A Small Business Guide to the CPA

A Small Business Guide to the CPA

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Despite the Consumer Protection Act (‘CPA’) having been in force for almost a year, many SMEs remain unclear about the obligations imposed and rights conferred by it.

When will the CPA apply?

The CPA applies to all transactions for goods or services in South Africa in the ordinary course of business.  A ‘consumer’ is defined as any person (which includes juristic persons) to whom goods or services are marketed, the person transacting as well as the beneficiary of a particular good or service.  A ‘supplier’ is any person who markets goods or services.

The phrase “ordinary course of business” means that if a supplier sells a product to a consumer, that consumer can only enforce his rights if the supplier is in the business of selling that particular product or service. Similarly, the consumer’s rights can only be enforced by consumers as defined – natural persons (individuals) or juristic persons (such as companies) with an annual turnover of less than R2 million. The intention is clear, to protect individuals and small businesses.

There are a few general rules to bear in mind when considering the CPA, the most important of which are articulated below.

 Suppliers and prohibited conduct

Generally, interactions between suppliers and consumers that are unfair, dishonest, misleading or unreasonable are strictly prohibited. Suppliers may not make use of false, misleading or deceptive representations through the use of exaggeration, whether expressly or implied. This would include false representations about the ingredients or quality of a product, or even that a service or repair is necessary or advisable.

Suppliers are also prohibited from making fraudulent, deceptive, false or misleading representations on the nature, advantages, properties, benefits, qualities and availability of their products. This entails that practices such as bait marketing and negative option marketing are no longer permitted.

 Suppliers and direct marketing

The CPA prohibits suppliers from engaging in direct marketing without the consumer’s consent. Any agreement flowing from direct marketing may be cancelled, for any reason, within 5 business days. This is known as the consumer’s ‘cooling-off’ right, and gives consumers a chance to reconsider what may have been a pressured decision.

 Right to return defective goods

The CPA provides consumers with a right to return goods within 10 business days if the goods were defective, unfit for their purpose or not as agreed. Consumers may then choose between a replacement, a refund or a repair (the ‘three R’s’). Furthermore, the Act provides an automatic 6 month warranty that the goods or services be free from defects. Should the goods become defective within 6 months, consumers may then request one of the 3 R’s.

 Loyalty schemes and competitions

Suppliers may only restrict the use of loyalty rewards for a maximum of 90 days in a calendar year, and only after giving the consumer 20 days’ notice.  For example, a consumer would be entitled to receive notice from an airline specifying the 90-day period in which his loyalty credits cannot be redeemed. In all other cases, loyalty rewards must be treated in the same manner as cash.

Suppliers are also required to adhere to strict requirements for competitions – they may not charge more than R1,50 per entry and the competition rules must be made available to the  consumer before entering.

 Overselling and overbooking

If a supplier oversells or overbooks, it must refund the consumer with interest and other costs incidental to the breach.

Consumers also have a right to cancel advanced reservations, subject to the supplier’s right to impose a reasonable charge (which will be determined in the circumstances).

 Grey goods and disclosure of price

A supplier is obliged to provide a clear notice if goods are grey or reconditioned. At point of sale, the supplier must expressly draw the consumer’s attention to the notice and explain it in plain terms.

The price of all products and services must be clearly advertised. Unless it is an obvious error, if there are 2 different prices, the supplier must charge the lower price. If an advertised price refers to a discount or saving, then the price payable is the advertised price minus the discount or saving, unless both the full and lower price are displayed.

Terms and conditions

The CPA prohibits excessively unfair or unjust terms, such as terms conferring the right to unilaterally alter the terms of an agreement, and requires that certain terms be explicitly drawn to the consumer’s attention, particularly those that exclude liability or that constitute an assumption of risk. Similarly, unreasonable or unjust contract terms are prohibited, including terms that are excessively one-sided or adverse to the point of inequity.

Fixed Term Agreements

The maximum period for a fixed term agreement is set at 24 months, unless there is a demonstrable benefit in the consumer’s favour. Consumers are entitled to cancel fixed term agreements on 20 days written notice, subject to the supplier’s right to impose a reasonable cancellation fee (which cannot negate the consumer’s right to cancel). Suppliers must advise their consumers of the impending expiry of the contract 40-80 days before such expiry, and must also inform them of any proposed material changes. Unless the consumer cancels such contract, it will be automatically renewed on a month-to-month basis.

 Breach of CPA

It is clear that the CPA has changed the legal landscape and shifted the power from suppliers into the hands of consumers. The National Consumer Commission is tasked with investigating alleged offences and enforcing the Act. It is empowered to impose a fine of up to a maximum of 10% of the supplier’s annual turnover for breaches. Whilst this sanction is probably reserved for the most severe contraventions, the reputational damage flowing from a lesser sanction will far outweigh the cost of ensuring compliance at the outset.

Dale Warburton
Dale Warburton consults to various clients on compliance with the CPA through Caveat Legal. Hehas a BA and LLB from UCT. He was admitted as an attorney in early 2011 after completing articles at Cliffe Dekker Hofmeyr. Dale spent a year at Clicks Group advising and training on the Consumer Protection Act, and establishing standard operating procedures for the group. www.caveatlegal.com