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Regulatory Structures in Consumer
Affairs -
An Evaluation
15
March 2000
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Malta
Paul Edgar
Micallef
The need for an effective and responsive structure
In a market place
characterized by innovative marketing practices and
ever-changing means of communication, the regulatory
structure responsible for consumer affairs must be able
to act quickly and effectively to ensure that
consumers’ rights are respected. This applies irrespective
of whether the service or product in question is being
provided by a private commercial concern or by a public
controlled commercial entity. The emphasis in any
regulatory structure must be on preventive rather than
reactive measures, especially in the case of product
safety and consumer health related matters.
There are of course practical
problems of human and financial resources. In any case
however the resources available must be targeted primarily
at ensuring that there are in place adequate and effective
mechanisms to prevent and anticipate malpractices in
marketplace. Realistically there will never be enough
resources to ensure maximum compliance with all consumer
laws, and in practice it does not make sense to have an
army of enforcement officers on the warpath. On the other
hand there must be a visible presence in the marketplace
that is capable of effectively intervening to curb any
abuses. With this in mind new strategies must be
considered to maximize on available resources and powers
at law. One possibility, which to date has rarely been
achieved with any degree of success in Malta, is that of
launching joint initiatives with the different business
sectors and consumer groups aimed at self-regulation by
business.
In a local context the
present regulatory set-up of a Government Department
responsible for executive action complemented by what is
essentially a consultative council, has now been
functioning for slightly more than four years. The
Director of Consumer Affairs is in substance responsible
for the administration of the main laws relating to
consumer affairs including the Consumer Affairs Act, the
Trade Descriptions Act and the Door-to-Door Salesmen Act.
There are other public authorities that are responsible
for other areas related to specific areas of consumer
protection. These include the Department of Health which
is responsible for the enforcement of the relevant food
safety legislation and the Malta Standardization Authority
which establishes minimum standards to be followed in line
with international and European requirements.
The envisaged introduction of
new consumer legislation implementing various measures
including many of the European Union consumer policy
related directives, will add new responsibilities on the
Director of Consumer Affairs. Now therefore is the moment
to evaluate the viability of the present regulatory set-up
to cope not only with its present responsibilities but
equally important with any future responsibilities. My
first question is whether the set-up of a ‘normal’
government department is indeed the best solution? If not,
are there any alternatives and if so which of these
alternatives is the best suited for Malta’s particular
needs? In an effort to provide some answers, in this
contribution I propose to consider the recent Maltese
experience in dealing with consumer affairs, the different
solutions adopted in selected jurisdictions and finally my
proposals for a regulatory structure.
The purpose of this
contribution is to provoke constructive discussion over a
subject which I retain has not always been given enough
attention. Regrettably we tend to focus more on the need
to make new laws and establish new rights and obligations,
without however giving enough thought to the procedural or
functional side of consumer affairs. My hope is that this
contribution may assist the powers-that-be in this regard.
Ultimately whatever
regulatory set-up is adopted, it is imperative that
adequate resources both financial and human are made
available. One of the reasons why consumer affairs in
Malta has to date not yet attained the standards of
protection existing for example in the Nordic European
countries, is primarily not that we lack laws or that we
do not have the necessary regulatory structures (these in
part are contributory factors) but that not enough
resources have been allocated in dealing with consumer
affairs. Until consumer affairs is looked upon as some
poor cousin in the list of priorities, then yes consumer
affairs is destined to remain merely as a sort of
Cinderalla, referred to only when it is convenient to do
so.
THE MALTA EXPERIENCE TO
DATE
The Proposal for a Consumer
Protection Council - the 1991 White Paper “Rights for the
Consumers”
The 1991 White Paper may be
considered as a milestone in consumer affairs in Malta.
This was the first occasion when a Government undertook a
fairly comprehensive look at consumer affairs in Malta,
examining the then existing situation and proposing
changes both at law and at a structural level.
One of the principal
proposals put forward in this White Paper was the
establishment of a Consumer Protection Council composed of
a chairperson and six other members. Of these members, two
were to be chosen from among public officers “…actively
performing duties relating to consumer protection.”, of
whom one was to be “the executive head of the
administrative structure of the Council”. Another two
members were to be chosen from outside the public service
from amongst consumers. The remaining two members were to
be two public officers from the Ministry of Trade. The
responsibility for the appointment of these members was
divided among two Ministers - the Minister responsible for
trade appointing the two officers from the Ministry of
Trade, and the Minister responsible for consumer
protection appointing the chair and the rest of the
members.
There were certain
shortcomings in the composition of this Council as
proposed. The first was that out of seven persons, four at
least had to be public officers. In a regulatory structure
which is also meant to monitor and control practices by
Government commercial bodies, I cannot but question
whether a set-up whose governing body is controlled by a
majority of public officers, is the best solution.
Moreover in appointing the members of the Council there is
no reference to consultation with either consumer groups
or the private sector.
The White Paper proposed
fairly wide-ranging powers for the Council. These included
the exercise of executive powers such as the banning of
misleading adverts or the prohibition of the use of unsafe
products. In the exercise of such powers the White Paper
proposed the use of a “formal notification procedure”
whereby a party against whom an executive order is made,
is first notified with the executive order which would
then come into effect on the expiry of seven days from the
date of notification.
The mandate of the proposed
Council included:
§
consumer education and information and the undertaking of
research on consumer affairs;
§
investigation of products or services that may adversely
affect consumers,
§
monitoring commercial activities and advising Government
on the policies to be followed;
§
encouraging the formation and development of consumer
associations; and
§
monitoring developments in consumer affairs in other
countries.
