On 15 November 2024, Treasury commenced further consultation on its proposal to prohibit unfair trading practices. Significantly, the Commonwealth Government proposes to introduce not only a general prohibition against unfair trading practices, but also specific prohibitions targeting subscription-related practices, drip pricing, dynamic pricing, online account requirements and barriers to accessing customer support. This means that the reforms will have material implications for all businesses across the economy, but particularly those that engage with consumers and businesses online.
As we foreshadowed here, this consultation forms one plank of the government’s raft of consumer and product safety law reforms. It comes a month after the government announced it proposes to ban unfair trading practices under the Australian Consumer Law (ACL) and a year after it consulted on the nature of unfair trading practices in Australia and policy options to address this issue, as we reported here.
What you need to know
As outlined in Treasury’s consultation paper, the government is considering addressing unfair trading practices into two ways:
First, by introducing a new general principles-based prohibition in the ACL, which will apply where a business’ conduct:
Unreasonably distorts or manipulates, or is likely to unreasonably distort or manipulate, the economic decision-making or behaviour of a consumer.
Causes, or is likely to cause, material detriment (financial or otherwise) to the consumer.
Second, by introducing additional prohibitions targeting specific types of unfair practices, such as:
Subscription-related practices, including not providing customers with the material information they need to make informed decisions about a subscription, making it difficult for customers to cancel their subscription, or quietly renewing or automatically rolling over subscriptions from a free trial or promotional period to a paid or full price subscription.
Drip pricing practices and hidden fees, where a business advertises one price at the beginning of an online purchase, then gradually imposes extra, typically unavoidable fees such as payment or service charges during the purchasing process.
Dynamic pricing, which refers to the practice of varying prices for a good or service based on factors such as real time demand and where the price is raised during the course of a purchasing process, often far beyond the price initially displayed. This practice can be confusing because the price increase occurs in a short period of time and the final price may not be revealed until the time of purchase.
Online account requirements, such as requiring consumers to set up an account and provide personal information as a pre-requisite for making a purchase.
Barriers to accessing customer support, including post-sales practices such as designing customer service systems in a manner which makes it unreasonably difficult for consumers to contact a business, requiring consumers to provide unnecessary information in order to access benefits or obtain a remedy, and unreasonably long delays in providing customer service.
The consultation paper seeks feedback on:
the design elements of the proposed prohibitions
likely benefits of the proposal to consumers
likely compliance costs for businesses associated with the new proposed prohibitions
how penalties should apply to a contravention of the proposed prohibitions.
The paper proposes that the full range of remedies, including civil pecuniary penalties, should be available for a contravention of any specific prohibition of unfair subscription-related practices but does not make the same proposals for the other practices or the general prohibition. Instead of a specific proposal in relation to remedies for contravention of the general prohibition, the paper seeks feedback on how penalties should apply to a breach of a general prohibition.
Submissions on the proposals are due on 13 December 2024.
General prohibition against unfair trading practices
The proposed general prohibition against unfair trading practices would be principles-based, addressing unfair trading practices that cause consumer harm but may not be addressed by the ACL’s current provisions. Treasury considers that while specific prohibitions may be effective in addressing some current unfair trading practices, a general prohibition would provide:
a safety net to address other known practices
the flexibility to evolve as new practices emerge in a similar way to other general principles-based provisions of the ACL, such as the general prohibition on misleading or deceptive conduct.
Elements of the proposed general prohibition
It is proposed that a general prohibition on unfair trading practices capture a business’ conduct where it:
Unreasonably distorts or manipulates, or is likely to unreasonably distort or manipulate, the economic decision-making or behaviour of a consumer.
Causes, or is likely to cause, material detriment (financial or otherwise) to the consumer.
Treasury seeks feedback on:
Whether the concept of ‘unreasonableness’ should be incorporated into the general prohibition. By confining the application of the prohibition to only conduct which is ‘unreasonable’, Treasury states that common-place and legitimate marketing tactics would not be captured.
Alternatively, whether to include a legitimate interest element as the third limb of the proposed general prohibition, drawing upon the unfair contract terms test. This limb would act as a rebuttable presumption, meaning the onus would be on the party engaging in the practice to prove that the term is necessary to protect its legitimate interest.
