By Clint Fillipou and Jennifer Andrade

29 November 2024

The Albanese Government has announced three new consultations that aim to transform the Australian Consumer Law (ACL) across key areas, including artificial intelligence (AI) enabled goods and services, unfair trading practices, supplier indemnification, and civil penalty provisions for breaches of consumer guarantees. As Australians tighten their budgets to keep up with soaring market prices, these reforms reflect the Government and regulators’ on-going commitment to addressing these cost-of-living pressures which make consumers vulnerable to exploitative, anti-competitive practices and misleading representations. These reforms also seek to adapt Australia’s regulatory framework to the “Fourth Industrial Revolution” where businesses are becoming more reliant on AI to meet consumer needs more efficiently and cost-effectively despite creating a knowledge gap on how these systems operate. Fortunately, as Anthony Albanese said himself, they’re finally “taking strong action to stop businesses from engaging in dodgy practices that rip consumers off”. So, how would they actually implement this?

We have already seen moderate action through various initiatives such as the ACCC’s Digital Platform Services Inquiry into manipulative practices online (including “dark patterns” that are designed to encourage excessive consumer spending or unnecessary disclosure of personal information – see our article on dark patterns here). Additionally, the Government has released the Voluntary AI Safety Standard and the High-Risk AI Paper, which propose mandatory guardrails for AI in high-risk settings.

However, updating the ACL to unify these changes would be a colossal measure by the Australian Government. As a single, national framework, the ACL governs consumer protection and fair trading across all jurisdictions in Australia. Updating the ACL to provide greater clarity and stronger enforcement mechanisms for emerging challenges would promote ethical trading and ensure the ACL remains fit for purpose in an increasingly complex digital and AI-driven economy.

 Unfair Trading Practices Consultation

The Government’s consultation on unfair trading practices is both timely and necessary, particularly given the unregulated nature of dark patterns in the advertising industry. These practices aim to manipulate and/or exploit consumer behaviours online, often in ways that current laws struggle to address. The consultation will target various forms of manipulative practices by digital platforms and online service providers and move to provide more tools to more effectively regulate them, including:

• Subscription traps that make cancellation processes difficult or confusing to discourage people from unsubscribing.
• “Drip pricing” where fees are hidden or incrementally added during a purchase, misleading consumers about the true cost of the product or service.
• Manipulative tactics that either confuse or pressure consumers into a decision by either hiding crucial information, creating false urgency, or using scarcity cues.
• “Dynamic pricing” where prices are changed mid-transaction to mislead buyers.
• When consumers are required to provide more personal information than required for the business to provide their product or service.
• Where businesses make it difficult for consumers to contact them to raise a problem with their product or service.

The ACL currently governs business conduct by prohibiting misleading and unconscionable conduct, unfair contract terms and specific unfair practices (such as bait advertising, referral selling, pyramid schemes and more). However, emerging behaviours like dark patterns often exploit gaps within the ACL. For example, more subtle dark patterns that influence consumer decisions may not meet the definition of “misleading or deceptive conduct” or the high threshold for “unconscionable conduct.” This reveals a critical need to modernise the ACL to address these practices effectively.

To address these gaps, the Treasury is considering two approaches:

• Introducing a general prohibition on unfair practices: This would target conduct that:

• • “Unreasonably distorts or manipulates, or is likely to unreasonably distort or manipulate, the economic decision-making or behaviour of a consumer” (the “conduct” element); AND
  • “Causes, or is likely to cause, material detriment (financial or otherwise) to the consumer” (the “detriment” element).

A “grey list” of examples, such as withholding key information or overwhelming consumers with complex interfaces, would also be developed to guide businesses.

• Introducing specific prohibitions: These would address specific unfair practices (such as drip pricing, scarcity cutes etc) complementing the ACL’s current targeted prohibitions against unfair practices as mentioned above.

The Treasury is actively engaging with stakeholders and seeking public feedback on these proposals with submissions closing on Friday, 13 December 2024.

AI and the Australian Consumer Law Consultation

AI is undoubtedly a hot topic for Australian businesses. It offers them significant benefits, boosting their efficiency through various AI-enabled goods and services, such as chatbots and virtual assistants. Despite these advantages, AI presents unique challenges. Its reliance on opaque algorithms often leaves consumers unable to understand or assess the decisions that impact them, and this swelling “black box” is a growing concern for regulators.

