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Treasury Laws Amendment (Gift Cards) Bill 2018



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ISSN 1328-8091

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BILLS DIGEST NO. 34, 2018-19 17 OCTOBER 2018

Treasury Laws Amendment (Gift Cards) Bill 2018 David Markham Law and Bills Digest Section

Contents

Purpose of the Bill ........................................................... 2

Background ..................................................................... 2

Committee consideration ................................................ 3

Senate Standing Committee for the Scrutiny of Bills .............................................................................. 3

Policy position of non-government parties/independents...................................................... 3

Position of major interest groups..................................... 3

Financial implications ...................................................... 4

Statement of Compatibility with Human Rights................ 4

Parliamentary Joint Committee on Human Rights ..... 4 Key issues and provisions ................................................ 4

Other provisions ............................................................. 6

Concluding comments ..................................................... 6

Date introduced: 20 September 2018

House: House of Representatives

Portfolio: Treasury

Commencement: The day following Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at October 2018.

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Purpose of the Bill The purpose of the Treasury Laws Amendment (Gift Cards) Bill 2018 (the Bill) is to amend the Competition and Consumer Act 2010 (the CCA), and specifically the Australian Consumer Law (ACL) which is contained in Schedule 2 to the CCA, to introduce provisions relating to gift cards.

Background Gift cards, gift certificates or similar have been in existence for a considerable period of time. Electronic gift cards, with information stored on a magnetic strip, have been popular in Australia since at least the 1990s and are the type of cards towards which this legislation is generally aimed. While it is difficult to quantify accurately, the gift card market is believed to have a value of at least $1.5 billion each year.1

The purpose of a gift card is essentially for a person to be able to give another person a financial credit which the receiver can spend in a store or other business. For example, person A gives store X $50, which person B can then spend in the store. As a record of their ability to spend this amount, person B receives a card which they can use to obtain goods to the face value of the card. Normally, the value of the card can only be traded for goods. Cards cannot be converted to a cash value.

If a card is not used, or if only some of the credit on the card is used, within a period of time currently set by the issuing business, the business retains the rest of the funds (this is referred to as ‘breakage’) and the consumer has no right to a refund.

Up to this point in time, no specific legislation has been passed in respect of gift cards by the Australian Parliament. However, stores and other businesses which provide gift cards have been covered by general provisions under either the ACL, if the cards are not considered a financial product, or similar provisions in the Australian Securities and Investments Commission Act 2001, if they are considered a financial product.2

A meeting of the Ministerial Council of Consumer Affairs (the MCCA) on 3 June 2011 considered concerns about gift cards - particularly in relation to expiry dates, but also more broadly. The MCCA commissioned a review of gift cards which was conducted by the Commonwealth Consumer Affairs Advisory Council (CCAAC), which in its turn issued its final report on 6 July 2012.3 As part of its process, the CCAAC took public submissions.

The CCAAC’s Report noted:

CCAAC found that there is a level of actual consumer detriment associated with the gift card market in relation to the terms and conditions of gift cards, particularly in relation to the expiration of gift cards and to a lesser extent some other terms and conditions.

One factor that contributes to the detriment is that the consumer who purchases the gift card is usually not the consumer who will use the card. Issuers need to ensure that they have done as much as possible so that the end user of the gift card is aware of any limitations on its use (including the expiry date). 4

While the CCAAC remained unconvinced that an expiry period as long as three years would benefit many consumers—generally speaking its view seemed to be that if a recipient did not use the card

1. Commonwealth Consumer Affairs Advisory Council (CCAAC), Gift cards in the Australian Market, Final report, July 2012, p. 27. 2. Ibid., p. 45. Cards are generally not considered a financial product but can be when they represent a non-cash payment facility. 3. Ibid.

4. Ibid., p. 4.

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within 12 months they were unlikely to use it at all—they recognised the value of standardisation in assisting the end user to understand the general terms and conditions.

The ACL, into which the Bill proposes to insert the gift card provisions, is a nation-wide consumer protection regime. The ACL itself appears in Commonwealth legislation as Schedule 2 of the CCA, and is reflected in the law of each state and territory through each jurisdiction’s applied legislation.

