Implications of the consumer protection act for SA businesses - in plain language

Nivesh Maharaj, Manager - Legal and Compliance at Lion of Africa Insurance

South African businesses should re-examine the way that contracts are drawn up in order to avoid costly liability suits as a result of contravening the Consumer Protection Act (CPA) which comes into effect on 1 April 2011.

This is according to Nivesh Maharaj, Manager - Legal and Compliance at Lion of Africa Insurance, who urges local businesses to study the CPA thoroughly in order to clearly define potential negative business or operational implications. He says company decision-makers should develop a compliance checklist to gauge what needs to be aligned to the Act.

“In light of the CPA, any business contracts or policies will have to be ‘reader-focused’ to ensure that the potential reader will have a complete understanding of the terms and conditions of the contract or policy in plain and understandable language,” he says.

He warns, however, that achieving this understanding is not as simple as checking grammar and adapting the wording of business documents.

“The section of the CPA that is titled ‘Plain and Understandable Language’ does not restrict itself merely to grammar and wording. It has been broadened from the National Credit Act and also includes the document representation, structure, layout and illustrations, which includes any aids to read and understand the business contract.”

Maharaj believes that plain language will no doubt augur well for an effective and transparent contract, thus empowering the consumer on liability clauses. “There are plain language laws and regulations in many jurisdictions around the world, but it is relatively new to South Africa and business owners should take note,” he says.

He also warns local insurers that although the insurance industry is governed by the Long and Short-Term Insurance Act, providers will still have to ensure that they meet the requirements of the CPA.

“The CPA sets out that the Long and Short-Term Insurance Act legislation must be aligned to the consumer protection measures, as per the Act. This means that policies, especially personal lines, will have to be aligned to comply with this section,” he says.

In light of this, general exclusions will have to be more definite in insurance policies, by alignment to the CPA. “The CPA makes it mandatory for a contract to set out any notice or provision of an agreement entered into with a consumer, that aims to limit the risk or liability of the supplier must be written in plain language and must be drawn to the attention of the consumer in a conspicuous manner,” he says.