Claims that goods or services are needed
Any claims made that goods or services are needed must be based on fact.  A business may establish the need for goods or services through the existence of laws, regulations, rules or through some mechanical, medical, functional or other requirement.  Misleading or deceiving customers about any such laws or requirements or the reasons for the ‘need’ would breach the Fair Trading Act.

Debt collecting
There will be times when customers do not pay on time for the goods or services provided.  When a business, or a collection agency working on its behalf, seeks to recover debts, it must take care to comply with the law. 

The Commission is concerned about debt collectors:

• demanding collection fees and late payment fees, when there is no contractual entitlement to make such demands;
• warning debtors that non-payment of the debt will cause particular inevitable legal consequences; and
• telling debtors that court action has already commenced when it has not.

Businesses wishing to recover additional costs from customers who have not paid for goods or services they have received must inform customers of these potential costs when they agree to the supply of goods or services.  This can be done in a number of ways, for example, by displaying large on-premise notices, or by providing written notice of terms of trade.  What is reasonable will vary according to the circumstances.

If costs are demanded in a misleading way by a debt collector acting on behalf of a business, the business may be held responsible for their actions.  The debt collector also risks breaching the Fair Trading Act.

If debtors are not warned before they incurr debt, then any attempt to make them believe they have to pay additional collection and late payment fees is likely to be misleading.

If debtors still do not pay their debts, businesses are entitled to take legal action to recover the debt and any other costs, such as collection and late-payment fees, which relate to the non-payment of the debt.  It is then up to the court to decide whether to order the payment of such costs, or any other penalties, and the debtor has the right to challenge the claim before the court.  Businesses should, therefore, take care that in any warnings to debtors, the possible legal consequences of non-payment are not represented as inevitable.  In the Commission’s view it is misleading to tell debtors they will be fined and face other costs from court action.  Debt-collection documents must not mimic court or other official notices or orders.

The Act also prohibits the use of physical violence, harassment or coercion to extract payment for goods or services supplied.

Delivery of goods
The promise of delivery of goods to customers can be an important inducement for them to make a purchase.  Customers must not be misled about the conditions applying to the delivery of goods.

Any conditions on an offer to deliver should be made clear: for example, if delivery is free only within the central city and only for goods over a certain value.

‘Free delivery’ must be just that.  It is deceptive to add on the cost of delivery to the price and then claim that delivery is free.  If another customer who picked up the goods would pay a lower price, then delivery is not free. 

Businesses must not accept payment if they know they cannot supply the goods or services ordered within the specified period.  If no time limit is set, the goods or services must be delivered within a reasonable time.  What is deemed ‘reasonable’ will depend on the specific circumstances.

Businesses who are involved in a direct-marketing, telemarketing or mail-order business where goods are not supplied at the time of purchase must ensure that delivery conditions are clear and able to be adhered to.  This is particularly important in a business where delivery is the only form of supply.

Inertia selling
Inertia selling is the practice of sending goods or providing services to people who have not requested them.  The ‘customers’ are often told that, unless the goods or services are expressly rejected, payment is expected.

Under the Unsolicited Goods and Services Act 1975, the silence of a consumer is not enough to indicate they have accepted the goods or services.  In inertia selling situations, buyers must actually state they want to buy, or act in a manner that makes it clear that they wish to accept the goods.  A business will break the law if, at the time goods or services are supplied to a customer, the customer is not also told of their right to communicate acceptance before payment can be demanded.

The Fair Trading Act prohibits misrepresentations about consumers’ legal rights.  In the case of inertia selling, the Door to Door Sales Act 1967 and the Unsolicited Goods and Services Act set out consumers’ rights.

‘Interest free’, ‘free credit’ and lay-by offers
The offer of ‘easy payment terms’ to customers may well be the deciding factor in their purchase of goods or services.  Businesses that provide financial services to customers must ensure that all the terms and conditions are made clear to avoid breaching the Fair Trading Act.  Such services include providing credit or loan finance, or operating lay-by accounts or hire purchase schemes. 

All promotional material about financial services must be checked for accuracy to ensure that it does not give a false or misleading impression.  Customers’ rights and obligations when buying on lay-by are set out in the Lay-by Sales Act 1971 and must be accurately represented.  For more information on the Lay-by Sales Act, refer to the Ministry of Consumer Affairs’ website www.consumeraffairs.govt.nz.

The Commission considers, that, in the minds of consumers, the terms ‘interest free’ and ‘free credit’ have the same meaning and that the ‘interest free’ or ‘credit free’ price should be the same as the cash price.

If, for any reason, the ‘interest free’ price is higher than the cash price, then the difference between the two prices is, in effect, a credit cost and the offer should not be promoted as being interest free.  Attempts to disclose in fine print that there are additional charges associated with an ‘interest free’ or ‘credit free’ offer are unlikely to be sufficient to prevent such a promotion from being misleading to consumers.

