Stronger guarantees, AI rules and ban on unfair trading 10 min read
The Federal Government has signalled its commitment to advancing major consumer law reforms with three key announcements this week that included proposals to strengthen consumer guarantees, ban unfair trading practices and introduce artificial intelligence (AI) specific protections—all of which could significantly alter the landscape for both suppliers and manufacturers.
With Government seeking feedback on these reforms, companies should stay informed and actively engage in consultation processes to ensure any changes are fit for purpose and take into consideration relevant business concerns. In addition, companies should consider how these proposals could impact their businesses and take steps to ensure compliance and mitigate risks.
In this Insight, we provide an update on the proposals so far and their potential implications for business.
Key takeaways
- Treasury is seeking feedback on updates to the consumer guarantees regime, including civil prohibitions and penalties for suppliers or manufacturers that fail to provide remedies for consumer guarantees, and for manufacturers who fail to indemnify suppliers as required by the Australian Consumer Law (ACL).
- The Prime Minister's office has announced plans for a ban on unfair trading practices, though details on the specific legislation are still pending. The ban is expected to include a general prohibition on unfair trading practices, along with specific prohibitions against issues like drip pricing, subscription traps and misleading online practices that create a false sense of urgency.
- Treasury is seeking feedback on whether it should expand the ACL to cover AI-specific consumer law issues, including mandatory guardrails with specific requirements for AI-related consumer products and services and reforming remedies to better suit defective AI-enabled goods and services.
Moves to strengthen the consumer guarantees regime
On 16 October 2024, the Government announced plans to introduce new civil prohibitions and penalties for breaches of the consumer guarantees and supplier indemnification (CGSI) provisions of the ACL. The announcement was accompanied by a Consultation Paper seeking stakeholder feedback on how the proposed prohibitions and penalties should be designed.
This announcement builds on a consultation undertaken in 2021 on ways to improve CGSI provisions of the ACL and incorporates findings from the 2023 Australian Consumer Survey, including that consumers find it difficult to obtain remedies for consumer guarantees failures. The Consultation Paper notes that:
- for low-cost goods, consumers are less likely to enforce their statutory rights when it is cheaper and easier to ‘just buy another one’ or to pay for a repair; and
- for high-value goods, consumers may struggle to understand the process involved in making a complaint and/or find it prohibitively time-consuming, costly or difficult to pursue one.
The proposed reforms seek to respond to a range of concerns with the status quo, including that:
- the difficulties outlined above mean costs can be transferred from a non-compliant supplier or manufacturer to a consumer and lead to poorer outcomes for consumers and the economy;
- suppliers and manufacturers lack incentives to comply with the consumer guarantees; and
- some suppliers may also face difficulties obtaining indemnification from manufacturers and/or face retaliatory behaviours if they seek to be indemnified.
The Government is seeking to respond to the concerns outlined above by introducing reforms that would:
- prohibit suppliers from refusing to provide remedies to consumers where there has been a major failure under the consumer guarantees (remedy failure prohibition);
- prohibit manufacturers from failing to indemnify suppliers;
- make it unlawful for a manufacturer to retaliate against a supplier for seeking indemnification following a consumer guarantees failure; and
- introduce civil penalties for contraventions of the prohibitions above, as well as an ability for regulators to issue infringement notices or pursue litigation where they have reasonable grounds to believe a contravention has occurred.
The Consultation Paper notes that the introduction of these prohibitions would enable ACL regulators to enforce the CGSI provisions in circumstances where rights are currently only enforceable by affected consumers and businesses. The Paper also acknowledges a submission made by the ACCC that, if regulators were able to take direct enforcement action, this would likely lead to greater judicial consideration of the consumer guarantees and result in greater clarity in the law.
Key issues the Government is seeking feedback on include:
- whether any aspects of the consumer guarantees need to be clarified prior to the introduction of prohibitions and penalties, noting concerns have previously been raised regarding whether penalties are appropriate in circumstances where concepts such as 'reasonable consumer' and 'major failure' are difficult to apply in practice;
- whether the remedy failure prohibition should apply to all goods and services or whether a value threshold should be applied and/or only be applied to new motor vehicles;
- at what amount an infringement notice or maximum civil penalty should be set; and
- if it is appropriate to factor in depreciation when determining an appropriate refund amount, noting that, at present, where there has been a major failure, a consumer is entitled to a replacement or full refund even where they have had the benefit of the use of a product for an extended period of time.
Treasury will engage with targeted stakeholders on the proposed design of the civil prohibitions and penalties and is seeking public feedback by Thursday 14 November 2024.
Anticipated ban on unfair trading practices takes shape
On Wednesday 16 October 2024, the Prime Minister's office announced it will legislate a ban on unfair trading practices. The announcement is long awaited and follows the Federal Treasury's consultation on the introduction of such a prohibition, which took place between August and November 2023 (the 2023 Consultation). The ACCC has previously recommended that an unfair trading practices prohibition be introduced into the ACL in a number of contexts, including the final report of the 2019 Digital Platforms Inquiry.
