NSW creates new requirements to disclose unfair consumer terms and any intermediaries' commission arrangements upfront

Reforms to the Fair Trading Act are now in effect, requiring businesses operating in NSW (including interstate businesses dealing with NSW consumers) to take "reasonable steps" to ensure that, before supplying goods or services, consumers are aware of any terms and conditions which may "substantially prejudice" their interests. Examples of such terms which need to be specifically disclosed may include terms regarded as unfair such as automatic roll-over clauses, as well as terms that allow a supplier to share identifiable consumer data with third parties, or permit a supplier to withhold a deposit or payment in the event of cancellation for COVID-19-related circumstances.

Intermediary businesses (eg. agents or brokers) are also required to disclose the existence of any referral or commission arrangements before the supply occurs (but not the size of the commission).

After a turbulent 2020, the end of the grace period for complying with these new requirements may have slipped through the cracks, so now is the time to make sure your business is compliant to avoid significant penalties.

These requirements will put an onus on businesses to be able to demonstrate that they have complied, and this will likely require a review of their websites and other documentation to:

• determine if there are any potentially unfair terms or commission arrangements of the kind covered by the new law; and
• if so, ensure that a written record exists of how the business complied and disclosed those terms or arrangements, before supply of the goods or services occurred.

Perceived gaps in consumer protection

The new disclosure requirements under sections 47A and 47B of the Fair Trading Act 1987 (NSW) were introduced by the Fair Trading Legislation Amendment (Reform) Act 2018 (NSW) to address perceived regulatory gaps in the current legislative framework and general law for the protection of consumers.

These suggested gaps included that:

• the Australian Consumer Law (ACL) provisions relating to unfair contract terms and unconscionable conduct have a high threshold of proof that would not necessarily apply in circumstances where a consumer did not have notice of a term or condition that would substantially influence whether they decided to enter the agreement; and

• intermediaries such as travel agents, comparator websites, finance brokers, wealth planners, energy brokers, strata managers and real estate agents, were previously only required to disclose the existence of referral or commission arrangements in certain limited circumstances, resulting in consumers not having all the information they needed to make informed choices.

In response, the reforms aim to:

• address information asymmetry and increase transparency by ensuring that potentially unfair or prejudicial terms and conditions are not hidden in lengthy documents or obscure webpages; and

• improve consumer awareness, and put consumers on notice when recommendations they receive from intermediaries may be biased (as a result of commission or referral arrangements).

Not just businesses based in NSW to be affected by new consumer laws

The new laws apply only to businesses and intermediaries that deal with "consumers" in NSW, as defined by section 3 of the ACL. This means that the new disclosure obligations apply to you if:

• you are a business or intermediary (either in or outside NSW) and you supply goods or services to consumers located in NSW; and

• the goods or services you supply to consumers are:
  • sold for an amount that does not exceed $40,000 (soon to be $100,000); or
  • sold for a higher price and are of a kind ordinarily acquired for personal, domestic or household use / consumption; or
  • a vehicle or trailer acquired for use principally in the transport of goods on public roads.

The new laws apply to financial services as well as other kinds of goods and services.

Importantly, the scope of consumer transactions which will trigger these new disclosure obligations will significantly expand from 1 July 2021, when the monetary threshold for the definition of "consumer" under section 3 of the ACL and under this NSW Act, is increased from $40,000 to $100,000.

There are currently no exceptions to the new laws, and they are intended to apply in addition to any mandatory protections under the ACL (eg. consumer guarantees) and to any existing disclosure obligations your business may have.

If you do not comply with the new disclosure obligations, you could attract significant penalties of up to $110,000 per contravention for corporations, and $22,000 per contravention for individuals. NSW Fair Trading can also issue a penalty notice of $1,100 per offence for corporations, and $550 per offence for individuals.

If you are a business supplying goods / services in NSW

Section 47A of the Act requires a business, before supplying a consumer with goods or services, to take "reasonable steps" to ensure the consumer is aware of the substance and effect of any term or condition relating to the supply of the goods or services that may "substantially prejudice" the interests of the consumer.

