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Focus: Competition Law – November 2008

Amendments to component pricing laws

In brief: The Senate this month passed the Federal Government's legislation to clarify component pricing laws. Partner David Brewster (view CV) and Lawyer Adel Mohamed report on the amending Bill. 

How does it affect you?

  • Where a corporation makes a price representation to a consumer and that amount is less than what the consumer will have to pay to buy those goods or services, the corporation must also prominently state a total price as a single figure. So, for example, advertisements quoting the price of a rent-a-car must now state the total price payable, rather than the rental amount 'plus fees and taxes'.

Background to the changes

On 11 November 2008, the Senate passed the Trade Practices Amendment (Clarity in Pricing) Bill 2008 (the Bill) to respond to the use of component pricing in representations by businesses to consumers.

Component pricing is the practice of advertising prices as the sum of multiple component parts. Regulators such as the Australian Competition and Consumer Commission (the ACCC) have often expressed concerns that component pricing can create the impression that a product is being offered for sale at a lower price than it actually is. An example is where taxes, fees or other charges that the consumer must incur to acquire a product are not advertised at all, or are only disclosed in fine print disclaimers.

At the time that the Goods and Services Tax was introduced in 1999, the Australian Government received advice that section 53C of the Trade Practices Act 1974 (Cth) (the TPA) required displayed prices to include any GST payable and, by implication, it was understood that this section would also prohibit other forms of component pricing, unless a single-figure price was specified.

However, since the Federal Court decisions in ACCC v Dell Computer Pty Ltd (2002) FCAFC 434 and ACCC v Signature Security Group Pty Ltd (2003) FCA 3, the ACCC has expressed concerns regarding the efficacy of s53C, in its current form, to require a single price to be stated. As a result, the Government resolved to amend the section.

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Effect of the amendments

The Bill amends s53C of the TPA to ban corporations from using a component price when making a representation as to the price of a good or service supplied to a consumer without also prominently specifying the single-figure price that the consumer must pay to obtain the product or service.

A corporation can still make representations involving component prices, however it must ensure that a single-figure price is also displayed. For example, a corporation could continue to represent prices as: '$100 plus $10 GST and $35 statutory fees and charges'. However, a total GST inclusive price of $145 would also need to be prominently displayed. The corporation could not simply quote the price as '$100 plus $10 GST' and list all other fees and charges in the fine print.

The total minimum quantifiable price must be stated as prominently as the most prominent of any other price amounts relating to the purchase. The prominence requirement applies to all forms of advertising, including printed, internet, television and radio advertisements.

There are some important exemptions from the new component pricing rules:

  • The component pricing requirements apply only to representations made exclusively to consumers and not to other businesses or governments. Further, the Bill does not apply to the financial services industry, where detailed disclosure requirements already exist.
  • Corporations are only required to disclose a single figure, minimum total price to the extent that it is quantifiable. In practice, the total price a consumer will pay may depend on optional extras or bundled products that the consumer chooses to purchase. In such circumstances, a disclosure of the type 'from $500' will remain an acceptable representation of price. Further, in cases where a corporation genuinely cannot determine the exact taxes or other components of the price when it makes a price representation, the corporation will not be required to state these in the total price.
  • The 'at least as prominently' disclosure requirement does not apply to contracts that provide for periodic payments for the supply of services (including where services and goods are supplied together). The exemption allows the disclosure of the periodic component of the single price for the services to be displayed more prominently than the single price over the life of the contract. For example, a corporation may offer telecommunications services at a cost of $30 per month, with a minimum contract term of 12 months. The single price for the services is $360 and the corporation is still required to state this single price prominently. However, the corporation is permitted to display the $30 per month more prominently.
  • The Bill provides an exemption for charges for sending the goods from the supplier to the customer. Such charges, which include genuine postage and handling charges, need not be included in the single-figure, total price.

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