With increased annual funding on the horizon that will almost double between 2021 and 2024, we expect to see a higher level of enforcement action from the Commission. But where will he focus his attention? While the Commission has yet to publish its specific priorities for 2022/2023, we make our predictions on the hot topics for next year:
Credit related application
The application of credit rules, in particular for the new regime which came into force on December 1, 2021, includes the requirement that directors and senior managers perform due diligence, new regulations on adequacy and financial accessibility and the obligation to provide information on debt collection. These are complex requirements that require lenders to pay close attention to their operations to ensure they are not caught off guard.
The changes were originally due to come into effect on October 1, 2021, but have been delayed due to disruption caused by recent lockdowns in New Zealand. Instead, they came into effect on December 1, 2021 (with the exception of Chapter 12, which comes into force on February 1, 2022). The government felt the delay was necessary because of the impact on the implementation of the changes by lenders, which had the effect of disrupting training and other preparations and forced a reprioritization of lender resources. to support existing customers. Although time was extremely tight even for the December deadline (especially given the last minute guidance issued by the Commission in September), we anticipate that the additional time lenders needed to finalize their systems at The continuation of this delay will mean that the Commission will take a proactive approach to monitoring compliance with the amended provisions, in particular the new obligation for directors and senior management of consumer lenders to exercise due diligence to ensure compliance with the CCCFA. We expect the Commission to seek appropriate cases to prosecute, deter and also obtain helpful advice from the courts.
Unfair contract terms
The unfair contract terms regime has been extended to include certain business-to-business contracts worth less than $250,000 per year. This change will come into effect in August 2022 via the Fair Trading Amendment Bill. A clause in a low-value business-to-business contract will be unfair if the clause:
- would result in a significant imbalance in the rights and obligations of the parties arising from the contract;
- is not reasonably necessary to protect the legitimate interests of the party who would benefit from the clause; and
- would cause harm (financial or otherwise) to any party if enforced, performed or invoked.
Given the one-year lag between Royal Assent and the effective date of these provisions, it is likely to be a matter of focus for the Commission, which we believe will take a strong stance on compliance . Only the Commerce Commission can request a declaration that a term is unfair (rather than contractual consideration). Before these changes take effect, those relying on standard contracts will need to review and update their contracts to ensure that they are not caught out by this extension.
There is also a new prohibition on unreasonable conduct which aims to cover gross misconduct that goes far beyond what is commercially necessary or appropriate. A violation of this provision is punishable by a maximum fine of $600,000 for businesses and $200,000 for individuals. This is obviously a high threshold so we don’t expect it to make much of a difference to companies that have good procedures and policies in place and clear expectations of employees, including marketing teams. .
Substantiation of claims
Since the ban on making unsubstantiated statements came into effect on June 17, 2014, the Commission has only conducted 18 investigations under this provision. There are currently no open cases on the Commission’s books regarding unsubstantiated representations. With little legal advice, the Commission will look closely at a few sample cases to pursue. A representation is unfounded if the person making the representation does not, at the time the representation is made, have reasonable grounds for the representation, whether the representation is false or misleading. It does not matter if evidence is later found to support the statement, what matters is whether that information was in the possession of the person making the statement at the time the statement was made.
A higher degree of substantiation is required for claims about health benefits, claims that are difficult for consumers to assess, or that claim to be supported by scientific research. We expect this to be an area closely monitored by the Commission, particularly in the context of the global pandemic.
The Commission has previously said it will be pragmatic in its approach to its enforcement during the COVID-19 shutdowns, but we expect the Commerce Commission to focus again on substantiating claims once the coronavirus crisis erupts. COVID-19 will have subsided. For 2022, as a practical risk management action, we recommend documenting the steps taken in the due diligence process to substantiate any claims, the date the information was obtained, the source of information on which relied on, who in your organization reviewed the information, and (for scientific claims) the qualification of personnel interpreting the results. For larger companies, it is also prudent to facilitate the flow of critical information between marketing, legal and product development teams and to ensure that a standardized process is in place for due diligence and auditing to to ensure that all complaints are justified.
Cartels are still a priority for the Commission, but with the criminalization of cartel conduct in April 2021, the Commission will seek to bring its first cartel conduct prosecutions as soon as there is a suitable case.