Consumer Protection Bill: Response to public submissions

Meeting report

Consumer Protection Bill (the Bill): Department of Trade and Industry (dti) Response to public submissions
The Acting Chairperson noted that there had been significant interest in the Bill, with over 28 submissions being received. He asked the Department to summarise the responses to the public submissions.

Ms Zodwa Ntuli, Deputy Director General: Consumer and Corporation Regulation Division (CCRD), dti, noted that she would present the preliminary responses and the details were contained in a working document that would be circulated to Members.

She reminded Members of the need to review the consumer law regime, as the current regime was insufficient, and required consumers to approach the courts for redress, which left serious gaps in the protection afforded to consumers. Therefore there was a need to consolidate and harmonise all legislation into one piece of legislation. Many comments from various sectors had been received during the consultation process. Some had requested exemption upfront from the application of this legislation, and the Bill already provided for exemption of some sectors where it was believed that there was adequate protection for consumers already. The Department of Trade and Industry (dti) would not overhaul systems that were working well, but was concerned to fill gaps. This Bill was long overdue to address consumer exploitation.

Ms Ntuli noted that the Bill would regulate the commercial relationship between suppliers and consumers to ensure fair and competitive markets. Consumers should drive competition; if they did not, then there would be lack of innovation in the market. Hitherto in South Africa consumers had tended not to enforce their rights. The Bill would apply to all economic activities in South Africa. It recognised the existence of some consumer protection measures (such as the Ombud) in other sector-specific legislation. To the extent where there may be gaps, then the dti was seeking to further harmonise the position, to repeal and replace certain legislation to bring all measures under this Bill, and to provide for concurrent exercise of jurisdiction, where there was also sector specific regulation. It was noted that in the event of conflict, the stricter measures would generally prevail. There was upfront exemption for certain sectors, and ongoing provision for exemptions by regulatory authorities.

Ms Ntuli noted that several submissions had raised a concern that there seemed to be duplication, in particular for services falling under the Financial Advisory and Intermediary Services Act (FAIS), the National Credit Act (NCA), the Collective investment Schemes Act, and the Short and Long Term Insurance Acts. There was also concern that the definition of "services" seemed to exclude advice and intermediary services regulated under the FAIS Act. She reiterated that the policy rationale was to develop overarching and comprehensive national legislation. Some of the consumer protection legislation that already existed was inadequate. Certain of the insurance and labour issues were dealt with upfront. The Department believed that the exemptions were sufficient, but agreed that if there was a problem in the interpretation of the word "services", then this could be amended to exclude intermediary services regulated by the FAIS Act, as well as credit agreements. However, she explained that goods purchased on credit would be regulated still under this Bill. In relation to the call for outright exemptions for certain sectors, the Department did not agree that upfront exemption should be provided. It believed that the exemptions included were sufficient and had been well considered.

The criticism had been expressed that in the current draft the exemption provision was too limited, because only the regulatory authority could apply for exemption, and industry players would have to lobby this authority. It was proposed that the definition be broadened also to include government departments as regulatory authorities since for instance the Departments of Health and of Environmental Affairs and Tourism were in some cases enforcing legislation.

Clause 5(2)(a) was criticised for its exclusion of consumers of goods supplied at the direction of the State. The dti agreed this may have been an oversight. The intention was to exclude the State as a consumer, but to include the State or any of its agents as a supplier. The protection would extend to beneficiaries, and therefore the phrase "at the direction of the State", which was contradictory to clause 5(8), would be removed.

The Unions had raised concerns that Clause 5(6) was regulated internal services of trade unions already covered under the Labour Relations Act (LRA). Ms Ntuli said that it was not the intention to cover the normal day-to-day functions of the trade unions. The department would now include an express exclusion of those areas relating to collective bargaining services under the LRA, but the Bill would apply to other commercial services offered by trade unions. She pointed out that trade unions had progressed beyond merely representing workers, as they were now involved in activities such as finance and investment, which should be covered.

Labour had further suggested that clause 2(9)(b) contradicted section 210 of the LRA. The Department did not agree. Section 210 dealt with labour relations issues, whereas Clause 2 dealt with consumer protection interests, so that there was not likely to be any conflict. The LRA would prevail in respect of labour issues but this Bill would prevail in respect of consumer protection issues.

Several comments had suggested that the threshold in the Bill, being based on the size of transaction, could give unintended protection to some large business whilst also excluding protection for some small businesses engaging in large transactions. It was suggested that annual turnover was a better indicator. The dti agreed and therefore proposed to amend clause 5(2)(b)(i) to reflect a threshold based on annual turnover or asset value, to be determined by regulation. The intention was to protect vulnerable small businesses.

