Consumer Protection Bill, 2008

1. RESPONSES TO STAKEHOLDER ORAL & WRITTEN SUBMISSIONS DATE: 10 September 2008 Zodwa Ntuli – DDG: Consumer and Corporate Regulation Division (CCRD) Fungai Sibanda – CD: Policy & Legislation (CCRD) Ebrahim Mohamed – CD: Office of Consumer Protection (CCRD) Nomfundo Maseti – D: Competition & Consumer Policy & Law (CCRD) Sipho Tleane – D: Office of consumer Protection (CCRD) Magauta Mphahlele - Member: National Consumer Tribunal Consumer Protection Bill, 2008

2. Purpose • The purpose of this presentation is to provide the dti’s responses to issues raised by stakeholders during public hearings

3. Introduction • The need for a comprehensive consumer protection legislation arises from: • the fact that no there has been substantial review since the enactment of Unfair Business Practices Act in 1989; • an outdated common law regime that is routinely not complied with and depends on private remedies through the courts; • piecemeal approach in regulating consumer protection matters and limited redress mechanisms.

4. Introduction • The scope of the Bill • The Bill seeks to regulate the commercial relationship between supplier and consumer to ensure fair and competitive markets • It is a general law of application to all sectors of the economy i.e. it applies to all economic activities within the Republic • Recognizes existence of some consumer protection measures in other sector specific legislation. Whilst some measures are complementary others require harmonization or coordination • The Bill repeals certain legislation and introduces new and general principles of consumer protection which serve as a governing statement on consumer protection matters in South Africa • To deal with duplication, the Bill allows for: • -concurrent exercise of jurisdiction over consumer protection matters and allows for proper management of this concurrency; • -exemption provisions by regulatory authority; and • -upfront exclusion of some sectoral legislation.

5. Dti Response Overview of the dti response: Duplication with sectoral laws Exclusions and exemption provisions – section 5 Thresholds – sections 5 Bundling of goods – section 13 Fixed term agreements – section 14 Cooling off period – section 16 Return of goods – section 20 GMOs labelling – section 24 Unfair contract terms – section 48 Prohibited transactions or terms – section 51 Implied warranty – section 56 Safe disposal of designated products or components – section 59 Product liability – section 61 Enforcement institutions – section 69 Consent orders – sections 70-74 Consequential amendments

6. Duplication with sectoral laws Comment Section 1 • The Bill overlaps with other sectoral laws which contain consumer protection matters; • Duplication on services regulated under: - Financial Advisory& Intermediary Services Act (FAIS Act) - National Credit Act (NCA) – credit agreements - Collective Investments Schemes Act - Short term Insurance Act - Long term Insurance Act • Exclude advice and intermediary services regulated under FAIS Act as well as services regulated under the above laws. Dti response • The policy rationale is to develop an overarching & comprehensive national legislation that applies across all sectors of the economy. • An assessment of various pieces of legislation reveals that consumer protection measures in SA are inadequate. • Certain legislation that deal with consumer protection matters were excluded upfront. • These are Short term and Long term Insurance Acts, services regulated by FAIS Act and certain services regulated under Electronic Communications and Transactions (ECT) Act. • The dti proposes that the definition of “service” be reviewed to exclude intermediary services regulated by FAIS Act as well as credit agreements. However goods purchased on credit will be regulated under this Bill.

7. Exemptions & Exclusions Comment Section 5 • Exemption provisions are limited as they only allow regulatory authorities to apply for exemption; Firms and associations are excluded from applying for exemption • Proposed definition of regulatory authorities to include government departments enforcing other national legislation • Section 5(2)(a) excludes consumers of goods supplied at the direction of the State; the actual users of those goods or recipients or beneficiaries of those services will not be in a position to rely on the Bill • Section 5(6) regulates internal services of trade unions which are already covered under the Labour Relations Act (LRA) • Section 2(9)(b) contradicts section 210 of the LRA • Threshold in the Bill is based on size of transaction; this will mean protection to big business • Exemption of all sectors before the coming into operation of the Act dti response • Exempt where there is adequate consumer protection measures in line with principles and protection offered in the Bill; The dti does not support upfront exemptions other than those already in Bill. • The dti proposes that the definition of “regulatory authority” be broadened to include government departments that enforce other national or sector legislation.

