Prepare yourself: consumer guarantees to apply to more goods and services

By John Gray, Matthew Smith and James Pavlidis

New regulations that broaden the Consumer Guarantees regime and provide greater protection for consumers and business customers come into force in July 2021. Businesses that supply goods or services that may become subject to the consumer guarantees should start preparing now.

Overview

The Treasury Laws Amendment (Acquisition as Consumer—Financial Thresholds) Regulations 2020 (Cth) (Regulations) broaden the applicability of the Consumer Guarantees regime under the Australian Consumer Law (ACL).

From 1 July 2021, the Consumer Guarantees will apply to supplies of goods and services valued up to A$100,000 (currently A$40,000), providing greater protection for all consumers, but in particular for business customers (that are more likely to purchase goods and services with a higher monetary value). Suppliers that fail to comply with the Consumer Guarantees may face significant liabilities beyond the financial costs of remedying their non-compliance.

What’s changed?

The Regulations broaden the definition of 'consumer' to mean a person or business who acquires goods or services (on or after 1 July 2021):

• for an amount of up to A$100,000 (the current monetary threshold is A$40,000); or
• that are ordinarily acquired for personal, domestic or household use; or
• that are vehicles or trailers used mainly to transport goods on public roads.

The increase to the monetary threshold substantially widens the scope of goods and services subject to the guarantees. The changes will also apply to the Australian Securities and Investments Commission Regulations 2001, which contain mirror consumer protection provisions for financial products and services. However, the consumer guarantees do not apply to goods acquired for re-supply or use in a production or manufacturing process.

Why the change?

The Regulations were introduced in response to a review of the ACL, which found that the protection afforded to consumers had been gradually diminished due to inflation, and the broad category of goods and services that were originally intended to be protected were no longer captured within the A$40,000 ceiling.

Furthermore, the Regulations considered the impact on small businesses, many of which suffer the same weakness in bargaining power but to date have been denied the protections conferred on consumers due to the lower value cap. Accordingly, the increase is designed to ensure that the ACL remains fit for purpose and continues to offer adequate protections to redress the inequality of bargaining power between suppliers and customers.

What does this mean for businesses?

The Regulations take effect from 1 July 2021, giving businesses time to prepare if they believe goods or services they supply may become subject to the consumer guarantees. If the changes are likely to bring a business’s operations within the operation of the ACL, then it should consider reviewing its standard processes and existing contractual terms, to determine what needs to be updated to ensure compliance. For example:

• terms & conditions – do they need to be updated? The ACL will void any contractual terms that run contrary to consumer guarantees, and requires mandatory wording be included where additional defect warranties are offered.
• new record keeping processes – can the business accurately track its consumer sales? New processes may be needed to identify and record ‘consumer’ sales for the purpose of ensuring compliance with ACL guarantees.
• staff training – do the business’s sales and customer service staff understand consumer guarantees? It is important that staff understand the ACL protections to ensure they don’t accidentally mislead or misinform customers in a manner that contradicts the ACL.
• adjust your budget – will the business’s financial performance be impacted by the changes? The increased threshold means more people and a wider range of goods and services will attract consumer guarantees, meaning more claims for refund, replacement or compensation.