Several comments were raised around clause 7, relating to the regulation of franchise agreements. A comment had been made that franchising should not form part of the Bill at all, and the Retail Association and Pick 'n' Pay had raised concerns that the incorporation of franchise agreements in this Bill could have negative impacts and affect the franchising model. Dti responded that the purpose of regulating franchise agreements was to protect small businesses who were contributing to the economy and contributing to employment. The intention was not to distort franchises, but it must be noted that there were power imbalances, resulting in many franchisees feeling undermined as they had no negotiating power. Certain well-established principles of the franchise model, such as branding, packaging, and marketing would not be touched, but requirements such as being forced to source from one particular provider could be challenged as too restrictive. The definition of "consumer" was to apply also to franchisees.

The comment had been made that the age of contracting power should be reduced from 18 to 13, because many younger teenagers were doing transactions on their own. The Department said that it would prefer to keep the definition of minor that was consistent with South African law, and it did not believe that a change was justified. Companies should be aware of the fact that contracts with minors could not be enforced.

A proposal was made that the wording of Clause 13(2) be widened to allow bundling of goods that were unrelated to the object of the franchise agreement, providing that this was disclosed upfront, and provided that the consumer could request only one of the bundled items. The Department thought that the protection under clause 13(2) was sufficient, and that if the proposal was accepted this might weaken the protection to franchisees, as they might be compelled to accept upfront bundling of products. It did however agree that clause 13(1) should be amended to allow for bundled goods to be sold separately and at individual prices.

In relation to clause 14, some submissions had sought clarity on the meaning of "fixed term agreement". The Department proposed that a definition should be provided in the Bill. The comment was also made that the words "or any other recordable form" should be included in clause 14(1)(c), and the Department agreed also to include this. It was also suggested that franchise agreements should be excluded, but Ms Ntuli noted that they were already excluded from the definition of consumerism agreements regulated under clause 14 of the Bill. The point had also been made that the cancellation of fixed term agreements by giving 20 days notice would impact negatively on big businesses such as Eskom and Transnet, who would find it difficult to find replacements. The Department had not intended that the 20 day notice period should apply to businesses, but only to consumers, and therefore proposed to amend Clause 14 to exclude business to business transactions.

Submissions had also been made on the "cooling off period". The concern was expressed that consumers could abuse this by returning goods that had been partially consumed or opened. The suggestion was made that clause 16 should be linked to clause 20(2) of the Bill. The Department agreed that this could be done, to clarify that the goods, in order to be returned, should be in their original condition. The complaint was also made that protection under Clause 20 also could give rise to abuse, and did not give recourse to suppliers when goods had been opened. Ms Ntuli pointed out that clause 20(6) gave suppliers the right to charge any reasonable amount if goods were opened or consumed.

For clause 24, there had been submissions that the requirement for genetically modified organism (GMO) labelling must be reintroduced to give the consumers an informed choice whether they wished to buy the GMO product. Dti had initially thought that this should be included, to provide information to the consumer, but this requirement was removed after concerns were expressed by the Department of Agriculture and the Department of Health, particularly about costs associated with labelling. Dti had no problems with the principle of regulating labelling, but noted that it had no technical capacity to pronounce on the safety or otherwise of GMOs. It would leave it to the Committee to decide how it wished to deal with this issue.

In relation to clauses 48, 49 and 51, comments had been raised that unfair contract terms did not provide for effective protection of consumers, and Professor Naude had suggested that the concept of a "grey list" of clauses, which would be presumed unfair unless proven otherwise, should be included. Ms Ntuli said that the aim of this Bill was not to take over common law principles. The Department had decided to adopt the “bare minimum” approach, and not to interfere with freedom or sanctity of contract, and was therefore aiming, under clause 48, to give broad principles as guidance to the courts on how to approach issues of unfair contract terms. She pointed out that a similar approach had been taken in the Companies Bill recently discussed by this Committee, in relation to the duties of directors. The Courts should still be in a position to develop the law further, and the department did not wish to interfere with that discretion, nor did the Department intend to cover all common law matters in this Bill. It therefore did not agree that the proposed grey list could be provided for in the Bill - even if the list was to be incorporated, it could never be exhaustive. It could, however, be provided in regulations. Clause 51 already provided for a "blacklist" of unfair contract terms and agreements prohibited upfront.

