12.1.3 Issue: Bonds to assess faulty goods

The Ministry of Consumer Affairs has received numerous complaints from consumers and consumer agencies about whether suppliers have a right to require consumers to pay bonds before assessing faulty goods for repair. In particular, these complaints are commonly about faulty mobile phones and other portable electronic equipment.

Typically, consumers are seeking a repair for a faulty item which they consider should be covered by the Consumer Guarantees Act, and the retailer requires the consumer to pay a bond for the good to be sent away for assessment. If the assessment establishes that the good’s fault is covered under the Consumer Guarantees Act or a warranty, the consumer receives the bond back. If the fault with the good is not covered, the consumer will not receive the bond back and will be given the option to pay for the repairs or to retrieve the good.

Under the Consumer Guarantees Act, a remedy must be given if the product does not comply with the guarantees. Consumers need only prove to a civil standard (the balance of probabilities) that a retailer has breached a guarantee under the Consumer Guarantees Act, before they are entitled to a remedy.

The problem is that some suppliers are not accepting responsibility for any faults particularly with mobile phones unless the phones are first sent away for assessment. This forces the consumer to bear the initial burden of the assessment through the supplier’s requirement of a bond. Of particular concern is when a bond is sought for an obvious fault with the good.

Examples include: a brand new mobile phone’s key number falling off on the second day of use, yet the mobile phone provider insisted on a bond for assessment; a new phone and the phone would not turn on; a new phone and the battery would not recharge. In these cases, the standard repair, replace or refund remedies should be immediately available without necessarily requiring an assessment to be made as a standard practice.

The bond is effectively creating a barrier to consumers who are trying to access and exercise their normal consumer rights under the Consumer Guarantees Act. It effectively means that consumers who cannot afford to pay the bond or are not willing to risk the possibility that the bond will be retained by the supplier, are prevented from accessing the remedies under the Consumer Guarantees Act.

The reverse argument from the retailer is that consumers misuse their products or do not follow directions properly, so any faults developed are not necessarily covered by the Consumer Guarantees Act. The suppliers claim they can only determine where the fault lies by making the off site assessment and this costs them money so the bond is a way of covering that cost.

It is a point of annoyance for many consumers that suppliers do not disclose the requirement for a bond for assessment at the point of sale, or advise consumers they may independently verify whether faults are covered by the Consumer Guarantees Act.

Suppliers may also require consumers to sign repair policy statements which make no mention of the Consumer Guarantees Act and also attempt to avoid liability for consequential loss resulting from repairs, e.g. loss of pictures, games, downloads, phone numbers.

Informing the consumer about the repair assessment bond from the outset

The Consumer Guarantees Act is silent on whether bonds may be charged for the purpose of assessing faults. As such, some suppliers appear to have taken this to mean the practice is permitted. In Canada, there is very similar legislation to the Consumer Guarantees Act.

This provides that the only way a supplier can claim compensation for costs spent in a false claim is if there is a term in a written agreement, and that term is restricted to paying the reasonable costs of the supplier in dismantling goods, and that term is brought to the consumer's attention before signing the agreement⁷⁸.

There may be merits in providing a similar provision in the Consumer Guarantees Act. This approach balances the tension between the problem suppliers face of people “trying claims on” when they have caused the problem themselves (thus causing the supplier additional costs), and the genuine complaints made by consumers.

If the consumer has a chance to note specifically that an assessment fee is liable to be charged, they can make an informed purchase decision.

The risk of allowing such an option is that suppliers may introduce this kind of clause as a default component of any contract they use. This effectively means the same problems from the consumer perspective will continue to exist, except that the consumer would have the opportunity to consider making the purchase with the knowledge of this clause (provided it was brought to their attention).

Limiting the amount of any bond to the reasonable costs of the supplier in dismantling the goods would potentially keep high bonds from being charged as a means of reducing claims from consumers.

Questions

Footnotes

78 The use of the word “false” in relation to consumer claims in this context does not necessarily imply dishonesty on the behalf of the consumer.