Aug / Sept 2013

Dear Consumer Law Review recipient

The Protection of Personal Information Bill has finished its journey through Parliament and has been sent on to the Office of the President. In this month’s edition we look at the practice of referral selling and whether it is legal to collect personal information from sources other than the person to whom the information relates.

One of the most controversial things in the Consumer Protection Act was its effect on fixed term agreements, particularly the fact that consumers can now cancel these agreements without any reason within 20 business days. Despite this fact, consumers are often denied this right or confronted with high cancellation fees. It is about time that we look at the legalities surrounding the cancellation of fixed term agreements.

Happy reading!

Elizabeth de Stadler is the editor of the Consumer Law Review, a senior associate at Esselaar Attorneys in Cape Town (http://www.esselaar.co.za) and a founding director of Novation Consulting (http://www.novcon.co.za). Her practice consists of general regulatory compliance audits; training and workshops on regulatory compliance; opinion work on the CPA, the National Credit Act, marketing law, data protection and contract law; and plain language drafting. She is also a founding director of Novation Consulting, a company which specialises in designing innovative and effective ways to communicate ‘legal’ documents to consumers.

She conducts regular workshops and training sessions on the CPA and other consumer legislation for businesses and for UCT Law@work, a unit situated within the Law Faculty at the University of Cape Town. She is the co-author of a consumer law textbook and a guide to plain language legal drafting, both of which are to be published by Juta Law.

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IN THIS EDITION OF THE CONSUMER LAW REVIEW

— Consumer law in parliament

— Intro to PoPI (part 7): Referral selling - is it ok to ask consumers for the personal information of others?

— Cancellation of fixed term agreements, once and for all

— Plain language tip

Consumer law in Parliament

The biggest news this month is that the Protection of Personal Information Bill has cleared its last hurdle in parliament and has now been sent to the President for his signature. After signing it, the President has to announce the commencement date by notice in the Government Gazette. Suppliers must be PoPI compliant within one year of the commencement date. Predicting that date will be difficult at this stage. Read the full report on Legalbrief Policy Watch. Make sure that you have the latest draft of the Bill.

New rules to curtail the abuse of garnishee orders are in the works, according to the Banking Association (see ‘Abuse of garnishee orders to be reined in’ (26 August 2013) Business Day). Calls for tighter regulation of debt collection have come from far and wide (see ‘Garnishees “exploit all South Africans” – Webber Wentzel’ (15 August 2013) Moneyweb.co.za and ‘The ungarnished truth’ in the November/December 2012 edition of Consumer Law Review). The problem of course also points to unhealthily high rates of indebtedness in this country. One of the suggestions made by Webber Wentzel is that a cap must be placed on the amount which can be deducted from a consumer’s salary, as is currently the case in respect of state employees in terms of the Public Finance Management Act.

Intro to PoPI (part 7): Referral selling - is it ok to ask consumers for the personal information of others?

Marketing strategies which include free products or reduced prices if the consumer gives the supplier the contact details of other potential consumers are quite common. This is what is referred to as ‘referral selling’. This practice is regulated by section 38 of the Consumer Protection Act, but will also be affected by the Protection of Personal Information Bill when it comes into effect.

The Consumer Protection Act

Referral selling is prohibited. This means that is very important for suppliers to determine whether their marketing strategy falls within the definition of referral selling in the CPA or not. Section 38 provides that a supplier cannot offer a consumer a ‘rebate, commission or other benefit’ for giving the supplier the names of other consumers or if the consumer ‘otherwise assists the supplier to supply goods or services to other consumers’. However, this is only prohibited if ‘that rebate commission or other benefit is contingent upon an event occurring after the consumer agrees to the transaction.’ This means that there are three requirements before a supplier will be engaging in illegal referral selling.

(a)        There must be a rebate, commission or other benefit given

In order for there to be referral selling the consumer must be offered something in exchange for assisting the supplier. The wording of the section is wide. It includes the rebates, commissions or any other benefit. Examples include discounts, additional free products, vouchers for future purchases etc. The point is that it includes any other benefit, not just the obvious ones.

(b)        In exchange for names of consumers or other assistance

The consumer must qualify for the benefit by either giving the supplier the names of other consumers or ‘otherwise assist[ing] the supplier to supply goods or services to other consumers’. This means that referral selling not only refers to the supply of names but also any other information which assists the supplier in supplying its products.

(c)        The benefit must be ‘contingent upon an event’ which takes place after the consumer agrees to the transaction

The third requirement is the hardest to interpret. A strategy will not be referral selling (and will therefore be legal) if the benefit is not ‘contingent upon an event occurring after the consumer agrees to the transaction.’ The events described here are buying a product or opening an account. So if a new sale has to take place before the consumer qualifies for the benefit, the marketing strategy qualifies as referral selling and is illegal. If all the consumer has to do is to provide the details of other persons to qualify, the practice is not referral selling and is legal in terms of the CPA. However, this is not the end of the story, as the practice of collecting personal information will soon be governed by the Protection of Personal Information Bill.