Some comments had also suggested that clause 49 was risky to the consumer, as it required the consumer to indemnify suppliers, yet did not provide the consumers with an opportunity to challenge. Comments were also made that the prohibition against requiring a consumer to provide a PIN number could have unintended consequences for financial institutions, who should be exempted from this clause. The Department agreed that clause 49 might indeed contradict clauses 51 and 61, and it therefore proposed that clause 49 be deleted. Clauses 51(1)(j)(ii) and 51(2)(b)(ii) of the Bill would also be amended to make it clear that banks could not be prevented from asking for a PIN number when transacting with clients. Suppliers would, however, be required to guarantee security of PIN codes and should be obliged to compensate the consumer for any loss.

It was suggested that clauses 54 and 56 limited consumer's rights under common law, as the supplier had the discretion whether to repair or replace. The Department conceded that this could be problematic. These clauses were intended to add to the common law rights, and were meant to enhance rather than weaken consumer protection. Therefore they should be amended to give the consumer, not the supplier the election whether to demand a repair of the goods or a refund.

Clause 61 gave rise to many comments, including that it was too wide, would have unintended consequences, would require huge infrastructure and costs, and that it would force companies now to take additional insurance cover, the costs of which would be passed on to the consumers. The comment was also made that the costs could cripple small businesses, and that it would be preferable to limit liability to instances where they were actually at fault, rather than imposing strict liability. The comment was also made that warranties from manufacturers were effectively worth little. It was also felt that damage caused by GMO products should not be excluded. Ms Ntuli said that the Department believed that strict liability was long overdue in South Africa. The Constitutional Court had commented that this was a socio-economic issue needing to be considered by the legislature, in the case of  Wagener & Cuttings v Pharmacare Ltd. For this reason the Department had introduced the concept in this Bill. The principle of product liability without fault would remove the onus on the consumer to prove negligence and intent, and this was mirrored in other jurisdictions such as Malaysia, the USA and the European Union. The Department strongly believed that the supplier putting the product on the shelf must accept liability, and the onus should be on that supplier to prove that he was not at fault. The Department did not accept the argument that this clause on its own would significantly raise costs, nor would the costs result in bankruptcy, and it was notable that no stakeholder had provided any specific details on what those costs would be. Furthermore, most companies were already taking out product liability insurance, as they could be sued under the current systems. The Department was, however, prepared to delete clause 61(1) in order to include liability for damage caused by GMO products, depending upon the proposal around GMO labelling.

In relation to clause 69, there had been some confusion as to which forum consumers should approach for enforcement of their rights. It was also suggested that alternative dispute resolution (ADR) mechanisms should be made clear in the Bill, particularly the point of entry for consumer redress. Ms Ntuli responded that the Bill did provide alternative avenues of access for consumer redress, and that the consumer could choose which avenue to use. The Bill provided for cooperation between agencies, in particular in relation to referrals. It was important to allow for speedy redress. Consumers would be encouraged first to approach the Ombud. However, the Department would amend Clause 69 to make this clearer, and the complaints process should be further articulated in the regulations. She tabled a diagram showing the relationship between the various bodies (see attached presentation).

Comment had been raised, on clauses 70 to 74, that the requirement that the ADR award be confirmed by the High Court, rather than the Tribunal, would be too expensive for consumers. The Department agreed with this comment and would amend clause 70 to make the Tribunal competent to confirm ADR awards.

A query had been raised on Schedule 2, noting that under item 8(1) it would not be possible to prosecute or investigate under a repealed law. The Department noted that it was intended that for a period of three years the National Consumer Commission (NCC) may exercise any power to investigate a breach of any law that had been repealed, for a period of up to three years prior to the repeal. This was intended as a transition from the old to new dispensation and would allow the NCC to continue to conduct investigations. She suggested that the State Law Advisers should address this formulation further during the clause-by-clause deliberations.

Finally, the comment had been made that Clause 112 of the Bill and Section 151 of the National Credit Act (NCA) were not aligned, and the powers of the Tribunal did not extend to imposing fines for breaches of the NCA. The Department agreed that the Bill and the NCA should be aligned, by making a consequential amendment to allow it also to deal with conduct prohibited under the NCA.  The Consumer Tribunal would deal with matters arising from breaches of this Bill, once passed, as well as issues under the NCA. There was also a complaint that the Bill did not align with Chapter 7 of the Electronic Communications and Transactions (ECT) Act. The Department would also align this Bill with the ECT Act.

Discussion
The Acting Chairperson noted the strategic approach taken by the Department to work around existing legislation and try to address the gaps, and agreed that this legislation was long overdue, and that there was a need for assertive activism. The concurrent jurisdiction and simple application procedures were important. In relation to the cost of compliance, he noted that the Consumer Goods Council had promised to provide information around the costs of compliance, but had not responded, and he asked the Committee Secretariat to follow up on this. He noted that it would be very important to give full attention to how to handle the transitional arrangements.