The appropriateness of the requirement that detriment or likely detriment caused to the consumer by the conduct be ‘material’.
It is also proposed that the ACL specify a non-exhaustive list of examples of conduct (grey list) which may, depending on the circumstances, meet this test. It is proposed that the grey list include:
The omission of material information.
The provision of material information to a consumer in an unclear, unintelligible, ambiguous or untimely manner, including the provision of information in a manner that overwhelms, or is likely to overwhelm, a consumer.
Impeding the ability of a consumer to exercise their contractual or other legal rights.
Use of design elements in online consumer interfaces that unduly pressure, obstruct or undermine a consumer in making an economic decision.
Remedies
The paper also seeks feedback on how penalties should apply to a breach of a general prohibition. Stakeholders in support of a prohibition on unfair trading practices typically advocated for a range of remedies (including civil pecuniary penalties) while other stakeholders considered the approach to implementing any penalties framework for unfair trading practices should mirror that taken with respect to unfair contract terms where penalties did not apply initially. The latter approach would recognise that businesses may need to take certain actions to ensure their systems and processes comply with a new law, particularly where there has been little or no judicial consideration of how the law will operate in practice.
Dark patterns
The paper also considered ‘dark patterns’ but did not propose specific prohibitions against attempts to steer consumers towards/away from action or towards decisions that they would not normally take. Instead, Treasury considers that dark patterns will be captured by the general unfair trading prohibition that captures conduct that unreasonably manipulates or distorts consumer decision-making. It also considered that many dark patterns intersect with other potentially unfair practices, including subscription practices and hidden fees.
Specific prohibitions
The paper identifies specific problematic conduct which could be addressed by the introduction of specific prohibitions, or by reform to existing provisions of the ACL. These areas of focus for specific prohibitions are subscription-related practices, drip pricing, dynamic pricing, online account requirements, and barriers to accessing customer support.
Subscription-related practices
The paper noted a range of ways in which subscription-related practices can cause consumer and small business harm, including:
Businesses not providing customers with the material information they need to make informed decisions about a subscription.
Practices which make it difficult for customers to cancel their subscription, for example cancellation processes that are difficult to navigate, overly complex or time consuming.
Subscriptions which quietly renew or automatically rollover from a free trial or promotional period to a paid or full price subscription.
The paper proposes four options to address unfair subscription-related practices, which could be combined:
Option 1 – Pre-sale disclosure of material information: Introduce a requirement that businesses clearly disclose certain material information about a subscription contract to the customer prior to signing up the customer to the subscription.
Option 2 – Notification requirement: Introduce a requirement that businesses notify customers of how much they have spent on the subscription to date, the date and amount of the next payment, and instructions for how to cancel the subscription contract.
Before the end of any contract period if the contract will automatically renew unless cancelled.
Before the end of any free trial or introductory offer period if the customer will become subject to an ongoing subscription unless cancelled.
When issuing a receipt for each payment of a subscription, with an option to cancel or modify the subscription easily and quickly.
Option 3 – Opt-in requirement: Introduce a requirement that, in order to sign up a customer to an ongoing subscription, businesses seek an active ‘opt-in’ from the customer before the end of a free trial or introductory offer period.
Option 4 – Remove barriers to cancel a subscription: Introduce a requirement that businesses make the process for terminating a subscription as straightforward and easy as the process for subscribing to it and provide customers with a straightforward and easy to locate mechanism for cancelling a subscription that is at least as easy as signing up. This could be akin to the ‘click-to-cancel’ rule adopted by the US Federal Trade Commission and the inclusion of a cancellation button mandated by the German consumer law.
Drip pricing
The paper notes submissions which raised concerns about drip pricing practices, particularly in the context of accommodation bookings and airline and event ticketing, with stakeholders advocating for greater transparency regarding additional fees charged when making bookings or purchasing tickets.
