A company that sold high-priced "sleep systems" at invitational seminars has been fined $69,935 for misleading consumers about the right to cancel their contracts.

Wenatex New Zealand Limited pleaded guilty to 34 charges of breaching the Fair Trading Act (FT Act) and the Credit Contracts and Consumer Finance Act (CCCF Act).

Wenatex invited prospective customers to attend seminars at community centres where its beds and bedding were available for sale. Many of the people who attended the seminars were elderly or people looking for a health benefit. Customers were encouraged to enter into contracts to purchase bedding packages, often priced at around $5,000, with a large deposit payable at the seminar. Customers were given the option to pay the balance on delivery or on credit over several years.

Wenatex breached the FT Act by misleading customers about their cancellation rights under the Door to Door Sales Act (DTDS Act). When products are sold door to door or in other high pressure sales situations, such as invitational seminars, the DTDS Act recognises that consumers can make poor purchase decisions and gives them a "cooling off" period.

The cooling off period gives consumers the chance to cancel a contract and receive a full refund of any amount they have paid. Wenatex's sales contracts did not set out this right of cancellation and, in addition, the contracts misled customers by stating that deposits were not refundable. When some customers legitimately attempted to cancel their contracts, Wenatex representatives told them that their deposits would not be refunded.

Customers who enter into payment arrangements to pay the balance over time also have cancellation rights under the CCCF Act. Wenatex also failed to include these rights in its sales contracts.

"Businesses need to be careful to ensure they don't mislead customers about their consumer rights," said Graham Gill, Commerce Commission Competition Manager. "It is fundamental that consumers are given complete and correct information when they enter contracts like this. A customer's right to cancel the contract within a certain timeframe and receive any deposit back is an important right and needs to be clearly stated."

Wenatex is a subsidiary of an Australian company, and when some customers tried to enforce their rights by ringing the call centre in Australia they were told they couldn't cancel their contracts.

"Australian companies doing business here need to realise that some of our laws are different to Australian laws, but if they are here, they need to comply with New Zealand law. The Commission comes across this issue fairly often," said Mr Gill.

Wenatex co-operated fully with the Commission's investigation and pleaded guilty at the first opportunity. The Auckland District Court also ordered Wenatex to make refunds of $1,285 and to pay costs of $4,518.

A copy of the sentencing decision can be found on the Commission's website at: www.comcom.govt.nz/fair-trading-enforcement-outcomes

 

Background

The Commerce Commission enforces both the Fair Trading Act and Credit Contracts and Consumer Finance Act. The Commission does not enforce the Door to Door Sales Act, although false or misleading representations about consumer rights (such as the right of cancellation which is granted by the DTDS Act) can be breaches of the Fair Trading Act.

 

Fair Trading Act 1986

Under the Fair Trading Act (FT Act), it is an offence to make a false or misleading representation.   Section 13 (i) of the FT Act states:

No person shall, in trade, in connection with the supply or possible supply of goods or services or with the promotion by any means of the supply or use of goods or services, – 

Make a false or misleading representation concerning the existence, exclusion, or effect of any condition, warranty, guarantee, right, or remedy.

 

The Commission considers that statements such as "Deposits are not refundable" or other statements that directly contradict rights which are available under the DTDS Act or other consumer protection laws are likely to be misleading representations and breach the Fair Trading Act.

 

Credit Contracts and Consumer Finance Act 2003

The Credit Contracts and Consumer Finance Act 2003 (CCCF Act) is designed to ensure that consumers have adequate information about their consumer credit contracts. It also contains a right of cancellation.

 

A debtor has the right to cancel a contract by giving written notice within three working days of initial disclosure being given. Where the creditor has not given the required initial disclosure this right remains up until the time correct disclosure is made. Further, a creditor is not able to enforce a contract (and therefore is unable to recover the debt or enforce any rights to recover property or realise security) if it has not complied with the initial disclosure provisions and/or disclosure of agreed changes.

 

Representations that creditors have the right to enforce these contracts are likely to be misleading representations and breach the Fair Trading Act.

 

Door to Door Sales Act 1969

Door to door sales are basically sales of goods or services of a domestic (non-business) nature where a "credit agreement"[1] is made at a place other than "appropriate trade premises"[2] where the first inquiry relating to the sale and purchase of the goods is not made by the purchaser. The Door to Door Sales Act (DTDS Act) gives consumers certain rights in relation to sales taking place in these circumstances.

 

The key protection provided by the DTDS Act is that a customer has a right of cancellation. This is deemed desirable because of the pressure that consumers can be placed under in the particular sale situation. A customer making a purchase which is subject to the DTDS Act has the right to cancel (in writing) the sales agreement within seven days of the sale. The Act also requires that this right be disclosed in the sales contract in specific wording, in a specific font size, and that the right be displayed near to the place where the customer will sign the contract.    

 

If a contract is cancelled, the customer is entitled to a full refund of their deposit.

 

[1] The DTDS Act definition of a "credit sale" is a sale of goods under which the total purchase prices is not paid in full at the time the sales agreement is made.  

[2] The DTDS Act definition of "appropriate trade premises" means premises at which the vendor normally carries on a business where goods of a similar description to those that are the subject of the agreement are normally offered for sale.