On 1 January 2021, NSW Fair Trading will enforce a new law that forces business in NSW to disclose to consumers whether:
There are no exemptions from these disclosure requirements.
This new law is unique in that it is an amalgam of consumer, privacy, and secret commissions laws. It reflects the rise in a concern by regulators that business are not doing enough to deal with consumers fairly and protect consumers’ information.
Failure to comply with this new law will, if prosecuted, result in penalties for companies and individuals.
Before selling a consumer goods or services, a business must take reasonable steps to ensure the consumer is aware of the effect of any term or condition in their contract that may substantially prejudice the consumer’s interests.
What amounts to “substantial prejudice”?
A term may substantially prejudice the interests of a consumer if it:
This list of the type of terms that may substantially prejudice the interests of a consumer is not exhaustive.
This new law goes further than the unfair contract terms regime under the ACL by imposing a positive obligation on the business to bring terms against the consumer’s interest to their attention. Currently, the unfair contract terms regime makes any unfair term in a standard form consumer contract void. Reforms are however underway with penalties likely to apply to unfair contract terms in a standard form consumer contract. This law also applies to any consumer contract – not just standard form contracts.
Financial incentives must also be disclosed
The new law also requires disclosure in a situation where [A] pays [B] (the referrer) in return for [B] encouraging [C] (the consumer) to acquire goods or services from [A]. For example a consumer approaches a car dealer to buy a car and the dealer recommends a particular insurance product, for which the dealer is paid a commission. Failing to disclose the commission is currently a criminal offence (the Crimes Act 1900 (NSW) prohibits “secret commissions”).
The new law requires intermediaries (eg, brokers) that receive a financial incentive under an arrangement to take reasonable steps to ensure a consumer is aware of the financial incentive they receive. While an intermediary is required to disclose the existence of the arrangement, they are not required to disclose the details of it, including its nature and value.
What constitutes “reasonable steps”?
Before a consumer signs a contract, the business must take reasonable steps to make the required disclosures.
It is not enough to disclose the existence of a prejudicial term or incentive arrangement but the businesses must take reasonable steps to ensure the consumer understands the effect of the term / arrangement. There is no definition of what constitutes taking “reasonable steps” but the following are likely sufficient:
For prejudicial terms
For commission or referral arrangements
What is reasonable depends on the circumstances, for example more complex terms or onerous terms will require more to ensure the consumer understands the terms.
What is the definition of a “consumer”?
The term “consumer” has the same definition as under the Australian Consumer Law (ACL). That is, a party is a consumer if the party purchases goods or services that are:
From 1 July 2021, the monetary threshold of $40,000 will increase to $100,000 (for more information see our related article). As such, the new obligations will apply to a much broader range of transactions from mid-next year.
What are the consequences for breaching the new law?
There is a fine of $22,000 for individuals and $110,000 for corporations who breach this law. Penalty notices may also be issued for suspected contraventions, of $550 for individuals and $1,100 for corporations.
What should you do now if you supply goods or services in NSW?
You should do three things:
First, identify whether your consumer contract has one-sided terms that seem likely to substantially prejudice a consumer. If you have contract terms like this, you can either:
Second, work out whether you are selling or providing your customers’ information to a third party. If you are, you need to disclose this.
Third, identify whether you have an arrangement where you receive a financial incentive for referring your customers to another supplier for goods or services. If have an arrangement like this, you need to disclose to the consumer that you will receive a benefit from the referral.
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