The Australian government has taken further steps toward prohibiting so-called 'unfair trading practices' under the Australian Consumer Law. While it seems unlikely that legislation will be tabled in this term of parliament, the reforms proposed reforms are broad reaching and businesses – particularly online businesses – should understand what lies around the corner.
When did we start talking about unfair trading practices?
The recent focus on merger control reforms has distracted attention from various other proposed changes to Australia's consumer law. The Australian government is either consulting on, or has recently consulted on, issues regarding franchising, product safety, consumer guarantees and the intersection between consumer law and AI. Discussion of another new a proposed prohibition – unfair trading practices – has flown under the radar.
This shifted with last month's announcement by the government of a plan to introduce a general prohibition against 'unfair trading practices' into the Australian Consumer Law. The announcement included a laundry list of conduct that the government intends the new prohibition to target – subscription traps, drip pricing, various deceptive online practices (sometimes referred to as 'dark patterns'), dynamic pricing, data related practices, and after sales service and support.
Following the Prime Minister's announcement, last week Treasury released a further consultation paper regarding the design of an unfair trading practices prohibition. This builds on the work of an earlier Treasury process in late 2023 that considered the extent of unfair practices risks and regulatory response options. Despite the recent focus on this issue which the government is framing as part of its response to cost of living challenges, it is worth keeping in mind that debate about an unfair trading practices prohibition is not new. For example:
How would an unfair trading practices prohibition operate?
Treasury is consulting on a general prohibition that shares some similarities with the unfair contract terms (UCT) regime under the Australian Consumer Law. In particular, the government's proposed model would include:
- A principles-based general prohibition to target unfair practices.
- Specific prohibitions designed to target particular forms of problematic conduct.
The general prohibition is framed to capture the conduct of a business where it:
- "unreasonably distorts or manipulates, or is likely to unreasonably distort or manipulate, the economic decision-making or behaviour of a consumer, and
- causes, or is likely to cause, material detriment (financial or otherwise) to the consumer."
The first limb adapts certain features of the European Union's unfair commercial practices directive (UCPD) which has been adopted in similar form in the Consumer Protection from Unfair Trading Regulations 2008 (UK) (CPR) in the United Kingdom. The second limb draws on the concept of 'detriment' which is a key feature of the UCT regime.
Treasury has proposed that the general prohibition include a list of examples of conduct which may, depending on the circumstances, meet this test. This is similar to the list of example terms in the UCT that may be unfair (section 25). Treasury has proposed the following examples:
- Where a business omits material information.
- Material information that is unclear, unintelligible, ambiguous or untimely, including information that is likely to overwhelm a consumer. This may, for example, concern the quantity or accessibility of information.
- Impeding the ability of a consumer to exercise their contractual or legal rights.
- Using design elements in online settings ('dark patterns') that unduly pressure, obstruct or undermine a consumer when they are making a purchasing decision.
In many cases these example forms of conduct may breach existing prohibitions of the Australian Consumer Law including misleading or deceptive conduct (section 18), false misrepresentations (section 29), unfair contract terms (section 23), and potentially also specific practices such as bait advertising (section 35). Treasury recognises this, but suggests there are either gaps or grey areas where case law has not evolved sufficiently.
Treasury has also proposed specific prohibitions to address particularly problematic forms of conduct. This would build on prohibitions in the Australian Consumer Law against other practices like pyramid schemes. The specific forms of conduct that have been called out are: subscription related practices, drip pricing, dynamic pricing, online account requirements, and barriers to accessing customer support. While there is a lot to unpack here we note the following:
- There is a strong focus on pricing related issues in the consultation materials which aligns with a theme we have recently written about regarding a heightened focus by the ACCC and policy makers on pricing concerns.
- Several of these issues are already prohibited by the Australian Consumer Law – for example, drip pricing (section 48) and dynamic pricing if there has been a misleading representation about price (sections 18, 29). However, the government has clearly formed the view that there are deficiencies with the current regime including, for example, the way the current drip pricing prohibition operates in relation to 'per transaction' fees.
- Changes in relation to online account requirements and accessing customer support would potentially have broad reaching consequences for all businesses – not only those that primarily operate online retail stores.
Do all businesses need to know about unfair trading practices reforms?
Yes – if the government pursues unfair trading practices reforms, all businesses will need to understand the regime.
There is no doubt that the changes Treasury is consulting on would have a particular impact on some businesses:
- Businesses that operate online stores, platforms or marketplaces.
- Businesses that rely on a subscription model for their goods or services.
- Businesses that potentially use so-called 'dark patterns' as part of their sales techniques. This may include various techniques to convert an online sale such as the use of scarcity statements or purchase timers.
However, based on the model Treasury is consulting on, the regime is likely to have a broad reach. For example, the proposal will potentially impact all online businesses regarding the way in which they structure their purchase / check-out process (in terms of information requirements), and post-sales practices (noting Treasury has called out that the Australian Consumer Law does not specifically prohibit failure by a business to deal with contact from a consumer).
At this stage, the consequences of a breach are net yet settled. One of the issues Treasury is consulting on is whether civil penalties should apply to the general prohibition and, if they do, if there should be a transition period (similar to the approach for UCTs, where penalties applied only from late 2023). The government has signalled that penalties will apply for the specific prohibitions and we would expect that if any prohibition is introduced, penalties will ultimately apply to all forms of conduct (the ACCC will demand that penalties are needed to give the prohibition sufficient force).
Finally, financial services are being treated different. At this stage, any reforms will only be to the Australian Consumer Law. Treasury has indicated once a proposal is agreed, the government will then consider if changes are required to financial services laws to ensure appropriate alignment. This is, however, likely to require further consultation.
What will happen next?
The Treasury consultation process is open until 13 December 2024. In light of likely timing for the next federal election, it seems highly unlikely that legislation to introduce an unfair trading practices prohibition into the Australian Consumer Law would be introduced for consideration before parliament rises.
In the meantime, businesses should expect that the ACCC will continue to advocate for these reforms. This will include vigorously pursuing breaches of the Australian Consumer Law and calling out any cases where the ACCC is unable to prove a breach and where it considers the conduct would have been caught by an unfair trading practices prohibition. The ACCC has used this technique in the past and businesses should expect that it will continue to do so.
Please contact MinterEllison's Competition and Consumer Law team if you would like to discuss your response to the Treasury consultation process or if you have any questions about how an unfair trading practices prohibition may apply to your business.
