SUMMARY OF THE CONSUMER PROTECTION ACT 68 OF 2008

Prepared by Raynique Wright, Trinitas Consulting For The Marketing Association of South Africa

1. Introduction: The Consumer Protection Act introduces a single, comprehensive legal framework for consumer protection which outlines the entitlements of consumers and the responsibilities of suppliers. The Act is far-reaching, ambitious and the first legislation of its kind in South Africa. Whilst the Act aims to protect all consumers, the focus in many instances is on vulnerable consumers, being the previously disadvantaged, uneducated, illiterate, etc. The Act consists of 7 chapters and 122 sections: o o o o o o o Chapter 1: interpretation, purpose, application Chapter 2: specific consumer rights Chapter 3: consumers voice Chapter 4: business names and codes of conduct Chapter 5: national consumer protection institutions Chapter 6: enforcement of the act Chapter 7: certain general provisions

Not only contracting parties are covered by The Act, but also users, recipients and beneficiaries of goods or services. Consumers are not limited to South African citizens. Persons includes juristic persons. The Act pertains to the marketing and provision of goods and services. Goods are defined as anything marketed for human consumption, any tangible object on which may be written or encoded, any literature, music, photograph, motion picture, game, information, data, software, code or other intangible product written or encoded on any medium. It also includes under goods a legal interest in land or any other immovable property as well as gas, water and electricity. Service includes any work or undertaking performed by one person for the direct or indirect benefit of another. This includes the provision of education, banking, financial and insurance services, information, consultation, transportation, accommodation, entertainment, access to electronic communication infrastructure, access to an event, right of occupancy and rights of a franchisee. This is a very wide definition as the Act aims to cover any conceivable tangible and intangible product. It is irrelevant whether the supplier is promoting, offering or providing the relevant service or whether he/she participates in, supervises or engages directly or indirectly in the service. Rentals as well as the transportation of goods or persons in the taxi, bus and airline industries, are included and it is not a requirement that such transportation should be for reward. Entertainment and transportation services provided with regard to the 2010 Soccer World Cup, as well as access to accommodation, events, activities and facilities will similarly be covered. 2. Far-reaching provisions: The Act contains far-reaching provisions which will fundamentally affect the way business is conducted in SA. Goods and services take on an entirely new meaning under the Act, having a much broader scope than traditional definitions herein and will include, amongst others; retailers of goods, casinos, motor manufacturers, second-hand car dealers, marketing and advertising agencies, print media industry, airlines, estate agencies, the tourism & hospitality industry, franchisors & franchisees, service providers in, eg: healthcare, beauty & hair-care, education, banking & financial services, transportation, funeral & telecommunications sectors, as well as providers of professional services (medical practitioners, attorneys & accountants).

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Businesses will have to completely review their standard agreements and day-to-day operational processes to ensure compliance with the Act. 3. Consumer rights: Chapter 2 introduces a formal set of consumer rights by referring to 8 specific consumer rights th and a 9 right, which is actually a duty enforced on suppliers:
1) 2) 3) 4) 5) 6) 7) 8) 9)

The right to equality in the consumer market and protection against discriminatory marketing practices The right to privacy The right to choose The right to disclosure of information The right to fair and responsible marketing The right to fair and honest dealing The right to fair, just and reasonable terms and conditions The right to fair value, good quality and safety The right to accountability from suppliers

4. Purpose: The purpose of the Act is to promote and advance the social and economic welfare of consumers in SA. The Act aims to achieve this through establishing a legal framework for maintaining a fair, accessible and efficient marketplace for consumers, reducing the disadvantages experienced in assessing goods/services by vulnerable consumers, protecting consumers from unfair trade practices, encouraging responsible consumer behaviour, promoting consumer empowerment and providing an efficient system of redress for consumers. 6. Application: The Act applies to: 1. Transactions occurring in SA between suppliers and consumers with regard to goods/services unless specifically exempted 2. The promotion of goods and services 3. The goods and services themselves 4. Goods which form the subject of an exempted transaction (therefore, even where the transaction is exempted, the goods sold under the transaction are still protected) 7. Exemptions: Specifically excluded from the ambit of the Act: 1. Where the state or organ of state is the consumer 2. Where the value of the transaction exceeds the threshold determined by the Minister. 3. Where goods or services are supplied to a person in the supply chain who in the ordinary course of business, markets those goods for resale 4. Where goods or services are supplied to a person in the ordinary course of business, and such person uses or applies those goods or services in the production of other goods or services or in the marketing of any goods or services 5. If the Minister has exempted the transaction as part of an application by a regulatory body for industry-wide exemption 8. Timing for implementation: Different terms will be introduced into our law over a 2 year period and initially (as is the case at present) the Act will exist in name only. The Act repeals various other statutes and contains transitional provisions resulting in a situation where the bill in its entirety will take effect only some 18-24 months after signature by president. The first of the provisions coming into force is

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scheduled to take place 12 months after signed. The remaining provisions will come into force 18 months later.

