Consumer Protection Act


Information provided with the kind courtey of
Neesa Moodley-Isaacs

The Consumer Protection Act (CPA), which came into effect on Thursday this week, significantly strengthens your rights as a consumer. But at this early stage of the Act’s life, both consumers and suppliers remain at a loss as to how many of the Act’s provisions should be interpreted. The details of the new law are spelled out in regulations that were finalised and released by the Department of Trade and Industry (DTI) only yesterday.

The CPA has been long awaited as legislation that effectively gives you, the consumer, the advantage when you deal with suppliers. Transactions covered by the CPA include any purchases you make or instances where you pay for a service. The issues dealt with by the Act include direct marketing, the use of simple language in contracts, and the prohibition of unfair terms and conditions.

While many of the financial ser-vices that you use will continue to be regulated by earlier legislation, contracts that have financial implications – such as transactions that involve estate agents, cellphone contracts and property syndications – will now be covered under the CPA. The Act also introduces consumer courts in each province where you will not require legal counsel and your complaint will be heard for free. However, only four provinces have operational consumer courts. When the CPA was enacted, its effective date was initially set for October last year, but implementation was postponed for six months, because the regulations were not finalised in time.

Minister of Trade and Industry Rob Davies said in September last year: “The DTI is in the process of finalising regulations which will give effect to the legislation, and believes that this postponement will also give business and the public sufficient time to prepare themselves for compliance with the new law.” This did not happen, and the regulations were issued at the last minute yesterday, a day after the Act became effective, leaving businesses scrambling to comply.

However, Zodwa Ntuli, the deputy director-general of the DTI, says there will be some leeway for businesses to work together with the National Consumer Commission (NCC) to ensure that they comply with the Act. Despite Ntuli’s statement, the regulations do not specify the date by which businesses must comply with CPA, which implies that they are expected to comply with immediate effect.

Paul Esselaar, an attorney who specialises in consumer law and the proprietor of Esselaar Attorneys, says the DTI has done a “massive disservice” to South African business. Esselaar says because the regulations were published at the last minute, it will take time and be difficult for consumers and companies to interpret the implications of the regulations and to implement them. “If the regulations ... indicate that immediate compliance is required, then you are likely to have a situation where a number of companies will be contravening the law through no fault of their own,” he says. Esselaar says that if, for example, you lodge a complaint under the CPA in the near future, the company may be able to argue in the Constitutional Court that it could not immediately comply with the Act given the late publication of the regulations.

Trudie Broekmann, a senior associate at law firm Webber Wentzel, says the CPA will affect almost every business in some way, but it will be impossible for companies to comply in full with the Act immediately. Broekmann points out, for example, that companies are no longer allowed to have terms and conditions in their contracts that are considered unfair, unreasonable or unjust. “But the grey list of what constitutes unfair, unreasonable and unjust terms and conditions is listed in the final regulations. It is unfair to expect legal advisers and companies to already have established which terms are considered unfair, unreasonable or unjust when the regulations were only published this Friday,” she says.

Another confusing issue for consumers is whether insurance contracts will now fall under the CPA, with opposing views between the DTI and the industry (see “Some of the issues that still have to be resolved”, below). Brian Martin, the Ombudsman for Short-term Insurance, says it is extremely naïve to think that the financial services industry, which is complex, can be lumped in the same basket as retailers that sell toasters. “There are, however, instances where insurers may indirectly fall under the ambit of the CPA. For example, if your geyser bursts and your insurer agrees to send a plumber out to repair the geyser, the plumber and the geyser repair service will fall under the CPA. Under these circumstances, the insurer will form part of the supply chain and will fall under the CPA,” he says.

The financial services industry is also confused about recognition of their ombuds to hear complaints under the CPA. The Act makes provision for the Minister of Trade and Industry to appoint new ombuds, created in terms of an industry code under the CPA. It states that any such ombud must be accredited by the NCC before it can rule on CPA consumer rights. This week, the DTI caused confusion by releasing draft guidelines for the accreditation not only of new ombuds schemes but also for the existing ones.