Two states have pre-empted these changes to the ACL. New South Wales has passed the Fair Trading Amendment (Ticket Scalping and Gift Cards) Act 2017 (NSW), which commenced on 31 March 2018 and which introduced a minimum three-year expiry for gift cards sold in NSW. South Australia has introduced a Bill, the Fair Trading (Gift Cards) Amendment Bill 2018, which has similar provisions.

While it would be possible to leave this issue to the states and territories, which as can be seen are commencing to act, nationally standardised provisions may provide more clarity and certainty, and would ensure consistency throughout Australia. Some gift cards, such as those sold by major department stores, can be used across Australia and having different conditions of sale in different jurisdictions would inevitably lead to confusion.

Another major issue that is frequently raised in relation to gift cards is that they become seemingly worthless in the case of the relevant business closing or going into receivership. This is not covered in this Bill; rather, the holder of a gift card in that situation becomes an unsecured creditor in line with normal rules concerning such matters.5

Committee consideration

Senate Standing Committee for the Scrutiny of Bills As at the date of writing, the Committee had not commented on the Bill.

Policy position of non-government parties/independents The Labor Party supports the Bill.6 No other comment by non-government parties or independents could be located.

Position of major interest groups Many of the submissions to CCAAC in 2012 from consumers and consumer advocates equated a gift card purchased in cash to cash itself, and questioned why they should be allowed to expire at all.7

On the other hand retailer organisations, such as the Shopping Centre Council of Australia, submitted that there were sound business reasons for having expiry dates. The Council was opposed to standardised expiry dates, commenting that different businesses have different needs.8

5. Ibid., p. 48.

6. M King, ‘Second reading speech: Treasury Laws Amendment (Gift Cards) Bill 2018’, House of Representatives, Debates, 16 October 2018, p. 67. 7. CCAAC, Gift cards in the Australian Market, op. cit. For example, see summary of submission of Consumer Law Action Centre, p. 79. 8. Ibid., p. 84.

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When New South Wales announced its intention to introduce similar legislation in 2017, industry group the Association for Data-Driven Marketing and Advertising was critical of the legislation being introduced without industry consultation.9 However, it did not specifically complain about the content of the legislation.

No comment from major interest groups could be found on this particular Bill. The Minister’s second reading speech noted that ‘consumers and businesses support this reform’.10

Financial implications The Explanatory Memorandum notes that there are no financial implications to the Commonwealth arising from the Bill.11 The Bill is however likely to impose some compliance costs on business, estimated at $9.4 million in total per year.12

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.13

Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights considers that the Bill does not raise human rights concerns.14

Key issues and provisions Item 6 introduces proposed Division 3A of Part 3-2 into the ACL. Part 3-2 of the ACL is entitled Consumer Transactions.

Proposed Division 3A is divided into seven clauses, numbered 99A to 99G sequentially. Proposed clause 99A defines gift card, the definition being consistent with the common understanding of that term. Regulations may specify kinds of articles which either do or do not fall within the definition (see proposed clause 99G below).

Proposed clause 99B sets a minimum expiry period for gift cards of three years from the date of supply of the card. This is a minimum period—a business can set a longer period if it wishes to do so as long as the provision in the following proposed clause 99C is adhered to.

Proposed clause 99C requires the supplier to display the expiry date prominently on the card; unless the card has no expiry date, in which case that must also be displayed prominently on the card.

Proposed clause 99D notes that a post-supply fee must not be applied to a gift card. An example of a post-supply fee might be an annual fee which reduces the credit amount available on the card. The CCAAC report commented:

9. Association for Data-Driven Marketing and Advertising (ADMA), ‘NSW set to get new gift card laws following selective consultation’, ADMA website, 5 October 2017. 10. S Robert, ‘Second reading speech: Treasury Laws Amendment (Gift Cards) Bill 2018’, House of Representatives, Debates, 20 September 2018, p. 41. 11. Explanatory Memorandum, Treasury Laws Amendment (Gift Cards) Bill 2018, p. 3. 12. Ibid. 13. The Statement of Compatibility with Human Rights can be found at page 59 of the Explanatory Memorandum to the Bill. 14. Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 11, 2018, Canberra, 17 October 2018, p. 72.

