2 Cheap Cars Fined Nearly $500k for Short-Changing Consumers on Marketing Claims

Motor vehicle dealer 2 Cheap Cars recently received a fine of $438,000 under the Fair Trading Act 1986 (FTA) for misleading behaviour, following a Commerce Commission investigation which began in November 2017.

Ten charges were laid relating to breaches of the FTA between 1 January 2014 and 31 December 2017, comprising:

  • 8 charges for making false and/or misleading representations in “Warranty Waiver” documents about consumers’ rights;
  • 1 charge for false and/or misleading representations with respect to the price of cars in advertising “liquidation” sales; and
  • 1 charge for false and/or misleading representations about the price of cars in advertising “84% off” sales.

Warranty Waivers

2 Cheap Cars sales process included offering each customer an extended warranty.  If the customer declined to purchase the extended warranty, they were asked to sign a “Warranty Waiver”.   Approximately 20,000 waivers were signed during the period to which the Commission’s investigation related.

The “Warranty Waiver” document included terms such as:

  • “the vehicle you are purchasing does not include a warranty of any kind
  • “I do understand that 2 Cheap Cars will comply with the Consumer Guarantees Act. I also understand that I am, and would prefer to be, solely responsible for any repair bills
  • “any repairs … will be done by 2 Cheap Cars at a time of their convenience and that there are no courtesy cars provided”

The “Warranty Waiver” was found to misrepresent 2 Cheap Cars’ obligations under the Consumer Guarantees Act 1993 (CGA), which, amongst other things:

  • affords consumers certain rights of remedy regardless of whether the customer purchases an additional warranty;
  • requires the retailer to provide the requisite remedies within a “reasonable time” (as opposed to “at a time of their convenience”).

The Commerce Commission pointed out that in some instances, under the CGA the customer is entitled to recover reasonably foreseeable costs that he or she incurs as a result of a product failure, and this may go as far as to include the cost of hiring a rental car while any repairs are being undertaken.

The statement that “2 Cheap Cars will comply with the Consumer Guarantees Act” was seen by Judge Ronayne  as at odds with the impression made by the misrepresentations in the “Warranty Waiver”, and found the waiver “blatantly untrue and misleading”.  Judge Ronayne also noted that  “the overall tenor and effect of the form is coercive and only a short step back from bullying.”

The “Warranty Waiver” was used to create the impression that if the extended warranty was not purchased then the consumer had no rights if something went wrong.  However, as used cars do not come with a manufacturer’s warranty there is naturally heightened importance to protect consumers rights by way of the CGA.

‘Liquidation’ Sales

In September and October of 2017, 2 Cheap Cars ran a series of advertisements in which it was claimed that the business was holding a “liquidation sale” because 2 Cheap Cars was “in hot water.” The issue with these statements was that 2 Cheap Cars was not in, or going into, liquidation, with the majority of the cars being discounted by as little as $5, or no discount at all.

The Commerce Commission found the advertising campaign to be misleading because it created the clear impression that many of the vehicles were heavily discounted, and this was the last opportunity to buy from 2 Cheap Cars.

2 Cheap Cars argued that their rationale was that it had to liquidate stock as it inadvertently imported more cars than it had space to hold, but this was dismissed by Judge Ronayne who held the advertising to be “deliberately misleading rather than simply careless.”

Judge Ronayne importantly emphasised that “retailers should not encourage consumers to purchase with spurious calls to act urgently to take up a discount and they should not overstate the savings that are available when discounts are advertised.”

84% off

2 Cheap Cars also ran advertising which included the phrase “84% off”.

The reference to “84% off”, coupled with the phrase “Massive Stock Liquidation: This Weekend Only” was found to give consumers the impression that the 84% off would apply to the price of cars on sale.

However, in reality, the phrase “84% off” was not referring to the price of vehicles, but rather the price of a $300 GrabOne voucher which could be used towards purchasing a vehicle.

Judge Ronayne held this was “highly careless” and “when viewed as a complete advertisement, tantamount to devious.”

The Decision

When calculating the $438,000 fine, Judge Ronayne took into account the fact that 2 Cheap Cars “has a very significant annual turnover and has made significant annual profits exceeding $3 million.” It was important that the fine did not serve as “a mere licencing fee or cost of doing business” – rather, it needed to act as a deterrent for both 2 Cheap Cars and other traders.

It was also acknowledged that the actions were not only harmful to consumers but also to competitors acting a lawful manner, and therefore the conduct significantly undermined the objectives of the FTA.

 If you have any queries in connection with the decision or would like know to whether your business is fully compliant with the Fair Trading Act and Consumer Guarantees Act, please do not hesitate to get in touch with a member of Lane Neave’s Corporate Team.

Business Law Team

Gerard Dale, Claire Evans, Graeme Crombie, Evelyn Jones, Anna Ryan, Joelle Grace, Nicola Hardy, Peter Orpin, Ellen Sewell, Matt Tolan, Kristina Sutherland, Caroline Cross, Jacob Nutt, Danita Ferreira, Whitney Moore, Alex Stone, Ben Cooper, Lisa Catto

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Anna Ryan
Partner, Lane Neave

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