22 March 2006
The Government's proposed "component pricing" amendments will require all corporations to specify, when they advertise a price, the total minimum price for the products or services they sell in a prominent way and as a single figure, but the problems which business has already experienced with this will not be fixed.
The amendments to the Trade Practices Act 1974 and the Australian Securities and Investments Commission Act 2001 are open for public comment until 10 May 2006 and it's expected to generate a considerable public response from those affected, including:
Background
"Component pricing" is the practice of disclosing prices of separate parts of a product or service while not disclosing the total price of the delivered product to consumers.
Section 53C of the Trade Practices Act was introduced in 1986 to respond to component pricing. It currently does so by providing that businesses must specify the "cash price" for their products.
Although the courts have not formulated a general test to describe a breach of section 53C, the Federal Court has made it clear that the requirement to specify the "cash price" of products does not mean that one single price must be stated. So, for example, a "cash price" will be sufficiently specified under section 53C if the final price for a product is advertised to be "$29 plus GST of $2.90". It is not currently necessary to state the final price to be $31.90. However, the Court has suggested that a breach of section 53C might occur if a consumer is required to perform a complicated calculation to determine the final price.
However, the Government favors the approach that the final total price should be prominently disclosed so that the full amount payable is immediately apparent and no calculation of the price by the consumer is necessary. The Trade Practices Legislation Amendment Bill (No 3) 2006 implements the amendment to section 53C announced on 21 April 2005 and was released for public comment on 10 March 2006.
The proposed amendment
The Bill does not prohibit component pricing. Rather, if passed in its current form, it will replace the requirement to specify the "cash price" of products with a new requirement to specify, in advertisements where price is specified, "in a prominent way and as a single figure, the total minimum price".
Corresponding amendments to the ASIC Act will require financial service providers to specify, in a prominent way and as a single figure, the total minimum price for financial service products.
The scope of "total minimum price" and examples of how the amendments change the law
The Explanatory Memorandum states that the "total minimum price" should include all amounts imposed by the seller that a consumer is required to pay to obtain the product or service. That price would then include all charges (such as delivery charges), taxes (such as GST), as well as all other separate parts of the final price to be charged by the seller to the consumer.
However, the Explanatory Memorandum states that the "total minimum price" does not include amounts imposed on consumers by third parties, such as stamp duty.
The Government's view is that by including the word "minimum", the proposed amendment does not require businesses to advertise the final price that all consumers will pay for all products at all times. Arguments were raised when it was first announced that section 53C was to be amended that a blanket provision on component pricing is unsuitable. These arguments were made primarily on the basis that it is exceptionally difficult for a blanket rule to apply in all of the many and varied ways prices are set and charged for goods and services, including those that are time charged; sold by quantity; where mixed goods and services are supplied and where taxes and charges apply which differ from State to State or location to location in the area in which an advertisement may be published. This can be a problem with the current form of section 53C and the proposed amendment does not fix this problem.
The Explanatory Memorandum to the Bill tries to clarify the situation by explaining that where the amount of a particular component will vary according to the nature of the purchaser then the seller can advertise the price as relevant to the type of consumer most likely to purchase the product or services. Further, it says that where the amount of a particular component will vary according to a decision of the purchaser, the seller should advertise a minimum price for which the product or service can be obtained. It also states that where the "total minimum price" will depend on the quantity purchased, the price should be specified as a "per quantity amount".
Answers to questions from the everyday experience of consumers with respect to the new provision do not seem straightforward:
Conclusion
The current form of section 53C has been difficult to apply in practice in a number of common situations and the proposed form appears to raise new issues to add to the complexity for companies advertising their goods and services. The Government's consultation period expires on 10 May 2006.
