This part of the discussion paper compares the prohibitions and the redress and enforcement provisions in the Fair Trading Act (FTA) and the Consumer Guarantees Act (CGA) with those that are found in consumer protection legislation in Australia, the United Kingdom, Canada and the United States of America. All four jurisdictions were chosen because of common consumer protection principles and policy to those in New Zealand. Australia and Canada were also chosen because the drafting of New Zealand's consumer protection legislation was substantially informed by their legislation. The misleading and deceptive conduct and product safety provisions found in the FTA largely mirror those found in Australia's Trade Practices Act. The CGA is based on the Saskatchewan Consumer Protection Act (prior to 1997).

This comparison has been done in order to identify whether

other similar jurisdictions' approaches to consumer protection policy have diverged since referenced in the drafting of the FTA and the CGA, in 1986 and 1993 respectively; and
different prohibitions and provisions to protect consumers and honest businesses have been adopted since the enactment of the FTA and the CGA.

Where key differences between the New Zealand legislation and the overseas legislation have been identified, these are examined in more depth and the advantages and disadvantages for New Zealand of adopting such provisions are considered.

Unlike New Zealand, the other jurisdictions have consumer protection legislation at the national and the state, local or provincial level. For the purposes of this comparison exercise, the FTA and the CGA have been compared with consumer protection legislation found at both levels of government. Given the size of the New Zealand market and the fact that consumer protection is a national issue with no recognised regional differences in this country, the option of legislating for consumer protection at both the local as well as the national level was not considered as part of the analysis.

Similarities across the Jurisdictions

Overall, the FTA and the CGA contain prohibitions and redress and enforcement provisions that are very similar to those that are available in consumer protection legislation in Australia, the United Kingdom, Canada and the United States of America.

In all these jurisdictions, the legislation contains prohibitions that intervene in the market at the pre market, market and after market stages. Misleading and deceptive conduct and pyramid schemes are prohibited and all the legislation contains product safety provisions.

The legislation across the jurisdictions also usually contains redress and/or enforcement provisions. When contraventions of the guarantee (conditions and warranties) provisions occur, consumers are usually (except for in the United States) required to take action for themselves in order to get redress.

Civil and criminal penalties are available in most legislation and consumers can take disputes to a small claims or dispute tribunal as well as to courts.

Enforcement agencies are responsible for taking action under some of the legislation. As well as enforcement, these agencies often also have or adopt an educative or information provision role. In all cases, the enforcement agencies that operate at the national (or federal) level do not act on behalf of individual consumers in order to settle disputes.

The fines available in the legislation are similar across the jurisdictions with the highest fines found in the Australian legislation. As well as court proceedings, settlements and undertakings are also used by enforcement agencies in an attempt to secure compliance with the legislation.

In Summary

New Zealand's consumer protection legislation remains consistent with consumer protection legislation in similar jurisdictions overseas.
The overseas legislation is seeking to achieve similar outcomes to the FTA and the CGA
- Traders comply with the legislation;
- Consumers have effective access to redress; and
- Consumers seek redress when a transaction is unsatisfactory.
Whilst there are no significantly different approaches in the overseas legislation, analysis has indicated that there may be some additional, particularly mid level enforcement tools, that may be worth considering for adoption.

Differences across the Jurisdictions

The following table identifies the main differences that were found between consumer protection legislation in New Zealand, Australia, Canada, the United Kingdom and the United States of America.