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There does not appear to be any reason why fees other than upfront fees should be applied to cover costs where gift card issuers retain gift card breakage and are able to make a return on sales. 15

Proposed clause 99E makes it further unlawful for a person to either demand or receive a post-supply fee.

Proposed clause 99F makes a term or condition of a gift card void, if that term or condition has the effect of, or tries to, set terms contrary to the intention of proposed clauses 99B to 99E. That is to say if a supplier and consumer were to attempt to agree to reduce the terms set out in the ACL, the agreed to terms would have no legal effect.

Each of proposed clauses 99B to 99F contains a note that pecuniary penalties may apply for breaches of the relevant sections. Items 8 and 9 amend existing clause 224 of the ACL to specify that the applicable pecuniary penalty is not to exceed $30,000 for a body corporate or $6,000 otherwise.

Proposed clause 99G allows regulations to be made relevant to provisions of proposed Division 3A of Part 3-2. The regulations, which will be disallowable instruments under the terms of the Legislation Act 2003, may exclude certain types of gift cards or persons, or gift cards supplied in certain circumstances, from the application of Division 3A of Part 3-2.

Item 7 introduces proposed Division 3A into Part 4-2 of the ACL. Part 4-2 sets out offence provisions relating to consumer transactions. Proposed Division 3A introduces five clauses, numbered 191A to 191E sequentially.

Proposed clauses 191A to 191D introduce offences relating to contravention of the provisions set out above in Division 3A of Part 3-2.

Proposed clause 191A introduces the offence of a person breaching the requirement to apply a minimum expiry period of three years.

Proposed clause 191B makes it an offence to breach the proposed requirement to provide information to consumers, by not having that information displayed prominently on a gift card.

Proposed clause 191C makes it an offence to include the payment of any post-supply fee as one of the terms and conditions of supply of a gift card. This is the case whether the supplier describes the terms and conditions in those words or by some other expression.

Proposed clause 191D makes it an offence to demand or receive post-supply fees.

Each of the offences set out in proposed clauses 191A to 191D is an offence of strict liability— which is to say that commission of the offence is sufficient on its own to prove that a penalty might apply; the offender’s intentions are not a relevant consideration. However, as a strict liability offence rather than an absolute liability offence, an accused person can raise as a defence honest and reasonable mistake.16

In each clause the maximum penalty is the same—$30,000 in case of a body corporate or $6,000 in the case of an individual. This is the same penalty as currently applies to breaches of lay-by provisions in Division 3 of Part 4-2 of the ACL. The correlation between gift cards and lay-bys seems a logical one— both are delayed purchase schemes.

15. CCAAC, Gift cards in the Australian Market, op. cit., p. 42. 16. See sections 6.1 and 9.2 of the Criminal Code Act 1995.

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Proposed clause 191E introduces a regulation-making power, allowing regulations to be made that limit the penalty provisions introduced.

Item 10 introduces a transitional provision into the ACL, the effect of which is to ensure that the provisions set out in this Bill will only apply to gift cards purchased after 1 November 2019. The purpose of introducing a lead time of around 12 months is to ensure that businesses selling gift cards have sufficient time to introduce any system changes that may be necessary to give effect to the provisions of the Bill.17

Other provisions Items 1 to 5 make a number of amendments to the Act to include references to the new clauses introduced into Part 3-2 the ACL. For example, items 2 and 3 bring the gift card provisions within the scope of the infringement notice scheme in the CCA, which means that the Australian Competition and Consumer Commission can issue infringement notices for breaches.

Concluding comments This Bill appears largely uncontroversial—while some businesses may consider that standardisation imposes additional requirements on them, this is counteracted by the transparency of conditions relating to gift card products that the Bill provides.

17. Explanatory Memorandum, op. cit., p. 13.

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