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 The Inclusions and Exclusions of the CPA - money web 2 June 2011

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PostSubject: The Inclusions and Exclusions of the CPA - money web 2 June 2011   Fri Jun 03, 2011 7:21 am


Maadian Botha*|
02 June 2011 17:53
The inclusions and exclusions of the Consumer Protection Act




And penalties for those falling foul of its provisions.

The Consumer Protection Act (‘CPA’), which became fully effective on 1 April 2011, has limited retrospective effect. It has little to no retrospective impact on marketing practices, the supply of goods and services, and transactions and agreements occurring or concluded before this effective date. However, the liability provision in respect of damage has been in effect for nearly a year now, since 24 April 2010.

This liability provision applies to damage caused by goods that were first supplied to the consumer from 24 April 2010 and thereafter. This means that a producer, importer, distributor or retailer is liable for harm caused as a consequence of supplying any unsafe goods; from a product failure, defect or hazard in any goods; or inadequate instructions or warnings on products.

The consequences/harm that a party may be liable for include death, injury, illness, physical damage to property, and economic loss resulting from the harm. Also, it is not a requirement that the harm results from any negligence on the part of any of the parties in the supply chain. Furthermore, liability can be joint and several with other parties in the supply chain.

Despite its limited pre-1 April 2011 applicability, Botha notes that there are some specific retrospective provisions in the CPA, and these relate to aspects of pre-existing fixed term agreements which expire after 31 March 2013, and pre-existing loyalty programmes.

The CPA applies to all transactions occurring in South Africa and to the promotion of goods or services or the promotion of the supply of goods or services in South Africa.  It also applies to all goods and services supplied or performed in terms of a transaction affected by the CPA. Specifically, it regulates franchise agreements, and includes franchisees within the definition of a “consumer”.

The CPA also has some exclusions which exempt certain organisations and certain transactions from its generally wide applicability.

The CPA does not apply when goods and services are supplied to the State (although it does apply when organs of State are the supplier of goods and services). It also does not apply to services regulated by the Financial Advisory and Intermediary Services Act; the Long and Short-term Insurance Acts, as long as these are appropriately amended to align themselves with the CPA; and credit agreements under the National Credit Act. However, the goods or services that are the subject of credit agreements will be governed by the CPA. Also outside the ambit of the CPA are services supplied under an employment contract,  transactions giving rise to collective bargaining or collective agreements, and export transactions (as the CPA applies only to transactions occurring within SA).  In addition, the CPA does not apply to any transaction where the consumer is a juristic entity with an annual turnover or asset value (calculated in accordance with the relevant Ministerial Notice) equal to or greater than R2 million – so small juristic entities below such threshold will enjoy the protection that the CPA offers to natural persons.

Having extensive applicability, it must be emphasized that the provisions of the CPA regarding safety monitoring and recall (section 60), and liability or damages caused by goods (section 61) apply to all transactions, even transactions exempted from the CPA.

Most organisations operating in the supply chain as a producer, importer, distributor or retailer of goods, or as a service provider or marketer, will fall under the auspices of the CPA – as will foreign suppliers, non-profit organisations, organs of State in their capacity as suppliers of goods and services, clubs, trade unions and franchisors/franchisees.

With the CPA now fully effective, Botha says that businesses should have been prepared for its implementation. “This would have meant reviewing standard business terms and conditions to ensure they do not contain unfair contract or prohibited terms; arranging appropriate insurance cover and reviewing product instructions and labelling to minimise the risk of being held liable under the product liability provisions; correctly positioning disclaimers and limitation of liability clauses in agreements to ensure that the consumer’s attention is drawn to such clauses at initiation of the transaction; amending communications with the consumer to ensure they avoid legal and technical jargon, and are in plain and understandable language; ensuring fair product pricing and appropriate disclosure of such prices; and reviewing marketing practices to ensure that advertising is not misleading, deceptive or even fraudulent.

Also key is the appropriate training of client-facing staff to ensure that their interaction with consumers complies with the CPA and that they are aware of its requirements. For example, staff should know the provisions relating to the implied warranty of quality, and what should be done when consumers want to return defective goods within six months of their delivery.

A CPA offence can attract a possible fine, or imprisonment for a period not exceeding 12 months, or both. And there are onerous penalties if a person is convicted of a breach of confidence - a fine, or imprisonment for a period not exceeding 10 years, or both. A breach of confidence occurs when a person discloses any personal or confidential information concerning the affairs of any person, obtained in carrying out any function in terms of the CPA. Additionally, the National Consumer Tribunal may impose administrative fines for prohibited or required conduct, limited to the greater of ten percent of  annual turnover during the preceding financial year or R1m.

*Maadian Botha is PricewaterhouseCoopers' Associate Director: Risk Advisory services
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