Lofty ideals are a bad basis for law. The Consumer Protection Act will result in higher prices for the very consumers it claims to protect.
Later this year, in October 2010, the Consumer Protection Act number 68 of 2008 will come into effect. Its impact will be broad.
Many of its provisions are welcome. Its aims, certainly, are noble. Who doesn't want to prevent misleading marketing? Who opposes the right of consumers to make informed choices in the marketplace? What's wrong with cheaper and easier access to means of redress, when formal legal action is so expensive and time-consuming?
Some of the provisions of the law, however, will have unintended consequences. Some will significantly raise the cost of goods and services, or increase the risk of selling them. This will not just harm producers, but it will harm consumers.
There are many welcome provisions in the act. Among the most useful provisions, in principle, is the plain-language requirement for contracts. Whether it will make much difference in practice, however, is a different matter. Companies will spend heavily on plain-English specialists to complement their legal teams, and invest fortunes redrafting all their terms, conditions, policies and agreements. Not only will these costs be recouped from newly-protected consumers, but is opaque language really the biggest problem? Will it make consumers stop to read terms and conditions? Will it stop them from blaming the "fine print" when a supplier resists demands that run contrary to the agreement?
The establishment of a consumer protection commission and tribunal, aimed at expediting routine consumer complaints at minimum cost, is also extremely welcome. Access to legal redress should be as efficient and inexpensive as possible, if people are to exercise their rights in a free society.
However, there are provisions that are less benign, not in their intent, but in their likely effect.
An example is the requirement that a supplier must provide, at no charge, a quotation for repair work. That doing so may incur a significant cost, in terms of time and labour, does not matter. A supplier may reasonably wish to protect himself against the cost of doing diagnostic work on a faulty product, especially when the revenue of repairing it may ultimately go to a competitor. The cost of the right to free diagnosis and quotation will naturally be recovered elsewhere: in the price of the product, or the cost of repair. That means that all consumers will suffer higher prices.
An even worse risk to suppliers is that of a cooling-off period. Consumers who purchased something in response to "direct marketing" such as a pamphlet in the mail, are able to cancel the agreement within five days, and even return goods "without reason or penalty".
Imagine the potential for abuse. Need a camera for a day? Just order one "on appro". Need a dress for a party? Just buy one, and send it back the next day. Protecting consumers from their own hotheadedness will not only encourage more hotheadedness, because they can always send it back, but invites deliberate exploitation of the law.
Considering that returned goods often cannot be resold as new, and someone has to cover the cost of shipping, this clause will significantly raise the risk to producers of supplying goods and services. Who will pay for that higher risk? You and I, of course, in the higher prices we'll pay.
Besides, aren't there two sides to every transaction? If a consumer has the right to protection, why should a supplier be exposed to the risk of consumers who cancel a transaction, claiming that they acted thoughtlessly? Take into account that, contrary to caricature, the supplier is often not a faceless company with deep pockets, but a small business scraping by. What about their rights, when they delivered upon agreements entered into in good faith?
Another example of unintended consequences is the clause that disallows the sale of non-refundable bookings, and even requires companies to waive cancellation fees for bookings in cases where the consumer in question is hospitalised (or worse). While this might seem nice to the consumer, the theatre or airline is still stuck with the unsold seat. Guess who pays for that seat? We all do. Is it the seller's fault that the buyer changes his mind, or is unable to take advantage of the ticket they purchased? Is it ours?
When, in the name of "protecting" a few consumers, all consumers get penalised, there's something wrong.
The act also invites class-action lawsuits, of the kind we're familiar with from the litigious United States. Do we really want to goad unscrupulous lawyers into action against companies with deep pockets, and cobble together classes of persons allegedly harmed by their products or services? While some of the cases may indeed be just, international experience has shown that, as often as not, class-action litigation is over-zealous or trivial, which is a great burden to suppliers. Many massive cases are based on limited evidence of actual harm. Some are no better than plausible invention. More expensive liability insurance will increase the risk of doing business, which ultimately leads to higher prices. It will also reduce the availability not only of the potentially harmful goods and services that the government had hoped to act against, but also of those that would materially improve the lives of consumers.
Supposed consumer protection measures do, in some cases, protect consumers, even if many of those protections are already implicit in existing laws against, for example, fraud.
What they do with much more certainty, however, is to raise prices. Worse, they can only serve to encourage irresponsible behaviour on the part of cosseted consumers, now protected by law even from their own rashness and negligence.
The rich might be prepared to pay a premium in return for peace of mind, but who is to say that someone who really cannot afford it will feel the same? Why should the poor be penalised to protect other consumers, often from their own hotheadedness?
Just like all well-intended regulation, this law will raise prices and restrict access to goods and services, which the poor will feel the most. If you're a relatively poor country, making laws that do this is, quite simply, stupid.
And one more thing. Consumers most need protection not from unscrupulous direct marketers and hucksters. Most are streetwise enough to stay away from them. Consumers most often complain about the ravages of South Africa's infamous banking or telecoms cartels, with their exorbitant charges, disregard for customer service, and misleading or opaque sales offers. These cartels were established, nurtured and protected by the state, and thanks to the high regulatory barriers to entry for new competition, they have the power to exploit, in silent collusion, South Africa's consumers.
