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Australian Consumer Law – Government consulting on proposed reforms

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Potential AI reforms, new consumer guarantee prohibitions and civil penalties and a ban on unfair trading practices are proposed

In brief

The Australian Government has announced consultations on a range of proposed reforms to the Australian Consumer Law (ACL) covering:

  • Potential artificial intelligence (AI) specific protections for AI-enabled goods and services; 
  • New civil penalty prohibitions for breaches of the consumer guarantee protections; and
  • Legislation prohibiting certain types of unfair trading practices including subscription traps, drip pricing practices, ‘deceptive and manipulative’ online practices, dynamic pricing, requiring consumers to provide unnecessary information to make purchases online, and businesses making it difficult for consumers to contact them to report problems with products or services.

Consultations have commenced on the proposed AI-related reforms and consumer guarantee amendments, with submissions sought by 12 November 2024 and 14 November 2024, respectively.  

Treasury has not yet commenced consultation in relation to the proposed unfair trading practices reforms, which will be a significant change for Australian businesses.

The discussion papers and announcement from the Prime Minister can be found here and a summary of the proposals is set out below.

Key Takeaways

The AI Discussion Paper considers whether the ACL remains fit-for-purpose, to safeguard consumers from the potential harms arising from the use of AI. The Discussion Paper seeks feedback on whether the ACL should be amended to better address AI-enabled goods and services, or introduce new AI-specific laws. 

In relation to the proposed consumer guarantee and unfair trading prohibitions, the ACCC has been advocating for reforms of this nature for a number of years. Once legislated, businesses will be at risk of incurring civil penalties for contraventions of consumer guarantee provisions that are not currently subject to that risk and for contraventions of new unfair trading laws which will be designed to capture conduct which causes harm to consumers, but would not reach the legal threshold for unconscionable conduct and currently falls outside the scope of the ACL.

In depth

AI and the ACL

Managing AI-related risks

Treasury is evaluating whether specific prohibitions relating to false and misleading representations are necessary to ensure that the ACL appropriately deals with AI-enabled goods and services. This is due to the lack of transparency associated with AI models, and inaccuracies in AI systems (e.g., bias and erroneous output), heightening the risk of false and/or misleading representations and conduct in AI-enabled goods and services.

In addition, the Discussion Paper states that existing challenges in obtaining remedies for failing to meet consumer guarantees have been worsened when dealing with AI-enabled goods and services. For instance, complex algorithms make it difficult to identify whether there was a failure in the provision of the good or service, and which party was responsible. Therefore, specific guarantees, including those relating to cybersecurity, interoperability and that manufacturers provide software updates for a reasonable period, have been suggested to better cover digital products and AI-enabled goods and services.

Treasury is also considering whether current safety standards adequately cover the use of AI-enabled goods and services. The Government may impose mandatory safety standards that set specific requirements for consumer goods or services, but there are currently no safety standards for AI-enabled consumer goods.

Uncertainty relating to AI-enabled goods and services

The technology-neutral language currently used in the ACL has allowed consumers and regulators to broadly apply the ACL to circumstances involving emerging technology, but has also flagged the uncertainty associated with how to clearly address AI-related concerns.

Treasury is considering whether to clarify the distinction between ‘goods’ and ‘services’ in the context of AI, which has important implications for remedies available under consumer guarantees.

The Discussion Paper also raises issues in how principles-based provisions including concepts such as ‘acceptable quality’ and ‘due care and skill’ accurately apply in the context of AI-enabled goods and services. For instance, the consumer guarantee of ‘acceptable quality’ assesses whether the goods are ‘durable’ – which may not clearly apply to AI systems.

Consumer access to remedies

A perceived lack of trust in AI emphasises the importance for consumers to be able to understand and effectively assert their rights under the ACL. Treasury has identified some concerns regarding the applicability of a manufacturer’s liability for goods with safety defects in relation to AI-enabled goods and services. For instance, the characteristics of AI systems discussed above (such as complex algorithms, opacity of systems) may render it difficult for consumers to meet the burden of establishing a causal link between the safety defect and consumer loss or damage. Moreover, there is also a concern that the defences currently available under the ACL to manufacturers may not be suited to AI-enabled goods and services. Treasury is looking to approaches adopted in other jurisdictions, such as the EU, to address these issues.

Consumer Guarantees

Currently, there is no specific contravention of the ACL directed at:

  • Businesses which fail to provide a remedy for consumer guarantees failures, when they are legally required to do so under the consumer guarantees; and
  • Manufacturers which fail to reimburse suppliers for consumer guarantees failures that the manufacturers are responsible for.

To date, ACL regulators have typically framed non-compliance with consumer guarantee remedies and supplier indemnification provisions in the ACL as constituting a false representation or misleading conduct.

The consultation paper seeks views on a wide range of issues including:

  • Clarification of the law – noting that the provisions contain a number of concepts, including ‘acceptable quality’, ‘reasonably durable’, ‘major failure’ and ‘rejection period’, which may require greater clarity or guidance if prohibitions and penalties are to be introduced;
  • Scope of prohibitions – whether civil prohibitions and penalties should apply only to major failures or other failures to comply with consumer guarantees and whether they should apply economy-wide or only to new motor vehicles. In addition, whether the ACL prohibitions should apply in relation to all goods and services, or only in relation to those above a specified value;
  • Consumer behaviour – whether the introduction of prohibitions and penalties would encourage consumers to seek a consumer guarantees remedy when they are not entitled to one, how could this be addressed and whether the introduction of civil prohibitions and penalties would result in higher costs for consumers generally;
  • Unintended consequences – whether there are any unintended consequences, risks or challenges that need to be considered when introducing civil prohibitions for suppliers or manufacturers failing to provide a consumer guarantees remedy when required by the ACL.
  • Barriers to supplier indemnification – When should a manufacturer’s failure to provide supplier indemnification be a contravention of the law, whether the introduction of a penalty would change a supplier’s incentive to seek an indemnification from the manufacturer, or the manufacturer’s response to a request for indemnification and any impact on commercial arrangements between manufacturers and suppliers;
  • Retaliation against suppliers – what types of practices should be prohibited and whether presumptive tests should apply if a civil prohibition was introduced to address manufacturer retaliation;
  • Enforcement tools and options – including whether the ACCC should have authority to issue an infringement notice for alleged failures to comply with the provisions, the quantum of infringement notice penalties, the maximum civil penalty that a court should be able to impose and whether there is a need to have maximum penalties for contraventions set at different amounts for goods and services above and below a particular monetary threshold.

