Recent changes to the Fair Trading Act 1987 No 68 (NSW) (FTA), effective from 1 January 2021, imposed two new disclosure requirements to benefit consumers. We discussed the first of the two new disclosure obligations in a recent article which you can read here. This obligation required suppliers to, before supplying the goods or services, ensure that consumers are aware of the substance and effect of any term or condition relating to the supply of the goods or services that may substantially prejudice the interests of the consumer.
This article considers the second of the two new disclosure obligations which deals with intermediaries who receive a financial incentive from a transaction with a consumer.
What are the disclosure requirements under the FTA?
An intermediary must, before acting under an arrangement that provides for the intermediary to receive a financial incentive, take reasonable steps to ensure the consumer who will be supplied with the goods or services to which the financial incentive relates is aware of the existence of the arrangement.1
Who needs to comply?
Intermediaries who receive a financial incentive as a result of a transaction with a consumer must comply with these requirements.
The FTA has extraterritorial application. This means that intermediaries will need to comply if their conduct:
- is in connection with goods or services supplied in NSW;
- affects a person in NSW; or
- results in loss or damage in NSW.2
For the purposes of the FTA, an “intermediary” is a person (including a corporation) who, under an arrangement that provides for a financial incentive, arranges contracts for the supply of goods or services as an agent or refers consumers to another supplier of goods or services.3
NSW Fair Trading has provided examples of common types of intermediaries:
- agents such as real estate or travel agents;
- brokers such as a mortgage broker; and
- other intermediaries who may not necessarily arrange the contract or agreement with a consumer but may refer the consumer to another supplier and receive spotter’s fees, “kickbacks” or finder’s fees for doing so (for example, an aggregator website that compares services or products from multiple providers and receives payment for directing consumers to engage with those providers).4
What is a financial incentive?
A “financial incentive” is a commission, referral fee, or any other kind of payment prescribed by the Fair Trading Regulations 2019 (NSW).5
Arrangements that require disclosure
An arrangement that needs to be disclosed can be formal or informal.6 For example, it could be a website providing recommendations of products or services to the consumer based on their preferences or it could be a builder recommending their preferred supplier to the consumer. If the website or builder receives a financial incentive, they must take reasonable steps to ensure that the consumer is aware of the existence of such arrangements.
Who is a consumer?
For the purposes of the FTA, a “consumer” has the same meaning as under section 3 of the Australian Consumer Law and is not restricted to only individuals.7 In a recent article, which you can read by clicking here, we discussed the meaning of “consumer” under the Australian Consumer Law and explained that a “consumer” may also cover large businesses in a range of circumstances.
Interaction with other laws
The secret commissions legislation makes it a criminal offence to fail to disclose a referral or commission arrangement.8 For more information on secret commissions legislation and referral arrangements, click here.
It is important to note that the new disclosure obligations under the FTA apply in addition to any existing obligations under the secret commissions legislation.
What does this mean for intermediaries?
Intermediaries must take reasonable steps to ensure that consumers who will be supplied with the goods or services to which the financial incentive relates are aware of the existence of such arrangements. While consumers need to be informed of the existence of such arrangements, there is no requirement to disclose the nature or value of the financial incentive.9
NSW Fair Trading provides the following examples on when an intermediary is considered to have taken reasonable steps:
- including a disclosure on quotations provided to the customer;
- directing the customer’s attention to appropriate signage;
- putting an automatic disclaimer on the bottom of emails; and
- when online:
- disclosing relevant information on the same page as the description of the product or service; and
- having the disclosure appear in a pop-up box.
We recommend that intermediaries review their current business practices (even if they are already subject to similar disclosure obligations under other legislation). This is to ensure that any arrangement with a financial incentive relating to a transaction with a consumer is appropriately disclosed in accordance with section 47B of the FTA. Failing to comply with these new laws may result in penalties of up to $100,000 per contravention for corporations and $22,000 per contravention for individuals as well as an issue of a penalty notice by NSW Fair Trading for each offence of $550 for an individual and $1,100 for a corporation.
How can we help?
HWL Ebsworth Lawyers has a specialised consumer law team that can assist you with reviewing your current arrangements and updating your current contracts and disclosure processes to ensure that they are compliant with the new disclosure obligations under the FTA.
This article was written by Teresa Torcasio, Partner, Connie Lambropoulos, Associate and Sylvia Tran, Law Graduate.
1 Section 47B(1) Fair Trading Act 1987 No 68 (NSW) (FTA).
2 Section 5A FTA.
3 Section 47B(3) FTA.
5 Section 47B(3) FTA.
7 Schedule 2 to the Competition and Consumer Act 2010 (Cth).
8 Section 179 Crimes Act 1958 (Vic).
9 New South Wales, Parliamentary Debates, Legislative Council, 14 October 2018, 958 (Scot MacDonald); https://www.fairtrading.nsw.gov.au/resource-library/publications/new-disclosure-obligations-for-nsw-businesses.