Any eligibility requirements associated with the offer should be made clear at the same time the offer is promoted.  For example, it should be made clear in any promotional material if ‘no deposit’ offers are available only to existing customers, or if ‘interest-free terms’ are available only for purchases over a certain amount.

Although it may be impossible to give more than limited information in an advertisement, the effect must be to not mislead or deceive potential customers.  Advertising should be kept up-to-date, and include any new rates or conditions.  Brochures and other ‘long-life’ advertising should be dated, or should in some other way ensure customers are not misled as to the period of the offer.

Businesses offering ‘interest free’ or ‘free credit’ deals will also have obligations under the Credit Contracts and Consumer Finance Act and must comply with the provisions of that Act.

An appliance retailer advertised a ‘we will pay your interest’ promotion.  Customers who offered to pay cash were charged a lower price than those who accepted the offer.  The company was convicted and fined.

Harassment and coercion
Businesses must not attempt to sell goods, services or any interest in land through the use of harassment, coercion or physical violence.

There is often a fine line between hard-sell techniques and harassment and coercion.  Businesses must take care not to use, or let their sales staff use, techniques which could possibly make customers feel harassed or forced in any way to make a purchase.

The Fair Trading Act also prohibits the use of physical violence, harassment or coercion to extract payment for goods or services supplied.

Offering gifts and prizes
Businesses that, when promoting or selling goods or services, offer gifts or prizes they do not intend to provide, or do not intend to provide as offered, will breach the Fair Trading Act.

When contests and other promotions offering gifts or prizes are run, all the conditions that apply, including any relevant time limit must be clearly stated.  Gifts and prizes must be described accurately, and must not mislead people into thinking that what they stand to gain or win, or their chance of winning, is better than it actually is.

Packaging
Attractive packaging helps sell a product.  But the packaging must not mislead or deceive consumers about the nature, quantity or size of the product, otherwise it will breach the Fair Trading Act.

There are many ways in which packaging may be deceptive.  It may have unusually thick walls or a false bottom, it may have hidden cavities bigger than reasonably needed to house accessories, or more layers of padding than are needed to protect the product. 

In the Commission’s view, where a package contains a single article of an irregular shape, or where a lot of padding is necessary, the packaging should be as close as possible to the size and shape of the enclosed product, or the true size of the product is made clear in some other way.

Photographs and pictures on packaging may also be misleading.  For example, depicting a serving suggestion which indicates that the quantity of food in the package is greater than it is, or showing a product with accessories not included in the package would be misleading.

As a general rule, in any case where packaging has the potential to mislead or deceive consumers about its contents, there should be a clear description of the goods on the package and a clear statement as to the volume or weight of the product.

Pro-forma invoicing (False billing)
A business cannot supply goods or services to a person, and bill them, without that person agreeing to the transaction.  Billing without the clear agreement of the ‘buyer’ is known as pro-forma invoicing or false billing.

In the vast majority of cases, pro-forma invoices are for advertising that was never requested.  It is an attempt to trick or bully businesses into paying for goods or services they did not order.

To counter the threat of false invoices, businesses should ensure they have effective systems for ordering goods and services, checking that what was ordered was received, and authorising payments.

Pyramid selling
Pyramid selling schemes are specifically prohibited by the Fair Trading Act because of the risk of people being misled about the likely financial returns.  Because the potential reward offered depends on the recruitment of new people to pay into the scheme, someone will always be at the bottom of the pyramid and will not achieve the advertised return on their ‘investment’.  Only the few initial participants are likely to make money, since the number of possible new recruits in any community is limited.

A pyramid scheme can take many forms, but has the following essential elements:

• it offers a financial return based on the payments made by new recruits;
• the return is dependent primarily on the continued recruitment of new members, not sales of a product or service.

Pyramid selling schemes often involve ‘gimmick’ products (for example certificates) or grossly overpriced products or services that have little or no resale value and are not likely to be purchased again (for example personal development programmes, general financial information). 

Example
A scheme offered membership costing $3,500 plus GST to an alleged ‘concierge’ service and access to a closed buyer group that claimed to receive discounts at various rates from a number of businesses.  Members were also given the opportunity to earn significant remuneration by the recruitment of new members.

The Commission obtained an injunction against the scheme, which prevented further operation or promotion of the scheme and effectively froze any money in its bank account.
The company and individuals involved were convicted and fined.  In addition, the Court ordered repayment of membership fees to two witnesses from the frozen company bank account. 

There are a number of multi-level marketing schemes operating in New Zealand which are not pyramid schemes.  Multi-level marketing schemes involve the sale of rights to sell a product or products in different market levels.  In multi-level marketing, participants earn commission from selling real products, whereas pyramid selling is earning money solely or primarily by introducing other people into the scheme.  Income expectation is limited by the number of sales, not by the number of new sales representatives.  Customers of multi-level marketing companies can buy the goods or services they offer without joining the scheme. 