The Protection of Personal Information Bill

The collection of personal information by enticing consumers to provide names of other persons in exchange for a benefit will also be governed by the Protection of Personal Information Bill. Go to ‘Intro to the Protection of Personal Information Bill (part 1): When does POPI apply?’ in the September 2012 edition of Consumer Law Review for a refresher on when the Bill applies. In this case the supplier is clearly collecting (which is covered by PoPI as a form of ‘processing’) personal information. Although the Bill contains no specific provisions relating to referral selling, all of its requirements will apply.

The first hurdle which suppliers will have to overcome is section 12 which provides that data must be collected directly from the ‘data subject’ (the person to whom the information relates). For purpose of this article, I will focus on that rule, but note that all the other rules in PoPI will apply. There are a couple of exceptions to this rule:

• Information can be collected from a public record. The rule is also not applicable if the information was deliberately made public by the data subject. The fact that the information was known to other individuals (a friend who has your contact details for instance) does not mean that it was ‘public’. Also the fact that it was made public by someone other than the data subject does not mean that this exception applies.

• If the data subject has given their consent the information can be obtained from another source. In the context of referral selling this exception is rather useless given that generally the supplier will be collecting contact details.

• If the collection from the other source would not ‘prejudice a legitimate interest of the data subject’. The scope of this phrase is not clear. If one accepts that all people have a right to privacy and that that in itself is ‘a legitimate interest’, its scope becomes very narrow given that the legitimate interest in privacy will invariably be prejudiced if personal information is collected from another source without the data subject’s consent.

• It will be acceptable if the collection is made from another source in order to ‘avoid prejudice to the maintenance by the law’ and it is made by a public body. The typical example here is where a person’s information is being collected for purposes of the prosecution or prevention of a crime.

• SARS can collect personal information from sources other than the data subject.

• If the information is being collected for ‘the conduct of proceedings in any court or tribunal’ it can be collected from sources other than the data subject.

• If the collection is in the interests of national security it can be collected from other sources.

• Here is a difficult one: Information can be collected from another source ‘to maintain the legitimate interests of the responsible party or of a third party to whom the information is supplied’. In the context of referral selling, it will always be in a supplier’s interest to acquire the personal information of a prospective consumer in order to market to them. The use of ‘legitimate’ does not really limit the enquiry much. It means that the interest must be lawful or justified (see this definition on Oxford Online Dictionaries). It is likely that suppliers will use this definition to justify the use of referral selling as a marketing tool. However, it is equally likely that a bare commercial justification will not outweigh the consumer’s right to privacy.

• If collection directly from the data subject will ‘prejudice a lawful purpose of the collection’, collection from another source will be lawful. This exception is equally wide and difficult to interpret in this context.

• If ‘compliance is not reasonably practicable in the circumstances of the particular case’ the information can be collected from a source other than the data subject. The question here would therefore be whether it would have been practical to expect of a supplier to rather collect the information directly from the data subject. In the context of direct marketing this raises the question how the supplier must gather information directly from the data subject if what it is collecting is the contact details (or identity) of a prospective consumer.

My opinion is that the days of collecting contact details of prospective consumers from consumers are probably numbered. Note also that I am not only referring to referral selling in the narrow sense contemplated in the CPA. Even practices which do not meet requirement (c) discussed above, will probably not be PoPI compliant. However, the exceptions to section 12 of PoPI leave suppliers with a lot of wriggle room.

If the information is being collected for purposes of sending electronic direct marketing to the prospective clients, the supplier must be careful not to contravene section 69 of PoPI as well as sections 11, 16, 20(2)(a), 32 and regulation 4 of the CPA. The CPA will apply to both electronic and non-electronic direct marketing. See ‘Direct marketing: opt-in or opt-out’ at www.esselaar.co.za for a discussion of direct marketing under the CPA and PoPI.

Previous articles in this series

This was the seventh article in a series of introductory articles on PoPI. Here are the previous articles (they are all available on www.jutalaw.co.za or www.esselaar.co.za):

#1	When does POPI apply?	September 2012
#2	When is the processing of information lawful?	October 2012
#3	Why are you collecting my data?	November/December 2012
#4	The role of consent	January 2013
#5	Rethinking privacy policies	May/June 2013
#6	Information security	July/August 2013

Cancellation of fixed term agreements, once and for all

One of the most common questions I get from consumers relates to whether suppliers can refuse to let them cancel fixed term agreements. In fact, it has happened to me a couple of times too: I am thinking of that gym contract I have never used or of switching to another mobile network operator. When consumers attempt to cancel these contracts they are often told that they can only do so by giving notice on a very specific date prior to the renewal date, that they are too late and that the contract has already renewed for another fixed term and/or if they do cancel they will be faced with significant cancellation charges.