The Act provides a non-exhaustive list of the types of terms or conditions that may substantially prejudice the interests of consumers, including terms which:

• exclude the liability of the supplier (though guidance from NSW Fair Trading suggests that terms which “limit" the liability of the supplier (not just “exclude”), may also be caught);
• provide that the consumer is liable for damage to goods that are delivered;
• permit the supplier to provide data about the consumer, or data provided by the consumer, to a third party in a form that may enable the third party to identify the consumer; and
• require the consumer to pay an exit fee, a balloon payment, or other similar payment.

If your terms or conditions include any of these types of provisions (or other terms which may "substantially prejudice" a consumer), you must take reasonable steps to make sure that a consumer is aware of them before you supply the goods or services (ie, before the consumer signs the contract or makes a payment). Depending on the nature of your business and how you interact with consumers, this might mean you should:

• include a short summary page of any potentially prejudicial terms or conditions on the front page of your contract;
• include in your call centre scripts a mandatory statement regarding any potentially prejudicial terms or conditions, and a requirement that your call centre staff obtain explicit informed consent from the consumer before proceeding;
• include any potentially prejudicial terms or conditions in a text box at the top of your webpage, or in a pop-up box before a consumer can proceed to accept the terms or conditions; or 
• prominently display any potentially prejudicial terms or conditions on a sign on your web page, at the store check-out or at the front of store.

NSW Fair Trading advises that disclosure should be clear and upfront. To minimise risk you should ask the consumer to confirm that they are aware of the terms or conditions and their effect (eg. by obtaining explicit informed consent as required by your call centre scripts, by initialling the contract, or by way of a check-box on your website).

If you are an Intermediary with referral / commission arrangements in NSW

Section 47B of the Act requires intermediary businesses to take “reasonable steps” to ensure that consumers who will be supplied with goods or services are aware of the existence of any financial relationship with the supplier of those goods or services. While intermediaries must disclose the existence of such arrangements (which can be formal or informal), there are no obligations to specify the nature or value of the financial incentive.

An intermediary business means a business that acts a go-between for suppliers and consumers, usually in return for a fee, without taking ownership of the goods or services. The NSW Fair Trading guidelines provide a number of examples of common types of intermediaries, including real estate agents, travel agents, mortgage brokers, and comparator websites.

You will be considered an intermediary business if you:

• arrange contracts for the supply of goods or services to a consumer as an agent, for which you receive a commission from the supplier of the goods or services; or
• refer a consumer to another supplier of goods or services, in exchange for receiving a referral fee from that supplier.

  If your business fits within the above descriptions, then depending on the nature of your business and how you interact with consumers, this might mean you should:

• disclose any commission or referral arrangements on your website via a pop-up box (eg. before a consumer can proceed to complete the purchase or goods/services, such as when the consumer clicks on "buy now", "book now", or "compare" etc.);
• include an automatic disclaimer regarding your commission or referral arrangements on the bottom of any emails or quotes sent to consumers; or
• include in your call centre scripts a mandatory statement regarding any commission or referral arrangements related to the goods or services the consumers wish to sign up to, and a requirement that your call centre staff obtain explicit informed consent before proceeding.

To minimise risk you should also ask the consumer to confirm that they are aware of the commission or referral arrangement (eg. by obtaining explicit informed consent as required by your call centre scripts, or by way of check-box on your website).

Getting ready for the new disclosure obligations

It is unclear if other States and Territories will follow the NSW lead. One of the advantages of the ACL was the uniform national code for consumer rights and remedies. There is a risk that if different States begin to introduce these new laws or other specific additions to the ACL rights of consumers, which would  return us to a patchwork approach to consumer protection that existed before the ACL, the overall scheme of consumer protection will become much more costly for businesses to comply with.

The scope of the new laws is quite broad, since many Australian businesses located outside NSW may supply goods or services to consumers in NSW. In the context of increased regulatory scrutiny of the transparency of terms and conditions with consumers, and recent ACCC enforcement against businesses for misleading consumers by not disclosing their commission or referral arrangements, you can be sure that these provisions will be rigorously enforced.

You will also need to consider the new laws in parallel with existing (and to an extent, overlapping) obligations under the ACL, including consumer guarantees, and the prohibition against unfair contract terms.

If you would like more information on how these new disclosure obligations will affect your business, are unsure whether you might be an intermediary business, or would like some help implementing these new requirements, get in touch with us.