Consumer Policy Tools

Background Paper to Creating Confident Consumers

May 2003

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Regulation of Terms

Where information barriers are significant and unlikely to be overcome by complex disclosure arrangements, a potentially effective mechanism may be to regulate terms in consumer contracts. Regulation of terms can improve the match between consumers' perceptions and sellers' obligations, for instance:

• Imposing a guarantee as to title enables consumers to obtain clear title in circumstances where it may be difficult for them to establish whether the vendor has clear title or whether there are securities over the property in question. [32]
• Consumers are likely to assume that spare parts are reasonably available and that they can take the goods to a repair facility. Imposing a guarantee as to the reasonable availability of spare parts and facilities for repair reduces the need for consumers to search out that information before deciding to buy a particular product.

Imposing guarantees of quality can reduce information costs, particularly with purchasing "experience goods" (where the attributes can only be determined with use, such as a car) or "credence goods" (where the attributes may not be discovered or, if they are, only some significant time after use, such as asbestos insulation). [33] In this way, regulation of terms can help consumers to transact with a greater degree of confidence.

[32] See, for instance, Personal Property Securities Act 1999, part 5. Section 5 of the Consumer Guarantees Act 1993 gives a right to damages if clear title is not provided.

[33] Supra at note 2, at 165 n 17.

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