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Consumer Protection Act
An introduction to the Consumer Protection Act
Key points
The Consumer Protection Act (the Act) is designed to protect the rights of South African consumers.
The Act applies to virtually every transaction with a few key exceptions.
The Act covers every direct and indirect customer-related activity.
Amongst other initiatives, suppliers may need to re-think their marketing strategies, change sales documentation, introduce customer policies, and/or adapt pricing strategies to comply with the Act.
Suppliers who fail to comply with the Act may face jail time and hefty fines.
What is the purpose of the Act?
As the name implies, the Consumer Protection Act is intended to protect the rights of consumers. Specific objectives include:
Promoting fair business practices.
Protecting consumers from deceptive and fraudulent conduct.
Encouraging consumer confidence and responsibility.
Providing consistent and efficient systems for resolving consumer disputes.
Who does the Act apply to?
The Act applies to any transaction that occurs inside South Africa with the following exceptions:
Goods and services provided to the State (which already has more than enough power to protect itself!)
Transactions involving consumers who are juristic persons (e.g. close corporations and registered companies) and whose asset value or annual turnover exceeds threshold values which still need to be determined. This is very important since it means that large organisations, as consumers, won't be protected under the Act (although, like the State, they should have enough resources to protect themselves!) However, transactions involving franchise agreements are still governed by the Act regardless of the asset value or annual turnover of the consumers involved (this has very important implications for franchisees since, regardless of their size, they can use the Act to protect themselves from exploitation by franchisors).
Credit agreements governed by the National Credit Act.
Services rendered as part of an employment contract (no, your employees are not considered suppliers to your business!)
Transactions resulting from collective agreements or collective bargaining agreements governed by the Labour Relations Act.
It is very important to note that the Act does not define transactions as just monetary purchases. They include an exchange of anything of value (like tokens and barter – even promises!) Furthermore, the Act's definition of a transaction includes both the actual and potential supply of goods or services. So promising to supply a customer, and agreeing that they can pay you later, would immediately be considered a transaction even though you hadn't actually supplied them and they hadn't actually paid you!
The Act defines a supplier as anyone who markets any goods or services – that means any individual, partnership, juristic person, or state organ. It does not matter whether someone is operating on a for-profit or non-profit basis, the Act still applies (so social clubs, community organisations, charities, trade unions, and the like are all affected by the Act). The Act even applies to suppliers resident outside of South Africa.
Interestingly, the Act doesn't just define consumers as people and organisations who complete transactions with suppliers. Consumers are also considered to be anyone to whom a supplier might market its goods or services, as well as users and beneficiaries of goods and services regardless of whether they were the ones who actually completed the transaction for not. This has very important implications. Imagine, for example, your business supplies kitchen appliances and someone buys a toaster from you. Not only would that person be considered a consumer, but any family members and friends who used the same toaster would be considered consumers as well. And, as consumers, they would all be entitled to exercise their rights in terms of the Act with respect to that single purchase!
What does the Act cover?
The Act basically addresses every consumer-related practice and activity imaginable. These include:
Marketing and sales.
Orders, quotes, and contracts.
Product information.
Deliveries and returns.
Warranties.
Quality control.
Liability.
So anything your business does that in any way directly or indirectly affects your customers will probably be addressed somewhere in the Act.
What are the practical implications of the Consumer Protection Act?
The Act has three broad implications for anyone in business:
Unless your business exceeds the asset value or annual turnover threshold, it will be considered a consumer and the Act will apply to just about every supplier transaction your business concludes. Even if your business does exceed the asset value or annual turnover threshold, you in your personal capacity will still be considered a consumer. Either way, by understanding the Act you will be be able to use it to protect yourself and, potentially, your business when dealing with virtually any supplier.
As a supplier, your business has a legal responsibility to protect the rights of your customers by complying with the Act. If your business fails to do so, then it may be liable for very nasty penalties (more on those in a moment). It is critical that all business owners familiarise themselves with the Act and ensure that their enterprises comply with it to avoid potentially disastrous risks.
Some elements of the Act can be exploited by unscrupulous customers. Until these loopholes are addressed, every business should take action to protect themselves from these risks.
At a minimum, the practical implications that the Act has for every business include:
Re-thinking marketing strategies.
Changing marketing materials.
Amending quotes, order forms, and sales agreements.
Developing or amending consumer-relevant policies (e.g. a returns policy).
Re-thinking delivery procedures.
Adapting pricing strategies in light of risk forecasts.
Changing payment and collection procedures.
Implementing or amending quality control procedures.
What are the potential consequences for not complying with the Consumer Protection Act?
In a word: unpleasant. Any supplier found to be in breach of the Act may face jail time of up to 12 months and/or fines of up to R1,000,000 or 10% of their annual turnover.