Ms F Mahomed (ANC) referred to the duplication of sectoral laws, and noted that this was intended to be the overarching legislation. She asked if this meant that the Consumer Tribunal would become an overarching regulatory body, and what would be done about what had been described as "inadequate" laws. In her constituency the consumers did not have easy access to ombudsmen or any other body. There was a need to have a balanced approach for protection of both consumers and suppliers.

Ms Mphahlele said that in certain sectors there might already be a recognised Ombud to deal with consumer complaints, such as in the Banking or Insurance sectors. Many of the complaints in these sectors could be speedily resolved. It was not desirable to have the National Consumer Commission deal with minor complaints on a day to day basis, as this would shift the focus from the proper enforcement of the law. The problem in the past was the lack of proper enforcement. It was desirable, where there was an Ombud, to try to have a complaint resolved at the sector level first, but where the consumer was unhappy with that decision, then he could approach the Commission.

Ms Mahomed said that there had been quite a bit of lobbying for the "grey" list. She asked for further clarity, and particularly whether the inclusion of such a list would not make the regulations too cumbersome. She noted that other jurisdictions had such a list.

Dr S Rasmeni (ANC) noted that those countries using the "grey" list were developed countries. He further noted the Department’s comment that such a list could be covered in regulations. He was not sure that having it in regulations would achieve the aim of taking proactive steps to inform consumers of their rights, and particularly of what clauses were not considered desirable. He suggested that perhaps they should be publicised specifically to give guidance to both suppliers and consumers.

Dr P Rabie (DA) also commented on the grey list. He noted that it had been used effectively in other countries. He thought that the retail sectors could also be asked to publish it voluntarily. He understood the concerns about incorporating the list in the Act, but thought that its publication should be encouraged.

The Acting Chairperson asked Dr Rabie whether he thought that including such a list in regulations would be adequate to address his concerns.

Dr Rabie responded that Prof Naude had given a very sound submission in support of the grey list. He would like to see such a list being incorporated into the Bill as a first option.

Mr L Labuschagne (DA) believed that it would be very useful to use such a list to “warn off” the stronger contracting parties about what they should not include in their contracts. He accepted that the Courts should finally have the power to decide whether terms were unfair, but did not believe that consumers should have to approach the courts to decide on each and every issue. He believed that there should be some way of accommodating the concerns, both to protect the drafters of contracts and the consumers.

Ms Ntuli reiterated that the Department did not think it was appropriate to incorporate this list into the main body of the legislation. The European Union did have such a list, and in the area of franchising there was a "white" and "black" list, setting out clauses that were acceptable, and those which should never be in franchise agreements. Those lists, however, were drawn up over an extended period of time. The Department, for this reason, did not think that it was appropriate at this stage to come up with a list, although it was prepared to consider the possibility that in the future such a list might be incorporated into the legislation. There was provision for the Consumer Commission to issue guidelines, and perhaps it would develop guidelines on fair contract terms based on what it had considered, as part of a continuous process. The Competition Commission was issuing similar types of guidelines – for instance as to what constituted a merger – and a person who did not agree with the guidelines could still take the matter to the Courts. She noted that in the United Kingdom the lists formed part of the regulations.

Mr Sipho Tleane, Director: Office of Consumer Protection, CCRD, dti, noted that secondary legislation would have the same legal effect, so it did not matter from this point of view whether a list was included in the Bill or the regulations. He said also that the Department would continue to work with Professor Naude.

Prof B Turok (ANC) noted that this was an important piece of legislation, and he congratulated the dti on a thoroughly professional presentation. He raised the question of GMOs, saying that any product which caused harm should carry liability. The mechanism of identifying that product was, to his mind, less important than the fact of harm. It was a highly controversial issue.

Dr Rasmeni said that the Committee had not been fully apprised of the submissions of the Departments of Health and Agriculture. He thought that their concerns about cost were less important than the safety and health of individuals, and that perhaps they had not addressed consumer protection issues specifically. This Bill was intended to ensure that the gaps in consumer protection were being addressed, and the GMO labelling surely fell into this category.

Ms Mahomed also expressed her concern on GMOs. She asked how the dangers of GMO products could be detected if there was no labelling, and even this failed to provide sufficient protection. She still felt that there must be national machinery to ensure that producers did not become complacent or negligent. She also asked for further information as to what had been said by the Department of Agriculture.

