What are Prejudicial Terms?

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What are Prejudicial Terms?

A key focus of consumer-focused regulation is to address information asymmetry, so that consumers can make informed choices. Sections 47A and 47B of the NSW Fair-Trading Act require that businesses disclose any:

  1. key terms that may have a prejudicial impact on the customer; and
  2. commissions received or payable to a third party should the customer proceed with a transaction.

The purpose of these disclosure obligations is to ensure that customers are well-informed and have all relevant information required by them to make a decision.  

When did this new obligation commence?

These disclosure obligations took effect on 1 July 2020.

Who regulates this new obligation?

As these obligations apply to all sectors of businesses within NSW. The responsibility to monitor and enforce compliance with these obligations rests with the NSW Fair Trading.

What are examples of prejudicial terms in the context of energy market agreements?

Examples of prejudicial terms will vary from retailer to retailer, and as a result, retailers must examine their entire suite of products and services and ensure all key terms are clearly disclosed to customers prior to signing up.

An example of a prejudicial term in an energy retail contract– is if a customer signs up for a $0 energy plan that is subject to the customer meeting certain ongoing eligibility criteria, the retailer must disclose to the customer any term that would result in the customer being kicked off the energy plan.

What do businesses need to do to ensure compliance?

Energy business may not need to change much in the form of disclosures that they make because the existing ‘explicit informed consent’ obligations require retailers to explain to their customers all matters ‘clearly, fully, and adequately’ relevant to the customer’s explicit informed consent and before the customers enter in a market contract.

Therefore, energy retailers should be well across these obligations unless the process for some energy retailers is to simply inform customers of information specific to the product.

If energy retailers do engage third-party providers, we recommend reviewing their sign-up process to ensure compliance with section 47B of the Fair Trading Act.

What are the consequences of non-compliance?                

Apart from the obvious interruptions to the operations of a business such as brand impact, customer loss of trust, and regulatory investigations, which may result in loss of revenue as key stakeholders within a business would need to divert their attention to the support and completion of this investigation, there is a possibility depending on the outcome of the investigation that the NSW Fair Trading may issue an infringement notice.

What must energy retailers do?

We recommend that energy retailers review their customer sign-up process and disclosure material and those of any third party agents.  

Important Links

New disclosure obligations for NSW businesses | NSW Fair Trading         

FAIR TRADING ACT 1987 – SECT 47A Disclosure of prejudicial terms relating to the supply of goods or services (austlii.edu.au)

FAIR TRADING ACT 1987 – SECT 47B Disclosure of referral fees, commissions, etc (austlii.edu.au)

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