Consumer act ‘costly for suppliers’

11 April 2011

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This article first appeared in Business Day, Companies & Markets

Returns policies of all retailers will need to be rewritten or checked against the act’s requirements. Small business is likely to be hit the hardest.

Most large suppliers do have existing returns policies. Big business has better cash flows to refund consumers than smaller businesses with restricted cash flows.

There are several different circumstances in which a consumer will now be entitled to return goods. Depending on the reason for the return this can be done within five days, 10 days or six months after receiving the goods or the transaction. In essence, consumers can cancel transactions resulting from direct marketing where they felt pressurized into entering into the transaction, consumers can return goods five days without giving a reason but at their cost, in 10 days when they are not the goods that they agreed to purchase for various reasons, or in six months if the goods are defective.

Any company engaging in direct marketing is required to inform consumers of their rights. For many suppliers this provision creates substantial risk that consumers will use the products within the five-day period and devalue the product by opening packaging, and the supplier will be powerless to charge the consumer for the use as there can be no penalty imposed. With goods like new motor vehicles, the depreciation in value during five days will be significant.

The act allows consumers to return goods purchased within 10 days and receive a full refund of the price paid in a number of instances. These include unsolicited goods and when the consumer did not have an opportunity to examine the goods, the goods were sold on the basis of a description or sample and the goods did not match them, the wrong quantity or incorrect goods were delivered, and even if delivery is made at a location, date or time other than agreed. The return is at the cost and risk of the supplier and a refund (not credit) must be given.

There are very limited circumstances in which the consumer can be charged for use of the product within the 10-day period or be charged a reasonable amount to restore the goods for restocking. The possibility that consumers will take liberties at the expense of suppliers is a reality.

Within six months of receiving goods, a consumer may return defective goods to anyone in the supply chain, namely the producer, importer, distributor and retailer. The consumer is entitled to a six-month warranty that the goods are reasonably suitable, of good quality, in working order and free of defects, will be usable and durable for a reasonable period and comply with any standards required.

On return and at the consumer’s choice, the supplier must have the goods repaired, replace the goods or give the consumer a refund of the price paid.

The act does not set out any exceptions. However the circumstances in which the goods were supplied, the expected life span of the goods and how the goods have been used by the consumer will be important in determining whether the goods do not comply with the obligation to supply safe, good quality goods.

All companies supplying goods of any sort to consumers should have a very clearly defined returns policy that complies with the requirements of the act. Any such policy must of course be clearly explained in a way that an ordinary consumer will understand and must be drawn to the consumer’s attention at the time of the transaction to avoid confusion down the line.

Norton Rose South Africa (incorporated as Deneys Reitz Inc) joined Norton Rose Group on 1 June 2011.