Changes to consumer law regulations: ACCC

Rod Sims, the Chairman of the ACCC, made a speech to CEDA in which he talked about the impact of the changes to consumer law regulations and in particular the increases in penalties. He put them into context and basically said that in his view, the parliament was intending that there should be penalties of over $100 million.  

In Q&A after the speech he talked about how he wanted consumer law penalties to be such that companies share prices fall. 

Since this obviously directly impacts investors, I thought it’d be a good idea to give him a call and see what’s going on and what he thinks is going to happen. 

Here’s Rod Sims, Chairman of the ACCC. 

Listen to the podcast or read the full transcript below:

Rod, in your speech to CEDA last week you talked about consumer law in penalties and so on and you said you believe parliament intended that in particular cases there should be penalties of over $100 million for breaches of consumer law.  How do you know that, what makes you believe that?

What makes me believe that, Alan, is that parliament changed the law from penalties at the moment that are up to a maximum of $1.1 million per breach and instead have now got penalties that are up to $10 million per breach or three times the profit from the conduct which you usually can’t work out and if you can’t work that out 10% of turnover, so in effect for many companies it’ll be moving from $1.1m to the higher of $10 million or 10% of turnover. 

Is that right, you usually can’t work out the benefit from the conduct, is that so?

That’s usually the case where you’re talking about in the case of consumer law misleading conduct or unconscionable conduct.  It is often very hard to pin that down.  Now, I mean you have had cases where in the case of Heinz we think they made over $40 million, so three times that would be over $100 million anyway.

Fair enough.  It’s interesting because in the case of Telstra you actually quoted a third party billing misconduct case involving Telstra resulting in $10 million in penalties.  Specifically, with relation to that particular thing I don’t know what they did wrong but it’s now going to be the greater of $10 million or 10% of turnover assuming you can’t understand or know the benefit of the conduct so Telstra’s turnover is $30 billion, 10% of that is $3 billion, heavens!  I presume there’s some discretion there, it doesn’t have to be 10% does it or does it?

It’s up to that amount and the courts have got complete discretion, Alan, and I don’t claim to be able to read parliament’s mind exactly but the comments made about penalties when we’ve had them around the $10 million level from large companies leads me to think that parliament intended that there would be a significant increase in these penalties, that’s why they made the change and I don’t think it’s too far a stretch to say that they’ll be looking at penalties well over $100 million.  And to use your Telstra example we’ve taken Telstra to court quite a bit, same with Optus, and the particular case in terms of premium billing was where they didn’t tell people that a couple of clicks on an app could see them charge via their existing Telstra bill, you didn’t actually have to enter in a credit card, you just had to make a couple of clicks on an app and all of a sudden you were billed for a continuing service, it could be something as strange as a ringtone or whatever else.

They had 10,000 complaints a month about this and didn’t act until we got in touch with them.  Therefore, a lot of people would be affected, very hard to tell what the gain to Telstra was because you don’t know how many people signed up inadvertently.  I think there’s a general view that $10 million is way insufficient for a company of Telstra’s size.  A $10 million item wouldn’t get on the board agenda.  That’s why I’m fairly confident that parliament would hope that this change would see a penalty for that conduct in future well over $100 million.

I suppose without getting bogged down in actual numbers there was a report in the Sydney Morning Herald after your speech and I wasn’t there at the time but it quotes you as saying we need penalties to make the share price go down.  If the share price doesn’t go down it means they’re not being affected so did you say that in Q&A after the speech because those words are not actually in your speech that’s on the website.

I said that in Q&A, Alan, exactly right, and I gave the example where we had an $11 million penalty against Flight Centre in a case that we actually won in the high court and the broker report when the penalty was announced, the $11 million penalty, these brokers reports have come out, they just in the midst of commenting on Flight Centre said $11 million is nothing, ignore it.

That was unwise of them to say that, that was very unwise, wasn’t it?

