Consumer Protection Act no joke, affects every business from 1 April

It is surprising how little has been written about the new Consumer Protection Act No 68 of 2008, which comes into operation on 1 April.   It gives tremendous power to consumers in their dealings with businesses, and will put every business on its toes, the punitive fines of R1 million or more being a strong motivator.

The Act itself runs to just under 100 pages, and whilst written to be understood, it is a volume of information to comprehend.  We bought the book written by Advocate Neville Melville, ‘The Consumer Protection Act Made Easy’, to guide us in evaluating our business in terms of compliance with the new Act.   It is frustrating that there are many grey areas, as the author had to write the book as broadly as possible, to be applicable to every South African business and industry.   I have written this blogpost with a focus on how the new Act will affect the hospitality industry, not as an expert by any means, as an hospitality business owner.   Accommodation provision is most specifically identified as a type of Service covered by the Act, whereas restaurants are not mentioned as such, but the Act applies to the provider of “Goods”, which includes anything “marketed for human consumption”.   Any contracts entered into before 1 April 2011 are excluded from the provisions of the Act.

The Act is introduced as follows: “To promote a fair, accessible and sustainable marketplace for consumer products and services and for that purpose to establish national norms and standards relating to consumer protection, to provide for improved standards of consumer information, to prohibit certain unfair marketing and business practices, to promote responsible consumer behaviour, to promote a consistent legislative and enforcement framework relating to consumer transactions and agreements, to establish the National Consumer Commission…”. 

It has been designed with the express purpose to protect the poor, and vulnerable and historically disadvantaged consumers, and to ‘promote their full participation as consumers’.  It also aims to apply ‘internationally recognised customer rights’, and seeks to ensure transparent ‘redress’ for consumers subjected to ‘abuse or exploitation in the marketplace’.  From a consumer perspective, it will certainly lead to improved customer service and better quality products, as complaints about service and product quality, as incorporated by the Act, can be taken to the newly established National Consumer Commission.   The penalties that businesses can face are R1 million or 10 % of the annual turnover, whichever is the higher figure.   Advocate Melville advises that businesses must ensure that they have sufficient public liability insurance.  

The Consumer Protection Act ascribes eight rights to consumers:

!.   The Right of Equality

     A business may not exclude or unfairly discriminate against any person, or category of persons, prioritise one set of persons over another, or charge certain types of persons more than another.  This raises an important issue about the “Right of Admission” signs in hotels and restaurants.  Le Quartier Français in Franschhoek, in banning patrons from its establishments, may fall foul of the new Act on this point.  

One may not contract with a minor, or with mentally challenged persons. 

2.   The Right to Privacy

   Consumers have the right to reject or block unwanted direct marketing or any other communication via e-mail, telephone and sms.  Allowable contact times for direct marketing may be specified in future.   Newsletters, for example, must have an ‘unsubscribe’ option, to allow recipients the right to not receive them in future, especially if they are deemed to be for ‘direct marketing’ purposes. 

3.   The Right to Choose

Products may not be bundled together with another product or service linked to it, and therefore a supplier or retailer cannot make it mandatory to buy another (possibly unwanted) product as part of a package.   Consumers also have the right to ‘examine goods’, yet cannot be held liable for damage in doing so, a bizarre ruling – however ‘gross negligence, recklessness, malicious behaviour or criminal conduct of the consumer’ is chargeable. 

By agreement, the consumer and supplier can agree how, when and by whom the product or service will be delivered.  If it is not specified, it is implicit that the supplier must deliver the product within a reasonable time period.   The consumer has the right to check the goods on delivery, to ascertain whether they meet the specifications of the order.   

4.   The Right to Disclosure

     All documentation must be written in plain and understandable language (the tenancy clause in the Taj Cape Town ‘legal document’ when one checks in will not meet this criterion in the Act!).  The advertised or marked price is the one that must be honoured, even if it is an error.   A brand name or trade mark must not attempt to mislead consumers.  “Grey market goods” must be identified by the sellers as such.  Important to note is that a ‘written record of the transaction’ must be provided, and must contain the following prescribed information:

*   Supplier’s full registered business name and VAT registration number

*   Address

*   Date of transaction (could be two dates for accommodation establishments, if a deposit is taken to make the booking.  The transaction date will differ from the actual accommodation dates, so there could be three sets of dates)

*   Description of goods and services provided

*   The unit price

*   The quantity supplied

*   The total price before tax

*   The VAT amount – few establishments separate this amount, as all transactions are VAT inclusive

*   The total price. 

