Shoppers trapped by dodgy practices to win relief

Business ploys that make it virtually impossible to cancel a subscription, deliver hidden price increases during an online transaction or fake warnings of limited stock would be banned under a federal government plan to target unfair trading practices.

As the Reserve Bank concedes the debit and credit card surcharging system is in effect broken, the government revealed it would overhaul Australian Consumer Law before next year’s election by targeting what it described as dodgy sales techniques.

Practices including warnings of limited time or stock would be banned under new laws.Credit: iStock

In a sign of the electoral damage the country’s cost-of-living crisis is posing to the government, Prime Minister Anthony Albanese on Wednesday will announce the consumer protections, just a day after signalling a ban on debit card surcharges and a fortnight on from revealing a crackdown on supermarket pricing.

Unfair trading practices currently fall outside Australian Consumer Law, which covers areas such as unfair contracts, product safety, lay-bys and consumer rights when buying goods or services.

Under the government’s plan, a general ban on unfair trading practices, including some specific tactics, would be introduced.

This will cover so-called subscription traps, where businesses make it almost impossible to cancel a subscription; drip-pricing, where fees are added during the purchase process; and online practices such as fake warnings that a person has only a limited time to buy, and where a consumer has to create an account with unnecessary personal information.

Treasurer Jim Chalmers said the changes aimed to protect consumers and ease cost-of-living pressures.

“Whether it’s traps that make it difficult or confusing to cancel a subscription, hidden fees and charges at different stages of a purchase, deceptive or manipulative practices online, or making it difficult for people to report problems with their products or services, we’re going to change the rules,” he said.

“Most businesses do the right thing by Australians and they’ve got nothing to worry about.”

Public consultation on the changes will start almost immediately, with the government hoping to put them in place before the next election, which is due by May.

On Tuesday, the Reserve Bank released a preliminary report into the payments system that suggested consumers and smaller retailers were paying billions of dollars in fees for services that in some cases were never used.

The government has already said it favours banning debit surcharges, which are estimated to cost consumers up to $4 billion a year.

Surcharges vary widely, from 1 per cent of the cost of a purchase up to 10 per cent, but by law must not be more than they cost a business to use. They must also offer a fee-free payment system, usually cash.

But the RBA found businesses often imposed excessive fees on shoppers, payment companies inflicted high costs on small retailers and complex fee structures had made it almost impossible for businesses to know what services they were getting.

Despite cash use collapsing, the use of surcharges was increasing and it was difficult for authorities to police retailers’ practices.

“A ban on debit card surcharging may also be easier for consumers and merchants to understand than the current surcharging rules,” the central bank found.

“It is difficult for consumers to hold merchants to account because they have no way of knowing the card payment costs of individual merchants, which can vary significantly. There is also a distinct lack of data available to policymakers and the public on surcharging practices.”

The RBA said all card surcharges, including those on credit and charge cards, could be banned, but this risked lifting retailer costs. Credit cards cost the most for banks as they carry the risk of a customer not paying back the debts incurred.

Australian Association of Convenience Stores chief executive Theo Foukkare said a ban on debit card surcharges would be a step forward as long as the costs of the payments was not carried by retailers.

“Debit cards are the new cash. When you have a situation where people are charged one cent or $2 for using it, then there’s something wrong with the system and it has to change,” he said.

Australian Banking Association chief executive Anna Bligh said the rules around retailer surcharging were no longer fit for purpose given most payments were now made digitally.

Australian Banking Association boss Anna Bligh says the payments system needs to be overhauled.Credit: Bloomberg

“This would be a win for consumers and lead to more clarity and certainty for them,” she said.

But shadow treasurer Angus Taylor said the government had offered only a “plan for a plan”, with no immediate proposal to bring down inflation.

Betashares chief economist David Bassanese said a ban would help consumers and the broader economy.

“Banning private charging of debit and credit card fees which appear to be unjustified by transaction costs is good policy and clamps down on bank and credit card companies abusing market power at the expense of everyday Australians,” he said.

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