Retailers must get in on the Act or face consequences

Posted on January 18, 2019 in Commercial (Tags: Consumer Rights, Consumer Guarantees Act) Commercial image.PNG

As consumers we are inundated during the Christmas period and the weeks following it with advertising from retailers vying for our custom.  Increased demand for products sees an increase in temporary staff employed to cover the busy season.  Often such staff haven’t had the training which reputable retailers may offer permanent staff to ensure they meet their obligations under consumer protection legislation.


Retailers need to be aware of their responsibility to adequately explain matters such as extended warranty terms to customers and comply with consumer protection legislation as the consequences of not doing so can damage their reputation and also be expensive.


Michael Hill Jewellers is a high-profile retailer which has suffered the consequences of non-compliance with the Consumer Guarantees Act this year.


Michael Hill sells a professional care plan (PCP) in conjunction with the sale of jewellery from its stores.  In investigating the PCP offered by Michael Hill, the Commerce Commission classified it as an extended warranty.  As such, Michael Hill was legally obliged to include certain information on the front page of the document and to explain certain matters to customers.  In particular, they should have compared the protections consumers automatically have under the Consumer Guarantees Act with the protections offered by the PCP.  This should also have provided an adequate summary of consumer rights and remedies under the Consumer Guarantees Act and a summary of the consumer’s right to cancel the PCP. 


In one instance, Michael Hill added the cost of the PCP onto the price of a bracelet purchased by a Whangarei couple without their knowledge.  Michael Hill was fined $169,000 in November this year for failing to comply with the Consumer Guarantees Act.


When comparing Consumer Guarantees Act guarantees with the benefits offered by an extended warranty, businesses should avoid suggesting that the extended warranty protects consumers in a way that the Consumer Guarantees Act does not if this is not the case.


For example, the Consumer Guarantees Act requires that goods must be as durable as a reasonable consumer would regard as acceptable, taking account of factors such as the nature of the goods, how they can be expected to be used, and how the consumer uses them.  If goods might reasonably be expected to last for longer than the duration of an extended warranty, there would be no benefit in obtaining an extended warranty as the Consumer Guarantees Act would provide greater protection.


Another example is where an extended warranty provides consumers a replacement product after a defined number of failures of the product.  Under the Consumers Guarantees Act, such failures could amount to a failure of a “substantial character” which would entitle the consumer to return their goods and obtain a refund or replacement or keep the goods and obtain compensation for any reduction in value of the goods below the price paid.  In that case, the guarantees under the extended warranty could provide fewer options for the consumer than the Consumer Guarantees Act. 


A common reason for failure of goods is where the failure is due to fair wear and tear.  If a product fails before it might reasonably have been expected to, this would breach the Consumer Guarantees Act guarantee of acceptable quality.  Many extended guarantees offer protection against fair wear and tear for a defined period of time and this could well be less than the reasonably expected life of the goods and would therefore be covered under the Consumer Guarantees Act.


Some extended warranties provide that the retailer has a choice of remedy where there is a failure in the product.  This may provide fewer options for the consumer than the Consumer Guarantees Act. 


The Consumer Guarantees Act allows consumers to recover all costs that were reasonably foreseeable as a result of a failure of goods.  This would include returning goods to the supplier or, if it is a product which requires installation, call out costs for a technician.  In some cases an extended warranty could give greater protection for costs as some will provide that costs are recoverable irrespective of whether the good is found to be faulty or covered by the warranty.


Retailers should be mindful at this time of year that all staff need to know what they can and can’t say to customers when trying to upsell extended warranties or risk suffering a similar fate to Michael Hill.



Sally Peart