Prudence Moiloa, the director of complaints resolution at the office for consumer protection at the DTI, says the NCC is in discussions with the Financial Services Board (FSB) about the accreditation of existing ombud schemes under the Financial Services Ombud Schemes (FSOS) Act. These schemes include the Ombudsman for Short-term Insurance, the Ombudsman for Long-term Insurance, the Credit Ombud and Ombudsman for Banking Services. Martin says the FSB has sent a circular to the NCC saying that existing FSOS ombuds fall outside the CPA. He says the NCC in turn has indicated that it is seeking a legal opinion on the matter.


Some of the issues that still have to be resolved

A number of aspects of the Consumer Protection Act (CPA) were clarified only this week, while others may be resolved only once the National Consumer Commission (NCC) or a consumer court rules on a case that comes before it. These aspects include:

* Insurers. The long-term and the short-term insurance industries believe that they have been granted a temporary exemption from the CPA until October 2012, by which time the Long Term and the Short Term Insurance Acts are expected to have been amended to bring them into line with the CPA.

According to the Department of Trade and Industry (DTI), if the two insurance Acts have not been amended by October 2012, then both the insurance legislation and the CPA will apply to the financial services industry concurrently and the CPA will take precedence wherever the CPA offers consumers more protection. However, the DTI has said that in the interim insurers should change their processes so that they comply with the CPA from its effective date. Financial advice is excluded from the CPA, because it is already covered by the Financial Advisory and Intermediary Services Act.

* Property lease agreements. There is substantial disagreement among the legal fraternity over whether or not property lease or rental agreements fall under the CPA. For example, Deneys Reitz Attorneys has held seminars at which it has said that these agreements do not fall under the CPA, whereas law firm Webber Wentzel is of the opinion that property lease agreements do fall under the CPA.

* Estate agents. Ebrahim Mahomed, the deputy commissioner at the NCC, confirmed only this week that estate agents do not fall under the section of the CPA that regulates intermediaries, because estate agents are governed by the Estate Agency Affairs Act. However, estate agents will have to satisfy other requirements of the CPA. For example, they will have to use plain language in their sales agreements and ensure that you understand the terms and conditions.


What’s in the regulations

The regulations under the Consumer Protection Act (CPA), which were released shortly before lunch yesterday, include the following issues:

* Direct marketing. Direct marketing is defined as any approach to offer you goods or services for sale. Direct marketing can take place in person or by mail or electronically (phone, fax, email or SMS). An example would be an SMS from a finance company that invites you to apply for a loan, or a flyer from an estate agent about properties for sale in your area.

The regulations state that the phrase “no adverts” on your post box or post office box or on any other container for mail is sufficient to indicate that you do not wish to receive any material related to direct marketing. A national registry where you will be able to record that you do not wish to receive any direct marketing offers will be established. Direct marketers will be required to check the register before they contact you.

* Fixed-term contracts. The maximum duration of fixed-term contracts, such as cellphone contracts, is stipulated as 24 months from the date of signature, unless you expressly agree to a longer period and the cellphone company or service provider can show that a longer contract will be of financial benefit to you.

* Promotional competitions. The cost of submitting an electronic entry (such as an SMS) is restricted to R1.50 per entry.

* Alternative work schemes. Advertisements that state that you can earn huge amounts of money by working from home are required to contain a statement that cautions that the offer is not a promise or a guarantee.

* Property syndication schemes. The regulations specify the information that promoters of property syndication schemes must disclose to you.

* Fraudulent schemes. The CPA outlaws fraudulent schemes, such as pyramid schemes. It also outlaws multiplication schemes, which the Act defines as any scheme where you are offered, promised or guaranteed an effective annual interest rate that is at least 20 percent above the repo rate at the date of your investment. The regulations set out how the effective annual interest rate must be calculated.

* Auctions. The regulations cover the advertising of auctions, auction rules, prohibited behaviour for auctioneers, bidders’ records, bidding, mock auctions, internet or electronic auctions, motor vehicle auctions and auction records.

* Consumer protection groups. The regulations stipulate the standards and procedures that must be followed by an organisation that wishes to apply for accreditation under the CPA as a group that can represent consumers in disputes.

* Terms and conditions. The regulations contain a list of contract terms that are presumed not to be fair and reasonable.


* The regulations are available on the Department of Trade and Industry’s website,


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