Multi-level marketing usually involves commercially viable products (for example clothing, jewellery, cosmetics, health products, cookware) which present genuine business and income-earning opportunities through repeat sales to clients.  Customers can repeatedly buy goods or services because they have a genuine use.

Such multi-level marketing schemes are not prohibited by the Act.

The Act does prohibit any representations that exaggerate the earnings that participants are likely to obtain from their involvement with a business activity.  The Commission has investigated claims of unrealistic earnings relating to both pyramid schemes and legitimate business activities.

Members of the public need to be wary of joining schemes where the promotional literature contains testimonials of high earnings from people who are not easily available for possible checking (for example, 'Since I joined this scheme I have made $100,000 without really trying’, RS of Auckland).

Similarly, where schemes make claims such as ‘this is not a get rich quick scheme’, or ‘this scheme is legal’, the question needs to be asked – why is such a statement necessary?  They may disguise the fact that the scheme is illegal or that the promotional material is misleading.

Chain letters which request the sending of money are covered by the definition of pyramid schemes, and are illegal.

Referral selling
‘Referral selling’ is the practice whereby a business induces potential customers to purchase by promising some form of reward if they provide the names of other people who then buy goods or services from that business. 

It is prohibited by the Fair Trading Act because the customer will receive the reward only if sales are made to the people whose names were supplied.  If no sale is made, then the original customer receives no benefit.

Referral selling differs from the legitimate practice of offering a rebate or other benefit following the sale.  It is not illegal for businesses to offer rewards for names of other potential customers if the offer is made after the first customer paid for their goods or services.

Taking payment without intending to supply as ordered
Businesses must not request, nor accept, payment for goods or services if they do not intend to supply them, or if they intend to supply goods or services which are materially different from those for which payment is being demanded or accepted.  A business must not accept or request payment if it knows, or has reasonable grounds to believe, that the goods or services cannot be supplied within a reasonable time, or the time specified.

Warranties, guarantees and remedies
The Consumer Guarantees Act 1993 applies to goods and services that are:

• of a kind normally bought for personal, domestic or household use; and
• purchased in trade (not in private sales).

The Consumer Guarantees Act:

• sets minimum guarantees about quality and fitness of goods and standards of service;
•  sets remedies that can be used against sellers and service providers and, in some cases, against manufacturers whose goods or services do not meet the guarantees; and
• prevents sellers and service providers from contracting out of the minimum guarantees, except a business to business transaction, where the contract is set out in writing.

Where there has been a breach of the Consumer Guarantees Act, consumers have the right to take action.  For more information about these rights, refer to the Ministry of Consumer Affairs' website www.consumeraffairs.govt.nz. 

The Commission does not enforce the Consumer Guarantees Act, but it has a role to play when businesses breach the Fair Trading Act by misleading consumers about their rights under the Consumer Guarantees Act. 

An in-store sign which states ‘No Refunds’ with no further explanation of what situations this may apply to, amounts to an illegal attempt to deprive customers of their rights.  Customers might well be entitled to a refund if the goods have a fault which they could not have known about when they bought the goods, or if the business has made a misrepresentation about the goods. 

Businesses do not, however, have to give a refund if customers simply change their minds or damage the goods themselves.  ‘No Refund’ signs should include enough information to avoid liability under the Fair Trading Act, for example ‘We do not have to provide a refund if you have changed your mind about a particular purchase, so please choose carefully.’

The terms of any guarantee or warranty provided by a business can be over and above those that a consumer has a right to under the Consumer Guarantees Act.  Guarantees and warranties should not attempt to limit general legal rights and should make that clear.  For example, in relation to services provided, warranties must generally include the labour involved and compensation for loss or damage.  Only the parts of a warranty which provide more than the legally necessary guarantees could exclude the labour involved.  If a warranty is in fact a form of insurance it should be marketed as such.

Making a misleading representation by exaggerating the cover provided by a warranty would breach the Fair Trading Act.  Attempting to sell an extended warranty on the basis that the customer would otherwise have no comeback would also breach the Act.

Telling customers to claim on the extended warranty, when they have the right to claim against the retailer under the Consumer Guarantees Act would breach the Fair Trading Act, particularly where there is an excess payable under the warranty.  Telling customers to go back to the manufacturer in circumstances where they have the right to choose to claim either from the business or the manufacturer would also breach the Fair Trading Act.

The implied conditions set out in the Sale of Goods Act 1908 may provide customers with remedies where goods fall outside the Consumer Guarantees Act, or where the Consumer Guarantees Act has been properly excluded in writing in a business to business transaction.  Because rights under the Sale of Goods Act depend on the terms of the contract, businesses and purchasers should seek legal advice where the Consumer Guarantees Act does not apply. 

A business will breach the Fair Trading Act if it misrepresents a customer’s rights under the Sale of Goods Act.  Remedies are also available under the Fair Trading Act for customers who are misled or deceived in the course of buying goods or services.