A new prohibition against unfair trading practices

The Federal Government’s proposed reforms to the Australian Consumer Law (ACL) would prohibit a wide range of unfair trading practices, which are not adequately caught by existing consumer and competition law provisions, particularly for consumers engaging with online businesses.

Unfair practices

The proposal seeks to target a range of practices including:

• ‘subscription traps’ which make it confusing and difficult for consumers to cancel subscriptions once signed;
• ‘drip pricing’ practices used by merchants to conceal or apply additional fees during the check-out stages of a purchase;
• deceptive and manipulative online practices that confuse, overwhelm, omit key information or create a false sense of urgency for consumers;
• dynamic pricing practices, in which the price for a product or service changes during the transaction process (in light of recent reports of highly variable ticket pricing for high-profile performers coming to tour Australia);
• requiring consumers to create an account and provide unnecessary information to make an online purchase; and
• businesses making it difficult for a consumer to contact them to raise a problem with their product or service.

International comparisons

The proposed prohibition on unfair trading practices would bring Australia in line with other jurisdictions, which have adopted a range of similar prohibitions and reforms directed towards most of the above practices.

UK

In May 2024, the UK Parliament enacted the Digital Markets, Competition and Consumers Act 2024 (DMCC Act), which introduced significant amendments to strengthen the enforcement of UK consumer protection laws by the UK Competition and Markets Authority. These include:

• Measures to address drip pricing, requiring the seller to provide the full price with any fixed mandatory fees (such as VAT and booking fees), and making clear whether variable mandatory fees (such as delivery fees) will be added, and how those fees will be calculated.
• A range of new duties on businesses to make it easier for consumers to provide informed consent and opt out of contracts, including:
  • clearly providing information to consumers prior to entering into the subscription agreement relating to pricing, automatic renewals, cancellation methods and consumers’ rights;
  • mandatory reminder notices to alert consumers that a free/discounted trial period is about to end, or that an existing subscription is about to automatically renew;
  • making the termination process simpler for consumers, and removing unnecessary steps; and

a default 14-day cooling off period, available for new subscriptions, the first subscription period after the end of a free/discounted trial period, and any further subscription agreement of 12 months or longer.

• The establishment of a ‘Digital Markets Unit’ within the CMA to oversee a new regime for regulating large businesses with a significant market presence in digital platforms.
• Empowering the CMA to enforce consumer protection legislation directly against companies by issuing infringement notices (up to 10 per cent of a company’s global annual turnover), rather than going through the courts.

Under the DMCC Act, the legal test to determine whether a commercial practice is unfair is the ‘transactional decision’ test, under which the CMA assesses whether a commercial practice is unfair if the practice is likely to cause the average consumer to take a transactional decision that they would not have otherwise taken because of any one or more of the following:

• a misleading action or misleading omission;
• an aggressive practice;
• a breach of professional diligence requirements; or
• omitting material information from an invitation to purchase.

The DMCC Act also includes a list of practices which are considered to be per se unfair practices, and which do not require the CMA to conduct the transactional decision test, including:

• making false ‘free’ offers;
• faking credentials;
• falsely claiming that an offer is only available for a limited time; or
• aggressive door-to-door selling.

Europe

The European Union has had a directive in place since 2005 which deals with a range of unfair business-to-consumer commercial practices, including those practices to be addressed by the proposed unfair trading practices ban in Australia.

The European Commission has recently announced an inquiry into dynamic pricing conduct by ticket sellers following consumer complaints about dynamic pricing for Oasis’ upcoming reunion tour. While dynamic pricing is not prohibited in the EU, a ticket seller engaging in dynamic pricing conduct may breach EU directives if the price of tickets is increased after a consumer has placed a ticket into an online basket for checkout, or if the ticket seller’s website does not provide ‘necessary material information’ about the tickets to enable the consumer to make an informed transactional decision.

US

In April 2023 the US Congress introduced the Junk Fee Prevention Bill (which is yet to be legislated), which requires covered merchants to ‘clearly and conspicuously display’ the actual total price of a product or service at the point in time where the price is first displayed to consumers.

The Bill also prohibits mandatory fees that are excessive or deceptive and grants the Federal Trade Commission (FTC) powers to investigate and enforce the provisions.

Additionally, on 16 October 2024 the FTC introduced a ‘click to cancel’ rule for businesses to simplify the process for consumers looking to cancel a recurring subscription. This rule requires that:

• cancellation of a subscription by a consumer must be at least as easy as it is to sign up and consent to the subscription;
• cancellation must be available through the same medium as signing up (for example, a subscription which is signed up to via the internet must also be able to be cancelled online);
• online cancellation options must be easy for a consumer to locate, and cannot require interaction with a live or virtual customer service representative;
• cancellations made over-the-phone to a live person or via a recorded voice message must be promptly acted upon; and
• if a consumer provided their sign-up consent in person, the business must offer either an online or over-the-phone option for cancellation.

There are also additional provisions requiring businesses to keep records of consumers’ affirmative consent for a minimum of three years, provide reminders to consumers about the timing and charge associated with a recurring charge under a subscription (unless the consumer cancels the subscription), and a general ban on businesses making misrepresentations in relation to recurring subscription products or services.

On 1 July 2024 amendments to the Consumer Legal Remedies Act (CLRA Act) came into effect in California.

The main purpose of these amendments was to prevent businesses from engaging in drip pricing conduct, but they are silent on the issue of surge pricing and dynamic pricing. The amendments also make an exception for any relevant sales tax, which does not have to be included in the advertised price, and for restaurants, which may exclude mandatory fees from their advertised prices, provided that the fee is ‘clearly and conspicuously’ visible with an accompanying explanation on any advertisement, menu or display containing prices. What constitutes a ‘clear and conspicuous’ disclaimer is yet to be tested as the restaurant exemption will not take effect until 1 July 2025.

Consumers can claim actual damages of $1,000 for a breach of the CLRA Act (or $5,000 for elderly or disabled consumers), and may also be entitled to restitution, punitive damages, injunctive relief and recovery of legal fees. This may be accompanied by government enforcement of up to $2,500 per contravention.

Next steps

The Federal Government has not yet released proposed draft legislation, but has indicated that a final reform proposal will be published in early 2025.

The measures adopted overseas may provide some helpful guidance for developing the Australian provisions. It will be worth watching this space to see if and how Australia goes forth with a specific ban on dynamic pricing, which has not yet been implemented overseas (and is otherwise dealt with under existing prohibitions). This issue is high on the Government’s radar and may pose novel challenges for businesses to ensure that they comply with any new dynamic pricing prohibition.