An important clarification: the definition of a ‘consumer’

In July 2020, the Treasury introduced the Treasury Laws Amendment (Acquisition as Consumer-Financial Thresholds) Regulations 2020 (Regulations), which amended the definition of ‘consumer’ for the purposes of:

• the Australian Consumer Law (ACL), which is in Schedule 2 of the Competition and Consumer Act 2010 (Cth); and
• the Australian Securities and Investment Commission Act 2001 (Cth)(ASIC Act).

The amendments increased the upper-limit monetary threshold, which applies to the definition of ‘consumer’ from $40,000 to $100,000. The Regulations took effect on 1 July 2021 and apply to all goods and services acquired on or after this date.

The definition of ‘consumer’ is significant in determining the persons who are entitled to the protections provided by the ACL and ASIC Act. The change not only increases the protections afforded to individuals and small businesses but also imposes significant obligations on business who provide goods and services to comply with the statutory guarantees available to consumers. The article focuses on the ACL, as it was the main impetus for change, however, notes the mirrored amendments under the ASIC Act.  For completeness, the definition of consumer under the ASIC Act is provided below.

Rationale

The change was recommended by the Australian Consumer Law Review (ALRC) following a review of the ACL in 2018 which concluded that due to the effects of inflation, the real value of the $40,000 monetary threshold, set in 1986, had declined meaning that the extent to which consumers and small businesses were being protected by the ACL provisions was diminishing. Effectively, persons who might have been classified as consumers in preceding years for the purchase of certain goods or services were no longer being classified as consumers for the purchase of the same goods or services, merely due to increase in prices causing them to exceed the upper-limit threshold. Increasing the monetary threshold will expand the number of purchases of goods or services captured under the definition of ‘consumer’ and thus broaden the availability of the consumer guarantees to customers.

The current definition of ‘consumer’ under the ACL

The definition of ‘consumer’ is found in section 3 of the ACL. Item 3 of Schedule 1 of the Regulations inserted regulation 100 in the Competition and Consumer Regulations 2010 which amended the monetary threshold under section 3(1) of the ACL.  A person is a consumer if they fall into one of the following three categories:

1. they have purchased a good or service for $100,000 or less; or
2. they have purchased a good or service of a kind ordinarily acquired for personal, domestic, or household use or consumption; or
3. they have purchased a vehicle or trailer acquired for use principally in the transport of goods on public roads.

The current definition of ‘consumer’ under the ASIC Act

Financial products and services are excluded from the ACL. However, certain provisions of the ASIC Act are intended to ‘mirror’ the ACL, to ensure that similar protections are provided to persons who purchase financial products and services.

The definition of “consumer” is found in section 12BC of the ASIC Act. Item 1 of Schedule 1 of the Regulations inserted regulation 2DA in the Australian Securities and Investments Commission Regulations 2001 which amended the monetary threshold under section 12BC(1) of the ASIC Act. Accordingly, a person is a consumer if they fall into one of the following three categories:

1. they have acquired financial services for $100,000 or less;
2. they have acquired financial services of a kind ordinarily acquired for personal, domestic, or household use or consumption;
3. they have acquired financial services for use or consumption in connection with a small business for more than $100,000 and the services are of a kind ordinarily acquired for business use or consumption.

Why does it matter?

The ACL provides consumers with statutory protections which are non-excludable rights that apply to all consumer transactions. By virtue of section 64 of the ACL, the statutory guarantees apply to all individuals who satisfy the definition of ‘consumer’ regardless of the terms and conditions of a particular sale.

The statutory guarantees that apply to goods and services pursuant to the ACL include that the goods will be of acceptable quality, goods will be fit for purpose, goods will comply with their description and that the goods will comply with express warranties.  The statutory guarantees that apply to services pursuant to the ACL include that the services will be provided with due care and skill and that the services will be fit for purpose.

Several other parts of the ACL are also activated by the definition of ‘consumer’ including proof of transaction, warranties against defects and repair of goods obligations.

Penalties for non-compliance with statutory guarantees

Under sections 259(4) and 267(4) of the ACL, suppliers of goods and services may be subject to actions for damages from consumers for failing to comply with statutory guarantees. By virtue of section 271, manufacturers may also be subject to actions for damages for a failure to comply with the statutory guarantee that goods are of an acceptable quality, under section 54 of the ACL.

Businesses that fail to appropriately identify customers and clients who are entitled to the protections of the statutory guarantees may also be in breach of provisions under section 29 of the ACL, which prohibits the making of false or misleading representations about goods or services. These include:

• section 29(m) – the making of false or misleading representations concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy; and
• section 29(n) – the making the false or misleading representations concerning the requirement to pay for a contractual right.

Under section 224 of the ACL, corporations that breach provisions of section 29 of the ACL may attract pecuniary penalties of the greater of: $10,000,000, 10% of the annual turnover in the preceding 12 months or 3 times the value of any benefit ‘reasonably attributable’ to the conduct.

What this means for your business

When contracting with customers or clients, businesses must take care to ensure that they are not wrongly excluding any statutory guarantees that their customers or clients may be entitled to as consumers under the ACL. This involves making an assessment of the purchases made by customers or clients against the definition of ‘consumer’, as outlined above. If the purchases made by customers or clients are captured under the definition of ‘consumer’, it is the businesses’ responsibility to ensure that:

• consumer contracts, refund and return policies comply with the statutory guarantees; and
• management and staff understand the business’s obligations when a consumer requests a remedy.

Businesses may also seek to limit their liability for a failure to comply with consumer guarantees under certain circumstances, where this is permitted by the ACL.

At Bryks Lawyers, we are experienced in advising on Australian Consumer Law and contracts.  Contact us today to see how we can assist you!