The ACL already contains prohibitions to address drip pricing and the paper therefore seeks feedback on the adequacy of the following existing prohibitions:
Section 48 of the ACL, which prohibits a person disclosing part of the price for a good or service without also disclosing the minimum quantifiable price for the good or service at least as prominently, with some exceptions.
The ACL prohibitions against misleading or deceptive conduct in section 18 of the ACL, and false or misleading representations with respect to price in section 29(1)(i) of the ACL.
Dynamic pricing
The paper noted a growing concern about the use of dynamic pricing models in relation to ticketing, specifically the potential for dynamic pricing to be used to raise the price of event tickets during the course of a purchasing process, often far beyond the price initially displayed for a particular ticket category. The paper notes this practice can confuse and unreasonably distort consumer choice by masking true prices. Critically, the paper considers this practice is distinguished in the paper from ‘surge’ pricing, which is where prices are raised in response to increased demand for items in low supply, which the paper considers differs from dynamic pricing because once the consumer commences the transaction, the price is set.
The ACL already contains prohibitions against bait advertising which the paper considers is similar to dynamic pricing practices. The paper now seeks feedback on:
The adequacy of the existing prohibitions in the ACL in addressing dynamic pricing practices. The ACL does not specifically prohibit dynamic pricing, although:
The current ACL protections against misleading or deceptive conduct, or false or misleading representations as to price, may apply to certain practices.
Section 35 of the ACL (bait advertising) may apply in the context of businesses offering a limited supply of online service or ticket bookings depending on the relevant circumstances.
Whether the use of dynamic pricing should be prohibited under the ACL (for example, by introducing a specific prohibition on businesses increasing the price of a product during the purchasing process).
Online account requirements
The paper seeks feedback on whether reform to the ACL is needed to address pain points for consumers relating to mandatory account creation for online purchases. Options to address this practice could involve requiring retailers to provide a ‘guest’ check out option.
Barriers to accessing customer support
The paper seeks feedback on whether a general prohibition on unfair trading practices would be sufficient to address consumer harm arising from businesses failing to provide consumers with adequate access to customer service support. While businesses must meet certain obligations when a consumer requests a remedy for a faulty good or service under the consumer guarantee regime of the ACL, there is currently no obligation for businesses to provide a point of contact or respond adequately to general consumer queries or requests. The government is separately consulting on proposed new penalties for businesses that fail to give consumers a remedy when required under the consumer guarantee provisions of the ACL.
Remedies for specific prohibitions
As outlined above, the paper proposes that the full range of remedies, including civil pecuniary penalties, should be available for a contravention of any specific prohibition of unfair subscription-related practices. It is also proposed that civil pecuniary penalties commence at the same time as the prohibition commences. There is no specific proposal on remedies for the other proposed specific prohibitions.
Application to business-to-business dealings and financial services
It is proposed that a staged approach be adopted for the introduction of a general prohibition on unfair trading practices, applying initially to business-to-consumer dealings, then considering on a case-by-case basis whether any of the specific prohibitions should be available to protect small business in their dealings.
The paper refers to some stakeholders arguing in favour of extending any unfair trading practices prohibitions to financial services regulated by the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) to ensure alignment between the ACL and financial services law.
At the Gilbert + Tobin Financial Services Forum, ACCC Chair, Gina Cass-Gottlieb, recommended that any prohibition against unfair trading practices should be economy wide and that both the ACL and the ASIC Act should be amended to introduce an unfair trading practices prohibition. See here for our recap of takeaways from the Financial Services Forum, including Ms Cass-Gottlieb’s keynote remarks.
The paper notes that, given important differences between the ACL and ASIC Act, any mirroring of changes to the ACL would require careful consideration. Once the government has considered options to amend the ACL and consulted with States and Territories, it will also consider what changes are required to financial services regulated by the ASIC Act to ensure appropriate alignment across the ACL and financial services laws.
What’s next
Submissions in response to the consultation paper are due on 13 December 2024.
Once the consultation process has concluded, the government will:
Prepare a Decision Regulation Impact Statement (Decision RIS), outlining the evidence gathered and the preferred policy approach.
Publish the Decision RIS on the Department of the Prime Minister and Cabinet website.
Consult with States and Territories on options to amend the ACL.