Does anyone truly think another costly layer of bureaucracy, in the form of consumer protection legislation, will protect us from those against whom we need that protection the most?
The intent was to protect the consumer. The effect, far too often for comfort, will be the exact opposite: to screw the consumer.
Anyway, very interesting read, thanks.
Unfortunately over the years the quote fee has crept up until it seems like one will pay a minimum of two hours labor for a five minute repair. It is also not uncommon to take something for a warranty repair, they find a scratch, claim you dropped the device and then slap a quote fee on top of the repair fee. For something that should have been free.
Many businesses operate quite successfully by quoting for work they might not get. Yes, this is built into the final cost, but most consumer products already have repair built in as a warranty cost. The quote fee might have existed for a reason in the past, but now seems to be an easy way to blackmail customers.
Not that it really matters, since businesses will find ways around this: by charging callout fees, or doubling the repair costs on the quote, or by selling upgrades instead of repairs. But at least they will no longer be able to hold the consumer to ransom.
I'm not convinced this is a bad thing.
The unfortunate thing is that when it’s done purely for compliance reasons, plain language initiatives often don’t succeed. You are right – they are expensive. Unless organisations find a business reason or benefit for their plain language, the initiative is likely to never really get off the ground. Or even worse, businesses will claim to have rewritten their documents in plain language, whereas all they have really done is changed a few words and shortened a few sentences.
Organisations should realise that the definition of plain language in the Act presumes far more sophisticated methodologies than old-fashioned readability tests.
Many of our clients at Simplified started their plain language programmes years ago. Companies like them will be well-placed to comply with this legislation as their intentions were not just about compliance – they managed to find business benefit.
What the plain language requirement also means is that companies should insist that when their lawyers draft their trading terms and contracts, that they draft them in plain language instead of the usual jargon. FNB has had plain language terms for years now and we make a point of drafting in plain language as much as possible (without compromising the legal effect of the documents we create).
Plain language documents are important from an enforceability perspective. True, many people won't read standard trading terms anyway but using that behaviour as an excuse to draft in stereotypical legalese is short-sighted and foolish. Generally speaking, those standard trading terms are binding on customers (there are a few basic requirements which most businesses meet). That being said, if those documents contain cryptic language and terminology, I don't believe that the customer could be held to those terms. If lawyers often don't understand that these documents contain, how could customers be expected to understand them and be bound by them. Making sure that trading terms are in plain language in the first place means that there is less likelihood of a customer subsequently arguing that they wouldn't have understood the terms and couldn't possibly be expected to be bound by them in the first place. It sounds a little absurd but I do believe there is merit in such an argument.
Another good reason for plain language wording is clarity about what the terms of the agreement are and what each party's obligations are. This sounds obvious but uncertainty about the terms of an agreement is a major contributor to the growing amount of civil litigation we see pass through our already over-burdened courts. Plain language drafting makes good business sense.
Most respected plain language practitioners take our work seriously and realise that plain language is not a skill one can pick up overnight, or offer ‘on the side’. The interpretation of the plain language laws must be done with care, including knowledge of international best practice and, hopefully, local research. I don’t know about a ‘booming’ plain language ‘business’, but there are a handful of South Africans (including me), who over the years, have taken time to be involved in international groups and debates. I think it would be very positive if this handful could grow into an industry.
One thing that plain language practitioners know is that it takes time and experience to simplify. That’s why ‘document-heavy’ companies who have not even started to put their documents in plain language, will struggle to comply with the CPA (and Companies Act, for that matter) by the deadlines.
As I understand it, a critical part of the purchase process is the reciprocal obligation placed on either the side of the negotiation, where the supplier is obliged to provide the promised merchandise or service and the consumer/buyer has an obligation to remunerate the supplier for the service or goods. To put it differently, the consumer has a right to the goods or service by paying for them, and the supplier has a right to remuneration by performing or bringing forth the goods.
I agree that the "cooling-off" provision raises the possibility of exploitation by unscrupulous consumers. What is of even greater concern is that the 'sacred relationship' between two contracting parties has been tampered with. As Michael Williams point out, loopholes have been scratched out of what was once an efficient and certain system. Time will show that the price we paid for legal certainty will be small compared to what suppliers will do to protect themselves from the possibility of exploitation. I don't like it at all and I doubt Adam Smith would have liked it either.
A most excellent and thought-provoking read.
Surely companies will use plain-English if it is in their own interest to do so? Evidently, as Frances Gordon attests, some do. Should the choice not be up to companies, to face the consequent verdict of the market as consumers choose to do business with those whose contracts make plain sense to them? If you make plain language the law, either it makes no economic sense otherwise, or the law is superfluous and merely adds to the bureaucratic burden on commerce.
After all, the entire purpose of contract law is to create obligations where none exist, or in other words, to override common law rights. If I give you something, I have no common law right to demand payment, unless a (possibly implicit) contract exists between us. So, writing laws that cannot be abridged by individual contracts, or worse, creating laws that override the certainty of contract, creates a bureaucratic morass full of loopholes in which only frauds and lawyers can possibly be happy.