Reasons for price increases must not be misrepresented
30 June 2010
The Commerce Commission is reminding businesses of their obligation under the Fair Trading Act not to mislead consumers about the reasons for price increases.
The reminder comes ahead of the 2.5 per cent GST increase in October, but is also pertinent to the debate surrounding the effect of the Emissions Trading Scheme (ETS) on electricity and petrol prices.
"Businesses are not required by law to give reasons when they raise prices. However, when a business does try to justify a price increase to its customers, the reasons they give must be accurate and not misleading. For example, businesses will run the risk of breaching the Fair Trading Act if they explain price increases as being caused by the increase in GST, where the price rise exceeds the extra GST," said Commerce Commission Enforcement Manager, Wellington, Greg Allan.
"Even if a business does not explicitly state that they have put prices up because of the rise in GST, they must take care not to create the misleading impression that GST is the sole reason for the price increase if the increase is more than the extra GST," he said.
Equally, the Commission believes there is the potential for consumers to be misled about the impact of the ETS on electricity and petrol prices. "The impact of the ETS on each electricity or petrol company will vary, and consumers are not best placed to understand the technicalities of this so must rely on the information provided by these businesses. It is therefore important that businesses are accurate and not misleading about the reason for the increase, and do not overstate the cost of the ETS, or they might breach the Fair Trading Act," said Mr Allan.
Only the courts can determine whether the Fair Trading Act has been breached. The Commission can, and will, take enforcement action if an investigation finds evidence of breaches of the Fair Trading Act.
Penalties under the Fair Trading Act
The courts can fine a company $200,000 and an individual up to $60,000 for breaches of the Fair Trading Act.