Table 1: Differences across the Jurisdictions
Issue	Jurisdiction
Issue	NZ	Australia	Canada	UK	US
Definition of consumer	Consumer definition in the CGA focuses on consumers and type and use of goods.	Consumer definition includes consumers and small business.	Provincial definitions define consumers as non-traders.	General definitions in various statutes. Consumers are non-traders.	FTC[12] law has several definitions of consumer, depending on context. If comparison is made with legislation that has provisions that are the equivalent of CGA, the consumer definition is very similar to NZ definition.
Prohibitions - unfair terms in consumer contracts	No specific prohibition for unfair terms in consumer contracts.	Unfair terms in consumer contracts are prohibited in state of Victoria.	Many provincial governments prohibit unfair practices which include unfair terms in consumer contracts.	Unfair terms in consumer contracts are prohibited.	The Uniform Commercial Code (adopted by most states) prohibits terms in contracts that are unconscionable.
Prohibitions - unconscionable conduct	Unconscionable conduct is covered by common law and Section 19 (1) (e) and (f) of the Disputes Tribunal Act 1988. Courts must decide if conduct is unconscionable.	Unconscionable conduct is covered by statute as well as common law. Courts must decide if conduct is unconscionable.	Unconscionable conduct prohibitions are in statute.	Unconscionable conduct is covered by common law only. Courts must decide if conduct is unconscionable.	Uniform Commercial Code prohibits unbalanced contracts, but unconscionable conduct is left to the courts to decide.
Industry codes of conduct	Provisions covering industry codes of practice are not in legislation.	Provisions covering industry codes in legislation and overseen by ACCC.[13]	Provisions covering industry codes of practice are not in legislation.	Legislation allows the OFT[14] to approve and promote industry codes.	Provisions covering industry codes of practice are not in legislation.
Enforcement - court enforceable undertakings	No court-enforceable undertakings available. The Commerce Commission uses the administrative system of settlements.	At federal and state level, contravention of an undertaking can result in court action by the enforcement agency.	At federal and provincial level, contravention of an undertaking can result in court action by the enforcement agency.	Contravention of an undertaking can result in court action by the enforcement agency.	Breach of a "cease and desist" order (more of an undertaking) can result in court action taken by the enforcement agency and a fine.
Enforcement - compulsory Interview	No ability to require a trader to attend a compulsory interview.	ACCC has the power to issue demands for information, including appearing before the ACCC in person. Also a requirement in some state legislation.	Traders voluntarily attend an interview at both federal and provincial level.	Formal interviews can be carried out, in accordance with The Police and Criminal Evidence Act 1984.	"Civil Investigative Demands" can be used to gain verbal testimony.
Enforcement - banning traders	No ability to ban a recidivist offender.	Some states can ban traders from supplying goods and services.	Courts can ban individuals from trading for a period of time.	No banning provisions.	Courts have the ability to bar an individual from making claims without substantiation. Provisions appear to ban activities rather than individuals.
Enforcement - super-complaints	Consumer bodies do not have a special ability to refer consumer complaints to Commerce Commission.	Consumer bodies do not have a special ability to refer consumer complaints to ACCC.	Consumer bodies do not have a special ability to refer consumer complaints to the enforcement agencies.	Designated consumer bodies can lodge super-complaints to the OFT.	Consumer bodies do not have a special ability to refer consumer complaints to the enforcement agencies.
Enforcement - product safety	No requirement for Product Safety Warning Notices.	Product Safety Warning Notices published in the Gazette announce when a good is under investigation for being unsafe.	No warning notices. Notification of warning through press releases.	No warning notices. Notification of warning through press releases.	No warning notices. Onus on companies to issue forms of notification.
Redress - defective product	A person who has suffered injury from a defective product is covered by ACC.[15]	A person who has suffered loss or damage from a defective product can take private court action.	A person who has suffered loss or damage from a defective product can take private court action.	A person who has suffered loss or damage from a defective product can take private court action.	A person who has suffered loss or damage from a defective product can take private court action.
Enforcement - substantiation Notices	No substantiation notices requiring traders to prove claims.	Substantiation notices can be issued to traders to require them to prove claims.	Competition Act requires advertisers to substantiate all material claims.	Advertisers are required to provide substantiation for claims to UK ASA[16] if a complaint is received.	FTC has a substantiation policy for advertising.
Enforcement - cease and desist	No cease and desist orders.	No cease and desist orders at federal level but available in some states.	Cease and desist orders available.	Enforcement orders under the Enterprise Act.	Cease and desist orders under the FTCA. Cease and desist orders are assessed by a district court.
Enforcement -penalties - formal cautions	No formal cautions.	No formal cautions.	No formal cautions.	Formal cautions provide an alternative to prosecution and are recorded on the Central Register of Convictions.	No formal cautions.