Following the conclusion of the consultation, it is expected that a final reform proposal will be issued in the first half of 2025.

Unfair Trading Practices

The Federal Government has announced that it intends to legislate to prohibit certain types of unfair trading practices. Treasury will in due course consult on the proposed design of the reforms.  The ACCC has been advocating for a prohibition on unfair trading practices for some time, and if new legislation is passed it is likely to capture and make illegal a broader range of conduct under the ACL.

The Prime Minister’s statement notes that the particular unfair trading practices that will be targeted can apparently distort purchasing decisions, or result in additional costs to consumers. 

The announcement states that the proposed ban will apply to:

  • Subscription traps’ that use arduous and confusing steps to make cancelling a subscription difficult;
  • Drip pricing’ practices where fees are hidden or added throughout the stages of a purchase;
  • Deceptive and manipulative online practices that aim to confuse or overwhelm consumers, omit or hide material information, or create a false sense of urgency or scarcity – this can include warnings that a customer only has limited time to purchase a product;
  • Dynamic pricing where a product’s price changes during the transaction process;
  • Requiring consumers to set up an account and provide unnecessary information to make an online purchase; and
  • Where a business makes it difficult for a consumer to contact them when they have a problem with their product or service.

Next steps

The Government has invited stakeholder feedback on the proposed reforms. The applicable deadlines for any party wishing to make a submission are as follows:

  • Review of AI and the Australian Consumer Law – 12 November 2024.
  • Consumer guarantees and supplier indemnification – 14 November 2024. 
  • Unfair trading practices – Treasury will in due course consult on the design of the draft legislation but a timetable for that has not yet been announced. 
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Author

Lynsey Edgar is a partner in the Sydney dispute resolution team, whose practice focuses on competition and consumer law. She is global co-lead of the Firm's Competition Litigation Taskforce. Lynsey is recognised in Legal500 (Competition and Trade, Australia, 2022), where she is described by clients as having "high commercial acumen" and providing "clear and commercial merger control advice". Client feedback to Chambers & Partners states that Lynsey is "outstanding in her ability to advise on complex matters". Lynsey is a member of the Law Council of Australia's Competition and Consumer Committee, and has spoken widely on topics including compliance with competition law and responding to regulatory investigations.

Author

Georgina Foster is a partner in Baker McKenzie's Sydney office and leads the Firm’s Australian competition practice. Georgina is a leading merger clearance lawyer. She also regularly advises clients on competition law issues relating to joint ventures and strategic alliances, cartel conduct, as well as pricing and distribution strategies. She has significant experience in representing clients in ACCC investigations into alleged contraventions of Australian competition and consumer laws, including acting for immunity applicants. She also regularly assists clients with competition and consumer law compliance programs.

Author

Helen Joyce is a partner in Baker McKenzie’s Dispute Resolution Practice Group in Melbourne. She joined the Firm in 2010 having spent the prior decade practising as a solicitor in London. Helen is recognised in the 2023 edition of Best Lawyers Australia for Competition Law and Litigation. Helen specialises in regulatory investigations and disputes, including in particular, proceedings under the Competition and Consumer Act, the Australian Consumer Law, the Corporations Act and the National Electricity legislation. She regularly acts in significant civil penalty enforcement and white collar criminal proceedings commenced by the ACCC, AER, ASIC or IBAC. Her clients include regulators, major corporations and high net worth individuals. Helen also regularly provides strategic advice on issues arising under the CCA and the ACL such as anti-competitive conduct, misleading and deceptive conduct, product liability and consumer guarantees. In addition to her regulatory work, Helen has significant experience in the litigation aspects of schemes of arrangement, both in the Victorian Supreme Court and the Federal Court and she is regularly engaged by commercial clients in matters involving complex contractual disputes.

Author

Toby Patten is a partner in Baker McKenzie's Technology and Healthcare teams in Melbourne. Toby has more than 20 years' experience in technology, healthcare, privacy and intellectual property commercial law. In addition to his legal qualifications Toby holds a Bachelor of Science (Hons), majoring in biochemistry.

Author

Anne has been with Baker McKenzie since 2001. Prior to that, she spent four years with the Australian Attorney-General's Department/Australian Government Solicitor mostly working on large IT projects. In her time at Baker McKenzie, Anne has spent 18 months working in London (2007-2008) and more recently three years working in Singapore (2017-2020). Anne's practice focuses on IT and telecommunications supply arrangements; understanding regulatory issues for online, telecommunications and IT businesses (in particular for data management); and trade regulatory and commercial contracting advice. Anne regularly leads projects for drafting, localising or rolling out commercial agreements of data protection policies for multiple jurisdictions in Asia Pacific and conducting due diligence for undertaking new activities in Asia Pacific markets. While in Singapore, Anne worked with many businesses seeking to navigate data, tech regulatory and business establishment issues across Asia. Key industry sectors in which Anne works are TMT, defence and public sector, consumer goods and retail, financial services, healthcare and automotive.

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