Home » Consumer Law Update: The definition of ‘Consumer’ is changing

Consumer Law Update: The definition of ‘Consumer’ is changing

Posted by Colin Miller | 10 February 2021 | Corporate Finance

Effective 1 July 2021, businesses in Australia need to be aware of the newly expanded definition of ‘consumer’ under Australia Consumer Law (‘ACL’), which means more customers can rely on Consumer Guarantees.

 

This briefing note details the particular changes and suggest actions that businesses which are subject to the ACL can take to ensure compliance with the ACL and to minimise their risk.

What is changing:

    • From 1 July 2021, the monetary threshold for determining whether a purchaser of goods or services is a ‘consumer’ under section (3)(1) of the Australian Consumer Law (“ACL”) will increase from $40,000 to $100,000 [1]. This will greatly expand the number of potential consumers protected by Consumer Guarantees.
    • The current threshold amount for defining a ‘consumer’ is $40,000 , which was established in 1986. The Australian Consumer Law Review: Clarification, simplification and modernisation of the consumer guarantee framework prepared by Consumer Affairs Australia and New Zealand in 2018 found that the threshold amount was no longer adequate.
    • Any business that sells goods or provides services for up to $100,000 needs to prepare for the changes as a greater number of customers will have protections under the ACL, including importantly the operation of Consumer Guarantees (ss 51-63 of the ACL).
  • The change in threshold amount is significant because the meaning of ‘consumer’ is central to a number of key sections of the ACL, including the provision of guaranteed consumer rights for goods or services.

The Definition of ‘consumer’ expanded under ACL

The ACL provides general protections to consumers by creating standards of business conduct in the market.  Under the current definition in section 3(1)  of the ACL, a person is a ‘consumer’ if the person acquires:

  • Category 1: Goods or services that are priced at $40,000 or less;
  • Category 2: Goods or services that are of a kind ordinarily acquired for personal, domestic or household use (regardless of the price of the goods or services); or
  • Category 3: A vehicle or trailer acquired for use principally in the transport of goods on public roads.

A person is not a ‘consumer’ however if they acquire goods for the purpose of resupply or to use up or transform in the process of production or manufacture, or in the course of repairing or treating other goods or fixtures on land.

From 1 July 2021, $100,000 will be the new price threshold, increasing the current threshold of $40,000 for the purposes of paragraph 3(1)(a) of the ACL. This means that a customer can purchase goods or services with a price of up to $100,000 and will fall within the definition of ‘consumer’ within the ACL.

Note: A customer can still fall within the definition of ‘consumer’ if the purchase price of goods exceeds $100,000, if the circumstances set out in Category 2 or 3 above apply.

The significant increase in the monetary threshold amount will result in a wider range of goods and services falling within the definition of ‘consumer’ goods or services. It is likely that more commercial goods and services will therefore also be captured within the amended definition.

No change to existing consumers
Where a business sells good or provides services for under $40,000, the ACL will continue to apply as it always has done to consumer transactions.

Other consequences of the change
The definition of ‘consumer’ applies to other consumer transactions under the ACL, such as unsolicited consumer agreements and lay-by sales agreements.[2]

The changes will also amend the definition of ‘consumer’ in the Australian Securities and Investments Commission Act 2001 (Cth), which contains consumer protection provisions that mirror the ACL, but which relate to financial products and services.

What are Consumer Guarantees

  1. The ACL is the main regulation that governs the sale of goods and services from businesses to consumers. The ACL applies to Australian businesses, as well as to businesses based outside of Australia who sell to consumers within Australia.
  2. Under the ACL, statutory protections for consumers and obligations on businesses (as suppliers of goods and services) are referred to as ‘consumer guarantees’ and include:

that goods will be:

  • of acceptable quality;
  • fit for purpose;
  • comply with any express warranties;
  • comply with their description;
  • correspond with the sample or demonstration (if given);
  • have clear title;
  • be free from securities; and
  • come with undisturbed possession [3]

and that services will be:

      • fit for purpose;
      • be provided with due care and skill; and
      • delivered within the stated time or, if no time is stated, within a reasonable time.[4]

     

Consequences for a breach of the ACL

    1. The ACL creates ‘consumer guarantees’ as outlined above, regarding the quality and function of goods and services that automatically apply to every supply of goods or services to a ‘consumer’.
    2. A failure to comply with the consumer guarantees entitles the consumer to specific remedies under the ACL including repair, replacement, refund, cancellation and compensation, depending on the nature and extent of the failure.
    3.  Consumer guarantees cannot be waived, limited or excluded, or misrepresented. For example, where goods are supplied to a ‘consumer’, the supplier guarantees, as prescribed by the ACL, that they are of acceptable quality, fit for any particular specified purpose, and corresponded with any description or sample given. Where services are supplied to a ‘consumer’, the supplier guarantees, as prescribed by the ACL, that the services will be provided with due care and skill, fit for any specified purpose and supplied in the timeframe agreed or within a reasonable time.

Contracts that purport to exclude the operation of the consumer guarantees are void under section 64 of the ACL.
However suppliers of goods and services priced up to the $100,000 threshold may limit their liability for a breach of consumer guarantee to the repair or replacement of the goods, or supply of equivalent goods or the payment of the cost to repair or replace the goods;[5] or  the re-supply of the services or the payment of the cost of having the services supplied again.[6]

** Note that this limitation only applies where the goods or services are not of a kind ordinarily acquired for personal domestic or household use.

Recommended action items

It is suggested that businesses should start to consider the impact of the changes to the ACL well in advance of 1 July, 2021. Suppliers and manufacturers of goods and services valued at up to $100,000 will now be within the scope of what the ACL considers to be ‘consumer’ goods and services. This is likely to capture more B2B transactions.

For example:

    • Update all relevant contracts, warranty policies (both internal policies and those that are published), and terms and conditions, to ensure compliance with the amendment. Terms should be reviewed to ensure that they do not mislead or misrepresent consumers’ rights and remedies. Note that apart from potential penalties for making false or misleading representations, if a term does not comply with the consumer guarantees regime, then the term will be void under the ACL;
    • Revise packaging and marketing materials to comply with the effect of this change on warranties;
    • Warranties against defects: if a business offers a warranty against defects for goods or services, the warranty must comply with consumer protection regulations. This includes required text (as set out in the ACL) that must be included in the warranty document; and
    • ACL employee compliance training: it is important that management, sales and customer service staff understand the consumer guarantees regime so that they do not misrepresent or mislead customers about their rights and remedies available under the ACL.

Conclusions

The expanded definition of consumer within the ACL will have practical consequences for all sellers of goods or suppliers of services having a price up to $100,000.

The change to the ACL will significantly add to the scope of consumers protected by the provisions of the ACL, in particular the consumer guarantee regime.  While consumer advocates will welcome the change as being long overdue, businesses must be mindful of the changes and take such necessary actions so as to be prepared in advance of 1 July, 2021.

Resources
[1] Schedule 2 to the Competition and Consumer Act 2010 (Cth).
[2] ACL Part 3-2 Division 2 and 3
[3] ACL ss 51-59
[4] ACL ss 60-63
[5] ACL section 64A(1)
[6] ACL section 64(A)2

How can we help

For more information on the Australian Consumer Law or this Update, please contact Nexus Group Principal Colin Miller on cam@nexuslawyers.com.au

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 This publication is © Nexus Law Group and is for general guidance only.
Legal advice should be sought before taking action in relation to any specific issues. 

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