Defend Truth


Screw the consumer

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

Lofty ideals are a bad basis for law. The Consumer Protection Act will result in higher prices for the very consumers it claims to protect.

Later this year, in October 2010, the Consumer Protection Act number 68 of 2008 will come into effect. Its impact will be broad.

Many of its provisions are welcome. Its aims, certainly, are noble. Who doesn’t want to prevent misleading marketing? Who opposes the right of consumers to make informed choices in the marketplace? What’s wrong with cheaper and easier access to means of redress, when formal legal action is so expensive and time-consuming?

Some of the provisions of the law, however, will have unintended consequences. Some will significantly raise the cost of goods and services, or increase the risk of selling them. This will not just harm producers, but it will harm consumers.

There are many welcome provisions in the act. Among the most useful provisions, in principle, is the plain-language requirement for contracts. Whether it will make much difference in practice, however, is a different matter. Companies will spend heavily on plain-English specialists to complement their legal teams, and invest fortunes redrafting all their terms, conditions, policies and agreements. Not only will these costs be recouped from newly-protected consumers, but is opaque language really the biggest problem? Will it make consumers stop to read terms and conditions? Will it stop them from blaming the “fine print” when a supplier resists demands that run contrary to the agreement?

The establishment of a consumer protection commission and tribunal, aimed at expediting routine consumer complaints at minimum cost, is also extremely welcome. Access to legal redress should be as efficient and inexpensive as possible, if people are to exercise their rights in a free society.

However, there are provisions that are less benign, not in their intent, but in their likely effect.

An example is the requirement that a supplier must provide, at no charge, a quotation for repair work. That doing so may incur a significant cost, in terms of time and labour, does not matter. A supplier may reasonably wish to protect himself against the cost of doing diagnostic work on a faulty product, especially when the revenue of repairing it may ultimately go to a competitor. The cost of the right to free diagnosis and quotation will naturally be recovered elsewhere: in the price of the product, or the cost of repair. That means that all consumers will suffer higher prices.

An even worse risk to suppliers is that of a cooling-off period. Consumers who purchased something in response to “direct marketing” such as a pamphlet in the mail, are able to cancel the agreement within five days, and even return goods “without reason or penalty”.

Imagine the potential for abuse. Need a camera for a day? Just order one “on appro”. Need a dress for a party? Just buy one, and send it back the next day. Protecting consumers from their own hotheadedness will not only encourage more hotheadedness, because they can always send it back, but invites deliberate exploitation of the law.

Considering that returned goods often cannot be resold as new, and someone has to cover the cost of shipping, this clause will significantly raise the risk to producers of supplying goods and services. Who will pay for that higher risk? You and I, of course, in the higher prices we’ll pay.

Besides, aren’t there two sides to every transaction? If a consumer has the right to protection, why should a supplier be exposed to the risk of consumers who cancel a transaction, claiming that they acted thoughtlessly? Take into account that, contrary to caricature, the supplier is often not a faceless company with deep pockets, but a small business scraping by. What about their rights, when they delivered upon agreements entered into in good faith?

Another example of unintended consequences is the clause that disallows the sale of non-refundable bookings, and even requires companies to waive cancellation fees for bookings in cases where the consumer in question is hospitalised (or worse). While this might seem nice to the consumer, the theatre or airline is still stuck with the unsold seat. Guess who pays for that seat? We all do. Is it the seller’s fault that the buyer changes his mind, or is unable to take advantage of the ticket they purchased? Is it ours?

When, in the name of “protecting” a few consumers, all consumers get penalised, there’s something wrong.

The act also invites class-action lawsuits, of the kind we’re familiar with from the litigious United States. Do we really want to goad unscrupulous lawyers into action against companies with deep pockets, and cobble together classes of persons allegedly harmed by their products or services? While some of the cases may indeed be just, international experience has shown that, as often as not, class-action litigation is over-zealous or trivial, which is a great burden to suppliers. Many massive cases are based on limited evidence of actual harm. Some are no better than plausible invention. More expensive liability insurance will increase the risk of doing business, which ultimately leads to higher prices. It will also reduce the availability not only of the potentially harmful goods and services that the government had hoped to act against, but also of those that would materially improve the lives of consumers.

Supposed consumer protection measures do, in some cases, protect consumers, even if many of those protections are already implicit in existing laws against, for example, fraud.

What they do with much more certainty, however, is to raise prices. Worse, they can only serve to encourage irresponsible behaviour on the part of cosseted consumers, now protected by law even from their own rashness and negligence.

The rich might be prepared to pay a premium in return for peace of mind, but who is to say that someone who really cannot afford it will feel the same? Why should the poor be penalised to protect other consumers, often from their own hotheadedness?

Just like all well-intended regulation, this law will raise prices and restrict access to goods and services, which the poor will feel the most. If you’re a relatively poor country, making laws that do this is, quite simply, stupid.

And one more thing. Consumers most need protection not from unscrupulous direct marketers and hucksters. Most are streetwise enough to stay away from them. Consumers most often complain about the ravages of South Africa’s infamous banking or telecoms cartels, with their exorbitant charges, disregard for customer service, and misleading or opaque sales offers. These cartels were established, nurtured and protected by the state, and thanks to the high regulatory barriers to entry for new competition, they have the power to exploit, in silent collusion, South Africa’s consumers.

Does anyone truly think another costly layer of bureaucracy, in the form of consumer protection legislation, will protect us from those against whom we need that protection the most?

The intent was to protect the consumer. The effect, far too often for comfort, will be the exact opposite: to screw the consumer.


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