Ms Mphahlele said that the Department had agreed to liability caused by GMO foods, and was prepared to concede to labelling, but this would have to be dealt with in conjunction with the Department of Agriculture. She pointed out that in principle South Africa supported GMOs. The Department did anticipate that specific regulations could be made. Clause 82 also provided for the Minister to recommend industry reform for any particular sector, to provide for specialist areas not already addressed in the Bill.

Ms Nomfundo Maseti, Director: Competition and Consumer Policy and Law, dti, noted that the key issues arising out of discussions were contained in the full written document. The first concern was around the labelling of food in general, and the cost implications on food prices. Technical issues as to how to classify and label were also raised. The Department of Health had not participated in public hearings, and saw the submissions as a lobbying against GMOs. It did not support labelling and believed that the dti should not deal with it, as it believed that the GMO Act covered the matter. The Department of Trade and Industry did not have capacity to become involved on the safety issues, but this Bill could still deal with consumer issues, and harm caused by other legislation, although it could not address the technical issues. The dti did not object specifically to labelling, and accepted that any harm arising from GMOs would be dealt with under this Bill. This approach had also been taken with other sectoral legislation. There was nothing to stop other industries from coming up with industry codes, and dti would be prepared to work with them.

Mr Tleane noted that there were some very technical points around GMOs, and this Bill was not intending to debate whether GMOs were safe or not. It could only deal with labelling, to allow consumers to make a choice. The policy issues around GMOs must be addressed elsewhere.

Prof Turok asked for, and received confirmation, that this Bill covered professions, in particular engineering, architecture and similar sectors, and noted several complaints about the inadequacy of services provided by professionals. He noted that most professions worked on the basis of self-regulation, but that this did not help consumers as there were often complex procedures to access their councils, and often those councils acted as their own trade union as well. He believed that there was a need for specific clauses that covered consumer protection against the professions, and what channel was to be used.

Ms Mphahlele confirmed that the Bill did cover professionals. The Department had recognised that professions claimed to self-regulate, but often there was a conflict because members paid to be part of the association, and often there was no separate entity to adjudicate on complaints. The Banking Association, for instance, was responsible for promotion, and although the Ombud was supposed to be completely independent, it was funded by the Banking Association. Other professional bodies had similar problems.

Prof Turok followed up on this issue, stating that the recent amendments to the Engineering Profession legislation allowed a person to ask that a code of conduct be set by the Minister, and that this would override the Engineering Council. However, there was no such recourse with other professions at the moment. He asked if his understanding of this was correct. (The question was answered later in the meeting)

Prof Turok noted that the Credit Commission and Competition Tribunal both worked extremely well. However, the key was whether there would be a good Commission under this Bill. He would like a report on the implementation side of the Bill.

Ms Mahomed agreed that this was a good piece of legislation, but wondered whether the Department had the capacity to implement what was set out in the Bill.

Dr Rabie also raised the question of capacity. Chapter 3 dealt with protection of rights and he believed that the dti must take full steps to acquaint consumers with this Bill and the ways in which they could access help and get value for their money. He suggested that extensive workshops should be held, particularly in the rural areas.

Ms Ntuli noted that the Department would make a conscious effort to raise awareness. It had already started a campaign and would by now have produced pamphlets, as well as a marketing strategy. She stressed that it would commit also to education in the rural areas.

Mr Ebrahim Mohamed, Chief Director: Office for Consumer Protection, CCRD, dti. said that Schedule 2 set out, in item 9, that certain current employees having functions under the existing legislation would be transferred to the National Consumer Commission. The Department would continue to build capacity and relationships had been established with other institutions to gain more experience

Mr Tleane noted that clause 60 would also be addressed, to make it easier for consumers to lodge complaints.
 
Mr Mohamed added that a major campaign was being planned, and would include TV and radio coverage, visits to industries and the rural areas.

Ms Mphahlele added that clause 96 also required the Commission to deal with issues of education. The Portfolio Committee would have an important oversight role over this Commission. 

Ms Ntuli responded that the dti had a number of agencies, and had realised that some of the enforcement agencies were not providing effective enough enforcement. It had presented a business case to National Treasury, in which it proposed a structure similar to that of the Competition Commission, with appointment of a Commissioner, and Deputies, and staff to undertake inspections, investigations, dispute resolution and compliance. The likely staff contingent would be between 50 and 100. The Bill provided for concurrent functions of the National and Provincial offices. She believed that sufficient resources and capacity would be available. The role of the CCRD division was also to assist these entities in becoming more effective and efficient. It would therefore focus on these new proposals. She suggested that the Department should come and present separately on its proposals to the Committee.
 
Mr Turok asked why the Department had gone to National Treasury for approval of the Business Case.

