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Focus: Introduction of new component pricing laws

15 May 2009

In brief: New component pricing legislation, which will significantly affect how price representations are made to consumers, will take effect on 25 May 2009. The Australian Competition & Consumer Commission has also issued general guidelines and industry-specific guidelines to assist with compliance. Partner Jacqueline Downes (view CV) and Law Graduate James Kerr report on this significant legislative development.

How does it affect you?

  • Where a corporation makes a price representation to a consumer, it must specify a single price incorporating the sum of all component prices that a consumer will have to pay to buy those goods or services.
  • While charges for sending the goods to the customer may be stated separately, other types of delivery, processing and credit card charges need to be included in the single total price, even if different charges are applicable in different regions.
  • The penalties for contravention include civil remedies such as injunctions, declarations, compensation, corrective advertising and non-punitive orders. There are also criminal penalties for breaches, including fines of up to $1.1 million for corporations and $220,000 for individuals.

The legislative regime

Application

From 25 May 2009, the Trade Practices Act 1974 (Cth) will require that when component pricing is used by a corporation for a price representation to a consumer, the consumer must be provided with a prominent single total price for the goods or services, where a single price is quantifiable at that time. The amendments apply to all 'representations' made in connection with the supply or possible supply of goods or services, or in connection with their promotion. The scope is thus much broader than advertising, also appearing to include quotations, tenders, estimates and other like documents where representations as to price are made.

Prominence

Section 53C requires that where a corporation uses a component price, it must as 'prominently' specify a single figure representing the minimum total cost that is able to be quantified. In the case of an advertisement, the Australian Competition & Consumer Commission (the ACCC) guidelines indicate that the medium of the advertisement will be relevant, as will elements such as size, placement, colour and font, when assessing prominence. In essence, analysis will be case by case, but the main focus, according to the Explanatory Memorandum, will be a comparison between the prominence of the single total price and the prominence of any components of that single total price in any advertisement or representation made.

Single price

The legislation defines a single price to be the minimum total cost, that is able to be quantified, payable by the consumer to acquire the goods or services. 

According to the ACCC guidelines, the following must be included in the single total price:

  • a charge of any description payable by a consumer to purchase the goods or services (eg administration fees, compulsory service charges, booking fees, etc); and
  • taxes, duties, fees, levies or charges payable by the consumer for the supply of the goods or services (eg GST).

The following do not need to be included in the single price represented:

  • optional extras ' additional charges a consumer decides to pay;
  • sending charges ' such charges must be displayed, but they do not need to be included in the calculation of the single price;
  • non-quantifiable components; and
  • costs paid by the corporation to third parties that are not passed on to the consumer.
Quantifiable

The legislation provides that only those components that are sufficiently quantifiable at the time of making the representation need to be included in the calculation of the single total price. An amount is not quantifiable if it cannot readily be converted into a dollar amount.

However, the ACCC guidelines emphasise that where a total price is not quantifiable but a minimum total price is known, that minimum must be disclosed to the consumer.

Exceptions

Section 53C(3) states that this provision does not apply in respect of representations made exclusively to other corporations. Similarly, s53C(6) provides that the legislation is applicable to goods or services ordinarily acquired for personal, domestic or household use or consumption.

Another significant exception operates with respect to contracts for the supply of services, and goods directly related to the supply of those services, which require periodic payments by the consumer. Section 53C(5) and the ACCC guidelines indicate that the corporation would still need to specify the minimum total cost to the consumer over the course of the contract term, but could display this figure less prominently than the amount of the periodic payment. 

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Industry specific issues: ACCC-issued guidelines

Motor vehicle industry

A common advertising technique that motor vehicle manufacturers and retailers use is to indicate a particular price for a motor vehicle and include in a disclaimer 'plus dealer delivery and statutory charges'. This form of advertising will no longer be acceptable under s53C, according to the ACCC's Pricing manual for the motor vehicle industry. Even where the component prices ' for example, the amount of stamp duty or registration payable ' are specified, unless a total price incorporating all component prices that a consumer will need to pay to acquire the particular motor vehicle is displayed as prominently as any other price, the ACCC's view is that the advertisement is likely to breach s53C. The ACCC pricing manual also indicates that 'dealer delivery' charges are not considered to be 'sending' charges exempted under s53C(2). The fact that dealer delivery and statutory charges may vary from region to region must also be taken into account when calculating the single total price.

Hospitality industry

In its guidelines, the ACCC notes that a practice of many restaurants and bars is to impose a surcharge at weekends and/or on public holidays. However, according to the ACCC, the addition, for example, of a 10 per cent surcharge to the customer's total bill will represent a breach of the new component pricing regulations, as a 'single price' was not provided to the consumer at the time that the representation as to price was made. Businesses wishing to charge a surcharge on particular days may have to provide customers with a different menu that incorporates the additional surcharge on each individual item on it.

Purchasing by credit card

The Explanatory Memorandum indicates that where a consumer can only purchase goods or services with a credit card and a fee is charged for use of a credit card, this fee must be included in the total or single price for the goods or services as represented to the consumer. Where the customer has a choice of method of payment, this fee would not need to be incorporated into the single price as represented.

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The ACCC guidelines

Published 15 May 2009

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