Understanding, implementing and complying with the Consumer Protection Act is a must for all businesses operating in South Africa. We got the experts to clarify the legalese and explain how it all works.
The Consumer Protection Act is a scary prospect for many businesses in South Africa. Companies across the supply chain are suddenly liable and no-one is beyond its scope or scrutiny. Detailed attention must be paid to warranties, contracts, renewals, and terms and conditions. All correspondence – from the fine print on packaging to adverts and websites – must be clear and easy to understand.
“The effects could potentially be far-reaching,” explains Mark Klinkert, a director at Nolands Auditors. “For example, a consumer buys a toaster from a well known retailer. The toaster is faulty and an electrical fire results. Under the Act, the manufacturer, importer, distributor and retailer are all liable. There is no longer any way to pass blame and much closer attention needs to be paid to contracts and the companies you do business with, or are part of your supply chain.”
The Act is broad in its application, covering all transactions other than those between businesses where the business receiving the goods or services has a turnover or assets of over R3 million. This means that small businesses are both liable under the Act and viewed as consumers themselves.
According to Neville Melville, advocate and author of The Consumer Protection Act Made Easy, the most significant legal change introduced in the Act is a strict (no fault) liability for damages arising out of defective products. “It is no longer necessary for a consumer to prove negligence against the importer, producer, distributor or retailer of any goods,” says Melville.
“This covers a wide range of scenarios: harm caused wholly or partly as a consequence of supplying any unsafe goods; a product failure, defect or hazard in any goods; or even inadequate instructions or warnings provided to the consumer pertaining to any hazard arising from or associated with the use of any goods.” In other words, a consumer can sue if they suffer any harm or loss as a result of any warning or instruction on the product or packaging being unclear, a defect in the product, or the product being unsafe.This change will have far-reaching implications for the level of indemnity insurance required by businesses as well.
“Since approximately 90% of businesses are either under- or incorrectly insured, this will have a large impact on the way companies do business and how insurance providers approach cover,” agrees advocate Louis Nel, a travel, tourism and SMME specialist. “There is now a far greater risk involved. Businesses will be expected to be compliant with the Act to qualify.” The Act does provide certain defences however. “For example, members of the supply chain are not liable if the defect did not exist at the time the goods were supplied, if the defect is a direct result of actually complying with public regulations, or if it is unreasonable to expect the distributor, retailer or marketer to have discovered the unsafe product characteristic,” says Melville.
“What this means is that businesses should check the products they are dealing with carefully at all stages of the supply chain, and be very sure of the condition of a product when it is bought and handed over,” adds Nel. According to Melville, large suppliers are unlikely to be able to rely upon the last of these defences, particularly as larger organisations have strict quality control measures in place, as well as regular compliance audits. “It might be possible for a small retailer to get off the hook on this basis though,” he adds. The consumer also cannot automatically lay blame at the suppliers’ feet. “The consumer must still act responsibly,” explains Nel. So you cannot drive a car off a bridge and then blame the manufacturer for the accident – unless the manufacturer advertised that the car can fly.
Under the Act, all goods sold will also be subject to an automatic warranty that they are suitable for the intended purposes, are of good quality and free of defects, and reasonably durable. “If a product does not live up to these standards, the consumer will be entitled to return the product for a refund, replacement or repair, within six months of the transaction – and the choice is the consumer’s, not the supplier’s,” says Melville.
This means that if a product does not live up to its marketed purposes – in any way – it can be returned. Suppliers who have in the past agreed to exchanges but not refunds can no longer do so, and a sale is only really a sale (with guaranteed money in the bank) after six months. This will impact service delivery, product quality and most importantly, how that product or service is marketed. False advertising now has serious consequences. There is also a ten-business-day window for consumers to return goods which they have not had the opportunity to examine beforehand or that were not suitable for the purpose the consumer explained to the supplier. If the goods were bought as a consequence of direct marketing, the cooling off period is five business days.
In terms of supply chain transactions, the Act has tightened up on the requirements relating to the delivery of goods as well: they must be delivered within a reasonable time after the agreement is entered into or as agreed between the parties. If there is going to be a delay in the delivery, the supplier needs to inform the consumer and arrange a new date. The consumer is, however, entitled to cancel the deal and go elsewhere. If goods are incorrectly delivered, the supplier runs the risk of the goods being declared ‘unsolicited’, in which case their ownership can pass to the person to whom they were delivered. “This is something suppliers need to be very careful of,” warns Nel. “Imagine a customer orders 60 cases of merlot but you accidently deliver pinotage. The customer is technically allowed by the Act to declare the delivery unsolicited and keep it – free of charge.”
