Misleading claims

Cause for complaint

The Fair Trading Act makes it an offence for companies to make misleading claims about their goods and services. But complaints investigated by the Commerce Commission show many companies continue to push the boundaries of the law.

Misleading prices are a common cause of complaint, which suggests some traders stand to make significant financial gains from flouting the law.

Only the courts can decide whether a company’s actions have breached the Act and only the courts can impose financial penalties. But taking a company to court can be costly and not every case is pursued.

The commission’s most commonly used enforcement tools are warning and compliance-advice letters, which don’t come with any financial sanction (see 'Complaints investigated', below). Information released to Consumer shows some companies get these letters regularly.

Tricks of the traders

Telcos continue to stand out for questionable behaviour.

Since 2010, Telecom has received 5 compliance-advice letters about its broadband and mobile phone services. These letters come on top of a settlement it reached with the commission in 2011 after admitting it had overcharged customers more than $2.7 million for broadband use.

During the same period, Vodafone has had 2 compliance-advice letters and a warning. In 2012, it was stung with fines close to $1 million for misleading promotions run at various times between 2006 and 2009.

In 2013, the company agreed to pay out nearly $270,000 to customers in a settlement with the commission over a promotion involving its “Broadband Lite” service.

Slingshot recently copped a $250,000 fine after pleading guilty to “slamming”, a practice where customers are switched to another service provider without their consent.

Over 100 complaints were made to the Commerce Commission between 2009 and 2011 alleging telemarketers acting on Slingshot’s behalf had either misled customers about the company’s services or had moved them to Slingshot without their consent.

Slingshot had already been warned by the commission in 2009 for similar practices. The company finally appeared in court last year following a commission investigation that found Slingshot had aggressively chased the “slammed” customers for payment, referring some to debt collection agencies.

Chief executive Mark Callander says its contract with the telemarketing company involved has since been terminated.

Electricity companies, big-box retailers and online traders also feature in the ranks of companies which have had warnings or compliance-advice letters.

• Nova Gas (now Nova Energy) has received 1 warning and 4 compliance-advice letters, mostly about price claims.
• Since 2010 The Warehouse has had 7 compliance-advice letters as well as a warning. In 2009, it pleaded guilty to multiple Fair Trading Act breaches relating to misleading price claims, bait advertising, false claims that certain products were “exclusive to The Warehouse” and false labelling on some of its duvets.
• Appliance retailer Noel Leeming, bought by The Warehouse in 2012, has also been the subject of complaints. Its latest compliance-advice letter followed an investigation of alleged misleading representations made about the Consumer Guarantees Act.
• Online retailer Fishpond has racked up 8 compliance-advice letters since 2010 (2 of which were sent to rival retailers as well). The most recent letter concerned an allegation the store had accepted payment for products which it had no intention to supply. It’s previously received compliance advice about price claims which the commission considered could mislead consumers.

Law reform

In many cases where a warning or compliance-advice letter is issued, a fine may have been more effective in encouraging compliance.

Recent law changes have finally given the commission the power to issue infringement notice fines but only for a very narrow range of offences. The commission can’t issue these notices for misleading claims.

In contrast, the Australian Competition and Consumer Commission is able to issue infringement notices for most fair trading offences. In recent months, it’s fined a trader AUD20,000 for misleading “free-range” poultry claims and a power company AUD26,000 for deceptive pricing and other claims.

But officials here advised against adopting the Australian approach and recommended the commission be given only limited infringement notice powers. This advice was followed during the recent consumer law reform process and an opportunity to get better outcomes for consumers was missed.

Just 56 percent of businesses surveyed by the commission in 2013 stated they had an active Fair Trading Act compliance programme. While that figure’s up from 41 percent in 2012, it suggests a significant number of companies still don’t take their FTA responsibilities all that seriously.

Complaints investigated

The Commerce Commission’s figures show 18 percent of Fair Trading Act investigations over the last 3 years involved companies that had already been investigated for alleged breaches of the Act.

We’ve listed below 22 well-known companies investigated on 3 or more occasions during the period. The companies received compliance advice, warnings or agreed to settlements (see "What they mean", below) about pricing or product claims.

Briscoe Group

• Enforcement: 1 warning + 3 compliance-advice letters.
• Complaints included: website advertising of items that weren’t available.