The right to disclosure also would include information about anything that can affect the consumer’s use of the product, in containing potentially hazardous or harmful ingredients (e.g. Reuben’s at One&Only Cape Town correctly specifies which of its dishes contain nuts, alcohol, and pork).

5.   The Right to Responsible and Fair Marketing

     Marketing must be honest.   One may not over-promise, exaggerate, mislead or make false claims, so as to lead the consumer to have a different expectation.  One must honour one’s commitment to have a specified product or service available on the date/time that was agreed.  Restaurants, for example, may not claim that their dishes contain ingredients that they do not, or that they are imported when they are sourced locally.  Advertising must realistically portray the benefits of the product or service.  

Loyalty programs are specifically mentioned, and the ruling is that the promised reward must be available to the consumer.  The communication of how the loyalty programme works must be clear. 

6.   The Right to Fair and Honest Dealing 

The Act uses the word ‘unconscionable’, a complex word Melville writes, given that the Act itself calls for ‘plain language’ in all dealings with the consumer!  This clause calls for positive conduct with the consumer, and does not allow a supplier to use ‘undue influence, pressure, duress or harassment, unfair tactics or any similar conduct’ in getting payment due to the supplier, or goods returned.   As a hospitality supplier, it would be great if the Act protected suppliers against such abuse and blackmail too!

The supplier may not withhold material facts about the product or service (e.g. renovations taking place at a guest house), nor imply a benefit of the product or service that does not exist, or fail to correct a misunderstanding that the consumer expresses about the product or the service.   Reasonable availability of the product or service must be accurately communicated, as must be the availability of parts for repairs.   Pyramid schemes are expressly forbidden. 

Overbooking, with the express purpose of taking more bookings than one has the capacity for, based on the knowledge that not all booked customers will arrive (e.g. airlines, hotels) is no longer allowed, as one must have the service/product available if it has been booked.   Any such overbooking and therefore inability to honour a booking calls for a refund of the cost of the booked service as well as the costs involved in cancelling the booked service (e.g. loss of business suffered by the customer), which could become very costly for the supplier!   However, the supplier may make an alternative arrangement on behalf of the customer, and that customer is reasonably expected to accept the alternative arrangement.

7.   The Right to fair, just and reasonable terms and conditions

       The Act regulates ‘agreements’ (not calling them contracts) between suppliers and consumers.  One may not contract with minors, and those that are mentally unfit.   Information in the agreement must be in plain understandable language.  Repairs must be pre-quoted.    Some agreements will be specified by the Minister to be in writing.  The sales record must contain the required information (as specified above).  Any risk to the consumer that may lead to serious injury or death must be highlighted (does a pool count?).  Any other potential risks associated with the product or the service must be highlighted.   A ‘fair’ price must be offered, and the terms must be ‘fair’ and reasonable, although ‘fair’ is not defined.  “Unfair” is however defined as agreements which are one-sided in benefit to a party other than the consumer, or are based on misleading information.  No clause in an agreement can be in contravention, or cancel any provisions,  of the Consumer Protection Act.   PIN codes and ID books may not be kept by the supplier, and only copies may be made of the ID book and the PIN code used for a transaction.

A contentious provision for businesses is the right to a cooling-off period, which allows the consumer to return bought goods within five days of purchase, and must be refunded in full within 15 business days.  The notice of cancellation must be in writing.  Melville uses the word ‘good’, and not ‘service’, so it is not clear if this applies to bookings made for services such as accommodation, for which a 50 % deposit is likely to have been taken.   Even more uncertain is how the provision that a consumer can return a ‘good’ if he/she did not have a chance to see the product beforehand, but only of it is not hazardous to the public health (which would exclude food and beverages) or if it has been tampered with.  Such a clause could apply to accommodation too, being an unsighted purchase (but is defined as a ‘service’), so this may not be applicable.   