Upping Service Levels
“Services must be performed in a manner and with a quality that people are generally entitled to expect,” says Melville. “The service must be performed and completed in good time, or the supplier must give the consumer timely notice of any unavoidable delay. If the supplier fails to perform the service to the necessary standards or as agreed, the consumer can require the supplier to make good any defect or shortcoming or insist on a refund of a portion of the price agreed upon that is consistent with the degree of the shortcoming.”
Another important change is that consumers can now cancel orders and agreements, provided they give the necessary notice and with the possible imposition of penalties or cancellation fees.
One of the most important aspects of the Act is that everything must be in ‘plain’ language. In other words, any agreement must be easily understandable. Every company’s code of conduct must be available to potential clients, and all correspondence and transactions must be transparent, including marketing and advertising.
Much of the Act relates to marketing or promotional activities, explains Melville. For instance, discriminatory marketing (having different approaches on the basis of race, gender or colour) is prohibited. False advertising is a big no-no as well. “Suppliers may not use false, misleading or deceptive representations to win over consumers to their products. They must also make full and honest disclosure about products, including their price,” he adds. “This can have far-reaching consequences,” warns Klinkert. “Big sales that advertise goods ‘while stocks last’ can no longer use the same tactics. For example, if a TV is advertised for
R1 000 ‘while stocks last’, a consumer arrives to buy that TV – as advertised – and it is out of stock, the supplier cannot offer a different TV for a different price in its stead. They must give the consumer a TV that is of the same quality for the advertised R1 000. The old ‘bait’ tactics of getting people to the store by advertising one thing, in the hopes of getting them to buy a more expensive product instead, are over.” Another forbidden practice is overselling. “Overselling means accepting a once-off payment for something you have no reasonable basis of believing you are able to supply,” explains Melville. “In other words, suppliers can’t make empty or grand promises. A supplier guilty of overselling would be liable for refunding the consumer the amount plus interest, as well as any cost directly associated with the supplier’s breach of contract. Such costs could even include travel and accommodation.”
How threatening are these clauses? “The bulk of the Act is just common sense and good business practice,” says Nel. “If you are honest, it’s not complicated. But, it does involve more work, and it is important to have a strong risk management system in place.”
Nel’s advice is to start by checking and double checking all interaction and points of correspondence between the business and its clients. This includes emails, calls, adverts, SMSs, websites, even how walk-in customers are treated by staff. “At each point ask yourself: Where am I at risk and how do I address that risk?” he says. “Understand your critical transaction path and ensure that at every point you are covered.
“A good way to mitigate this risk is to create templates. No matter the correspondence, have a specific form that you use. From the very beginning ensure that the words ‘All Ts&Cs apply’ appear on everything as well, and always clarify what you believe to be the point of any interaction,” he continues. “For example, when you respond to an email, start with the words ‘It is my understanding that you require …’ In this way you can ensure you are both on the same page and there is no gap between expectations and delivery.”
Nel also advises that every piece of correspondence, right down to the invoice, includes the fact that terms and conditions apply. “A consistent flow throughout the transaction ensures risk mitigation. There can be no surprises,” he says. In terms of the plain language clause, Nel advises business owners to get someone else to read through all the business’s documentation – from Ts&Cs to contracts and warranties – with a critical eye. “Ensure any misleading, deceptive or ambiguous wording is clarified. If you aren’t sure, change it anyway.”
The Three Phases of Compliance
In his book, Melville unpacks a three-phase approach to compliance:
Establish whether the provisions of the Act apply to your business.
Determine which areas of the Act apply to your business. If your business is multi-departmental, decide which areas of the Act apply to which departments. The departments will need to communicate with each other, however. The Act calls for a transformation in how business is conducted, and this requires transparency – within and beyond an organisation.
Phase 3: Undertake a compliance audit:
What does the Act require?
What is the existing position in your organisation or department in this regard?
If you fall short, in what respects?
What action needs to be taken to ensure that compliance will be achieved?
Who will be responsible for carrying out the change?
By when must the change be brought about?
Compliance must be checked by the responsible party and signed off.