The brokers’ reports are usually pretty honest, they’re giving their best shot of things and so it just seems to me you want people to notice these things, Alan, someone has done something wrong, you want the share market to notice, that will cause the directors to notice, that will cause senior management to notice.  I don’t ever for a minute, Alan, ever think any company, particularly the reputable ones on the stock exchange, I don’t think for a minute that the senior executives of those companies are seeking to break the law.  What I’m concerned about is they’re not doing enough to make sure they don’t and I think if we had penalties that were much higher, if they were high enough to affect the share price, then you’d have people taking Australian consumer law a lot more seriously than they do now.

In your speech you also had a section on substantially lessening of competition actions and you said that you aim to have two to three criminal cartel investigations come to conclusion and prosecutions commence each year.  Do you have a similar kind of idea in your head as to how many consumer law cases you want to bring each year?

We like to bring about 20 each year, Alan.  That’s purely limited by the resources we’ve got.

You mean you’d be able to bring a lot more than that if you had more resources because there’s more breaches?

Absolutely, there’s an endless supply of breaches of Australian consumer law out there, Alan, and that’s no exaggeration.  We’ve got 70 investigators in the ACCC looking after consumer law issues, that’s 70 people right across the country, across every sector of the economy except financial services which as you know ASIC does and the amount of cases we can bring is strictly limited by the number of people we have got so we can probably get about 20 into court a year but we can’t do more than that.  I remember chatting to a senior executive once, Alan, who said surely your objective, Rod – because he realised that I had an objective, I set the team an objective of how many cases they get into court, and he said well, surely your objective is zero so that people don’t misbehave.  I said sure, that’s the long-term objective, but right now that’s not an issue.  We could take 40 cases if we had the resources.

There are people breaking the law, Alan, breaching consumer law that we can’t deal with because we don’t have the resources.

I tell you what, Rod, if you’re getting $100 million in penalties the government will give you the resources alright because it will be a fantastic cost/benefit analysis.

Alan, keep talking about that because that’s the point I’m trying to make to them as well, that this can pay for itself, there’s no doubt about that.

They should give you 1,000 investigators.

I don’t think we need 1,000 but some modest mark up from what we’ve got I think would actually – the serious point, Alan, is I think it would meet the Australian population’s expectations.  The dominant point made in relation to us is that we’re not taking enough cases and my point is well we’re resource constrained but there’s a lot of people who quite rightly point to breaches of the law that we can’t get to so I think if you were to give us 50 or 100% more resources, Alan, we’d be doing the job the Australian population wants us to do.

Consider it done, Rod.

Well, I’m looking forward to that phone call you’ll make to the Treasurer, Alan, that’s excellent, good of you to do that.

On a serious matter what do you think companies should do, and need to do, in order to reduce the number of these breaches.  You’re saying that they don’t mean to break the law, I’m sure that’s true, what you want them to do is to do more to ensure that it doesn’t happen, what do they need to do?

It’s a trade-off, Alan.  They’re sitting there trying to sell more goods and when they try and do that they often overreach and breach the law by misleading consumers, they put in place incentives where the more sales you make the more money you as the sales person get which sometimes tempts people to break the law, sometimes in pretty appalling ways.  It’s a balance between the checks and balances you’ve got in place to make sure there’s no breaches and at the moment it just seems to me in all honesty it just doesn’t matter enough.  What puzzles me about that, Alan, is I would have thought it should matter enough to the business executives I meet who are very reputable people but secondly, I would have thought these companies need to have more respect for their customers.

Telstra getting 10,000 complaints a month and not doing anything, how does that happen?  Ford Motor Company knows they’ve got a problem with their power shift transmission, people who bought their cars come into the showroom and they’re told it’s their driving style or they’re told get in the car, show me the fault now when they know it’s an intermittent fault, it doesn’t occur all the time.  This must leave a bad taste in the customer’s mouths in terms of their appreciation of the company that sold them the car or are providing the telecommunication service.  I would have thought it’s in the company’s interests to treat their customers a lot better than they do but I’m continually surprised that they don’t see it that way.