Consumers have the right to cancel an advance booking or order, ‘but may be liable for a charge for doing so’.   A supplier may “require payment of a reasonable deposit in advance and impose a reasonable charge for the cancellation” . The ‘reasonable’ is not defined, but Melville writes that it should be decided on the basis of the following:

   *   The nature of the products and services

   *   the length of notice of the cancellation

   *   the “reasonable potential for the service provider, acting diligently, to find an alternative consumer between the time of receiving the cancellation notice and the time of the cancelled reservation”. 

   *   The general practice of the industry concerned

In the case of the death or hospitalisation of the person making the booking, the deposit paid must be refunded in full, but this does not apply to a family member’s death or hospitalisation. 

Should a supplier close a service facility (say a guest house which decides to close over winter), 40 business days’ notice must be given to the customer, and the deposit payment must be refunded within 5 business days after the service facility has closed. 

8.  The Right to fair value, good quality and safety

Any good, or element within a good, that can cause harm, injury or potential death to the consumer must be spelt out to the consumer.   These risks can include those that the consumer may not ordinarily have expected, especially those which can lead to serious injury or death.   At Whale Cottage we have evaluated our operation relative to this clause, and have changed our breakfast menu to highlight all nut-based cereals, and have changed the content of one of our Huguenot Fine Chocolates’ turn-down chocolates, which previously was a hazelnut praline.

Products that are available to or sold to the consumer that may contain hazardous substances must have the warning and description on the pack or available separately (e.g. we stock Tabard insect spray in our guest bedrooms, with instructions and health warnings on the pack). 

The Act calls for compensation to consumers if the products bought caused harm to themselves and/or their property.  Not only the direct supplier is liable, but also the importer, the retailer, the manufacturer, the distributor, and the installer can be sued for damages within a three year period from the date of the loss or damage.

A further requirement is that products and services should be of a quality that consumers are ‘generally entitled to expect’.  It states that industry association codes and practice would guide what this reasonable level of quality would be.  For the accommodation industry, the Tourism Grading Council guidelines and requirements probably would be a good quality guide.  Timing of the delivery of the service is once again highlighted as having to be ‘reasonable’, and suppliers must give consumers ‘reasonable’ notice (timing undefined) of ‘unavoidable’ delays.   A good requirement, for anyone dealing with builders or repairmen, is that the property must be left in the condition it was when they first started their work.  Suppliers of repair services must safeguard the consumers’ goods in their care, and this includes deposits that may have been paid.

Products bought must deliver on what they are expected to perform.  They must be in good working condition and free of defects.  So, for example, a toaster used in a guest house can not be expected to perform the same service compared to one used domestically, and the consumer must declare the usage, so that he/she can make the most suitable purchase.  If the product does not perform, the consumer can return the product within a six month period, and can demand a new replacement product, money back, or repair of the item.   The consumer has the right of choice in this regard, not the supplier.  This places a responsibility on suppliers to stock enough of any products to be able to replace products, especially if the items might be discontinued!   Repaired goods have a three month warranty period through the Act.   No ‘voetstoots’ clause applies for any purchase any longer.

The Consumer Protection Act is a lengthy piece of legislation, and each business is advised to check its practices and communication to customers, to evaluate its compliance with the new Act.  It could become an explosive minefield if opportunistic consumers were to try to exploit the provisions of the Act, especially for the service industry, where things are not always black or white.  However, the protection it affords consumers is welcomed, and the improvement in the level of service and quality of products one can expect as a result is too.

POSTSCRIPT 26/5:  This afternoon I attended a Consumer Protection Act workshop at the Radisson Blu hotel, organised jointly by Cape Town Tourism and FEDHASA Cape.  The first part was presented by a lawyer from Webber Wentzel, the most boring speaker, who quoted clauses from the Act and had assumed that the audience knew nothing at all about the Act.  He had misread his audience completely.  He was followed by FEDHASA legal consultant Peter Cumberlege, who was far more entertaining as well as informative, but with strong views that FEDHASA Cape appears to rely on, without robust debate!  The key points made:

*   nothing in the Act is new – we all treat guests fairly

*   the most contentious statement was that the hospitality industry should NOT have a standardised cancellation and refund policy – all establishments are unique.  However, the Chairman of the National Consumer Tribunal said in Franschhoek recently that the hospitality industry should form an industry body, and should standardise its cancellation policy, given that the Act regularly refers to standard industry practice.

