The problem with Labour's Fair Go Act

The Labour Party’s proposed new Fair Go Law, aimed at tackling hidden fees, subscription traps, and unnecessary consumer costs, looks like an easy win. For families struggling with the rising cost of living, deceptive pricing and other underhanded tactics only add to their burden. But how likely is it that the new law will be enforced?

A significant number of businesses ignore consumer protection laws, so we can’t assume a new law is likely to automatically protect consumers. Through my own studies examining the terms and conditions of New Zealand companies, every contract I reviewed contained at least one clause that breached the Fair Trading Act‘s unfair contract terms provisions.

Yet, the Commerce Commission does relatively little about these and other widespread breaches, and businesses continue to break the law because they face little to no consequences. In a second study of the prevalence of unfair contract terms, the number of unfair contract terms had increased from the first study. If Labour wants to protect consumers, it must pair new legislation with robust, proactive enforcement. By, for instance, funding the Commerce Commission to conduct far more investigations.

Consumers also have a role to play. Businesses are far more likely to face scrutiny when customers complain, report potential breaches to the Commerce Commission and choose to take their business elsewhere – and tell the business why they are. Unhappy consumers could also share experience on social media. Public exposure often forces a business to change its behaviour faster than the threat of a slow legal process.

(Note to readers following my advice; check the business is actually breaking the law before you post; the Commerce Commission website has good information on consumer laws.)

Some of the proposed bans in Labour’s proposal are technically unnecessary as they are covered by existing laws. The proposal to require car sellers to show the total cost of the car when purchased using credit for instance. The Credit Contracts and Consumer Finance Act obliges lenders to give customers a disclosure statement showing the total cost of the loan before they sign the credit agreement. The same law applies to all purchases using credit. Creating a new law won’t stop creditors breaking the law. 

Banning retailers from selling an extended warranty on the same day as the product purchase is a good idea though. Consumers already have five working days to cancel an extended warranty, but most never exercise that right. Requiring a delay before the warranty can be sold would allow people to consider whether they actually need the extra cover, away from the pressure of the checkout counter or online sales process. (And often the Consumer Guarantees Act 1993 provides consumers with many of the protections offered by the extended warranty.)

Attempting to stop pointless car insurance that excludes most things likely to break would also be a good move. So too would allowing customers 14 days to cancel insurance purchased at a car yard.

Labour’s proposal to make subscription cancellations as easy as signing up is also a genuine improvement that would bring New Zealand closer to Europe. The current practice, where companies trap users in difficult cancellation loops, exemplifies a deceptive commercial practice known as a “roach motel”. Businesses should not be able to build their business models around customer frustration and consequent inaction.

If Labour is serious about eliminating subscription traps, it should also ban companies from requiring credit card details for a “free” trial. If a business genuinely offers a free trial, it does not need your payment information. Businesses demand this data because they bet on human nature, that many consumers forget to cancel, and they will automatically start extracting payments. Escaping these subscriptions is often difficult once they have your card on file.

Similarly, Labour rightly targets unfair exit fees and excessive notice periods. Technically, the Fair Trading Act already covers excessive notice periods under its unfair contract terms provisions. Unfortunately, individual consumers can do nothing about unfair contract terms, because only the Commerce Commission can go to court to challenge them. Australia, whose unfair contract terms regime helped shape New Zealand’s, allows consumers to challenge them directly. Unfair fees and charges are also covered in Australia as unfair contract terms. New Zealand should follow suit.

I also endorse requiring advertised ticket prices to include all unavoidable booking, processing, and other charges. Advertising a base price with a “plus service fees” disclaimer deceives the buyer. It hides the true cost, and those service fees often add a substantial amount to the final bill.

Labour’s Fair Go Law identifies real tricks and traps facing New Zealand consumers. Eliminating common practices including roach motels, hidden costs and the sale of extended warranties at the point of sale will create a fairer marketplace. But New Zealand does not primarily have a law-making problem. It has an enforcement problem. Until businesses know there are real consequences for breaking consumer law, the best-intentioned reforms will have limited impact.