Royal Commissions seems to have a salutary effect, or you seeing or do you expect to see fewer of these kind of complaints with relation to banks and financial services?

ASIC deals with their consumer related issues.

Yeah, that’s what I’m talking about, so you don’t deal with that.  That’s a mistake, surely, you should run that stuff, surely.

It’s very complicated, Alan, because it links so much to a range of other things that ASIC clearly are responsible for such as credit reporting, such as approval of certain financial products.  The link between what is clearly their business and the Australian consumer law is very strong so I actually think there are good arguments for that carve out to exist.  It’s not something we’ve been pushing for to get changed, Alan.

Right, do you think that ASIC is seeing fewer consumer law breaches by the banks and financial services following the Royal Commission?

I don’t know, I haven’t had that discussion with ASIC but I’d be surprised if there isn’t a change because the Royal Commission has been such a harrowing experience, I would have thought the banks would be improving their compliance systems.  I guess the issue is how long that effect lasts, you can put those things in place but they wear off after a while so I’d be surprised if there wasn’t a significant improvement in behaviour by the banks.  By the way, Alan, I think the Royal Commission has affected other companies.  When I talk to companies they followed the Royal Commission very closely, many of them would say there but for the grace of god go I, I think they feel that they would be shown to have problems if that nature of Royal Commission was applied to their industry.

I think it’s going to have a salutary effect on companies generally and that’s obviously a good thing because it allows them to see their business through the eyes of other people, Alan.  Sometimes you get caught up in the way you’re doing business, you’re mixing with people who are out there trying to maximise shareholder value, that’s the circle you’re mixing in and you don’t see things from the consumer perspective.  The Royal Commission allowed people to see things from a consumer perspective, and can I say also expose them to the pub test.  If we’re doing this what would the people in the front bar think.  I think that was an eye-opener and it’s just going to be a question of how long those memories survive.  I hope that they could break out of their bubble and just look at things more from a consumer perspective and from a broader society perspective.

My view is getting higher penalties will help that because really, Alan, high penalties are an indication of societies’ concern about the behaviour.  You’ve got $10 million penalties from Telstra and Ford recently and if you remember back earlier against Coles for their treatment of suppliers.  I think the indication would be from society that this isn’t so very bad because for companies of this size the penalty was only $10 million.  I think it will have an effect on corporate mentality on the way senior executives view it if they know that society treats this so much more seriously that high penalties are there, it just helps shake people out of the environment within which they work and I think higher penalties will get them to look in a broader way and look in a way that the rest of the community does about some of this behaviour, that’s really the problem I think at the moment, Alan.

It raises the question really of the extent to which the regulation is going to be sustained in a tougher way because it does seem to me, and in a way,  you’ll see the speech as an example of it, that the Royal Commission has not emboldened but sort of let the regulators off the leash a bit and toughened the whole regulatory landscape.  Is that a fair comment including the ACCC even though you’re not, as you say, directly engaged in banks and financial services?

Alan, I don’t think and I don’t want to sound flippant or arrogant here but it’s not clear to me that there were many messages for us from the Royal Commission, we take companies to court on a regular basis, we seek the highest penalties we can and we’ve been pushing for the law change on consumer law penalties for a very long time, well before the Royal Commission started.  It hasn’t altered anything we’ve been saying or doing and I would have answered those questions at CEDA in exactly the same way whether or not there was a Royal Commission.  I’m really looking at the world as I see it and I don’t think much affected by the Royal Commission.  I hope the Royal Commission has an effect on some of the companies that I’m dealing with but I’m not relying on it. 

Okay, great to talk to you, Rod, thank you.

Okay, Alan.

That was Rod Sims.  The Chairman of the ACCC.