Mr Fungai Sibanda replied that it was common practice that business cases were submitted to National Treasury.  It was purely an administrative issue, as National Treasury needed to look at governance issues and the structures of the proposed institutions, from a Public Finance Management Act (PFMA) perspective. The Department of Public Service and Administer (DPSA) was also involved. 

Dr Rasmeni raised the issue of bundling of products, and the Department's proposal to amend Clause 13 to allow bundled goods to be sold separately and at individual prices. He noted that at times a franchisee or Small, Medium or Micro Enterprise (SMME) might buy bundled goods from a supplier, for resale, because this would be cheaper than buying individually. He queried that surely the insistence on purchase of individual items would push up the prices.

Mr G Selau (ANC) added to this question, asking what protection was being afforded to someone who was buying bundled goods to consume them, rather than sell them.

Ms Ntuli noted that some goods could be bought in bulk for a lower price. Other goods, although not similar in nature, would be used together for one purpose, such as a nail and hook for hanging pictures, and the two items would be sold in one package. However, a company might manufacture various different products which were not complementary to each other, but one might sell better than the other. In order to push the sales of the less popular item, it might bundle the two products together – such as a hammer and a pack of nails. The intention of this clause in the Bill was to prevent abuse of consumers by the supplier insisting that both items must be bought, although the consumer may need only one. She accepted the comments that buying separately might push up the prices, as the supplier might be prepared to offer a discount only on the bundled goods. The consumer, however, should have the option whether to buy the bundled or the separate goods. The question was also whether a supplier who only dealt with bundled goods should be obliged to open up a package and sell separately - and this was an issue to be discussed further by the dti.

Ms Mphahlele said that when she had recently wanted to buy computer software she had been told that she could only purchase it if she also purchased a memory stick, which she did not need. People purchasing a property in a complex might be told that the security systems must be installed by a certain company only, or a cellphone contract would not be sold without a new phone being purchased also.

Mr Njikelana asked about bundling arrangements in the form of a sale, asking if a toothbrush and toothpaste might be bundled together.

Ms Mphahlele said that this clause was intended to deal with unrelated items.

Ms Nomfundo Maseti, Director: Competition and Consumer Policy and Law, CCRD, dti, added that bundling was not inherently illegal. Some bundling might be useful, but such goods might not necessarily be cheaper and the costs factored in were not necessarily disclosed. At some stage car dealers had started to introduce maintenance plans rather than reducing the price of vehicles as an “extra”, but the point was that the consumer should not be forced to accept the dealers’ terms, but should be able to purchase the car alone.

Dr Rasmeni referred to the cooling-off periods, noting that consumers might be required to pay a penalty if goods were not in the original condition, or had been opened. He did not think that this provided protection for consumers. He noted that only after tasting goods would a consumer be aware that the goods were tainted. Mr Selau shared his concerns.

Ms Ntuli noted that the cooling off period must be distinguished from the return of defective goods. It would allow a person signing a contract or agreement to change his mind as to whether he wanted or needed that contract. The supplier would not be entitled to demand why the person had changed his mind. This had nothing to do with the quality or function of the product, but merely with reconsideration by the consumer whether he needed the product. Because the consumer would have changed his mind, the goods should not have been tampered with. Defective goods would fall into a different category.

Dr Rasmeni raised queries around the definition of "service" which currently excluded certain service providers. He did not necessarily agree that the insurance service providers should be excluded, as he felt that there had been abuse of their position in the past, including termination of contracts without notice. He would agree with exemptions if there was indeed proper recourse for consumers under the sector-specific legislation, and thus suggested that this Bill make specific reference to the protection to be provided by insurance companies.

Ms Mphahlele said that there were various boards and regulatory authorities that dealt with sectoral laws, such as the Financial Services Board, the Competition Commission, Independent Communications Authority of South Africa. The area of focus of the banking sector was fiscal stability. The banking legislation gave protection to deposit takers, but all other day to day contractual issues between a bank and its customer were regulated by a voluntary code of conduct. The emphasis in the Communications sector was on tariffs and consumer access, but other areas were not regulated. To date, there was no one single agency that specialised in consumer protection, but that would be the role of the National Consumer Commission. The Financial Services Board would be able to deal with certain issues. However, where there were gaps, it would have to, within 18 months, review the legislation and close the gaps in order to have the exemption under this Bill. There should not be duplication and where a sector regulator had shown commitment to consumer protection, then it should be left to control it. The ECT Act had left enforcement to the Consumer Affairs Committee, because this was not the main focus of this particular Act. The mere fact of regulation by another authority did not mean that there was automatically duplication; only the banking sector had been able to point to duplication and this had been addressed. She noted that the Minister, in giving exemption, could also impose certain conditions.