9. Marketing and interaction with consumers: The definition of advertisement is wider in the CPA than the definition which is contained in the Companies Bill. The CPA attempts to convert best marketing practices into law, which will result in retailers or marketers having to conduct a complete review of their marketing strategies and processes, especially with regard to strategies such as bait marketing, negative option marketing, direct marketing at home, catalogue marketing, trade coupons, promotions, customer loyalty programmes and referral selling. The Act provides that the Minister, through regulations, must prescribe a time at which consumers may be contacted for direct marketing purposes. Regulations should be in line with business and marketing practices.
Almost all of the consumer rights contained in the Act affect marketing in one way or another: a. The right to Equality: Section 8 states that unfair discriminatory marketing is prohibited, discrimination may not be based on race, gender, sexual orientation, age, religion, political affiliation, etc. Some grounds do exist for when differentiation will not be considered a contravention. One should not discriminate when:

Assessing a persons ability to pay Determining the cost of the transaction Proposing or agreeing to terms and conditions of the agreement

b. The right to Privacy: Sections 11 and 12 of the Act place severe restrictions on direct marketing. Section 11 gives the consumer the right to restrict unwanted direct marketing, which includes the right to refuse to accept direct marketing, to request to discontinue direct marketing and to pre-emptively block direct marketing. The National Consumer Commission may set up a registry on which consumers can register for free. Having your name on this register means that you have pre-emptively opted out of any direct marketing in the future and you may not be contacted. Section 12 stipulates time-restrictions within which consumers may be contacted, especially with regards to contacting consumers at home. c. The right to Choose: In terms of section 16, where a transaction is the result of direct marketing, the consumer can rescind the agreement without reason or penalty within 5 business days of the date of transaction or delivery. This is referred to as the cooling-off period. d. The right to Fair and Responsible Marketing: This right has changed the position markedly and many practices will have to change. Section 29 contains general marketing standards which apply to producers, importers, distributors, retailers and service providers. This section states that one may not make false or misleading representations, which means that one may not make any misrepresentation with respect to the nature, advantages and uses of goods or services. Although there is no

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provision with regards to the use of hyperbole in marketing, the exclusion herein is generally interpreted to mean that no exaggeration will be allowed, which may prove to be a problem for marketers. Section 30 effectively outlaws bait marketing, which is when a consumer is mislead or deceived with regards to the actual availability of goods or services. However, if the supplier uses this marketing but actually has enough stock to accommodate all consumers, it is not considered as bait marketing and is not outlawed. The supplier has a defence available to him/her herein, namely that he/she offered to supply or procure someone else to supply the same or similar goods to the consumer and the consumer unreasonable refused. Section 31 effectively outlaws negative option marketing which is where an agreement comes into existence automatically unless the consumer declines (such as unilateral increase in credit or products being sent to your home and if you dont decline you receive a subscription and an invoice). Section 32 states that when engaging in direct marketing, the supplier must notify the consumer that he has the right to rescind the agreement in terms of section 16 and that goods will be treated as unsolicited. The importance of this is that, if goods are unsolicited, and the supplier does not inform the consumer that he/she needs the goods to be returned and does not come to collect the goods, then the consumer may keep the goods and is under no obligation to try find the rightful owner or the supplier. Section 33 states that with regards to catalogue marketing, the supplier must provide certain prescribed information to the consumer prior to the conclusion of the contract, such as; the suppliers name or registration number and address, as well as sales record information and currency in which trade is concluded. Delivery arrangements and cancellation conditions are also to be divulged. Sections 35 deals with customer loyalty programmes and states that loyalty programmes are a legal medium of exchange, but that in terms of a refusal to redeem points, the supplier must notify the consumer of the times at which the consumer may not redeem the points. This notice must be given timeously and the period of time in which the redemption of points may be excluded is limited to 90 days in a year. Section 36 states that with regards to promotional competitions, there must be no misrepresentation to the consumer and the consumer must not have to pay to enter the competition other than reasonable costs. The prize may not be unlawful to give to the winner. Competition rules must be formulated and provided to participants. e. The right to Fair and Honest Dealing: Section 40 outlaws unconscionable conduct (unethical or improper conduct that will shock the conscience of a reasonable person) in various phases of a transaction, including when marketing goods or services. Section 41 outlaws false, misleading or deceptive representations through either words or conduct whether express or implied. 10. Consumer Agreements: This provision relates to agreements and states that unfair, unreasonable or unjust contract terms are prohibited and that notice to the consumer is required for certain terms, such as when a supplier intends to limit liability. Written consumer agreements are required in certain instances and the Act prescribes the contents of these agreements. The implication of this is that standard contracts or contractual terms may no longer be appropriate and certain agreements will be prohibited. With the requirement for plain and understandable language being the foremost feature of the Act, business documents will have to be redrawn in an entirely new form. Irrespective of whether the consumer has signed, a supplier must give the consumer a free copy of the agreement, including an itemised breakdown of financial obligations under such an agreement.

