Government to strengthen law against unfair commercial practices

Commerce and Consumer Affairs Minister, Kris Faafoi, and Minister for Small Business, Stuart Nash, have today announced new measures to better protect businesses and consumers from unfair commercial practices.

We know that unfair commercial practices are harming New Zealand businesses and consumers,” Kris Faafoi said.

“We’re taking action to prohibit the most serious types of commercial misconduct, and to ensure there are better protections against unfair contract terms,” Mr Faafoi said.

The Government is proposing two key changes.

The first is to prohibit conduct that is ‘unconscionable’ – this is serious misconduct that goes far beyond being commercially necessary or appropriate.

The second is to extend current protections against unfair contract terms in standard form consumer contracts to apply to business contracts with a value below $250,000 as well.

“There are existing laws that already prohibit unfair commercial practices, but the changes we’re making go further,” Stuart Nash said.

Mr Nash said some of the examples of misconduct that people provided during a recent consultation on the issue were particularly concerning.

“We heard about a range of potentially unfair contract terms, including extended payment terms, one-sided contract terms, and businesses being locked-in to contracts for long periods of time. We also heard that some businesses aren’t complying with the terms of existing contracts, making excessive demands, and blacklisting and bullying their suppliers.

“Clearly, both small businesses and consumers are suffering because of poor commercial conduct, with negative effects on the economy. The measures the Government is taking will put a stop to this,” said Minister Nash.

Mr Faafoi said the Government expected to introduce changes through a Fair Trading Amendment Bill by early next year.

“This is part of other work underway to promote competition and protect people against unfair business practices.

“The new market study powers which the Commerce Commission is using to review the retail fuel sector is an example of the sort of work the Government’s doing in this space.

“We’re also strengthening laws to protect vulnerable consumers from loan sharks, looking at other ways to improve business-to-business payment practices, and reviewing the current law around misuse of market power such as predatory pricing,” Minister Faafoi said.

Editor’s notes

What changes is the Government making to protect consumers and businesses from unfair commercial practices?

The Government is introducing two key measures to address both unfair conduct across the economy, and unfair business-to-business contracts:

  • Prohibiting conduct that is “unconscionable”. That is, the very worst type of behaviour, or serious misconduct that goes far beyond being commercially necessary or appropriate
  • Extending existing consumer protections (under the Fair Trading Act) against unfair contract terms to also protect business contracts with a value below $250,000.

How bad is the problem in New Zealand?

The Government has surveyed a range of businesses, and found that around half of them had experienced what they considered to be unfair conduct or contract terms. Many of them reported being negatively affected by unfair practices, and experienced problems including cash flow issues, increased costs, reduced sales, wasted time and stress. Examples the Government has heard about include:

  • Individuals being threatened, verbally abused and blacklisted after asking for payment
  • Suppliers being made to pay compensation to retailers for perceived losses after they ran promotions with other retailers
  • Contractors having the scope of their work increased unilaterally without consultation or compensation

Unfair practices are also causing problems for consumers, and the Government has heard a number of examples, including:

  • A lender who repossessed and dumped a borrowers’ personal effects, not to recover their unpaid debt but to send a message
  • A trader who used aggressive sales tactics to sell expensive skincare products to vulnerable people, including two with autism who paid $10,000 for their purchases.
  • A mobile trader who entered a mental health unit and signed up nearly all its patients to unreasonable contracts for phones and PlayStation consoles.

While we don’t know the full details around each case, these examples indicate just how pervasive the problem is for both businesses and consumers.

How will the Government enforce these new protections?

The Commerce Commission is responsible for enforcing many of the existing protections against unfair commercial practices, and will also have a role in enforcing the new protections. Consumers and businesses will also have the option to self-enforce the protections against unconscionable conduct.