8. Exemptions & exclusions • To address concern on section 5(2)(a), we will remove phrase “at the direction of the state” which contradicts section 5(8). The intention is to exclude the state as a consumer but to include the state or any of its agents as a supplier. • The dti proposes amendments to section 5(6) to explicitly exclude collective bargaining services regulated under LRA. The intention was not to regulate the primary services of trade unions such as collective bargaining services offered by them, but rather to regulate any commercial activities rendered by unions (e.g. funeral scheme plans, investments). There is no contradiction between section 2(9)(b) of the Bill and 210 of the LRA since the former deals with consumer protection issues whilst the later deals with labour relations issues. • The dti proposes amendments to section 5(2)(b)(i) to reflect a threshold based on annual turnover/ asset value, to be determined in terms of regulations. The intention is to protect SMMEs.

9. Exemptions and exclusions Comment Section 7 • Regulation of franchise agreements in terms of the Bill will impact negatively on franchise industry which may result in job losses; • Delete all sections dealing with franchise agreements dti response • The purpose for regulating franchise agreements is to protect franchisees who fall under definition of small business; intention is not to undermine franchising model or to distort principles underlying franchising. • Most terms and conditions of franchise agreements are biased in favour of franchisors with detrimental effects on franchisees; There are clear power imbalances existing in this relationship.

10. Exemptions and Exclusions cont’d Comment Section 8 & 9 • Reduce the age of majority from 18 to 13 because some customers do transactions on their own. dti response • The definition of minor in the Bill, is consistent with South African law and other national legislation. No change will be made on this matter.

11. Bundling of goods Comment Section 13 • Proposed that the wording of section 13(2) be widened to allow goods unrelated to the object of the franchise agreement to be bundled if disclosure is made upfront; • Allow for consumers to buy goods separately at individual prices. Dti response • The protection provided in section 13(2) for the supplier is sufficient. The proposal will weaken the protection to franchisees as they may be compelled to accept upfront bundling of products which are unrelated to the object of the contract. • It is proposed that section 13(1) of the Bill be amended to allow for bundled goods to be sold separately and at individual prices.

12. Fixed Term Agreement Comment Section 14 • Clarification sought on meaning of fixed-term agreement • Consider including the words “or any other recordable form” in section 14 (1) (c) • Exclude franchise agreements from the ambit of section 14. • Cancellation of fixed term agreements by giving 20 days notice will impact negatively on big businesses such as Eskom, Transnet etc. who enter into big contracts. It will be difficult for big businesses to find replacement in event of cancellation. Dti Response • It is proposed that definition of fixed term agreement be provided in the Bill. • The dti proposes that the Bill be amended to include “any other recordable form”. • Franchise agreements are already excluded from the definition of consumer agreements. regulated under section 14 of the Bill for fixed term agreements. • The dti proposes that section 14 be amended to exclude business to business transactions.

13. Cooling Off Periods Comment Section 16 • Cooling-off period must be aligned with section 20(2) of the Bill. • The concern is that consumers may abuse this provision by returning goods after they have been consumed or opened Dti Response • The dti proposes to align section 16 and 20 to provide for consumers to pay if goods have been opened or not in the original condition. Comment Section 20 • Consumers may abuse their right to return goods. Section 20 does not give recourse when goods are opened. Dti Response • Section 20(6) gives suppliers the right to charge any reasonable amount if goods are opened or consumed

14. GMO Labelling Comment Section 24 • Re-introduce the requirement for Genetically Modified Organisms (GMOs) labelling to enable consumers to make informed choices. Dti Response • The GMO labelling was originally covered in the Bill but was removed after concerns raised by the Department of Agriculture. • Concerns relate to cost of labelling and technical expertise in regulating safety issues on GMO products; • The Dept of health also raised concerns regarding cost of labelling on food prices; • The dti has no technical capacity to pronounce on the safety or non-safety of GMOs. Technical aspects on safety are dealt with in the GMOs Act. • the dti has no problem in principle to regulate labelling aspect of GMOs to enable consumers to make informed choices.

15. Unfair Contract Terms Comment Section 48, 49 & 51 • Unfair contract terms in the Bill do not provide effective protection of consumers. • Introduce the concept of “Greylist” clauses on what constitutes unfair contract terms • Greylist clauses will be presumed to be unfair. Dti Response • The aim of the Bill was not to take over common law from the domain of our courts; • Legislation needs to provide broad principles to cover future situations; • Section 48 provides broad principles for the courts to guide on how to approach issues of unfair contract terms; • Section 51 already provides for “blacklist” of unfair contract terms and agreements that are prohibited upfront; • The proposed greylist cannot be incorporated in the Bill but may be considered in the regulations. It can be flexible and be amended from time to time as the need arises. • Dti proposes that ordinary courts should have exclusive powers to adjudicate on unfair contract terms

16. Prohibited Transactions Comment Section 51 • Section 49 is risky to the consumer as it is binding the consumer to indemnify suppliers by signing indemnity notices; • It does not provide consumers with opportunity to challenge once notice is signed; delete s49 • To require a consumer to provide a PIN number is prohibited by the Bill this will have unintended consequences – security feature regarding use of ATMs. • Exempt banks, mutual banks or “other financial institution” Dti Response • Section 49 compels a consumer to indemnify supplier for potential risk & liability • Delete section 49 as the issues are dealt with under section 48 & 51. It contradicts section 51 and 61. • Section 51(1)(j)(ii) and 51(2)(b)(ii) of the Bill will be made to ensure that banks are not prevented from asking PIN code when transacting with clients. This was not intended. • Exclude sections but require suppliers to guarantee security of PIN codes & compensation in the event of security breach.