Callplus Services (trading as Slingshot)

• Enforcement: 1 warning + 2 compliance-advice letters.
• Complaints included: advertising the price of a broadband plan without making it clear that customers had to purchase other services.

Dailydo

• Enforcement: 5 compliance-advice letters.
• Complaints included: selling counterfeit products without questioning their authenticity.

Fishpond

• Enforcement: 8 compliance-advice letters (including 1 sent to other online retailers and 1 sent to other booksellers).
• Complaints included: accepting payment for certain products with no intention to supply.

Grabone

• Enforcement: 4 compliance-advice letters (including 1 sent to other online retailers).
• Complaints included: overstating the value of promotions.

Groupon

• Enforcement: 3 compliance-advice letters.
• Complaints included: misleading representations about product delivery times.

Harvey Norman

• Enforcement: 1 warning + 2 compliance-advice letters.
• Complaints included: claiming a particular brand of camera was exclusive to the store when it wasn’t.

Jump On It (trading as Living Social)

• Enforcement: 3 compliance-advice letters.
• Complaints included: accepting payment for meal vouchers that weren’t supplied.

Michael Hill Jewellers

• Enforcement: 3 compliance-advice letters.
• Complaints included: misleading consumers about the cost of jewellery by adding in the price of the store’s “professional care plan”.

New Zealand Vacuum Cleaner Company (trading as Godfreys)

• Enforcement: 3 compliance-advice letters.
• Complaints included: advertising a product without having it available for a customer.

Noel Leeming Group

• Enforcement: 2 warnings + 2 compliance-advice letters.
• Complaints included: misleading representations about the Consumer Guarantees Act.

Nova Gas (now Nova Energy)

• Enforcement: 1 warning + 4 compliance-advice letters.
• Complaints included: sales rep claiming that Nova’s gas and electricity prices were more competitive.

Number One Shoes

• Enforcement: 1 warning + 3 compliance-advice letters.
• Complaints included: using fine print that altered headline promotional offers.

NZ Sale

• Enforcement: 1 warning + 3 compliance-advice letters.
• Complaints included: advertising a garment as 100% silk when it wasn’t.

Paper Plus

• Enforcement: 4 compliance-advice letters (including 1 sent to other booksellers).
• Complaints included: failing to honour an advertised price.

Progressive Enterprises

• Enforcement: 1 warning + 3 compliance-advice letters.
• Complaints included: advertising discounts on beer that overstated the savings available.

Pulse Utilities

• Enforcement: 2 compliance-advice letters + 1 out-of-court settlement in which the company admitted it had misled customers about the amount they had to pay to end their agreements and agreed to refund nearly $50,000 to those customers.
• Complaints included: sending final invoices that didn’t include a prompt payment discount for which customers were eligible.

Restaurant Brands

• Enforcement: 3 compliance-advice letters.
• Complaints included: advertising pizza price that excluded the delivery fee.

Sky Network

• Enforcement: 2 warning + 2 compliance-advice letters.
• Complaints included: misleading claims about the price of a premium channel.

Telecom

• Enforcement: 5 compliance-advice letters + 2 out-of-court settlements in which the company admitted overcharging customers and agreed to refund more than $2.7m to those customers.
• Complaints included: misleading customers about the amount of broadband data they used.

Vodafone

• Enforcement: 1 warning + 2 compliance-advice letters + fined nearly $1.5m in the District Court in 2011 and 2012 for Fair Trading Act breaches.
• Complaints included: misleading advertising promotions for mobile services.

The Warehouse

• Enforcement: 1 warning + 7 compliance-advice letters (including 1 sent to other booksellers).
• Complaints included: advertising savings on books that were misleading.

What they mean

• Compliance-advice letters are used when the Commerce Commission believes the company’s behaviour may breach the Fair Trading Act but the matter isn’t a priority for taking further. The letters are considered to be “educative”.
• Warnings are issued when the commission believes the evidence is strong enough for legal action but considers the matter can be resolved without going to court.
• Out-of-court settlements are only possible where the company voluntarily agrees to settle. Settlements can include the company admitting a breach of the Fair Trading Act, making compensation payments, and apologising to customers for its conduct.

Report by Jessica Wilson.