Consumer Protection Act to change business operations in SA

Thursday, March 31, 2011

Revolutionary or a double edged sword, the Consumer Protection Act (CPA) comes into effect next month. What is certain is that the act will change the way consumers and businesses operate on South African soil.

According to the Department of Trade and Industry (dti), the act aims to promote and advance the social and economic welfare of South Africans through a legal framework for the achievement of a fair, accessible, responsible and sustainable market. 

It also aims to reduce disadvantages experienced in accessing the supply of goods and services by low income consumers as well as promoting fair business practices, among others.

"Certainly this is a revolutionary act designed to change the way in which people do business in South Africa," University of KwaZulu-Natal Head of the Business Law Unit, Professor Tanya Woker, says.

The act, for example, will ensure that consumers are entitled to refunds if the goods purchased do not perform according to standards, if goods are faulty and the customer was not made aware of the fault and if the goods are not the same as those shown to the customer before delivery.

"I believe the legislation will be of great importance to consumers and producers, especially manufacturers. It will give them an opportunity to raise their game and improve competitiveness. Fair trade is what we seek to introduce in South Africa," said dti minister Rob Davies earlier this month at the official launch of the National Consumer Commission (NCC), which will administer the CPA.

He described the legislation as "groundbreaking" as it will also protect producers from unfair competition from illegal imports.

Trudie Broekmann, a consumer law expert at Webber Wentzel, says that not only is the act good news for South African consumers, but it also protects small corporates and other entities like consumers. 

"In this sense, our act provides broader protection for consumers than consumer protection legislation in other countries."

Under the new legislation small businesses (in particular juristic persons as defined in the act with an annual turnover and asset value of R3 million) are protected in the same way as it protects individual consumers. This will result in small business benefitting as well.

However, Danie Strachan, senior associate at Adams and Adams who specialises in consumer protection, says the legislation has a two-fold effect on small business. 

"The CPA is a double-edged sword for small business. On the one hand, when purchasing goods or receiving services from suppliers, a small business will have the rights and protections of any other consumer. 

"On the other hand, small business will have to comply with the act's provisions when they supply goods or services to the public. These provisions can be regarded as quite onerous and compliance will have some cost implications," explains Strachan.

Concerns have been raised that the added compliance burden and expense of additional insurance for suppliers will simply be passed on to consumers explains Broekmann. "My hope is that the act will have a positive impact on our economy, leading to better supplier/consumer relationships."

Strachan says that it will not be easy for all business people to understand as well as apply all provisions of the act. "Small and unsophisticated businesses might face a particular challenge in this regard. Big corporations that have fully fledged compliance departments might not battle with the implementation of the act." He adds that many small businesses will not necessarily have the capacity or resources.

Executive Advisor to the chief executive officer of the South African Chamber of Commerce and Industry, Peggy Drodskie, explains that most of the pieces of legislation that come in require new administrative procedures.

"I don't think it will have a negative effect on the economy. I don't think the impact is going to be either positive or negative. Hopefully consumers will be more aware of the legislation and that others will not take advantage of the benefits."

The CPA, explains Strachan, will impose a new burden on business. "Suppliers will have to put additional procedures in place and will have to take steps to mitigate their increased exposure under the act. It will not in all cases be possible to attend to this without additional expenditure."

He adds that consumers will have comprehensive rights relating to the return, repair and replacement of goods, as this will have a "significant impact on businesses that have established policies and procedures."

Section 61 of the incoming legislation introduces a system of liability on suppliers for damage caused by the supply of defective goods, making it possible for consumers to claim for damages.

"This provision creates a major legal risk for suppliers but there are ways in which responsible suppliers can protect themselves," says Beukmann, adding that it's a welcome addition to the list of consumers' legal remedies.

In the past, suppliers faced liability for defective goods but under the new act, consumers will no longer have to prove that the supplier was negligent. 

"[Now] all parties in the supply chain can be held liable. Suppliers will have to check whether they have the proper insurance cover. They will also need to ensure that the purchase components and raw materials from reputable suppliers," Strachan says.

Woker says the act is not difficult to understand. "Business must simply identify their business practices and ensure that whatever they do is in line with the act. Those businesses which take their consumers seriously are prepared to accept back faulty goods and compensate consumers for their losses."

Non compliance with the act for business will result in a fine of 10 percent of turnover or R 1 million, whichever is the greater.

Drodskie says that while hiccups will be experienced after the implementation of the act, "it will not be a storm."

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