17. Implied Warranties Comment Section 54 &56 • Option to refund consumers should not be on supplier’s discretion, but should allow consumer to choose whether to fix the problem or get a refund. • These sections limit consumer’s rights in terms of common law. Under the section it is the supplier who has the discretion to repair or to replace. Dti Response • The dti proposes that section 54 & 56(2)(a) will be amended to enable the consumer to choose whether she or he wants the goods to be repaired or get a refund in line with the common law. • Rights provided in these two sections are in addition to common law rights, and are meant to enhance rather than weaken consumer protection. • These are goods not fit for purpose for which they were purchased.

18. Product Liability Comment Section 61 • The wording of this section is too wide and will have unintended consequences. • This section will require huge infrastructure and attract major costs. Companies will take insurance cover to guard against product liability and these costs will eventually be passed on to consumers. • Costs will cripple small businesses and lead to job losses. Prefer to accept liability if at fault. • Strict liability can also affect small and medium enterprises. Charges on returned goods can be severely limited. • Section 61 excludes damage caused by GMO products. Dti Response • Strict liability is long overdue in this country, even courts stated that it is a socio-economic issue to be considered by the legislature on whether to introduce it or not;

19. Product Liability cont’d • In the matter involving Wagener & Cuttings v Pharmacare Ltd (2002), the Constitutional Court held that the question as to whether strict liability should be imposed is really a socio-economic question that will require substantial consideration and would have to be answered by the legislature. • The principle of product liability without fault is to remove onus on consumers to prove negligence or intention on the part of suppliers. It has been introduced in legislation in other countries such as Malaysia, US and the EU. • Although we don’t believe that this section on its own would raise significant costs, it is our view that strict liability is necessary for the protection and benefit of the consumer. • No single stakeholder provided any actual or potential costs arising from strict liability except for generalisation. • The dti proposes deletion section 61(1) in order to include liability for damage caused by GMO products, depending on proposal on GMO labelling.

20. Consumer Redress Comment Section 69 • Confusion as to which forum consumers should approach for enforcement of rights; • Alternative dispute resolution mechanism meant to be point of entry for consumer redress; however this is not clear in the Bill Dti Response • The Bill provides alternative avenues of access for consumer redress • To the extent that this is not clear it is proposed that section 69 be amended to make it much clearer amd further articulation on the complaint process should be dealt with in the regulations

21. Dispute Resolution Process High Court Consent Order Tribunal/Courts Provincial Courts OMBUDs Dispute Resolution Agent NCC Suppliers Consumer

22. Consent orders Comment Section 70 to 74 • Section 70 requires an ADR award to be confirmed by the High Court and not by the Tribunal, High Court process expensive. dti Response • To amend section 70 to insert the Tribunal as a competent body to confirm ADR awards

23. Consequential amendments Comment Schedule 2; Section 8(1) • Schedule 2; section 8(1): if a law is repealed it ceases to exist, Cannot thus continue to investigate or prosecute in terms of a repealed law. Dti Response • Despite the repeal of the repealed laws, for a period of 3 years after the general effective date the National Consumer Commission may exercise any power in terms of any such repealed law to investigate any breach of that law that occurred during the period of 3 years immediately before the general effective date. • In exercising authority under sub-item (1), the National Consumer Commission must conduct the investigation as if it were proceeding with a complaint in terms of this Act. • This is meant to deal with the transition from the old to the new dispensation.

24. Consequential Amendments Comment Section 112 of the Bill and section 151 of the National Credit Act • These sections are not aligned, and limit the powers of the Tribunal to impose fines only for conduct prohibited in terms of each Act. • For example: Section 151 of the NCT empowers the Tribunal to impose fines only in respect of conduct prohibited in terms of that Act. • Align Bill with section 7 of Electronic Communications and Transactions Act • Dti Response • Align sections 112 of the Bill and 151 of the NCA to empower the Tribunal to impose fines for prohibited or required conduct. • Consequential amendment to section 151 of the NCA. • It is proposed that the Bill be aligned with section 7 of the ECT Act as it makes reference to the Consumer Affairs Committee

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