9. Information to Assist Consumer Decision-Making

In 2003, a review was undertaken of the role of the Ministry of Consumer Affairs in a dynamic, modern economy⁵⁶. Called “Creating Confident Consumers”, the review concluded that the outcome of confident consumers occurs when consumers’ reasonable expectations are met when purchasing a product or service and if they are not met, consumers have access to redress. Information barriers were identified as the major reason for the gap between what consumers expect and what they get from a transaction. The review determined that an information-based framework was the most appropriate approach to consumer law.

The information-based framework says well informed consumers are generally in the best position to form their own preferences and decide whether or not to enter into a transaction; and that consumer policy should be aimed at reducing the gap between consumers’ expectations and reality within such a framework, by ensuring that:

• consumers can get the information they need to make decisions;
• consumers understand and value accurately that information (so they are more likely to seek it out);
• consumers are not exposed to hidden risks and hazards; and
• consumers have access to redress in the event of failed transactions.

The existing consumer law, supported by industry self-regulation, fits the information-based framework. The Fair Trading Act is designed to ensure that consumers are not misled about what to expect from a transaction. It also provides specifically for regulations for product safety standards and consumer information standards. The Weights and Measures Act is designed to ensure that consumers get the quantity of goods they expect. The Consumer Guarantees Act provides for access to redress in the event of failed transactions.

Disclosure

Regulations to require businesses to disclose particular information are often used to enable consumers to get the information they need to make decisions. Compulsory disclosure requirements have the objectives of promoting transparency and accountability and reducing information search costs where the product, service or the relevant consumer information is complex, or the consumer information is difficult to gather. Compulsory disclosure is required for a wide range of products, from medicines and food to investment (e.g. the Securities Act 1978) and borrowing products (e.g. the Credit Contracts and Consumer Finance Act 2003).

Disclosure takes a variety of forms. For example, the regulated disclosure for financial products includes information on the performance of the investment, details of key personnel and conflicts of interest. The regulated disclosure for credit contracts includes information on the costs of borrowing, interest, repayment timing and fees associated with the borrowing.
Labelling, notices and warnings may be appropriate when only a small amount of simple information is required to inform consumers. For example, mandatory warning labels on poisonous products are a low-cost way of providing important information to consumers.

Consumers can then choose to seek a substitute, investigate the details of the risk, or make the purchase and use the product with care, based on the precautions most reasonable people take with “poisons”. Regulations prescribing the provision of information on medicines and food are made under the Medicines Act 1981 and the Food Act 1981.

Mandatory labelling is used to provide information that can be very difficult for consumers to otherwise find and the government considers having weighed the costs and benefits that there is justification to require such labelling. Included in this category is mandatory care labelling for clothing and furnishings, labelling of petrol octane rating at petrol pumps, energy efficiency and water efficiency labelling of some products and consumer information notices for used motor vehicles.

Consumer information standards under the Fair Trading Act

The Fair Trading Act provides for the making of regulations to prescribe the content, form or manner in which information about a particular good or service is required to be disclosed in a consumer information standard (section 27).

Consumer information standards may include information relating to the kind, grade, quality, origin, performance, care, composition, contents, design, construction, use, price, finish, packaging, promotion or supply of goods or services (section 27(1)(a)).

Regulations under the Fair Trading Act currently provide for consumer information standards on the following:

• country of origin labelling for clothing and footwear
• fibre content labelling on most textile goods, including clothing
• care labelling of clothing, furnishings, textiles
• used motor vehicles, and
• water efficiency of certain water using products.

The Fair Trading Act consumer information standard regulation making provisions are deliberately wide. This means that general information provision for consumers, when regulation can be justified, can be mandated through these regulation-making powers rather than requiring specific legislation.

Possible enhancements to Fair Trading Act information provisions

Extension of scope of consumer information standards regulations

In the development of the Consumer Information Standards (Water Efficiency) Regulations 2010 a problem arose with respect to including in the regulations specific requirements related to testing of the water-using products covered by the regulations. While the regulation-making powers at section 27 in the Fair Trading Act provide for certain types of information and the form and manner of the information to be disclosed, they do not allow for the testing requirements to be directly specified. Establishing the testing requirements can only be done by declaring an official standard (or part(s) of an official standard) as a consumer information standard and modifying it as necessary. For the supplier to meet the standard, there is a presumption that the testing requirements in the standard will be met. A further problem is when an appropriate official standard does not exist or is not fully suitable.

The product safety standard regulation-making powers at section 29 provide for regulations to be made relating to the testing of the goods during or after manufacture and processing. It is proposed that the consumer information standard regulation-making powers should include a similar provision in order to clearly enable testing requirements to be specified in the regulations.

Information on traders soliciting on behalf of charities

The Commerce Select Committee is considering the Fair Trading (Soliciting on Behalf of Charities) Amendment Bill, which is a Members Bill sponsored by Amy Adams MP. The Bill is directed at charities that use third party collectors for fundraising by donations. It aims to provide increased transparency and public accountability for professional third party collectors who are in the business of collecting funds on behalf of registered charities. The General Policy Statement for the Bill notes that public accountability is an important part of the credibility that enables people to donate with confidence. In particular, the Bill aims to address concerns over disproportionate fees taken by third party collectors of funds solicited for charities.

The Bill proposes an amendment to the Fair Trading Act to address this issue for several reasons, including: non-disclosure of the proportion of the donation going to the third parties’ costs is considered misleading to people who donate; and the Act applies to traders, as for the purposes of soliciting money, third party fundraisers are considered to be acting “in trade”.

The Commerce Committee has asked that as part of the Consumer Law Reform review consideration is given to the matters addressed in the Bill. This will allow for a full regulatory analysis to be undertaken of the problem the Bill is seeking to address.

As noted, the Fair Trading Act is concerned with accurate information and provides specifically for regulations on disclosure of particular information. Two possible options for addressing the problem the Bill seeks to address have been identified (there may also be others). One is to include in the Fair Trading Act specific disclosure requirements regarding charities. While this is a possible approach, a downside is that it does not fit with the more generic principles-type approach of the current Act.

The other option might be a consumer information standard under the Fair Trading Act. Consumer information standards regulations can provide for disclosure of information relating to certain features, including the promotion or supply of the goods or services. They also can require the form and manner in which that information must be disclosed on or in relation to, or in connection with the supply or resupply, or possible supply or resupply, or promotion of the supply of the goods or services.

The review will take into consideration the submissions received by the Commerce Committee. Any additional comments are welcomed, in particular on the form for addressing the problem underlying the Fair Trading (Soliciting on Behalf of Charities) Amendment Bill.

In summary:

The Fair Trading Act, the Weights and Measures Act and the Consumer Guarantees Act all include provisions which enable information provision to consumers which is accurate and will assist consumer decision-making. These laws are complemented by other legislation which also provides for the disclosure of information to consumers; and also industry self-regulation which promotes disclosure of information and avenues to seek redress when transactions do not meet expectations.

One area which has had public discussion over several years concerns disclosure of information with respect to charities. There are still concerns that disclosure in this area is not adequate.

Questions

Footnotes

56 Creating Confident Consumers: The Role of the Ministry of Consumer Affairs in a dynamic modern economy (May 2003)