*   Establishments must try to resell cancelled rooms, and should try not to charge for these.  If there is a charge, it should be to recover expenses, and not a full room rate, especially if the establishment is not fully booked on the day of the cancellation- this is a contentious view of Cumberlege, and many would disagree with him.

*   SQ prices must come off restaurant menus

*   Invoices can no longer be handwritten, given the invoice requirements in the Act

*   All websites and brochures should be checked for accuracy of claims.  Avoid overclaims.

*   If one overbooks one’s accommodation, the guest must be given equal or better accommodation, or one must refund: interest on money held plus monies paid plus cost of cancellation to the client

*   One is responsible for guests’ belongings on one’s property

*   Disclaimers and waivers are now meaningless in contracts

*   Sites representing a number of establishments must state the rate of the establishment and the percentage commission that they have added = full disclosure

The Consumer Protection Act Made Easy, Adv NJ Melville, 2010.  Exclusive Books.

Chris von Ulmenstein, Whale Cottage Portfolio: www.whalecottage.com  Twitter: @WhaleCottage

20 replies on “Consumer Protection Act no joke, affects every business from 1 April”

  1. Nick Jones says:

    Chris,

    This act, like our ‘uman rites act’ in the UK is written by lawyers in order to allow other lawyers to make vast amounts of money enforcing the unenforceable!

    I’ve just booked our LHR-CPT flights for March 2012. Yippee, 2 years is too long an absence!

  2. I tend to agree Nick. Consumer disputes can be a minefield, and I can see petty cases being taken to the new National Consumer Commission, and tying up the time of the bureaucracy.

    The fines are horrendous – R 1 million for a non-working toaster valued at R 200? Surely the fine should be related to the value of the product or service, if at all.

    Perhaps they should operate like the CCMA, which has commissioners trying to mediate a compromise solution between employer and employee within a two-hour window, and thereafter legal proceedings commence if the mediation is unsuccessful.

    Chris

  3. Kobus says:

    Chris, I read on one of your other pieces of the altercation you had with Naathon Zalk. Please tell us what Whale Cottage’s current booking policy is, and how you think the Act will impact on it.

  4. Dear Kobus

    Our booking policy is not changing, as we meet the criteria set out in the Act – our booking conditions are clearly stated, as is the requirement of a 50 % deposit. Our cancellation policy is also clearly stated on our Credit Card authorisation form and website, and both the booking policy and cancellation policy reflect general industry practice.

    You asked about Naashon Zalk specifically – unfortunately the Act does not protect suppliers such as ourselves against guests who fraudulently claim to have made the 50 % deposit payment when they have not, and therefore only want to pay ‘the other’ 50 %, and only on departure, when we take payment on arrival. Zalk refused to give my manager the card for an imprint, a requirement of the credit card companies. And then he walked out anyway, not honouring the booking, and threatened us with exposure in his wife’s House & Leisure magazine! His credit card has not had a cent in it, and therefore we could not book what he owed us off his credit card!

    Chris

  5. Kobus says:

    Chris, I’ve never stayed in any establishment that insisted on payment in full on arrival. Is that standard practice in the guesthouse industry?

    I have recently had a bad experience where I had made a booking, paid the deposit required and was informed very shortly before my planned arrival that the establishment had no proof of my reservations. On sending them the emails THEY sent me, with proof of payment of deposit, I was simply told that the lodge was overbooked due to an unfortunate error. How would your businesses handle a situation like this?

  6. You are keeping me on my toes today Kobus, but it is a good challenge!

    Every guest house that has guests walk out without paying eventually takes a 50 % deposit and the final 50 % on arrival – hotels place an authorisation hold on one’s credit card on arrival, and then take the full payment on departure.

