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EUROPE, MIDDLE EAST AND AFRICA: SOUTH AFRICA
PROMOTIONAL COMPETITIONS IN SOUTH AFRICA: NEW CONSUMER PROTECTION ACT INTRODUCES SIGNIFICANT CHANGES
Author: Danie Strachan, Adams & Adams
BACKGROUND
The Consumer Protection Act (the “CPA”) came into force in full in South Africa on 31 March 2011. This heralded a new era in South Africa, since this country did not previously have any comprehensive consumer protection legislation.
The CPA applies to the promotion or supply of goods and/or services inside South Africa, even though the supplier might be located outside of the country. It regulates a variety of issues, including strict product liability and standard product warranties.
There are also a number of provisions aimed specifically at advertising, marketing and promotions. In this context, the CPA deals with matters such as direct marketing, bait marketing, loyalty schemes, referral selling and negative option marketing. It has introduced a number of requirements not previously found in South African law.
REPEAL OF PREVIOUS LEGISLATION
Until recently, promotional competitions were governed in South Africa by Section 54 of the Lotteries Act, 1997. The Lotteries Act was accompanied by detailed regulations which contained somewhat complicated requirements for the conducting of promotional competitions.
The CPA has now repealed Section 54 of Lotteries Act. In its place, the CPA has introduced new provisions relating to the running of promotional competitions in Section 36, as well as some provisions contained in the CPA regulations.
NOTEWORTHY NEW PROVISIONS
One of the most significant issues under the Lotteries Act was whether a promoter could charge an entry fee to participants in a promotion competition. Technically, the position used to be that no consideration could be charged at all. However, in practice, entrants often had to make payment of some kind even if it was merely the charges of sending a premium rated text message to enter the competition. The CPA regulations have now clarified this position by specifying what costs will be allowed.
The CPA’s provisions do not prohibit promoters from requiring that participants must purchase qualifying products in order to enter a promotional competition. However, the promoter must comply with the CPA’s provision in this regard. For instance, the price charged for those products may not be more than the price ordinarily charged.
Under the Lotteries Act, there was no requirement that the conducting of a promotional competition had to be overseen by an independent auditor or the like. This position has been changed by the CPA. Section 36 requires that promotional competitions must be certified and provides a list of persons that can conduct such audits. The relevant person must also report the certification through the promoter’s internal audit reporting procedures.
The CPA requires promoters to prepare competition rules before the start of a competition. The rules must be made available to the National Consumer Commission or any consumer, at their request and without any charge. The CPA prescribes a number of matters that must be dealt with in competition rules. It also prescribes what information must be retained regarding a promotional competition for the specified period.
The new legislation now also regulates matters such as the use of winners’ images and their participation in marketing activities. It also prohibits certain statements regarding consumers’ rights to enter competitions as well as announcements regarding prize winners.
STRICT PENALTIES
The administration and enforcement of the CPA is handled by the National Consumer Commission. The Commission considers complaints and can also conduct its own investigations. It is empowered to issue compliance notices and can apply for fines to be imposed on suppliers by the National Consumer Tribunal. Since its recent establishment, the Commission has already issued compliance notices and conducted investigations into various industries.
The CPA makes provision for significant administrative penalties, up to a maximum of 10% of a supplier’s annual turnover. There are also criminal sanctions for certain offences.
CONCLUSION
The new legislation that now governs promotional competitions in South Africa has, to an extent, simplified the regulatory system. However, there are some particular requirements that promoters will have to get used to. Nevertheless, the additional protection will probably be welcomed by consumers.
Marketers and suppliers should not only familiarise themselves with the new provisions relating to promotional competitions, but also be careful to comply with the CPA’s other provisions relating to marketing and promotions in general.