Consumer Protection Act Implications for brokers

The new Consumer Protection Act will have a significant impact on the insurance industry. FAnews spoke to Danny Joffe, Legal Director of Hollard Select Brokers about the implications for brokers.

The primary purpose of the Consumer Protection Act (CPA) is to protect consumers from being exploited by complicated legal contracts which they do not understand or that are grossly unfair.

“Contracts of all types with individual consumers will now have to be in plain language, easily readable and without clauses that make the contract very one sided,” explains Joffe. “This is important to protect clients who don’t have the money to consult attorneys every time they sign a contract or that have no alternative because they cannot access the same service anywhere else. In addition to protecting consumers, the CPA provides them with an avenue to contest contracts without attorneys through the Alternate Dispute Resolution.”

Freedom of contact curtailed

Joffe adds that in the past, the law upheld full freedom of contract with very few exceptions, notably the labour law and the Policy Holder Protection laws. “If a consumer signed a contract or in some other way signalled unqualified acceptance, the consumer was bound fully by the terms and conditions, even if these were extremely unfair.

“Now, companies will be held more accountable. All the clauses will have to be objectively fair and reasonable, otherwise they will be subject to challenge. They have to be honest and fair in their marketing, give consumers cooling off periods and sell safe goods with adequate instructions on the packaging. Consumers no longer have to prove negligence, as long as they have been harmed, they will have a claim. The law also allows class actions. It creates a much bigger need for products liability insurance than ever before.

Disclaimers and indemnity

The CPA also deals with disclaimers and indemnity forms. “Previously, a good disclaimer basically completely took the duty of care away from a company or person and could even disclaim against gross negligence, since our courts strongly upheld the principal of freedom of contract,” says Joffe. “The CPA stipulates that one can no longer disclaim out of gross negligence with a disclaimer, In addition, disclaimers must be easily legible, in plain language and specifically explained to consumers. It’s often difficult to distinguish between normal negligence and gross negligence and all disclaimers will become contentious because of this.”

Relation to the FAIS Act

Joffe notes that the purpose of FAIS is also to protect clients. “In fact, FAIS goes one step further, because it’s not limited to just individual clients, but also protects companies. In terms of FAIS, all important clauses have to be specifically highlighted to the clients and all conflicts of interests, prices and commissions have to be disclosed. Clients also have recourse via the FAIS Ombud and do not have to go through the courts. There are many similarities, but FAIS specifically protects clients against exploitation by Financial Service Providers.”

CPA in the insurance industry

“The application of the CPA in the insurance industry is not a straightforward matter,” explains Joffe. “The CPA provides for an industry-wide exemption that the regulator of a specific industry can apply for on the grounds of overlap or duplication. The FSB may well do this for the insurance industry once it brings the legislation into line for the short-term and long-term industries. Thus, it appears that the insurance industry may be exempt once the legislation is sorted out and it appears that dealings in terms of FAIS are definitely exempt.”