The Pyramid of Responsive Regulation

The comparison shows that, compared to overseas regulation, New Zealand consumer protection law is limited in the range of sanctions (particularly mid-level) that it can use in an attempt to secure compliance with the FTA.

Regulatory compliance is best secured when enforcement agencies use persuasion and negotiation techniques rather than enforcement measures. For these techniques to be effective, however, enforcement agencies must have at their disposal a range of escalating sanctions which can be used if an individual or business chooses not to cooperate or when the contravention represents a serious breach of the legislation. Non-compliance is less attractive for individuals and businesses if the enforcement agency is able to escalate the sanction should persuasion be ineffective or inappropriate given the nature of the alleged breach.

The process whereby enforcement agencies can escalate the level of sanctions that they use is often depicted by way of the pyramid of responsive regulation. At the base of the pyramid are the most frequently used and least severe sanctions while the most severe sanctions are found at the peak. According to this model, enforcement agencies that have a number of sanctions at their disposal, as depicted by a tall pyramid, are the most effective. This is because the sanctions at the peak can exert pressure which can motivate individuals and businesses to voluntarily comply - the threat of a more severe form of punishment encourages individuals and businesses to comply.

Figure 1: Pyramid of Responsive Regulation

Graphic of "Figure 1: Pyramid of Responsive Regulation"

(Adapted from the work of Ayres and Braithwaite (1992) and Gilligan, Bird and Ramsay, 1999)

Compared with the range of sanctions available in similar legislation overseas, New Zealand's FTA lacks a number of sanctions particularly those that are represented in the mid levels of the pyramid of responsive regulation. The FTA provides for civil and criminal remedies. The Commerce Commission has also developed an administrative system whereby it issues letters of compliance, warnings and enters into settlements with parties. Unlike enforcement agencies in other jurisdictions, the Commerce Commission cannot issue product safety warning notices or cease and desist orders, require businesses to substantiate claims and accept court enforceable undertakings or require individuals to attend a compulsory interview. If the Commission believes that an alleged breach of the Act has occurred that can not be adequately dealt with administratively, the only alternative is to take court action. Court action, however, is resource intensive and the presence of mid-level enforcement sanctions mean that the same outcome could be achieved more efficiently. In the last three years, according to the Commerce Commission, the costs of litigation have trebled and the number of Fair Trading Act cases in the court system has doubled.

As well as lacking the mid level enforcement sanctions, the FTA does not contain penalties that can incapacitate recidivist offenders.[17] In other jurisdictions, enforcement agencies have the ability to apply for incapacitative orders which can prevent an individual from trading. The severest sanctions available under the Fair Trading Act are civil and criminal penalties. These penalties take the form of monetary fines. The maximum fines available are $60,000 for an individual and $200,000[18]f or a body corporate. Monetary penalties, however, do not appear to act as a deterrent when used against recidivist offenders. In 1994, for example, the Commerce Commission obtained interim injunctions against Michael Knight relating to alleged breaches of the FTA by two companies that he had promoted. Knight then transferred his business activities to Australia where he was subsequently banned for life from trading in New South Wales and restrained from engaging in trade or commerce relating to the tourism industry in Queensland. Following his return to New Zealand, Knight was convicted in April 2002 of thirty three breaches of the FTA. Knight was also sentenced in July 2004 on 12 further charges of breaching the Fair Trading Act.

[12] Federal Trade Commission.

[13] Australian Competition and Consumer Commission.

[14] Office of Fair Trading.

[15] Accident Compensation Corporation administers New Zealand's accident compensation scheme, which provides personal injury cover for all New Zealand citizens, residents and temporary visitors to New Zealand. In return people do not have the right to sue for personal injury, other than for exemplary damages.

[16] United Kingdom Advertising Standards Authority.

[17] Incapacitative sanctions are found at the apex of the pyramid of responsive regulation.

[18] If a person is convicted of promoting or operating a pyramid selling scheme (section 24 of the FTA) they are liable on summary conviction to a fine not exceeding $200,000. On application by the Commerce Commission, the court may also order a person to pay an amount not exceeding the value of any commercial gain resulting from the contravention.

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Review of the Redress and Enforcement Provisions of Consumer Protection Law

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