Govt releases unfair practices paper

Discussion paper released on ways to protect consumers and businesses from unfair commercial practices.

Ministers for Commerce and Consumer Affairs and Small Business have released a joint discussion paper outlining options to protect consumers and businesses from unfair commercial practices.

Commerce and Consumer Affairs Minister Kris Faafoi said unfair commercial practices, such as use of pressure tactics, deception and contract terms that are “very one-sided”, can cause significant stress for consumers, in some cases leading to financial difficulty, while the consequences for businesses include cash flow issues, increased costs and stress.

According to a study by the Ministry of Business, Innovation and Employment in June 2018, 45 per cent of NZ businesses reported being offered contracts that they considered contained ‘unfair’ terms in the past year.

These included terms that limited the liability of one party, terms that allowed one party to unilaterally vary the contract, and extended payment terms. The research also found 47 per cent of respondents felt that they had otherwise been treated unfairly.

The most common complaints were businesses not complying with an existing contract, misleading or deceptive behaviour, and businesses making demands over and above what was agreed in a contract.

Many of these businesses reported being negatively affected by these practices. This included cash flow issues, increased costs, reduced sales, reputational damage, disrupted supply, wasted time, and increased stress.

Small Business Minister Stuart Nash said he’s concerned about the impact of unfair commercial practices relating to payments on small businesses.

“Small businesses can face significant cash flow issues as a result of other businesses not paying them on time as per contract terms. This has flow-on effects for other parts of the economy, especially for the families and communities these businesses support.

“The Government wants to build a more productive, sustainable and inclusive economy, but we won’t get there with these types of practices in the marketplace.

“At the same time, we need to strike a balance to ensure any changes are proportional to the problem. We want honest businesses to continue to compete effectively, negotiate firmly, and freely enter into contracts,” Nash said.

Small Business Council chair Tenby Powell said the new discussion paper makes a valuable and timely contribution to small business sector.

“Small businesses can be particularly vulnerable to some of the practices this paper tackles, the consequences of which can be very serious for smaller enterprises,” said Powell.

“One-sided contract terms, unfavourable payment practices or even pressure tactics can make life difficult for small businesses which may have limited resources. With the sector amounting to 97 per cent of Kiwi businesses and employing over 600,000 people, these sorts of issues can cause major cash flow problems and stress, and reverberate throughout the wider economy.”

The Small Business Council has identified four key themes to focus on in the development of a strategy. These include capital and access to finance; people and skills; compliance and enablers; and innovation and sustainability.

Submissions close on Monday 25 February 2019.

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