Important changes to component pricing laws

by Elicia Lin

The Trade Practices Amendment (Clarity in Pricing) Act 2008 (the new Act) came into effect on 25 May 2009. The new Act introduced new requirements for ‘component pricing’ by amending sections 53C and 75AZF of the Trade Practices Act 1974 (TPA). 

The new Act applies to the advertising of consumer goods and services. It does not apply to price representations between corporations or between corporations and the government

The new component pricing rule

 

Component pricing is the representation of a price in its component parts, instead of a single figure. For example, a motor vehicle priced as ‘$25,000 plus on-road costs’. This can create an impression that the goods or services is being offered for sale at a lower price than it actually is.

 

It is important to note that the new Act does not prevent the use of component pricing. However, where component pricing is used, a single price figure must also be specified.

 

The new component pricing rule is contained in section 53 of the new Act (and its criminal counterpart section 75AZF) which requires that if a ‘representation’ constitutes component pricing, it must also specify ‘in a prominent way’ and as a single figure, the ‘single price’ for the goods or services (the new rule).

‘representation’

 

This includes representation of prices in advertising (whether press, radio, website or other medium), on price tags, point of sale materials, price lists and quotations.

 

‘in a prominent way’

 

The single price figure must be ‘at least as prominent’ as the most prominent of any other component prices. For example, ‘$100 plus $10 installation and $10 delivery: Total cost $120’ complies.

In simple terms, this means that the single price must be easily identifiable by a consumer. The size, colour and type of font used for describing the price and its placement compared with the advertisement’s background and relative to the advertising medium being used should be considered.

 

Example

An advertisement states upfront ‘6 easy repayments of $19.95’, but obscures the total price of $119.70 at the bottom in fine print and a colour similar to background design.

The single price of $119.70 is not as prominent as the most prominent component of $19.95.

 

‘single price’ and how to calculate it

The single price is the ‘minimum quantifiable consideration’ for the supply at the time of making the representation for a consumer to purchase the good or service. A price is quantifiable if it can be readily converted into a dollar amount.

The ‘minimum quantifiable consideration’ includes all amounts the consumer must pay to acquire the goods or services, including:

 

Charges of any description payable by the consumer to purchase the good or service (including for e.g., any administration fees, booking fees or compulsory service charges); and
Taxes, duties, fees, levies or charges payable by the consumer for the supply of the good or service (for e.g., GST or sales tax.

 

However, the following components do not have to be included:

Charges that are payable at the option of the consumer;
Delivery or sending charges, including postage, courier fees and packaging charges (however, if the minimum delivery charge is known at the time a price representation is made, that must be specified);
Components of price that are not quantifiable; and
Costs and charges that are not passed onto the consumer.

 

Examples:

- A product costs $100.00 and a delivery charge of $10 is payable. The delivery charge does not have to be included in the single price but must be specified. For e.g., the price could be stated as ‘$100 plus $10 delivery’ or ‘$110 including delivery’.

- A lounge suite is advertised for sale with the option of fabric protection for $100. The fabric protection does not have to be included in the single price because it is optional.

An airline collects passenger movement charges on behalf of the Commonwealth. These charges must be included in the single price.

- A restaurant imposes a 15% surcharge on public holidays. The menus on public holidays must specify prices inclusive of surcharge and GST.

- A consumer must use a credit card to purchase a product and a surcharge applies for the use of a credit card. The surcharge must be included in the single price. However, if the consumer has a choice of paying cash or using a credit card, the surcharge does not have to be specified.

 

If the final price includes both quantifiable and non-quantifiable charges, the quantifiable charges must be stated as a single price and the consumers must be advised that not all components have been included.

 

Example

A rental car business offers a car for hire at $50 a day plus a surcharge for each kilometre the customer drives. The complete surcharge cannot be quantified at the time of advertising because it cannot be known how many kilometres the customer will drive. This could be advertised as ‘$50/day + $1/kilometre surcharge’.

 

A breach of the new rule is a criminal offence and can result in a maximum fine of $1.1 million for a corporation and $220,000 for an individual under the TPA, so care must be taken to comply with it.

 

Application of the new rule

 

The new rule will apply to any price representation relating to the supply or promotion of goods or services if:

The goods or services concerned are consumer-type goods or services for personal, domestic or household use (other than ‘financial services’ as defined in the Australian Securities and Investments Act 2001); and
Consumers or potential consumers for those goods or services including an individual or an unincorporated entity (such as a partnership or sole trader). It is important to note that where representations are made simultaneously to consumers and corporations, the new rule will still apply.

 

Exceptions

 

There are two exceptions to the rule requiring that a single price be shown as prominently as any component. These are:

Where a representation is made exclusively to corporations; and
Where services are supplies under a contract (for a term) that also provides for periodic payments – the single price must still be specified but does not need to be as prominent as any other component;

 

Example:

A mobile phone contract requiring $20 payments per month over 24 months, the $20 per month payment may be displayed more prominently than the $480 single price.

 

It is important to remember that the new rule does not prevent consumers from negotiating a lower price. The fact that a lower price has been negotiated does not cause a corporation’s earlier representation to be in breach.

 

Additional obligations

 

Corporations must not only comply with the new rule, but also satisfy all requirements of the TPA, in particular, the obligation to avoid misleading or deceiving consumers. 

 

Component pricing checklist

 

Determine whether you are supplying or promoting your goods and services to consumers.
When you make a price representation to consumers, remember to include all taxes, duties, fees, levies or charges that can be calculated at that time and if you are unable to quantify a component of the price, clearly advise consumers that the component is not included in the single price.
Ensure that the single price is displayed as least as prominently as any component prices.
Review your price lists, advertisements, quotes, invoices, use of fine print disclaimers outlining mandatory taxes, fees and other charges and any other documents which display your prices.

 

Contact us if you are unsure about whether the new rule applies to your goods or services, or if you are unsure whether your proposed advertising is compliant.

 

Elicia Lin  B.Bus.,LL.B.,GradDipLegalPrac.
Solicitor



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