The CPA contains some very specific provisions about fixed term agreements. Specifically, it provides that:

• consumers can cancel any fixed term agreement for no reason, by giving 20 business days’ notice; and

• fixed term agreements can no longer automatically renew for the entire period just because the consumer did not inform the supplier of his or her intention not to renew.

There are two limitations. Firstly, these two principles only apply in respect of ‘fixed term agreements’. A fixed term agreement is an agreement which is meant to endure until a specific date. The termination date will either be indicated in the agreement (i.e. ‘this agreement will terminate on 1 September 2013’) or the termination date will be discernible from the agreement (i.e. ‘this agreement will terminate one year after the date on which it was signed’). Secondly, these two principles will only apply in agreements between natural and juristic persons. If the agreement is between two businesses, the consumer does not have these rights and the supplier is free to impose different terms.

So, suppliers can no longer stop consumers from cancelling a fixed term agreement on 20 business days notice, and, save for a reasonable cancellation penalty, that right cannot be limited. This reasonable cancellation penalty must be in relation to ‘any goods supplied, services provided, or discounts granted to the consumer in contemplation of the agreement enduring for its fixed term, if any’ (see section 14(3)(b)(i)). This means that the supplier cannot charge a penalty if, for example, no such discount was granted to the consumer; i.e. the supplier cannot charge a penalty simply to recoup the loss of profits or to discourage the consumer from cancelling, if no such discount was granted, goods supplied or services provided.

In addition there are various factors in regulation 5(2) which can be taken into account when determining whether a cancellation penalty applies. They include the value of the transaction up to cancellation, the duration of the agreement, the nature of the goods or services etc. In particular, the supplier cannot charge a cancellation penalty which has ‘the effect of negating the consumer’s right to cancel a fixed term agreement’ (regulation 5(3)). This means that the cancellation penalty cannot be equal to the remaining payments which the consumer would have made.

Apart from cancelling on 20 business days’ notice, the consumer can cancel the agreement ‘upon the expiry of its fixed term, without penalty or charge’ (section 14(2)(b)(i)(aa)). In addition, suppliers are required to remind consumers (between 80 and 40 days before the termination date) of the ‘impending expiry date’ and inform them of their right to terminate (section 14(2)(c)). Automatic renewals for the entire term of the agreement are no longer permitted. If the consumer fails to choose between terminating or renewing the agreement, the agreement continues on a month-to-month basis (section 14(2)(d)). So, this means that an agreement which only gives the consumer a limited window period within which to cancel the agreement failing which it will renew automatically, is not legal.

So last week, I tried to cancel a fixed term agreement for the supply of access to wireless internet and a modem on a 24 month contract. In response I received the following e-mail:

‘Kindly advised that you’re on a 24 months contract which expires end of November 2013;   to terminate the contract as an early termination you’ll be compelled to pay penalty within the CPA Act which consists of:

a)    Only 25% of the remainder of the contract

b)  The difference between a new hardware VS and a 2nd hand hardware (to recover the cost of the hardware)

c)    Arrange the collection of the company’s hardware

Otherwise you can request to cancel the contract anytime in October 2013 and will be scheduled for end of contract. ’(sic)

Here are my comments:

• Whether 25% of the remainder of the contract is reasonable or not, I cannot say. The company will have to be able to show that the penalty is related to a discount or services given in contemplation of the agreement running its full course and that it is reasonable. The fact that there were only two months remaining on the contract would suggest that charging a quarter of the price is excessive.

• It is not reasonable to expect me to compensate the company for the depreciation of the modem in value. The use of the modem was taken into account when calculating the price. In this particular case I had already been using (and paying) for the modem for 46 months (the contract had already been renewed once). The supplier would have to show the exact amount which they are losing as a result of my early cancellation.

Plain language tips

Avoid redundant words

Legal practitioners are often guilty of using three words when one would do. The following passage describes the problem very well:

‘Seeking to be precise, we become redundant. Seeking to be cautious, we become verbose. Our sentences twist on, phrase within clause within clause, glazing the eyes and numbing the minds of our readers. The result is a writing style that has, according to one critic, four outstanding characteristics. It is: “(1) wordy, (2) unclear, (3) pompous, and (4) dull.”’

(Richard C Wydick ‘Plain English for Lawyers’ (1978) 66(4) California Law Review 727 at 727)

Here are some typical examples of oft-used phrases that contain redundant words:

alter or change

cease and desist

for and during the period

force and effect

full and complete

give, devise, and bequeath

last will and testament

made and entered into

by and between

order and direct

perform and discharge

rest, residue, and remainder

save and except

suffer or permit

true and correct

undertake and agree

unless and until

© Elizabeth de Stadler and the Unit for Document Design at the Stellenbosch University Language Centre

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