The Government's media release states that the reforms are about 'easing the cost of living and getting a fair go for consumers and suppliers'. It non-exhaustively identifies the following practices that the reforms will address:
- subscription traps: arduous and confusing steps that make cancelling a subscription difficult;
- drip pricing: practices where fees are hidden or added throughout the stages of a purchase;
- deceptive or manipulative online practices: practices that aim to confuse or overwhelm consumers, omit or hide material information, or create a false sense of urgency (such as warnings that a customer only has limited time to purchase a product);
- dynamic pricing: changing the price of a product during the transaction process;
- accounts and information provisions: requiring consumers to set up an account and provide unnecessary information to make an online purchase; and
- reporting of issues: making it difficult for a consumer to contact a business when they have a problem with a product or service.
The Government is yet to release any specific legislative drafting or design for consultation and has foreshadowed a final reform proposal in the first half of 2025.
Enhancing Australian consumer law to address AI
On 15 October 2024, Treasury released a Discussion Paper which examines whether the ACL remains fit for purpose to protect consumers from the potential harms of the use of AI. The ACL currently contains a combination of both general and specific consumer protections which are technology-neutral, and Treasury is consulting on whether any changes to the ACL targeted specifically towards AI-enabled goods and services are necessary.
Treasury has indicated that new and targeted consumer protections may be introduced:
- Specific prohibitions on false and misleading representations in relation to AI and emerging technologies. Treasury raised concerns in relation to the opacity of AI systems and difficulty in predicting AI system behaviour, such as erroneous output and unwanted bias, which may increase the risk of false or misleading representations about AI-enabled goods and services, and misleading and deceptive conduct in general. In light of this, Treasury is considering whether specific prohibitions in relation to false and misleading representations, targeted towards AI-enabled goods and services, are necessary to ensure the ACL is fit for purpose in the future. Recently, the Federal Trade Commission (FTC) took law enforcement action in the United States against the alleged use of AI technology in a deceptive and unfair manner.
- Specific consumer guarantees provisions targeted towards AI and emerging technologies. Treasury has considered views that the unique characteristics of AI may require new consumer guarantees, eg guarantees relating to cybersecurity, interoperability and the provision of software updates for a reasonable period. Treasury acknowledged that some cybersecurity risks of certain AI-enabled goods will be captured by the Government's ongoing 2023-2030 Australian Cyber Security Strategy, but it is still considering the need for bespoke consumer protections for digital products overall, such as those adopted in the United Kingdom under the Consumer Rights Act 2015 (UK).
- New product safety standards targeted towards AI and emerging technologies. There are currently no mandatory AI-specific safety standards for consumer goods or product-related services, and Treasury is assessing whether current safety standards (which include the current Voluntary AI Safety Standard) effectively guarantee the safe and responsible use of AI-enabled goods and services. Treasury is considering options for mandatory guardrails in this consultation. See our Insight on preparing for voluntary AI standards and mandatory legislation for more information.
- Prescriptions under the unfair contract terms (UCT) regime. Treasury has noted stakeholder concerns about the possible risks to consumers arising from terms that exclude supplier and manufacturer liability in relation to AI-enabled goods and services, and is currently considering whether such terms (and similar) should be deemed as UCTs.
Treasury has flagged that there is a need for greater clarity in the ACL in relation to AI and emerging technologies, due to the technology-neutral nature of the current language of the ACL. In principle, the existing general ACL framework should be able to address AI-related concerns, but there is uncertainty over the following issues:
- The definition of AI-enabled goods and services, and whether this fits within the current definitions under the ACL. Whether something is a 'good' or a 'service' affects the remedies available under consumer guarantees, particularly considering the specific liability imposed on manufacturers of goods with safety defects. AI-enabled goods and services are generally a 'mixed supply' of goods and services, but consumers cannot claim for both a faulty good and service arising from a single transaction. Treasury is seeking to clarify this distinction for consumers in the context of AI-enabled goods and services.
- Potential limitations of principles-based consumer guarantees. The current consumer guarantees regime contains a range of principles-based provisions that include concepts such as 'fitness for purpose', 'acceptable quality' and 'due care and skill'. Treasury has received concerns that it is unclear how these principles-based standards may apply in the context of AI-enabled goods and services. An example is the concept of 'durability', which is currently set out under the ACL as a factor for assessing the acceptable quality of a product.
Treasury has identified particular difficulties that consumers may face when accessing remedies related to AI and emerging technologies. It noted the following concerns regarding the applicability of a manufacturer's liability for goods with safety defects (as under the ACL) in relation to AI-enabled goods and services:
- The evidentiary burden of establishing a causal link between the safety defect and consumer loss and damage. The specific characteristics of AI systems, such as opacity, autonomous behaviour and complexity, may make it more difficult for consumers to meet this burden of proof. Treasury is considering approaches from other jurisdictions, such as that in the EU under the proposed AI Liability Directive, which includes a 'presumption of causality' where a number of conditions are met, shifting the onus to manufacturers to demonstrate that no causal link to consumer loss or damage exists.
- Defences available to manufacturers. There is a concern that the current defences listed under the ACL available to manufacturers may not be appropriate for AI-enabled goods and services. For example, the defence that the safety defect did not exist at the time that a good was supplied reflects a traditional position that manufacturers retain little or no ongoing control over the goods that they supply, which is not always applicable to AI-enabled goods and services.
The deadline for stakeholder feedback and written submissions on Treasury's review of AI and the ACL is Tuesday, 12 November 2024.