Staff Photographer
South African authorities have a penchant for creating trees’ worth of legislation, but they often fall short when these laws need to be implemented.
The new Consumer Protection Act is one such law. Many South Africans are barely literate and struggle to assert their basic rights. But now they need to avail themselves of the new Consumer Protection Act —- all 186 pages of it —- which stipulates in dense legal terms what you should expect from anyone who provides a service. You then need to know how to fight your case.
The Act will cost companies -— that have a brand risk —- a huge amount of money and require them to stay abreast of legislation. For those companies that prefer to operate below the radar, it will be business as usual. The only thing consumers will be left with is a piece of paper that tells them they have a claim against a company that may be liquidated.
A useful example to demonstrate the limited, yet costly protection the Act provides is pre-paid cards and vouchers. According to Ina Meiring of Werksmans, the Consumer Protection Act intends to regulate prepaid cards, certificates and vouchers.
“The intention is to protect consumers, but it may create more obligations for businesses that issue them. This could potentially result in higher costs associated with the products and ultimately be detrimental to those same consumers,” says Meiring.
What the Act states is that all prepaid cards, certificates and vouchers will not expire until their full value has been redeemed for goods and services or until three years after they were issued.
So if you buy a voucher for a friend to have a massage at a spa, that spa will have to carry the liability of that voucher for three years and provide those services at no additional cost, even though prices may have increased.
Meiring says the Act will require the business to maintain a rigorous accounting system. Every supplier must be able to account separately for all amounts paid by a consumer and exercise diligence when performing such accounting. Suppliers will be liable for any loss resulting from a failure to comply with these duties, says Meiring.
The accounting system required by the Act -— which considers a voucher or card property of the bearer -— will require suppliers to keep track of what funds have been used on the card.
This will become difficult in an offline environment, in which the information is contained on the magnetic stripe and not on a computer system.
“Offline systems are then a no go. Suppliers will need an online system, which may require a significant expense,” says Meiring.
It is not difficult to see the headache that this could cause businesses which offer gift vouchers.
But does the Act actually give the consumer any protection? Meiring points out that the Act seems to regulate only closed-loop vouchers or cards: when a store or business issues the card specifically for use at that store. It does not seem to regulate semi-closed loops in which, for example, a shopping mall issues a card for use at any store.
Another concern -— this is one the banks have raised in the past -— is who exactly is regulating the pre-paid market. The cellphone industry in particular carries a systemic threat should one of the service providers default. There are hundreds of millions of rands involved in the pre-paid airtime industry to the extent that airtime has become a virtual currency.
It is a service used extensively by the lower-income groups. Yet there is no monitoring of the money that the service providers hold against the pre-paid vouchers and cellphone providers. Many pre-paid operators remain outside the Financial Intelligence Centre Act when it comes to money laundering.
The Consumer Protection Act does little to protect customers through ongoing supervision and simply provides them with the right to join the creditors’ queue. But customers will pay dearly with higher prices for the cost of this limited protection.
Can you cash in your voucher
Ina Meiring of Werksmans says because the Act considers the card or voucher the property of the bearer, the cardholders or bearers could be entitled to redeem the card for cash if they do not avail themselves of the services.
“You could argue that on the last day before expiry when you realise you haven’t used the voucher, you can go to supplier and ask for the money back,” says Meiring.
She points out, however, that in terms of the Banks Act, any such cash-back facility would be regarded as the business of a bank and would not be allowed by the Reserve Bank.
The Reserve Bank is about to issue a position paper in this regard. Dave Mitchell of the Reserve Bank says, in the bank’s opinion, if a pre-paid card or voucher is issued it is generally for the purchase of goods and services. If any balance on the card or voucher, particularly if issued by a non-bank, can be encashed this may imply the “business of a bank”.
He says that the Consumer Protection Act does not refer specifically to redeeming balances in terms of cash. He says there are issues around fraud that will be dealt with in the coming paper. “We are aware of cases in which stolen credit card details were used to buy large numbers of gift cards and so filter the money.”