Many companies will have breached a consumer law at some stage, whether intentionally, innocently or just through loose business processes. It could be argued that it makes financial sense to breach, retrospectively issue a mea culpa and pay a fine.
This begs the question as to whether fines for breaching consumer laws (like the Fair Trading Act or Australian Consumer Law) could be seen, at least by some, as simply a cost of doing business?
While I'm not for a moment suggesting any impropriety or that the breach was intentional, an example is Reckitt Benckiser. Putting reputational issues aside and looking purely at the financial metrics it was found to have breached the Australian consumer law regarding its Nurofen range. It sold 5.9 million packets of Nurofen, generating AU$45 million in revenue, but was initially only fined AU$1.7 million. A significant fine, but just looking at the raw financials, its actions made sense. The fine was later increased to AU$6 million, which is a much bigger stick.
Australia has just announced a significant increase to the maximum fines for breach of the Australian consumer law. From AU$1.1 million (for companies) to the greater of AU$10 million, three times the value of the benefit received or 10% of annual turnover in the previous twelve months.
Fines of the magnitude in a market of Australia's size will act as a significant deterrent. Companies are likely to implement (or review existing) processes to ensure consumers aren't being misled.
Despite being increased in 2013, the penalties in New Zealand are still relatively low. A maximum fine of NZ$600,000.
Earlier this month the biggest fine for breach of New Zealand's Fair Trading Act was handed down.
Brilliance International, was fined NZ$540,000 for making misleading representations about the grade of its reinforcing steel meshes (and therefore suitability for use in earthquake strengthening). Brilliance had sold over 56,000 sheets of steel mesh under misleading descriptions, generating over $3 million in revenue.
Again, while seeming like a significant fine, it is likely Brilliance International was better off financially because of its breach.
While the vast majority of companies are likely to do the right thing regardless, to ensure companies are properly incentivised to provide consumers with accurate information, it might be worth following Australia's lead. Even if the level of penalties introduced in Australia are not necessarily justified here.
The ACCC welcomes legislation that has passed Federal Parliament today to increase maximum financial penalties under the Australian Consumer Law (ACL). In its final report on the ACL Review, Consumer Affairs Australia and New Zealand (CAANZ) recommended penalties for a breach of the ACL be raised from $1.1 million for companies to the greater of $10 million, three times the value of the benefit received, or where the benefit cannot be calculated, 10 per cent of annual turnover in the preceding 12 months. Penalties against individuals under the ACL will also increase from $220,000 to $500,000 per breach.