Disclosing your Referral and Commission Arrangements to NSW Consumers Section 47B the Fair Trading Act 1987 (NSW)

Are you an intermediary who will receive a financial incentive (commission or referral fee) from a supplier as a result of a transaction with a consumer in NSW?

If you answered ‘yes’, then you must comply with the disclosure requirements of section 47B of the Fair Trading Act 1987 (NSW) (the Act), which came into force from 1 July 2020.

Section 47B of the Act – Your Disclosure Obligation

Before you act under a referral or commission arrangement, section 47B of the Act requires you to take reasonable steps to ensure the consumer who will receive the goods or services to which the financial incentive relates, is aware of the arrangement.

Who acquires goods or services as a ‘Consumer’?

The definition of a ‘consumer’ is that arising under the Australian Consumer Law (Section 3, Schedule 2 to the Competition and Consumer Act 2010). 

What is an intermediary?

Section 47B of the Act defines an ‘intermediary’ as a person who facilitates the supply of goods or services as an agent or refers consumers to another supplier of goods or services, under an arrangement in which they receive a financial incentive for doing so. This definition may at some future point be expanded by amendment to the Fair Trading Regulations 2019 (NSW) (the Regulations) to also specify a class of persons who will fall into this category.

NSW Fair Trading NSW[1] provides the following useful examples of intermediaries:

1. Agents – e.g. real estate agents and travel agents
2. Brokers – e.g. mortgage brokers
3. Other intermediaries – those who receive spotters fees, a ‘kick-back’ or a finder’s fee. For example, a website that compares services or goods from various suppliers and receives a fee for directing consumers to the supplier.

What is a financial incentive?

This will be a commission or referral payment, regardless of what it is called. However, the Regulations may at some stage be amended to specify any other kind of payment that will fall into this category.

What is an arrangement that requires disclosure?

The arrangement can be a formal or informal arrangement or agreement. It may be a website comparing products or services based on information a consumer inputs on which it then makes a recommendation to a retailer, or it could be a builder recommending its clients to a preferred supplier. If a financial incentive is involved, disclosure is required.

Making the disclosure early

A key aspect of the disclosure is that it must be made before you act under the arrangement (i.e. before you direct the consumer to the supplier or before the consumer purchases the goods or services. The earlier the disclosure the better.

How much do I need to disclose?

While section 47B of the Act does not specify the detail, NSW Fair Trading provides some general guidance indicating that customers need to be advised that the arrangement exists, though not the ‘nature or value of the financial incentive’.[2]

What reasonable steps can I take to ensure the consumer is aware?

Again, section 47B of the Act provides no guidance on this nor do the Regulations. NSW Fair Trading provides general and broad guidance to the effect that it must be appropriate in the circumstances and sufficient to create awareness.

NSW Fair Trading provides the following examples:

1. Disclosing the arrangement on a quotation given to the consumer.
2. Using signage to direct the customer’s attention to the arrangement.
3. If the disclosure is made online, disclosing the information on the page where the goods or services are described.
4. Through use of online pop up boxes.
5. Automatic disclaimers on the bottom of emails.

Not all of these may be appropriate, and it is open to the intermediary to determine the most appropriate tool to use to make the consumer aware.

Erring on the Side of Caution and Checking in

You can check whether a consumer has been made ‘aware’, by asking them directly after they disclosure if they still wish to proceed or by providing some checking mechanism by which they are required to acknowledge that they have read the disclosure and still wish to proceed.

Penalties

The disclosure requirements under clause 47B of the Act are in place now.

The scope of penalties for non-compliance by an intermediary are:

1. A maximum financial penalty of $110,000 for corporations and $22,000 for individuals will apply.
2. Issue of a Penalty Notice by NSW Fair Trading for each offence of $550 for an individual and $1,100 for a corporation.

How can we help?

It is important to conduct a review of your arrangements and disclosures to consumers in NSW and determine whether you fall within the scope of section 47B of the Act and whether the tools you are using are sufficient to ensure consumers are made aware of your referral or commission arrangements.

We can assist you with reviewing your operations and terms and conditions to help determine whether you are taking reasonable steps to make your customers aware of any substantially prejudicial terms. If you require assistance with reviewing your disclosure and compliance obligations, please do not hesitate to contact a member of Coleman Greig’s Commercial Advice Team, who would be more than happy to assist you.

This material is provided by Coleman Greig Lawyers as general information only in summary form on legal topics current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.

[1] www.fairtrading.nsw.gov.au/resource-library/publications/new-disclosure-obligations-for-nsw-businesses