    Booking errors are something we try to avoid, and that is why I am the only person handling bookings for all Whale Cottages. Mistakes can however happen. The deposit you have paid must be refunded to you, and I am sure that you have proof of that payment to them. You should have received an apology from them, I hope, as well as assistance to find alternative accommodation. Guest houses are very collegial in this regard, and there is always someone else that the booking can be referred to, although this does not always suit the client. The new Act will allow the transfer of a booking to another service supplier, and the customer is ‘reasonably’ expected to accept it, given that it is of a similar standard and rate. Most colleagues will offer the rate of the overbooked establishment, to help out both parties.

    Chris

  7. Lisa Marsden says:

    Thanks Chris for as ever, informative newsletters, in particular, this one.
    Seeing that our Traffic Department / Police are unable to keep thigns under wrap, (e.g. people who talk on their cell phones in their vehicles) how on earth are all the small misdemeanors going to be tracked in the new act? I’m a small Tour Operator and therefore have to abide by establishments T&C’s. Does this mean that I will have to go through every places T & C’s again to dbl check that they are in compliance, or does one “assume” they will be in accordance? As it is, the industry is slow, this could make it even slower. Thanks again, Lisa

  8. Dear Lisa

    Thank you for your compliments.

    It does appear that as a tour operator you would have to check the fine print of every establishment, restaurant, wine estate, car rental company, etc that you use. Everyone in the supply chain is liable.

    Chris

  9. Kath says:

    Thanks for the heads-up! 🙂

  10. Johan says:

    I’ve paid a 20% deposit on the 15th of July this year for flower arrangements and decorating for our wedding next year April 2012. In the meantime we decided to have less expensive wedding Aug 2011 and postpone the actual wedding with ceremony to Sept 2012. We contacted the flower company and explained our situation and that we might require the deposit for our short honeymoon next month, so would appreciate it if they could refund it. We’ll pay the deposit again next year closer to the actual wedding. They are however reluctant as we signed an agreement stating that only 25% of the deposit amount are refundable. My concern is, can they really put out a 75% charge on a 8 month advance payment, when no actual costs were encountered? And this within 10 days of the initial deposit payment? Are they acting in accordance to the CPA?

  11. Kath says:

    Hi Chris
    I have a specific question on this and was hoping that you could help me.
    We booked some accommodation which required full upfront payment a month in advance. I made the payment but then, as sometimes happens, the plans changed and I emailed the establishment a full 2 weeks before we were due to arrive.
    She responded that they do not give refunds and that we could get a credit, valid for 6 months, to the value of the accommodation.

    Please could you help out with some advice:
    1) Are you allowed to refuse refunds if that is your policy?
    2) Since the accommodation is in Stuttaheim and I’m in Cape Town the credit is completely useless to me – do you have any other suggestions that I could take to the establishment?

    Thanks,
    Kath

  12. Dear Kath

    Thank you for your query. I am not a legal expert on the Act, but am willing to guide you.

    Please e-mail the cancellation policy and booking confirmation you were sent, and then I’ll respond : whalecot@iafrica.com

    Chris

  13. Cheryl says:

    Hi Chris
    With the new consumers act what rights do you have if you go to a hotel where you have booked in for 3 nights and when you get there it is not what you expected and want to leave. I know I can just leave but can I get my deposit etc back

  14. Thank you for your interesting question Cheryl.

    The first place to check is the hotel’s cancellation policy. Most policies will not cover ‘expectation’. They will however specify how much you will be refunded if you cancel within specified time periods. Most hotels would not refund for a ‘walk out’, unless it’s for a valid reason of non-delivery of service or product offering claimed on the website or in correspondence.

    The Act states that industry procedures should guide refunds and cancellations.

