1. Illegal online sales practices
The Commission has identified online sales misconduct as a key enforcement focus. This includes various tactics such as fake reviews, misleading scarcity claims, deceptive social proof (i.e. exaggerated endorsements), and drip pricing. The Commission has also challenged the use of “subscription traps”, which are practices that make it difficult for consumers to cancel subscriptions or use automatic renewals without adequate notice.
For all ecommerce businesses providing goods or services in New Zealand, this highlights the importance of reviewing and testing the adequacy of current digital marketing strategies. Ensuring transparency in pricing, accurate customer testimonials, and clear terms for subscriptions and rollovers is now of heightened importance to avoid challenges under the Fair Trading Act 1986 (FTA).
2. Unconscionable conduct
The Commission has stated its intention to prioritise enforcement of the prohibition on “unconscionable conduct” in the FTA. That prohibition was one of various changes to the FTA in August 2022, but at the time was somewhat overshadowed by the other more noteworthy amendments.
More active enforcement of the prohibition on unconscionable conduct could have broad implications for businesses. Importantly, unlike certain other aspects of the FTA, businesses cannot contract out of the prohibition of and is not limited to contractual arrangements. While the bar for enforcement is intended to be high, the scope of the prohibition is relatively unclear: the FTA provides no definition of “unconscionable conduct”, leaving it to the courts to determine its scope.
For New Zealand businesses, the Commission’s prioritisation of this prohibition serves as a reminder to maintain reasonable and ethical dealings, particularly with vulnerable customers or in significant negotiations where there is a material imbalance of bargaining power. Further guidance on the prohibition and how to reduce risk is set out in our previous article here. Key risk areas are likely to include aggressive sales tactics, exploitative contractual terms, and unfair treatment of small suppliers.
3. Breaches in the grocery sector
The Commission has also prioritised enforcement in the grocery sector, in relation to supermarket prices and price promotions. Its announcement warns “Groceries are a critical purchase for all New Zealanders. Consumers should be able to rely on supermarket prices and price promotions being accurate.”
The Commission’s focus will extend across the supply chain, and will include wholesalers and suppliers as well as retailers. However, retail businesses may be subject to particular scrutiny, in particular in relation to any inaccurate pricing or promotions (as demonstrated by recent FTA charges against prominent grocery retailers in New Zealand).
The risks are heightened by the upcoming mandatory disclosure standard under the Grocery Industry Competition Act 2023 which will require major supermarkets to report regularly on customer complaints, particularly regarding pricing and promotional issues. The Commission has noted its concern that inconsistencies in complaint tracking hinder supermarkets’ ability to identify and address compliance problems, impacting consumers and undermining competitive market practices. A draft of the standard is expected early next year, with the Commission working alongside supermarkets to finalise its scope.
Other areas of focus
In addition to the priorities highlighted above, the Commission is also targeting various other issues including:
- cartel conduct particularly in public sector procurement, and non-compete clauses that unlawfully restrict competition;
- misleading practices in the telecommunication sector; and
- motor vehicle finance (demonstrating that the Commission remains focussed on compliance with the Credit Contracts and Consumer Finance Act for now notwithstanding that the FMA will assume oversight of that regime).
Implications for NZ Businesses
The Commission’s priorities are a clear signal that it remains a proactive regulator and is focussed on new and emerging categories of consumer harm and unfair practices. While the priorities do not create any new obligations in themselves, they serve as a useful reminder to businesses to update internal guidelines to ensure that marketing, sales, and compliance teams are trained on developing regulatory expectations. That will be particularly important in relation to e-commerce and consumer interactions, and where businesses deal frequently with vulnerable consumers or smaller commercial counterparties (where scrutiny regarding unconscionable conduct may be higher). It may be that such reviews give rise to only minor refinements to compliance programmes, but responding proactively to the Commission’s stated priorities is likely to minimise risk and provide a stronger basis for responding to any challenges that do arise.
If you have any questions about the matters raised in this article please get in touch with the contacts listed or your usual Bell Gully adviser.