Misleading and Deceptive Conduct in Australian Consumer Law

When preparing advertising it is important to keep the target audience in mind. Courts have concluded that advertisers should know that readers will include the shrewd and the gullible, the educated and uneducated, with varying degrees of experience in commercial transactions. Prospective buyers should not have to “read between the lines”.

This means that leaving out relevant facts can be just as misleading or deceptive as including inaccurate or incorrect information. Accordingly, an advertisement may be considered misleading even though it may not deceive more wary readers.

So what is a fair ad?

An advertisement will be compliant with advertising laws if it meets the test of truthfulness and does not attempt to hide or not disclose important information which would otherwise assist the prospective purchaser to make an informed choice.

Start by asking two fairly straight- forward questions: ‘Is it the truth?’ and ‘Does the ad convey a truthful impression overall?’.

’Special’ price

Price is a major factor in most consumer purchasing decisions. Advertisements referring to price should clearly indicate the price at which people responding to an advertisement can buy the advertised goods.

It is illegal to advertise special prices and imply substantial savings when, in fact, the goods and services are normally sold at those “special prices”. Such claims create a belief that savings are possible when they are not and are therefore deceptive and misleading.

Advertisements offering to sell goods at a reduced price, a discounted price, a special price or a lower than normal price, must be accurate.

The price must be significantly lower than most competitors’ prices for similar items or lower than the advertiser’s previous price and thus offer significant savings.

Advertisers must be able to substantiate claims when challenged.

‘Dollars” off savings

A price reduction for a product shown as “$X off ” or “Save over $X”, implies that the saving is off the “normal selling price” or the recommended retail price (RRP).

This, of course, is if the “normal selling price” or RRP can be regarded as the usual price for that product.

If there is a challenge about the price reduction claim the advertiser would need to demonstrate that they had either sold a number of items at the higher price or at least had them offered for sale at the higher price for a “reasonable” period.

The number of items sold or the length of a “reasonable” sale period will depend on the type of items offered for sale.

If there is no RRP for the goods being sold, it is misleading for an advertisement to claim that there is one.

Price comparisons

All forms of comparative advertising including “Sale” or “Discounted” prices must be legitimate.

If an advertiser claims prices have been reduced, they must be able to prove it.

They must have offered the goods for sale previously for a reasonable period of time and in reasonable quantities at the higher rate.

It would be breaking the law to offer a product for sale at an inflated price and then reduce the price shortly afterwards.

For example: Advertising the product with “Save $300 – was $1000, now $700”.

The higher price comparison must be a sustainable market price offered for a reasonable period before a legitimate saving can be claimed.

Finance and advertising

If your advertising refers to the cost of credit in any way (for example, that you can provide a cheap finance deal, or you invite your customers to compare your rates), then you are required to include certain information.

Your advertisement need not contain an annual percentage rate, but it must do so if it contains an annual percentage rate and credit fees and charges are payable.

In such a case, the advertisement must state that fees and charges are payable, or specify the amount of the fees and charges payable, or specify the amount of some of the fees and charges payable and state that other fees and charges are payable.

You may also wish to include a comparison rate. The formula for comparison rates is set out in the Credit Act.

As with the other aspects of your advertisement, you must make sure that the impression you give when referring to credit is not false or misleading.

Ambush advertising

Ambush advertising is when an advertiser makes an offer purporting to beat any offer elsewhere.

While this can be an effective marketing tool, it may also create problems for the advertiser.

When advertising in this way, the advertiser must be prepared to honour the offer being made.

If a competitor is prepared to sell goods at a price cheaper than they could possibly match, the advertising would clearly be false and misleading.

Fine print exclusions

In monitoring advertising standards,Consumer Protection pays particular attention to “fine print exclusions”.

The overall impression created by an advertisement is important.

Qualifications of claims in small print may not correct a misleading impression created by other more prominent words in the advertisement.

Australian courts have sent clear messages that they expect qualifying expressions in advertising or product descriptions to feature as prominently as other elements that create a general impression.

“Conditions (that) apply” at the bottom of an advertisement must not contradict the basic thrust of the advertisement.

Although typography is important in effective advertising, the overall impression from any print advertisement must not be misleading.

For example, a fine print exclusion would materially alter the overall impression of an advertisement if a bold banner claiming “50% off all stock” was supplemented by small print stating “Except manchester, and furniture”.

Illustrations and photos

Photographs, drawings and other images must correspond with the advertised price and product.

The reader or viewer should reasonably expect to be able to buy the product featured in

Modifications to photos described in the above examples are the advertisement at the price mentioned.