The consultation invites feedback on whether the ACL requires amendments to better handle these technologies or if new AI-specific laws should be introduced. While the ACL already addresses issues like misleading conduct and unfair practices (some even argue that these provisions are already sufficiently “technologically neutral” to cover AI-enabled goods and services), the rapid evolution of AI has exposed gaps in the current legislation, especially in determining liability when AI causes harm. This is just the beginning, and Australian businesses and software developers can’t predict what future technological advancements may arise. Therefore, the ACL must be updated now, before AI outpaces our ability to regulate it.

One of the main proposals of the consultation looks at manufacturers’ liability for harm caused by AI. Currently, consumers must prove a causal link between a product’s defect and their injury, but AI’s complexity and autonomous behaviours make this process arduous. To address this, the Government has suggested adopting the European Union’s proposed AI Liability Directive (AILD), which shifts the burden of proof onto manufacturers to demonstrate that they and/or their AI processes were not the cause of harm. It has also been proposed that current ACL definitions, such as “goods” and “services” should be updated to clarify how AI-enabled goods and services fit in.

Submissions for the consultation closed on 12 November 2024, and many await the Government’s response to stakeholder submissions. These reforms, if implemented, would finally bring the ACL up to speed with our changing technological landscape and ensure consumers are protected as AI continues to transform the marketplace.

Consumer Guarantees and Supplier Indemnification Consultation

 Under the ACL, failing to provide remedies for consumer guarantee failures or failing to reimburse suppliers for remedying consumer guarantee failures are not explicitly recognised as contraventions of the Act. So, regulators cannot take direct enforcement actions (such as issuing infringement notices, public warning notices etc) against businesses and manufacturers for these failures. Instead, the ACL provides consumers and suppliers with rights that they can enforce through courts or tribunals and, regulators can commence litigation under existing prohibitions (such as misleading and deceptive conduct which was the basis of the ACCC’s action against Mazda earlier this year – see below, along with our article, for more information).

Without direct enforcement measures, consumers, suppliers and regulators are left having to go through a more expensive, time-consuming and difficult path. Suppliers also risk facing commercially adverse reactions by manufacturers if they seek to enforce their rights for indemnification (e.g. having contracts terminated, prices increased, supply withdrawn, or unfavourable terms and conditions introduced). These broader commercial dynamics often discourage suppliers from pursuing their rights under the current framework.

The Government’s “Consumer Guarantees and Supplier Indemnification under Consumer Law” consultation focuses on these issues and seeks submissions on:

• Introducing prohibitions on businesses who do not provide a consumer guarantees remedy when required under the ACL.
• Current concepts within the ACL such as “acceptable quality”, “reasonable durable” and “major failure” and whether they should be updated to provide greater clarity.
• Enforcement powers for regulators and whether they should be broadened to ensure compliance (such as giving the ACCC power to issue infringement notices where it has reasonable grounds to believe that a supplier has contravened the law by not providing a consumer guarantees remedy).
• Supplier indemnification failures and the circumstances that would deem manufacturers to be in breach of the law and whether introducing a penalty for contraventions of this provision (similar to current penalty regimes for core ACL breaches), if implemented, would enhance compliance.
• Manufacturer retaliation against suppliers and whether these practices should be prohibited and whether presumptive tests should apply if a civil prohibition was introduced to address this.

Advocacy for these changes has been ongoing for years, particularly by the ACCC who just this year brought an action against Mazda in the Federal Court after they failed to grant refunds and replacements for vehicles with major defects, as requested by consumers who were entitled to these remedies under the ACL. This resulted in an $11.5 million penalty ordered against Mazda for engaging in misleading and deceptive conduct. Submissions closed on 14 November 2024, meaning we won’t receive an update until next year. However, once these reforms are implemented, they will significantly transform compliance with both the consumer guarantees and supplier indemnification regimes.

Next Steps

The proposed reforms to the ACL reflect a proactive approach to addressing emerging challenges in the digital economy, including the rise of AI technologies, unfair trading practices, and barriers to supplier indemnification. By aligning consumer protections with the realities of a rapidly evolving marketplace, these reforms aim to create a fairer and more transparent environment for both businesses and consumers.

While we await the Government’s responses to the submissions for each consultation in 2025, businesses are encouraged to proactively review their existing obligations under the ACL and ensure compliance with current regulations. This not only reduces potential risks from non-compliance but also positions businesses as leaders in ethical trading practices. Preparing for these changes now will enable smoother transitions when reforms are implemented, ensuring businesses remain competitive and aligned with evolving legal standards.

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