Dr Rasmeni followed up by saying that he was still worried that someone might approach the dti with a particular issue that might conflict with action being taken somewhere else. He did not believe that any sector should be excluded unless they could show factually that their own mechanisms to deal with consumer protection were tighter than this Bill.

Ms Ntuli replied to Dr Rasmeni and Prof Turok that in the Bill presently the consumer protection issues were regulated and the professional bodies were not excluded. If, however, in that sector there were some sort of self-regulatory scheme for dispute regulation, and they wanted to continue with that scheme then they would be subjected to a process where the Minister would have to approve the code of conduct and dispute resolution scheme. One of the requirements for codes of conduct was that these should be in line with the principles of the Bill. The decision of an ombud was not final, and the consumer had the option to open up the complaint either at the Commission level or take it to the Tribunal. They were given an alternate dispute resolution agent. In addition, as stated in Clause 82(8), a supplier could not contravene an applicable industry code.

Prof Turok noted that in the professions that he had referred to, the traditions of appeal and regulation took long. This Bill set out new principles, and he thought that the Minister and the Department would have an enormous job to produce codes that actually changed what the professions were doing at the moment. He had asked a fundamental question about the way that professions operated and the way that the Bill could help the consumers. The dispute regulations in the professions were meant to serve the professions, not the consumers. There was still uncertainty.

Ms Ntuli replied that the Bill did apply to the professions. Even if they had an industry code that would not give them exemption. Their industry code should be tested against the Bill. She added that the dti did not want duplication. There were agreements that at some point the legislation must be brought up to scratch. It would be up to the Committee whether they would want certain other pieces of legislation to remain in force.

Mr Selau asked for clarity on the investment schemes of trade unions and said that most investment schemes would be registered under separate names or companies, so he was not sure whether it was necessary to pick out the trade unions as needing to be dealt with separately.

Mr Sibanda replied that the question related to the services rendered by trade unions. Often this was done via established companies or third party institutions; therefore it was not necessary to include those types of services in the Bill. However, dti was attempting to create legislation not only for the present but for the future as well. It had recognised that trade unions went beyond core business to provide other services, and when they did provide other services their members would need the kind of protection that this legislation would offer.

Mr Selau noted that slide 4 dealt with the proposed intention to protect the SMMEs and slide 7 focussed on the franchisee. He also asked whether it was necessary to separate out the protection between various categories of consumers, as essentially they should enjoy the same type of protection.

Mr Fungai Sibanda, Chief Director: Policy and Legislation, CCRD, dti, said that dti was concerned with the balance of power issues. Whilst the principle was the same, to give small businesses, individuals and franchisees the protection they needed against their contracting partners, the exact treatment of each would differ. They could not be treated on a "one size fits all" approach, as this could lead to impracticalities.
For instance, franchise agreements had been excluded from fixed term agreements, particularly in relation to the cancellation in 20 days, for business reasons, but this would not apply to individuals.

Mr L Labuschagne (DA) noted that in many cases boards were being appointed by the Minister. He wondered why this Committee should not be interviewing various candidates for appointment to boards, noting that similar provisions did exist in other legislation.

Mr Sibanda replied that it was true that the success of the institution was balanced on the calibre of leadership and institution. The Bill provided for the Minister to appoint the Commissioner. The Committee was welcome to get involved in the appointment of the Commissioner.

Mr Labuschagne said that he had an inherent problem with the concept of strict liability. Usually the person suffering damages had the additional problem of proving fault on the part of the other person. He wondered, therefore, if it would not be more feasible to put the presumption of fault on the other party, and he was not sure that clause 61(5) went far enough He was worried that a general dealer in the platteland might, for instance, sell a piece of electrical equipment, which would then cause a problem, and wondered how inherently hazardous goods, such as power tools, could be dealt with. He also noted that it would be extremely difficult for the owner of a spaza shop to pursue the lines of liability right up to the initial manufacturer. He asked for further comment on clause 61(5)(c).

Mr Tleane noted that clause 61(5) provided defences to the strict liability provisions, and was included in the Bill as a result of submissions by industry. Clause 61(5)(c) would apply only to distributors and retailers. Under the common law a manufacturer representing himself as having skills and expertise would be required to assure consumers of the safety of the product, in order to make him responsible for his products. The defences provided by clause 61(5)(c) would in fact cover the majority of claims against the retailer who could show that he could not reasonably have known of the defect. Retailers and distributors were not expected to have sufficient technical knowledge to be aware of any defects. The emphasis was not on holding them liable under all circumstances, but only when, having regard to their specific roles, they ought reasonably to have detected certain things. However, the same would not automatically apply to manufacturers. He said that the clause might not be perfect, but it was a reasonable compromise.

