The internet has changed the way consumers purchase goods and services, letting them buy anything from groceries to a flight to Vanuatu at the click of a button. The internet has also given businesses a new way of selling and opportunities to widen their reach.
But the internet is not a "free for all" where anything goes. The Fair Trading Act applies across all media, and that includes representations made online, including web, email and text messaging.
Businesses need to make sure all representations they make online are accurate and do not mislead consumers. Businesses selling goods or services online must also meet their obligations under the Consumer Guarantees Act.
Consumers shopping online should carefully check the details of any offer and take steps to protect themselves. This includes understanding the total cost, who the seller is and where they're based, and the terms and conditions of the sale.
Global reach
The internet lets businesses sell to consumers around the world and around the clock.
All companies that carry on business in New Zealand are subject to the Fair Trading Act, irrespective of whether they are incorporated in New Zealand. Likewise, the Act applies to any behaviour or representation made on a website offering to supply goods or services within New Zealand, regardless of whether the website is based overseas.
Because websites can be accessed by consumers anywhere in the world, it is important that local businesses that trade internationally through their websites are aware that laws in other countries may also apply to them. Whether a business will also be subject to local laws will depend on the country they are trading in.
The Commerce Commission has well-established relationships with our international counterparts to tackle consumer problems connected with cross-border transactions in both goods and services. While we encourage consumers to contact us with this type of information, we don't take action on behalf of individuals and consumers may need to take their own action if they are seeking redress. Consumers who have problems with online transactions with overseas traders can also lodge a complaint with www.econsumer.gov.
| Example | An American-based international multi-level selling scheme recruited people over the internet to promote the purchase of website programmes, with the lure of great profits. The Commission took action against a New Zealand promoter of the scheme, who was convicted and fined. The Commission liaised closely with the Federal Trade Commission in the United States and other members of the International Consumer Protection and Enforcement Network. The scheme was subsequently shut down and a US$20 million redress fund was established to refund claimants in more than 200 countries. |
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Types of online selling
In the last few years, the number of consumers buying goods and services online has sky rocketed. At the same time, the way in which businesses sell goods and services over the internet has evolved and is ever-changing. Below are some of the types of online selling most common here in New Zealand and guidance for businesses selling goods and services via the internet.
Websites
Most businesses use the internet in one way or another to market themselves and the goods or services they sell. Traditionally, businesses have used the web to promote their business and communicate with customers, rather than as a sales channel. But increasingly, businesses either have an online shop to complement their bricks and mortar retail presence, or only exist online, selling goods or services directly to customers.
Whether or not a business is selling online or simply advertising their business, any representations they make must be accurate and not mislead consumers.
This means having systems in place to make sure any information published online is up to date and accurate. It also means making sure that any representations about price and availability are consistent across all channels, including websites, print advertising and on the shop floor.
Online auctions
With online auction sites like Trade Me, many New Zealanders have entered the world of online trading - both as buyers and sellers.
The Fair Trading Act applies to any online auction run by a professional trader. A professional trader is essentially a regular online auction seller.
Read more about what a professional trader is on Trade Me's site.
Under the Fair Trading Act, professional traders must give clear and accurate information to buyers and must not mislead them. Traders must also comply with the product safety and consumer information standards regulations.
Auctions are excluded from the Consumer Guarantees Act, but if a professional trader sells something at a "buy now" price, the Act will apply.
In general, the Fair Trading and Consumer Guarantees Acts do not apply to private, one-off sales, however, private sellers must still comply with the product safety and consumer information standards regulations.
Motor vehicle traders selling used vehicles online must provide a consumer information notice as required by the consumer information standards regulations for used motor vehicles.
| There are currently six product safety standards regulations. They are for: | There are currently five consumer information standards regulations. They are for: |
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Daily deal and group buying sites
Daily deal and group buying sites have taken off in recent years, offering buyers goods or services at a discounted price. Daily deal sites work on the basis that an offer is open to buyers until the pre-specified number of sales is reached or the day ends (whichever comes first). Group buying sites offer products or services at significantly reduced prices on the condition that a minimum number of people buy. This means a certain number of people must sign up for the offer before it becomes available.
Both types of discount website use voucher systems in order for buyers to redeem the goods or services they have bought directly with the business involved.
Businesses selling goods or services through discount websites must comply with both the Fair Trading and Consumer Guarantees Acts. Likewise, discount websites have an obligation to ensure consumers' rights are met.
Drop shipping
Drop shipping is a type of sales model that has become popular with the advent of online shopping. It allows businesses to operate internet-only storefronts, while not having to keep goods in stock.
In a drop shipping arrangement, an online retailer will act as a middleman between the manufacturer or wholesaler and the customer. The retailer transfers customer orders and shipment details to the manufacturer or a wholesaler, who then ships the goods directly to the customer.
The nature of drop shipping means there can be some uncertainty about availability of goods and timeframes for delivery. Because of this, any online store that uses drop shipping to supply customers must be very clear about expected timeframes and any particular conditions of the sale, including any additional charges for import duties and returns policies.
An online retailer who takes money from a customer without having a reasonable basis for believing that they can supply the goods within a specified or reasonable timeframe (if they don't give a timeframe) will breach the Fair Trading Act.
Common Fair Trading Act issues online
Availability of goods and services
Businesses must provide clear and accurate information to consumers about availability of goods and services they're selling online and, where relevant, when the consumer can expect to receive them.
Businesses offering goods or services through daily deal or group buying websites must have the capacity to meet the likely demand their offer attracts. This includes ensuring the timeframe in which consumers can redeem the offer is adequate. A business will breach the Fair Trading Act if they accept payment from a customer without intending to provide a good or service.
Delivery of goods
As with any businesses involved in direct marketing, telemarketing or mail order, where goods are not supplied at the time of purchase, businesses who sell online must ensure that delivery conditions are clear and can be met. This includes shipping costs and the estimated timeframe for delivery.
Price comparisons
Businesses often compare the price of a good or service with a usual price or recommended retail price to show consumers they can get a bargain by buying now, through them. This is common practice on daily deal and group buying websites.
Any business selling goods or services online must not exaggerate discounts. A usual price must be the price at which a good or service is commonly sold, or the price of a good or service immediately before it was marked down.
Because of this consumer perception, comparisons with RRPs may be misleading unless these are genuine manufacturer's RRPs and reflect a price at which the item is readily available in the local market or online.
Read more in our fact sheet Pricing.
Terms and conditions
Businesses need to make sure the terms and conditions of any online sale, including security, privacy and returns policies, are clear and easy to find.
Businesses also need to ensure that the main message conveyed in any advertisement - including representations made online - is accurate rather than relying on the fine print to correct a misleading impression.
On a website this means not burying important information central to the offer on separate or subsequent pages.
Online shopping - quick tips for buying online
- Be savvy: search the seller online - use google or another search engine, or check the companies register at www.business.govt.nz/companies. If you have any doubts or the offer seems too good to be true, don't proceed.
- Know who you're dealing with: check where the business is based and that it provides its name, street address, phone and email details. Don't assume just because the website ends .co.nz that it's a New Zealand-based business.
- Know what you're buying: read the description of the goods or services closely, especially the fine print.
- Work out what it will cost: factor in shipping, exchange rates, insurance.
- Shop around: search online and compare prices and conditions.
- Check the details: read the terms and conditions, including what happens if there's a problem.
- Protect yourself: only buy if you are comfortable with the payment method and keep a record of the transaction details. Purchasing by credit card or a secure payment system will give you more protection than a cash transfer.