For example, it would be considered a breach of fair trading law to show a current model product if, in fact, the price shown is for a superseded or inferior model.

Similarly, it would be misleading to use the words “From $X” and depict only the top of the range product, and not the product that is available for the advertised price.

Non-stop sales

Continuous advertising of goods or services at “sale” or “reduced” prices is illegal.

For example, if a retailer regularly had a “50% off sale” over a period of time, the 50 per cent price would be considered the retailer’s normal or regular selling price.

“Clearance”, “closing down” and “liquidation” sales should all clearly distinguish imminent business closure and mere stock clearance.

Bait advertising

Bait advertising is so called because it offers a “bait” to draw customers to the store or business and they can get “caught” as a result.

Enticing prospective customers into stores when there are reasonable grounds for believing that the goods will not be in the store or are unlikely to be available for a reasonable time at the advertised price, is unlawful.

Therefore reasonable stocks must be available to satisfy the expected demand generated by any advertisement.

The definition of what is a “reasonable period” or “reasonable quantities” will vary from one situation to another, depending on the nature of the goods or services advertised.

When offering goods for sale, sufficient quantities of goods to meet anticipated demands must be available, unless clearly stated otherwise.

An advertiser can specify exactly how many items are available for sale at the special price, providing it is made clear in the advertisement.

If an advertiser is unable to supply goods at the advertised price, they may offer a “rain-check” or equivalent goods at the advertised price to maintain goodwill.

An advertiser has the option of nominating the period of time for which such an offer is available.

However, any restrictions must be stated clearly.

For example, statements such as “Today only” or “Weekend Special” or “Only until Saturday” are acceptable, but must be clear to the reader.

The term “special price” means the price is a reduced or bargain price by comparison with an “ordinary” price.

Once again, the advertiser must be able to substantiate that the goods were available at the “ordinary price” for a “reasonable” period of  me.

Percentage discounting campaigns

Advertising campaigns that state “Up to 50% off ” are likely to cause consumers to believe a number of items are discounted by 50 per cent and that all other items within the store will also be discounted to some degree.

An advertiser should not advertise this type of saving if only a few items are offered at 50 per cent off and the remaining items in the store are offered with little or no discount at all.

They must be able to show that the customer is really saving money.

To limit the stock included in this type of campaign, you could use terms like “Up to X% off all CDs” or “Up to X% off selected items”.

The test is that it must be clear to the consumer that not all stock is discounted.

Price reductions

To claim that prices are reduced from the “manufacturer’s recommended retail price list” is misleading and deceptive unless the prices are those at which goods are normally sold within that industry.

If the recommended retail price is not widely accepted in the trade, the comparison may be misleading as no real saving is being offered.

This is particularly relevant in industries where technology changes rapidly or models are continually upgraded.

For example, a video recorder may have a recommended retail price of $1,000 and at the same time be a two-year-old superseded model, which is actually selling elsewhere for $600. In this instance it would be considered misleading to advertise “Recommended retail price $1,000 – now $600”.

Correction notices

Consumer Protection recognises that while advertisers generally make every endeavour to be accurate, there will be occasions when errors occur.

We recommend that as soon as a mistake is identified, an apology or clarification statement is placed in the publication in which the error occurred. If the error was in a catalogue or brochure, then a newspaper correction would also be acceptable.

Prominent notices at store level informing prospective customers of the misrepresentation are also good practice.

Publication of corrections does not mean that, in some circumstances, Consumer Protection will not make further investigations.

Gifts and prizes

If you offer gifts or prizes as part of an advertising campaign and don’t intend to supply the gifts or prizes or intend to supply gifts or prizes different to those advertised, then you would breach the law.

If consumers were required to pay more to claim a “free gift ” or if you advertise a cash prize when only store credit will be offered, the advertisement would be unlawful.

Advertising must reflect your intentions accurately and honestly.

Introductory offers

An “introductory” offer is an offer of a product or service that you have not previously provided.

Clearly, it is impossible to make a price comparison in any “introductory” offer because you would not have established a regular selling price. If you can substantiate it, you may make claims such as: “Sells elsewhere for $X – our price $Y” or “RRP $X – our price $Y”.

The offer should run for a restricted “reasonable” time only, after which it would clearly be misleading to continue to describe it as an introductory offer.

The law does not define “reasonable” time for such offers, but in most cases weeks rather than months would be considered reasonable.

To make it clear to potential purchasers, it would be advisable to state the date on which the offer expires.

Acknowledgement

We would like to acknowledge the co-operation and contribution of the WA Department of Commerce.

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