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Consumer Protection Act: Who will be left exposed?

01 February 2011 Simon Colman, Camargue

The much talked about Consumer Protection Act, which has been in the legislative factory since the turn of the century, will hit the shelves on 1 April 2011... and it’s no April fools prank.

All businesses will be affected by the Consumer Protection Act. The joint and several liability aspects of the legislation means that even an organisation that only deals with other entities having a turnover above the threshold, will need to be aware that their products or services may ultimately land up in the hands of a protected consumer.

Where’s the greatest exposure?

Many experts believe that the retail sector will carry the greatest exposure, since most consumers are only aware of where a product was purchased and not where it was manufactured. This is particularly true where retailers rebrand products.

Sellers of products not manufactured locally will also have to be mindful of the fact that the “buck” stops with them. Retailers owe a duty of care to consumers that the products they sell are safe for use, free of defect and perform the function they were designed for.

Products imported from non-English speaking countries may not comply with the provisions governing warnings and instructions. Such a product could cause injury or loss without even being defective. The strict liability bomb then becomes the sole problem of the retailer.

Hold harmless agreements between retailers and suppliers are not outlawed by the Act, but this neither restricts the consumers’ rights to sue nor really assists the hapless importer due to the difficulties in exercising rights across borders.

Manufacturers in the spotlight

Manufacturers might think that the ultimate consumer may be too far removed from them to present any real danger of litigation, especially if products are repackaged or merely forms a part of a finished product.

However, the recordkeeping and traceability requirements in the Act, coupled with an abundance of hungry litigators, are sure to bring manufacturers into the spotlight.

Producers of products that utilise raw materials and ingredients from other suppliers will need to ensure that such components do not increase their exposure to consumer claims. Several large product liability claims have already been experienced in the agricultural sector, even without CPA impact. These are sure to increase in frequency after April 2011.

Evergreen contracts won’t hold

The service industries won’t escape the reach of the CPA’s tentacles. The new limitations on the structure of agreements affect the way businesses contract with their clients. Small, virtually illegible disclaimers and indemnities are unacceptable in terms of the Act. Such limitations need to be prominent and brought to the attention of the consumer and should be accompanied by an acknowledgement that the terms have been understood and accepted.

Evergreen contracts with no renewal date need to be revised.

This too would apply to the hospitality sector. Cancellation clauses with penalties are not outlawed but the penalties charged may not be unreasonable. No fault liability also applies here, because providing accommodation or transport is deemed to be the same as supplying goods.

The new cooling off periods also allows consumers to cancel contracts by giving five days notice. This could produce problems where bookings have been made and then need to be cancelled.

Opportunity for brokers

Each and every industry is going to be impacted by the new CPA. It is the responsibility of insurance brokers to arm themselves with as much information as is available, to help their clients manage and insure against the new CPA exposures.

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