What's New in Franchising

Key features of the Trade Practices Amendment (Clarity in Pricing) Act 2008

From 26 May 2009, corporations advertising a component of a price without also stating just as prominently and as a “single figure” the total cost the consumer must pay to acquire the goods or services will be prohibited. The changes will not prohibit the practice of component pricing for consumer goods, so long as a single figure total price is also prominently included in any advertising.

The amending Act amends section 53C of the Trade Practices Act 1974 (‘TPA’) and obliges the display of a “single price” and a test of “prominence” in relation to the way that price is displayed. As a result, consumers should be able to make a choice of product through a direct comparison based on an all inclusive single price.

The key features of the new law are:

1. Single price: specifying the price as a single figure, including all amounts that are quantifiable at the time of advertising, is required. Where a price is both quantifiable and non-quantifiable, the minimum total amount payable must be included and specified as such (e.g. ‘from a minimum total price of $x’). If the total consideration for goods or services is to be paid over the term of a contract, then the price over the entire term must be included in addition to the price per month. According to the ACCC price advertising guide, it is acceptable to put the word ‘from’ in front of a price “if a price varies according to outside factors (such a departure location or seasonal variations).”
2. Prominently displayed: a ‘single price’ must be displayed at least as prominently as any component price. The ‘at least as prominently’ disclosure requirement does not apply to contracts that provide for the supply of services. This 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.

The background to the changes:

Component pricing is the practice of advertising prices as the sum of multiple component parts. Regulators such as the Australian Competition and Consumer Commission (‘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 a consumer must incur to purchase a product are not advertised at all, or are only disclosed in the fine print.

The intention of the Federal Government when considering this new law was to ensure that details of the total amount a consumer will pay when acquiring a good or service is not just “somewhere in a footnote” or in the fine print and that the actual total price be “abundantly clear.”

Exceptions to the new Act:

The single price requirement will not apply:

1. Where the goods and/or services are advertised exclusively to bodies corporate.
2. Where the goods and/or services are not of a kind ordinarily acquired for personal, domestic or household use or consumption.
3. Postage charges do not have to be included in the single price if the minimum postage charges are not known by the corporation at the time of making the representation. If a minimum amount of postage charges is known, the corporation must state that minimum amount but need not include that amount in the ‘single price’.

Other considerations:

The “as prominent” test also applies to oral price representations which will directly affect corporations that advertise on radio and television. This means that where an advertiser promotes a component of a price orally, it is likely that the “single price” will also need to be represented orally and at the same tempo and volume as any component of the price.

Quiet oral disclaimers such as “plus fees and charges” will not comply where those fees and charges are quantifiable and the main component of the price was specified earlier in the advertisement.

Offences

The amending Act also amends the criminal provisions of the TPA to create an offence of strict liability which is punishable by a fine of up to $1.1 million for contravention.

It is an offence for a corporation to make a representation which respect to an amount that, if paid, would constitute only part of the total amount to be paid for the supply of goods and services. However the corporation will not have breached the criminal sections of the amending Act if the “single price” was also specified.

Conclusion

The new amendments to the TPA will have a significant impact on the way that companies advertise their products and services to consumers and will come into effect by 26 May 2009. To ensure compliance, all companies should be considering how this new law will affect the marketing of their goods and services.

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