Alert

Who does this affect?

All businesses that advertise prices in component parts.

What do you need to do?

Given that the new laws create a criminal offence, you need to know exactly what you are required to disclose when you make part-price representations. We can help.

Author
Yanson Ching  
Senior Associate

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Caroline Coops  
Partner
T +61 3 9643 4097

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Lisa Huett  
Partner
T +61 3 9643 4163

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Sydney
Sharon Henrick  

Melbourne
Amanda Bodger  
Caroline Coops  
Lisa Huett  

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The Australian Competition & Consumer Commission (ACCC) yesterday released guidelines to the new changes to the component pricing legislation. The changes affect the way in which businesses can advertise “part prices” under section 53C of the Trade Practices Act 1974 (TPA) and will come into effect on 25 May 2009.

What is component pricing?

The ACCC describes component pricing as where a business “represents the cost of a good or service to consumers in, or as the sum of, multiple component parts.” Examples include advertising the cost of an airline fare as “$299 plus $159 in taxes” or the cost of a steak knives as “4 payments of $19.95 each”.

The ACCC indicates that the issue with component pricing is that customers may potentially be left with the impression that the good or service is being offered at a lower price than it actually is. The new changes to section 53C of the TPA require that, where businesses make representations about amounts for goods or services that, if paid, constitute only a part of the consideration for the supply of the goods or services, the business must also:

• specify the single price for the goods and services; and

• disclose that single price in a prominent way and as a single figure.

The changes will affect consumer advertising across the board, but will also have broader impact on how prices are required to be disclosed in other contexts, such as in contracts and quotes. Given that serious criminal penalties attach to a breach of the component pricing laws, the ACCC’s guidelines serve as a timely reminder that businesses need to understand their disclosure obligations and formulate their compliance approach as soon as possible.

ACCC examples of price disclosures that require a single price from 25 May 2009

The ACCC’s guidelines provide a number of examples of common forms of price disclosures which will require the use of a prominent single price under the new changes. These include:

• “$40 ticket + $3 booking fee”: this would have to include a single price of $43; and

• the imposition by a restaurant of a 15% surcharge on all food and beverages on public holidays: this would require a separate menu with the more expensive prices to be used on those days.

Who is affected by the new component pricing laws?

All businesses that advertise or otherwise represent prices for goods or services that are ordinarily acquired for personal, domestic or household use will need to comply with the new laws. The new laws are not limited to advertising material: they will also apply to tenders, bid documents, contracts and quotes.

Price representations that are made exclusively to bodies corporate are not caught. However, the new laws can still apply to prices disclosed in a business to business context, for example, where the price representations are made to unincorporated entities or partnerships.

What is the “single price”?

The “single price” is defined as the “minimum quantifiable consideration” for a particular supply and includes:

• a charge of any description payable to the supplier by the customer (other than a charge that is payable at the option of the customer); and

• amounts for any tax, duty, fee, levy or charge imposed on supplier in relation to the supply concerned.

According to the ACCC guidelines, the total price is quantifiable if at the time of the representation it can be “readily converted into a dollar amount”. Nevertheless, it is far from clear what is meant by “quantifiable” for the purposes of a “single price”. For instance, in circumstances where there are month-to-month services which rely on variable customer up-take or usage (such as gas, electricity or telecommunication services) the legal effect of these terms is unclear.

The ACCC’s guidelines do provide some guidance as to how the law will be enforced from the regulator’s perspective. Specifically, the ACCC indicates that the single price is the “minimum total cost” able to be calculated at the time a representation is made, and that:

• if an amount is subject to variation (such as fluctuations in currency), then a supplier must calculate the single price based on information available at that time and clearly advise consumers that it may be subject to change; and

• where the final price includes both quantifiable and non-quantifiable charges, the quantifiable charges still needs to be disclosed as a single figure, together with a clear statement that not all components have been included.

The guidelines also noted that where an advertisement aims at a specific class of consumers, the single price can be calculated as the total price relevant to this class as long as it is made clear.

The ACCC has indicated, however, that it would expect businesses who claim that they are unable to quantify a component to be able to substantiate why it could not be done.

What is required to disclose the single price in a “prominent way”

The new laws require that the single price must be displayed in a way that is as prominent as the part-price representation. There is a limited exception for services supplied under a term contract which provides for periodic payments. For these types of services, the single price must still be disclosed prominently, but it does not need to be as prominent as the part-price representation.

The ACCC’s guidelines state that a “prominent” single price is one that “stands out” so that it is easily seen by a customer and is “clear, eye-catching and noticeable”. The guidelines suggest that businesses consider factors such as:

• the size, colour and font used to display the single price; and

• the placement of the single price compared to the background of advertisements and the medium being used.

Going forward

Mallesons has expertise in advertising and marketing approaches for compliance with the component pricing requirements and how to make single price disclosures. Please contact us if you want to find out more.