sections where the provisions of Ecta will prevail over those of the CPA. These sections include:
- Disclosure of price. The supplier's website must provide you with clear information, including a description of the services, the full price (including tax), the terms and conditions (and details on how to access them electronically), the return or refund policy, security procedures and the privacy policy, and the minimum duration of the agreement.
- The cooling-off period. Where the seven-day cooling-off period under Ecta applies, the supplier will not also be vulnerable to the cooling-off period that arises from direct marketing under the CPA.
Christie also notes that under Ecta, suppliers must use a payment system that is "sufficiently secure", with reference to the accepted technological standards at the time of the transaction and the type of transaction concerned. This provision already has force of law. In other words, in the context of goods purchased over the internet, the supplier has the responsibility to ensure that the payment system used is "sufficiently secure" in terms of Ecta. If its failure to provide a sufficiently secure system causes the purchaser to suffer loss, the supplier may be held liable.
Christie says the ambit of the CPA with respect to electronic communications is quite wide and, with the exception of the few instances pointed out above, where the CPA specifically states that Ecta will trump it, all the provisions of the CPA can be applied to:
- Online purchasing;
- The use of email to place orders or to negotiate or finalise the terms of a deal;
- The online submission of applications, including credit applications; and
- The electronic acceptance of terms and conditions - for example, by clicking "I accept".
Does the act apply to your situation?
You need to be able to identify in which situations the Consumer Protection Act (CPA) applies in order to be fully aware of your rights, Trudie Broekmann of law firm Webber Wentzel says.
Broekmann says that on every occasion you need to see if the CPA applies by checking the situation against the Act's definition of a transaction, which in turn refers to the defined terms "supply", "goods", "services" and "consumer".
Transaction
Bear in mind the following points:
1. A transaction falls under the CPA only if the person who supplies the goods or services acts in the ordinary course of business (except in the case of a franchise). So if you sell your family home privately, this will not be a transaction under the CPA because it is not your ordinary business.
2. The transaction must be for "consideration". The Act broadly defines "consideration" as anything of value given and accepted in exchange for goods or services. This thing of value can be money (obviously), a cheque or property. It can also be in the form of credit (on a store card or on a credit card), loyalty points or rewards, labour, barter or even an agreement, undertaking or promise.
3. A transaction can involve any of the following:
- The agreement for the supply of goods or services;
- The supply of goods to a consumer;
- The performance of services for a consumer; or
- An offer, agreement or the supply of goods or services in the context of a franchise relationship.
Voluntary associations
A voluntary association, such as a club, trade union or society, that supplies goods or services to its members is also involved in transactions, even if all the above conditions are not met.
For example, if you are a member of a stokvel and if the services provided to you by the stokvel, whether or not they are provided for fair consideration, do not meet your reasonable expectations, then you can demand that the stokvel remedy the defect in its services to you in terms of the CPA. The stokvel will not be exempt on the basis of its size. (See "Exemptions" below.)
Franchises
If you are a franchisee in terms of a franchise agreement, you are protected as a consumer under the CPA. The franchisor is the supplier, and the supply of goods and services to you by the franchisor is covered by the Act. In his book The Consumer Protection Act Made Easy, Neville Melville says specific sections of the Act define a franchise agreement. If the definition is met, the business is a franchise, even if it tries to avoid the Act by calling itself by another name, such as an agency or distributor.
Exemptions
Certain transactions are exempt from the CPA. They are:
- The supply of goods or services to the government;
- Certain aspects of the financial services industry;
- Any services supplied under an employment contract - these are covered by the Labour Act;
- Any industry declared exempt by the Minister of Trade and Industry;
- Any transaction where the consumer is a juristic person (including a body corporate, partnership, association or trust) whose asset value or annual turnover equals or exceeds a threshold value that will be declared in the regulations. The threshold value is likely to be between R1 million and R5 million.
In the stokvel example above, the juristic persons threshold does not apply in respect of a stokvel, because the stokvel is the supplier. The threshold applies to the consumer. So, for example, if a large company is a member of a professional body, the company will not be entitled to the protections afforded in the CPA if the professional body's service is defective.
Consumer
A "consumer" includes:
- Anyone to whom goods or services are marketed in the ordinary course of a supplier's business;
- A user of goods; and
- A recipient or beneficiary of services.
Under the CPA, you are not only a consumer if you buy something but potentially also if you use it. For example, if a married couple uses a bank account that is in one spouse's name for their household expenses, the other spouse could also have protection under the CPA if the bank does not supply services that are up to scratch.
Similarly, if you buy a retirement annuity, the person you nominate as a beneficiary becomes the consumer in the transaction after you die.
Supplier
A supplier is a person or entity that markets goods or services. The meaning of "to market" is broad. It refers to the act of supplying you, and it refers to attempts to entice you to buy or consume.
So a supplier includes someone who advertises, displays or offers to supply you (with the usual rider that it is for consideration and in the ordinary course of business). And a supplier includes someone who, in the ordinary course of business, expresses a willingness to supply for consideration or engages in any conduct that can reasonably be construed as an inducement to engage in a transaction.
A person who installs goods or provides access to goods is also regarded as a supplier in cases where those goods cause harm due to a product failure, defect or hazard in the goods. For example, a contractor who installs a defective ATM can be held liable by a consumer who suffers damages as a result of using the ATM.
Goods
Broekmann says that "goods" include:
- Anything marketed for human consumption. "Consumption" is not defined in the Act, so this is probably meant in the wider sense of "goods and services for personal use".
- Any tangible object.
- Any intangible product written or encoded on any medium, literature, music, photograph, motion picture, game, information, data, software, computer code, and the licences to these intangible products.
- Gas, water and electricity.
- A legal interest in land.
Services
These include the following:
- Entertainment;
- Transport;
- Any work or undertaking performed by one person for the direct or indirect benefit of another;
- The provision of education, information or advice;
- The provision of accommodation or sustenance;
- Access to any electronic communication infrastructure; and
- Access or the right of access to an event or to any premises, activity or facility.
Broekmann says the definition applies regardless of whether or not the person who promotes, offers or provides the service actually participates in, supervises or engages directly or indirectly in the service.
You can sue for damages
As of April 24 this year, the Consumer Protection Act granted you the right to hold a producer, importer, retailer or distributor liable for any damages sustained by you as a result of unsafe or defective goods.
Melville says you can choose which party in the distribution chain you want to sue, if not all the parties. Melville told Personal Finance that more often than not, consumers will choose to sue the party that sold them something directly: the retailer. The retailer can then sue the other parties in the distribution chain for a contribution towards the payment to you.
The strict liability clause gives you the right to recourse if you suffer any injury or harm as a result of an unsafe or defective product.
You will have to prove that the product was unsafe or defective and, as such, caused your loss or injury. But, Melville says, the liability is on a "no-fault" basis, which means you do not have to prove that the harm you suffered was a result of the company or retailer's negligence. You must make a claim for damages within three years of:
- A death or an injury;
- The earliest time at which you became aware of an illness;
- The earliest time at which you knew of any loss or damage to your property; or
- The latest date on which you suffered an economic loss.
Trudie Broekmann, a senior associate at Webber Wentzel, says that if a consumer's death is a result of using a harmful product, the estate will have a claim for death-bed expenses and funeral costs. If the deceased consumer had dependants, they will have a maintenance claim, which is calculated with reference to the consumer's projected income had he or she not suffered the harm that gave rise to his or her death.
This article was first published in Personal Finance magazine, 3rd Quarter 2010. See what's in our latest issue