New penalties for businesses that dud consumers

Business owners could be subjected to new financial penalties for fleecing consumers by illegal methods such as bait advertising or pyramid selling under a new proposal being considered by the Federal and state governments.

State and federal consumer protection ministers are reportedly considering reforms that would allow the Australian Competition and Consumer Commission to seek civil penalties against companies that breach consumer protection provisions of the Trade Practices Act.

The consumer protection provisions prohibit a range of conduct, including misrepresentation, pyramid selling schemes where participants are paid merely for recruiting new participants, and bait advertising, which involves advertising a product at a very low price to get buyers in the door but then only making very few of the products available for sale.

Businesses that breach competition provisions of the act are currently subject to civil penalties of up to $10 million, three times the value of the benefit obtained or 10% of annual turnover, while individual business owners can be fined up to $500,000.

But penalties for breaches of consumer protection provisions are more limited, with the ACCC only able to seek jail terms – a penalty that is costly to seek and only appropriate in the most serious cases – and legal sanctions such as injunctions to stop the behaviour.

This has meant that in some cases the ACCC has been limited in its ability to take meaningful legal action against businesses that breach consumer protection laws.

If introduced, the new penalties could represent a double edged sword for SMEs, according to Slater & Gordon competition law expert Van Moulis. “The extra protection afforded to SMEs where they are suffering from prohibited conduct by competitors in a different context could be an extra responsibility to comply with the law,” he says.

But, Moulis says, even if the changes do go through, it does not necessarily follow that the ACCC will be able to undertake more prosecutions for breaches of consumer protection law.

“The ACCC lacks resources more than anything else – giving them more power is fine, but they just don’t have the resources to conduct more legal action, so it’s a funding issue and unless the Government provides better resources to the ACCC then it’s just a paper move,” he says.

The further progress of the proposal will depend on support and action from governments.