Mr Labuschagne responded that he agreed with the intentions around strict liability. However, he remained concerned that, for instance, the owner of a spaza shop in Bushbuckridge might be selling something that was made in Japan three years ago, which he had no indication might be defective, and he was still not sure that the wording of the Bill encapsulated what the Department required.

Mr Njikelana asked whether the recommendations made by the Commission of Inquiry into the Banking Sector had been taken into account when drawing this Bill.

Mr Sibanda noted that various recommendations of that Commission of Inquiry would also require action on the part of other institutions. Without going into too many details, he noted that the dti and National Treasury had been discussing ways to take the recommendations forward. Some would also be taken up in terms of the consumer protection legislation.

The Acting Chairperson asked a question on whether the Bill would be subject to regulatory assessment.

Mr Sibanda replied that it should be noted that regulatory assessment was a new concept in the policy-making processes. The previous version of the Bill was subjected to regulatory impact assessment in the portion that dealt with labelling requirements. Subsequently the Department had qualitatively assessed what particular provisions would mean for business.

The Acting Chairperson asked why the State was excluded as a consumer.

Mr Sibanda replied that the principle of the Bill was to protect consumers because they were vulnerable, but that protection was extended to small business that might find themselves in a similar position. The Department did not think that the State needed the same type of protection. There would also be an issue of what would be regarded as “the State”.

The Acting Chairperson noted that in clause 14 there was a proposed amendment to exclude business- to- business transactions, and he wondered if an exemption arrangement would not be more applicable.

Ms Mphahlele replied that the issue was around the fixed term agreements. The broad intention of clause 14 was to cover the situation where many consumers were tied into fixed-term contracts that could not be cancelled, no matter whether their circumstances changed. This clause was trying to provide that consumers should be able to resile from the contract, on payment of some form of penalties. However, in business-to-business transactions this could become problematic.    

The Acting Chairperson asked what did dti mean by ‘significant compliance cost’.

Mr Sibanda replied that business would incur compliance costs. The extent of those costs would have to be compared to the costs if there were no compliance. Dti had moved away from being too prescriptive in how businesses should comply.

The Acting Chairperson noted that in the organogram of the dispute resolution model, there was reference made to ombuds, so in a sense there was an inclusion of a sectoral ombuds.

Ms Mphahlele replied that the definition of ombud included both statutory ombud and other ombuds created in terms of voluntary schemes, so both ombuds were recognised.

The Acting Chairperson noted that Chapter 7 of the Electronic Communications and Transactions Act made reference to the Consumer Affairs Committee. He asked how this linkage would be done, or whether that would be presented upon at another meeting.

Mr Sibanda replied that the Act did make reference to the Consumers Affairs Committee that was established in terms of the current Fair Business Practices Act. This Bill did not envisage the continuation of the Consumers Affairs Protection Committee. Dti would need to deal with that issue. 

The Acting Chairperson asked, in Chapter 2(c) dealing with the consumer’s right to choice, how State services were addressed.

Mr Mohamed replied that the State was subject to the provisions of the Bill. 

Ms Mphahlele added that it was limited to specific instances. When the State was involved, then choice could not be exercised but emphasis was placed more on redress.

The Acting Chairperson asked about oral contracts and the measures in place.

Mr Sibanda replied that the Bill, in clause 50, allowed for the Minister to prescribe categories of consumer agreements that were required to be in writing. An assessment would be done for the problematic areas, and the list might well include insurance agreements.

Ms Mphahlele added that there were discussions that suggested that perhaps the Bill should also state that wherever an oral contract was entered into, a recording must be made, kept on record, and regarded as evidence.

The Acting Chairperson asked if the inputs regarding product liability had been addressed.

Ms Maseti replied that a submission by a Professor had requested that another section should be added under product liability. In the Bill the onus was placed on the owner and not the consumer, but the Department believed that if the proposals were accepted they would result in a situation that contradicted the type of protection that the Department was seeking to afford to the consumer.

Mr Labuschagne asked whether clause 40 should not include a reference to the word duress.

Mr Labuschagne also asked if the Department could put an enabling clause in Clause 48, 49 or 51, to make regulations, or whether that coverage was provided elsewhere.

Ms Mphahlele replied that the Department would look into those technical issues.

Mr Bhengu asked if the reasonable cancellation penalty would be placed in the regulations.

Ms Maphahele replied that it would be difficult to put it in legislation as it was envisaged that the Commission would able to give a penalty for a specific sector.

The meeting was adjourned.