The New Consumer Protection Act: Has The Government Gone Too Far?

Posted by Andrew Glendinning in Economics | 13 comments

The first of April 2011 sees the South African consumer Protection Act finally being rolled out. The Act now means South African consumers are in the fortunate position of being the most protected consumers in the world. Under the new Act the interests of the average South African consumer now enjoy greater protection than those of any other consumer in the world. This is a result of the ambit of the act being so wide, covering a large swathe of South African commercial activity and effectively making the Act a Bill of Rights for South African consumers.

The question is how far ahead has government thought about the potential impact the Act will have on the South African commercial environment? It will protect South African consumers like never before, but the main question one has to ask is, at what cost?

Beginning with some of the positive side effects, we can see how the Act has been designed with the common South African consumer in mind. The first is that the new act makes provision for an implied six month guarantee on all products purchased in South Africa, regardless of their purpose or price. In addition, the new mandatory guarantee still applies regardless of any existing guarantees the supplier already has in place.

The second (and my personal favourite) is the fact that should any citizen desire to avoid direct marketing they now have the power to do so. An example of direct marketing would be those phone calls that always arrive when you are busy eating dinner, asking you if you want to buy life insurance. The Act prevents this by now providing one with the option to place your personal details on an ‘exclusion register’, which effectively bans all direct marketing firms from targeting you. Therefore, if your name is on the list and an enthusiastic insurance salesman calls you up asking you if you would like to buy a new policy, that constitutes an offence under the Act and the company that they represent could end up facing prosecution. This also extends to emails or cell phone messages, effectively removing any form of communication that can target you as an individual, as a legitimate advertising medium.

However it does not end here, it goes even further than this. Not only are you able to remove yourself from the pool of potential customers that direct marketing firms are able to target, because now all South Africans must be offered a five day cooling off period after entering a sales agreement. This means if you were pressured into accepting the offer, or come to realise you simply cannot afford the product or service, you are able to safely back out of the agreement without facing any penalties whatsoever. I for one am already celebrating, and making sure my name ends up on the register as soon as possible.

But what about businesses? The new Act adds significant burdens to South African firms regardless of their size or the nature of their business, which will generate significant costs that will either have to be absorbed by the business itself or passed on to the consumer. The Act may also burden them in other non financial ways, by exposing them to time consuming administrative tasks, such as having to redraft all of their terms and conditions, sales agreements and so on into plain, easily understandable language.

And how about South Africa’s attractiveness to foreign direct investment? This is an area in which South Africa is already struggling, long before the arrival of an Act that may end up smothering potential investors in reams of red tape that they would be unlikely to face in even the most complicated markets. Has government thought about the burden they would be placing on foreign firms, when it proposed these broad measures. As a result we may see potential investors abandon South Africa as a viable investment destination and instead set up their operations in neighbouring countries which share many of our existing characteristics, such as Botswana.

Not to mention how many potential jobs this could mean when companies are forced to absorb the costs imposed by compliance with the new regulations. I fear most of all for the economic future of our country, our entrepreneurs and small businesses. How are they going to cope with the burden of the new Act?

Is the new Act therefore going to protect our consumers at the expense of our economic spirit and comparative advantage? We can hope this will not be the case and that for most businesses the transition will be smooth and uneventful as the Act has been in the public domain for quite some time now. At the moment however, most of the talk surrounding the act is speculative. Therefore what is needed is time to explore the implementation of the Act, and see how it will be interpreted by our courts once it comes down to enforcing it. I am sure legal precedent will become a keenly monitored subject once the first court cases begin to emerge.

South Africans can hope that this does not become another one of those pieces of legislation that, on paper at least, is some of the most advanced in the world, but in reality is nearly impossible to implement with the confines of our unique circumstances.

Image by Generic Brand Productions

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