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11. Over-booking & selling: The Act prohibits instances where a supplier is unable to honour his/her commitment towards a consumer. The consumer will then be entitled to a refund of any amount paid to the supplier and consequential damages. The only defence which a supplier may raise is if the supplier procures another person to supply comparable goods/services to the consumer and the consumer unreasonably refuses. 12. Franchise Agreements: This is the first legislation which specifically regulates franchise agreements by name. Franchisees are heavily protected and the Act prescribes the content of franchise agreements in detail. The Act specifically excludes franchise agreements from the definition of consumer agreements. Some of the most important concerns are: 1. The definition of franchise agreements in the Act is unclear 2. The agreement can be terminated on 20 business days notice, subject to a reasonable penalty (this could be detrimental to industry in SA) 3. The franchisor may not require the franchisee to purchase goods/services from specific suppliers 4. The franchisor may not require a franchisee to purchase goods/services from a designated third party unless the goods are reasonably related to the franchisors trademarks 5. Relating to bundling/tying of goods 6. Franchisors are required to make full disclosure to prospective franchisees when selling franchise businesses 7. False/misleading representations regarding the performance of the franchise are prohibited 8. Unfair, unreasonable or unjust contract terms are prohibited 13. Business names: The Act determines that a person must carry on his/her business, advertise, promote, offer, supply and enter into agreements in its own name. With regards to a natural person, this means that the person must do the above using his/her name as it is reflected in his/her identity document. With regards to a juristic person, this means that the juristic person must do the above in accordance with its registered name. The reason for this provision is to allow the consumer to know who to litigate against. Businesses will be required to include certain information on all trade catalogues, circulars, letters, orders, sales records and statements of account - complying will be costly, particularly for small businesses. The Act states that business names must: 1. Comprise of words in any language, whether commonly used or made-up, with any letters, numbers or punctuation marks or any of the following symbols only: + & @ % =. If brackets are used, only rounded brackets are permitted. 2. Not be the same as or confusingly similar to the name of a juristic person, a registered trade-mark or a mark which is protected or restricted in terms of the Merchandise Marks Act. 3. Not falsely imply or suggest, or could reasonably be expected to mislead a person to believe incorrectly that the business is part of or associated with another person or entity, an organ of state or a court, or is owned, managed or conducted by persons having a particular education a designation. 4. Not include any words, expressions or symbols which are contrary to section 16(2) of the Constitution, being the right to the freedom of expression. 14. Miscellaneous provisions:

The Act prohibits unconscionable conduct which, according to DTI, includes the practice of retaining a consumers bank card or Identity documents Consumer has the right to return goods under certain circumstances and receive a full refund. Such goods will not be considered to be used goods (Second-hand Goods Act)

Unsolicited goods provisions determine that a consumer is under no obligation to pay a supplier for unsolicited goods/services The Act applies to municipalities, the Minister may defer application of bill to any municipality or organ of state that is responsible to a municipal authority.

15. Enforcement and consequences of non-compliance: The Act recognizes consumer complaints and investigations require quick and effective resolution for both consumers and businesses. Sanctions for non-compliance include the imposition of a fine or imprisonment for 12 months or in the case of disclosure of private information, imprisonment for 10 years. The Act makes provision for an administrative penalty not exceeding the greater of either 10% of the contraveners annual turnover during the preceding financial year or R1 million. It appears that the danger of suffering reputational risk forms a greater incentive to businesses to comply. 16. Conclusion: The intention of the legislature to provide for extensive consumer protection is to be welcomed we are all consumers and havent previously been adequately protected. The danger is that the principles may not adequately cater for every business eventuality and that the uncertainty created through the removal of established common law principles will result in increased litigation and a lack of confidence in the South African economy. Despite the plain and understandable language requirement included in the Act, the Act itself is not user friendly and will probably be very difficult for the average consumer or supplier to make sense of. Suppliers will need to familiarise themselves with the Act sooner rather than later and ensure that they comply.

Sources:
1. Monique du Preez; The Consumer Protection Bill: A few preliminary comments 2. The Department of Trade and Industry: The Consumer Protection Act Summary & Guide, www.dti.gov.za 3. Ms K Kern, University of Johannesburg; Lecture Notes 2009, Capita Selecta Private Law A