    Chris

  15. Renée Goosen-Kämper says:

    Hi Chris,
    I always enjoy reading your fb posts and now googling because of a hotel cancellation issue I came to your useful information and I would appreciate your opinion.
    I had recently booked (over booking.com) a 3-bedroom apartment at the Whale Coast Hotel for the one night that was available. (not an issue to me, but they charged my creditcard directly for the 100% in contrary to the 50% at booking and 50% at arrival condition). This was done about 3 weeks before arrival, unfortunately I had to cancel a week later and did that straight away in order to give them the opportunity to occupy it again, but hadn’t read their policy that states that you pay 100% if cancelled after 45 days of arrival. I called the hotel directly and they said basically ‘bad luck’, I said that I then rather give it to a friend and they just told me I had to book it again!
    I checked booking.com a couple of days later and the hotel was fully booked again that night.
    I’ve send them an email and told them that I think their policy is not inline with the Consumer Protection Act, but their answer is that they take a firm approach on their policies and that the hadn’t booked the room.
    Kind regards,
    Renee

    • I do not deal with Bookings.com, but have been told that the system is good, and that each property can apply its own cancellation policy.

      Many accommodation establishments stick to the cancellation policy, because it is harder to fill a booking gap left by a cancellation than guests think. We would have retained the monies and offered you the use of the booking at a later date, but this is up to the property concerned of course.

      The Consumer Protection Act uses as its guideline the industry ‘norm’ as to how cancellations are dealt with, Of course there is no such published ‘norm’! Only in the case of hospitalisation or death of the guest who made the booking are they specifically forced to do a full refund, according to the Act.

  16. Lulu87 says:

    Good day

    So I paid a deposit of R5000 for a venue that costs R8000. When I sent the proof of payment the owner sent me an email to say she would only secure my date once I had signed the confirmation documents. 2 days later we decided that we wanted to have a smaller wedding therefore did not need the venue any longer. I called and asked them to refund my deposit. They told me they would not refund my deposit as they had lost business and it was not in their policy to refund a deposit.

    Is this in line with the CPA?

    1) she said she hadn’t reserved my date .
    2) doesn’t the 5 day cooling period apply?
    3) the wedding would have been in September, doesn’t it give them reasonable time to find another customer?

    Please help.

    • Dear Lulu87, I am not a lawyer, but have taken an interest in the CPA. I can only reply on the basis of hospitality industry experience (not having seen your contract with the venue provider).

      1. She contradicts herself by stating that she needs the confirmation documents signed – this does not hold, as she accepted your payment, without paying it back, so you had a firm booking. If she hasn’t reserved the date, you have no booking, and then she should refund you in full.

      2. I am not aware of a cooling-off period for hospitality bookings – this is not the industry norm, which is what guides CPA disputes.

      3. No matter how reasonable the time period of the cancellation, and how far into the future it is, the contract will determine your rights to cancel, and what the penalty should be, depending on how long in advance you cancel. You should be entitled to at least 50% back. She cannot have a policy of no refunds.

      Try to obtain help via Cape Town Tourism, Wesgro, The Consumer Protector of the Western Cape, Fedhasa Cape, or the local tourism bureau, depending on the town in which the venue is.

      You can e-mail me at whalecot@iafrica.com for further assistance.

  17. NinaJ says:

    Good day

    Wonder if your able to help. we booked accommodation in
    wolesley, the decription on where to stay they used the description “peace and tranquility” it was all
    but that. Its located close to the R46 a busy road and the trucks one can hear
    in the evening. Besides the noise that not even the soothing sound of the river
    could hide the bed was really bad and i would have expected better. When i send the lady a mail she said
    that she was aware of the noise in the summer when the river is not that strong
    but not that its that bad in the winter. we where also had to book for
    the long weekend 3 nights and we left the Sunday because we had
    a wedding the Saturday. If i know the problem i would have booked at
    a other place and stayed longer and enjoyed the time. I live in a busy city
    town and don’t expect if we go to a small town in
    the countryside that we will be getting the same.

    because its a long weekend and we where part of the wedding there where no time to get other accommodation.

    regards

    • Thank you NIna.

      I would suggest:

      1. TripAdvisor review

      2. A letter of complaint to the Tourism Bureau of Wolseley

      3. A letter of complaint to National Consumer Commission – but slow and probably ineffective

      4. Go to Small Claims Court and claim your money back. Google to find out the process you have to follow, not very difficult.

      Good luck.

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