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Proposed consumer protection legislation threatens small business prospects

June 1, 2009

Portfolio Committee on Trade and Industry

A business lobby group has recommended that proposed legislation on consumer protection be temporarily withdrawn from Parliament so that further attention can be given to potential duplication and unintended consequences. Business Unity South Africa (BUSA) commented on the Consumer Protection Bill during public hearings in Parliament. BUSA declared that the bill would result in a number of unintended consequences for the South African business environment. The revenue stream of certain businesses, such as the South African Post Office, would be unfairly prejudiced by the bill as consumers would choose to opt out of direct marketing practices. The section on strict liability would impose additional insurance costs for businesses that would ultimately filter down to consumers.

BUSA held the view that the bill would have significant adverse consequences for small business in raising compliance costs and threatening entrepreneurial prospects. Standard form contracts would be weighted in favour of the consumer and to the detriment of the business owner. A possible consequence would be that more transactions between suppliers and consumers would be conducted on an oral basis thereby raising the risk profile. Additional costs would also be imposed in terms of the provisions on business names as businesses that did not have registered business names would have to register new legal entities and acquire new signage.

BUSA referred to numerous other current pieces of legislation that contained sound provisions on consumer protection and voiced concern around duplication. The bill needed to clearly reflect that certain financial services legislation would be excluded from the provisions of the bill. Duplication of regulatory functions generated extra costs for both the public and private sectors. BUSA proposed that, unless redress existed within a specific sectoral regulator, all consumers should be eligible for redress for all goods and services by means of a commission or tribunal.

Contrary to the bill’s intentions, BUSA considered that the proposed institutional structures would serve to restrict consumers’ access to justice due to time delays, duplication and confusion over which forum to use. The bill did not clearly outline which forum should be utilised for which specific complaint and the powers of certain statutory bodies had to be better defined. The bill should make provision for alternative dispute resolution mechanisms to be used to resolve disputes.

The bill’s regulations, once promulgated, would contain much of the detail presently absent and give greater meaning to the provisions. However, due to the lack of regulations at this stage, the overall impact of the bill was difficult to gauge. For example, regulations will identify when direct marketers would be prohibited from contacting consumers. The stipulated times, once determined, could have an unfavourable impact on certain industries such as call centres. BUSA suggested that the bill should promote self-regulation by means of industry codes. Such codes could be expanded to include further consumer protection mechanisms. BUSA proposed that the bill be temporarily withdrawn so that more preparatory work could be undertaken before reintroduction to iron out concerns. Draft regulations should also be formulated to assist the process.