The Finance Minister has significantly bolstered the Fair Trading Act, giving it more teeth to go after companies that run misleading promotions.
"New Zealand's Fair Trading Act regime has become outdated," Nicola Willis said.
Under the current law, companies which advertise a special promotion price but fail to charge it at the checkout face a $600,000 fine.
Willis said the penalty doesn’t do enough to deter would-be bad actors – so she's raising it to $5 million.
That fine becomes higher still for more egregious examples of misleading consumers.
Companies will soon face a fine three times the value of the commercial gain made, or loss avoided, if they are found to be misleading customers over pricing.
"Our message is really clear. Business, play by the rules. If you don't, there will be consequences,” Willis said.
The law change comes after the Commerce Commission reported an almost 23% rise in the number of fair trading complaints made over the past five years.
The changes mean companies with misleading advertising facing fines of up to $5 million. (Source: 1News)
Earlier this year, two Pak’n’Save supermarkets pleaded guilty to seven charges of incorrect pricing.
The Commerce Commission also filed criminal charges against Woolworths for alleged inaccurate pricing and misleading specials.
Commerce Commission Deputy Chair Anne Callinan has backed the rule changes.
"We're really pleased to hear that the penalties will increase and we think that that will make a huge impact in terms of being able to set deterrents against illegal conduct,” Callinan said.
Consumer NZ Chief Executive John Duff has also welcomed the law reform.
"We're often talking about multinationals here who are facing far stiffer penalties in other jurisdictions. So it's really important that our penalties provide a deterrent that's similar to overseas jurisdictions,” Duff said.
In Australia, the maximum financial penalty for breaches of fair trading laws is AU$50 million (NZ$57.5 million), three times the benefit obtained, or 30% of turnover.
But Duff has called for the government to go further and make it illegal for company directors to take out insurance against penalties.
"That puts us quite out of step with overseas jurisdictions and effectively says to those businesses that can afford good insurance: 'Hey, you don't need to really worry about Fair Trading Act compliance because you'll be covered by insurance anyway,” Duff said.
Willis said that, following consultation with business and other groups, the Government has decided not to proceed with proposals to stop directors taking out insurance or indemnifying themselves from penalties under the Act.
“We have also opted not to progress proposals to expand infringement fees and unfair contract terms provisions,” Willis said.
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