Services

HG Alert: Important Changes to Component Pricing - May 2009

The Trade Practices Amendment (Clarity in Pricing) Act 2008 comes into effect on 25 May 2009. If you are a company selling goods or services to consumers, this Act will have significant effects on the way you advertise the price of your goods or services.

Component pricing

The Act is designed to address perceived problems arising from the increased use of “component pricing”.

Component pricing is when a business states the cost of its goods or services as being the sum of component parts. For example, a motor dealer who quotes the price of a motor vehicle as “$25,000 plus fees and charges” is using component pricing.

Such pricing is considered to potentially mislead consumers about the total price payable for goods or services.

The important changes

It is important to note that the changes will not prevent the use of component pricing. However, where component pricing is used, a single price figure must also be specified.

The Act says that where a company makes a statement about an amount which only constitutes part of the price for the supply of its goods or services, it must also specify the price as a “single figure” and “in a prominent way”.

Where does the Act apply?

The new Act only applies to statements by companies to consumers. It does not apply to dealings between the supplier and other businesses. However, it is important to note that the Act will apply where your statement about price is made simultaneously to both consumers and businesses.

The new law applies to all forms of advertising – catalogues, websites and in store sales promotions.

The “single price”

The “single price” must be stated as a single figure and include each of the following amounts:

  • a charge that must be paid by the consumer;
  • the amount of any tax, duty, fee or charge imposed on the supplier of the goods or services (eg GST); and
  • the amount of any tax, duty, fee or charge payable by the supplier in relation to the supply.

What about delivery charges?

You do not need to include compulsory delivery charges for goods as part of the single price. However, if you know the minimum delivery charge at the time you make the statement about price, you must specify the single price for the goods together with the minimum delivery charge.

What does “prominent way” mean?

Under the Act, a single price will not be specified in a “prominent way” unless the single price is “at least as prominent as the most prominent of the component parts of the consideration for the supply”. In simple terms, this means that the single price must be easily identifiable by a consumer.

Unfortunately, the Act does not contain any clues about the interpretation of this requirement, and it appears it will be left to the courts to interpret the precise meaning of the requirement in individual cases.

Penalties

A breach of the Act will expose you to civil and criminal penalties up to a maximum of $1.1million under the Trade Practices Act.

When do the changes take effect?

As previously stated, the Act comes into effect on 25 May 2009. Although the Act will only apply to conduct occurring after that date, all businesses supplying goods or services to consumers will need to be prepared for the changes.