'It has to hurt': Commerce Commission chairman John Small says fines for breaching consumer law are too weak

Competition watchdog the Commerce Commission wants higher financial penalties to punish powerful firms breaching the Fair Trading Act.

Commerce Commission chairman John Small says the current fines are too weak, and aren’t enough of a deterrent to hold back companies from making false and misleading representations to consumers.

Small says powerful firms which mislead consumers and make it harder for rivals to compete should have a "commensurately chunky penalty ... otherwise, it just looks like a cost of doing business".

“We feel that the penalties regime is still inadequate.”

The Commission has a range of enforcement tools available, but financial penalties for companies max out at $600,000 per breach and $200,000 for individuals.

Small used the example of a recent case it had won against One New Zealand, formerly known as Vodafone.

In 2022 the Auckland District Court imposed a then-record $2.25 million fine on One NZ because it misled consumers in the marketing of its FibreX broadband service.

The Commerce Commission appealed, arguing that the fine was manifestly inadequate. In August it had another court win against the telco, which saw the fine bumped up to $3.675m on appeal by Justice Moore.

Moore said a greater uplift of the financial penalty against Vodafone was required in order to ensure the penalty stings from [One NZ’s] perspective, served as a deterrent – particularly given [One NZ’s] history of non-compliance with the Fair Trading Act.

The Commerce Commission said not only did One NZ mislead consumers and cause them harm, but the telecommunications company distorted competition for the supply of broadband services in New Zealand.

The Commission has a long-running history with Vodafone, with the firm first falling foul of the FTA in 2011.

Since then it has had semi-regular skirmishes with the regulator for breaching consumer law, with the Commerce Commission in July 2023 issuing a “stop notice” to One NZ for "representations" made in its campaign promoting “100% mobile coverage. Launching 2024”.

One NZ has maintained it isn’t misleading consumers in its advertising for its mobile coverage, and called the court decision to raise its fine disappointing.

Small said fines could instead be calculated as a percentage of revenue, as is done in Australia.

The Commerce Commission’s Australian counterpart, the Australian Competition and Consumer Commission, is currently seeking A$250m from national airline Qantas if it is found guilty of selling tickets for flights it had already canceled.

“It has to hurt,” Small says.

Consumer New Zealand chief executive Jon Duffy agrees with Small that the fines are not strong enough to deter large companies from breaching consumer law.

He said concerted, sustained breaches needed to be met with a commensurate financial penalty. 

Duffy said such penalties in other jurisdictions were often tied to revenue or profit made from the offending, and New Zealand could look to do the same.

He said FTA cases could be heard in District Courts by judges who would hear criminal and civil cases, as well as trials such as the Vodafone FTA breach.

The band for fines for consumer law breaches was too low, and raising them would still allow judges to have discretion, but would more adequately punish bad behaviour, Duffy said.

National Party Commerce and Consumer Affairs spokesperson Andrew Bayly said the party was open to taking advice from the Commerce Commission on whether the penalties for FTA breaches should be raised.

Bayly said one-off breaches by small traders should not be subjected to high penalties, but where firms had been shown to be breaching the act in a calculated manner they needed to be deterred by sufficient fines.

Under the Fair Trading Act, traders can't make unsubstantiated claims about products or services and must have reasonable grounds to make a claim about a product or service, at the time they make the claim.

Changes were made to the Fair Trading Act 1986 in 2022, introducing a ban on unconscionable conduct in trade and the expansion of the unfair contract terms regime for standard form consumer contracts to standard form "small trade" contracts, with an annual value of less than $250,000.

The penalties were discussed in 2019 by the Ministry of Business, Innovation and Employment (MBIE) as part of an evaluation of the Fair Trading Act. 

MBIE found consumer law reforms had resulted in substantial increases in fines for most breaches of the FTA, with fines for unfair conduct, false or misleading behaviour increasing from $200,00 to $600,000 for companies per breach and maximum fines for individuals rising from $60,000 to $200,000 per breach.

The penalties were increased to act as a sufficient deterrent and reduce the risk of fines being seen as a cost of doing business, MBIE said.

In that review stakeholders told MBIE overall penalty levels “were still too low to deter offending by some businesses”.

Among those pushing for higher penalties then was the Commerce Commission.

“Staff noted that cases taken by the Commerce Commission often involve widespread advertising directed at the public, with profits often accruing from misleading conduct.”

In 2019 the highest fine to date was a little more than $2 million, given to Steel & Tube for 24 representative charges for false representations on steel mesh.

“This total fine, while significant, is significantly below the maximum theoretical fine of $9.2 million, or the represented revenue of $24 million associated with the contravention,” MBIE said.

It said in 2019 there may be merit in further considering whether or not maximum penalties should be further increased.