In late 2008 and  early 2009, Tristram European Limited ran a promotional campaign in newspapers,  on Trade Me and on its website, offering 0% interest finance on both its new and  used stock. However two customers enquiring about the offer at the car yard were  told that the interest-free finance offer was only available on the full retail  price of the vehicles. They were also told that a lesser vehicle price could be  negotiated for cash or for a sale on interest-bearing terms.

"It has been well established through the  courts that to avoid the risk of breaching the Fair Trading Act 'interest free'  prices should be the same as the cash price. When a company advertises an  interest free deal but has a lower price for cash, there is an inference that  the difference between the two prices is the cost of finance," said Greg Allan,  Commerce Commission Fair Trading Manager, Wellington.

"While businesses  are able to set their own prices for goods and services, when they advertise  that something is 'interest free' it must be exactly that. They cannot build the  cost of any interest in to the price charged to consumers," said Mr  Allan.

"Consumers are  often attracted by interest free offers. If the offers are not truly interest  free, then not only are consumers misled but other businesses who are accurately  describing their prices may be disadvantaged. This case is a reminder to  businesses that information about their prices must be accurate and not have the  potential to mislead consumers," said Mr Allan.

In addition,  Tristram European Limited did not disclose in its advertising that there was a  $350 establishment fee payable for a vehicle purchased on 'interest free' terms.  This meant that consumers were likely to be misled about the cost of the  finance.

In sentencing,  Judge McNaughton noted that the breaches were deliberate and calculated but  there was no demonstrated loss to consumers.

Background

Other cases involving interest free claims which were in breach of the  Fair Trading Act are as follows.

In November 2007 Hill & Stewart, an appliance company, was found  guilty of breaches of the  Fair Trading Act. The breaches included making claims that the price of goods  was interest-free when in fact the interest-free price was more expensive than  the cash price. The Auckland District Court ordered Hill & Stewart to pay a  total fine of $75,000 plus $2,070 in costs.

In May 2000 Waitemata Backcare Beds and Waterbeds was fined $3,500 by the  Waitakere District Court after admitting that its '0% interest free fiesta' was  not genuinely interest free - compulsory additional costs were not disclosed in  the advertising.

In April 1997 Bond and Bond pleaded  guilty to one charge of breaching the Fair Trading Act. There were three aspects  to the misleading conduct; one of which was that the company had asserted that  goods were available on interest free terms, without telling customers that this  was only available when goods were purchased at the recommended retail price.  The company was fined a total of $63,000. However, the court did not specify  what proportion of the total fine was attributable to the interest free aspect  of the company's offending.

In August 1996 Noel Leeming faced Fair Trading Act charges over a  misleading representation that the company was paying a customer's interest over  the relevant finance period, when in fact the interest was built into the retail  price of the goods. If a customer wanted to pay cash, they could negotiate a  lower price. The Judge found that the advertising was substantially misleading.  The company was fined $15,000 in the Christchurch High Court on the four charges  relating to the representations regarding paying their interest.

Fair Trading Act

Breaches of the Fair Trading Act may result in  prosecution in Court. Companies found guilty of breaching provisions of the Fair  Trading Act may be fined up to $200,000 and individuals up to $60,000. Only the  courts can decide if a representation has breached the Fair Trading  Act.