The structures under the Consumer Affairs Act 1994
- The Director of Consumer Affairs and the Consumer
Affairs Council.
The present set-up of a
council and an executive director has been in operation
since 23rd. January 1996 when the Consumer
Affairs Act came into force. The Consumer Affairs Council
which is appointed by the Minister responsible for
consumer affairs, is composed of a Chairman, the Director
of Consumer Affairs who is the ex-officio deputy chairman
and five other members of whom two members are chosen in
consultation with registered consumer associations and the
business sector respectively. The functions of the
Consumer Affairs Council are to some extent similar to
those which were envisaged for the Consumer Protection
Council under the 1991 White Paper, with however the
important difference that the Consumer Affairs Council is
not empowered to exercise any substantial executive
powers. The exercise of executive powers is the
responsibility of the Director of Consumer Affairs who in
the course of his duties:
§
investigates consumer complaints;
§
monitors trading practices relating to the provision of
goods or services to consumers and takes the necessary
measures to suppress those practices which may be of
detriment to consumers; and
§
is responsible for the administration of various consumer
laws.
The Malta Labour Party electoral proposals and the draft
law of August 1998
The
Labour Party in its 1996 electoral programme proposed a
new comprehensive structure to regulate competition and
consumer affairs. Subsequently in August 1998, the Labour
Party in Government published a draft law proposing a
single consumer and competition authority whose governing
body would be composed of a chairperson, two ex-officio
members being the Consumer Ombudsman and the Director for
Fair Competition and six other members. The draft Bill
proposed that each of these six members be appointed in
consultation with specific interest groups including
consumer associations, the Chamber of Commerce, the
Federation of Industry and the General Retailers and
Traders Union. The Chairperson and members (other than the
ex-officio members) were to be appointed by the Prime
Minister for a term of 4 years and 3 years respectively.
The Chairperson was to be responsible for the day-to-day
management of the Authority and for the general
co-ordination of the Authority’s affairs.
The draft Bill further
proposed that within the Authority there would be two
units responsible respectively for consumer and
competition issues. The unit responsible for consumer
affairs was to be headed by the Consumer Ombudsman whereas
that responsible for competition issues was to be headed
by the Director of Fair Trading. Both these officers were
to be chosen by the Prime Minister in consultation with
the Chairperson of the Authority and would discharge their
duties “autonomously”. Their appointment would be for a
term of 3 years which could be renewed.
Broadly the functions of this
Authority included:
§
the promotion of the principles of fair trading;
§
monitoring trading and business practices and providing
information and guidelines on matters relating to fair
competition or affecting consumer interests;
§
investigating restrictive or anti-competitive practices;
§
monitoring the working and enforcement of laws that affect
consumers and undertaking research on consumer affairs;
§
advising Government on the formulation of competition and
consumer policies; and
§
promoting the development of consumer associations.
The draft Bill also expressly
detailed the functions of the Consumer Ombudsman whose
functions included:
§
keeping under review trading practices and taking measures
to prevent or suppress practices or transactions which may
be unfair or detrimental to consumers; and
§
investigating consumer complaints and taking the
appropriate measures to redress any justified grievance.
Finally another interesting
measure in this draft Bill was the power of the Authority
to appoint “Regulators” to monitor, analyse or report on
the operations or performance of “any government
department, public corporation, …or any other undertaking
or sector of trade or industry, whether private or public
which provides goods or services to consumers or other
users;…”.
The approach in other countries:
The Federal Trade Commission of the United States of
America
The Federal Trade Commission
(FTC) is the independent federal agency in the United
States responsible for competition and consumer issues.
The Commission is headed by five Commissioners nominated
by the President of the USA and confirmed by the Senate,
with each Commissioner serving a seven-year term which can
be renewed. The Commission reports on its actions to
Congress and the Chairman of the Commission is chosen by
the President. Of interest is that no more than three
members of the Commission can be of the same political
party. Three Bureaus responsible respectively for consumer
protection, competition and economics, perform the
executive functions of the Commission.
The Bureau of Consumer Protection
This
Bureau enforces a variety of consumer protection laws and
its actions include individual company and industry-wide
investigations, administrative and federal court
litigation and consumer and business education. The Bureau
is divided into the following five divisions:
§
The Division of Advertising which protects consumers from
deceptive and unsubstantiated advertising;
§
The Division of Credit Practices which enforces the
various federal consumer credit laws;
§
The Division of Marketing Practices which enforces various
consumer protection laws prohibiting deception in a
variety of marketing contexts such as fraudulent
telemarketing schemes. This Division is also responsible
for health or safety problems in major consumer products;
§
The Division of Service Industry Practices which deals
with a variety of consumer frauds and market failures that
impose substantial costs on consumers, such as frauds in
the sale of investment goods or services;
§
The Division of Enforcement which monitors compliance with
cease and desist orders issued by the Commission, conducts
regulatory reviews to determine the economic and other
impact of rules thereby determining if there are any
obsolete or unnecessary regulations. This Division
enforces a number of laws such as those relating to care
or proper labeling of various products.
The Bureau of Competition
This Bureau is FTC’s
antitrust arm and acts to prevent business practices that
restrain competition such as monopolization or
anti-competitive mergers thereby ensuring that the
marketplace continues to provide a wide range of products
and services at competitive prices from which consumers
can choose. The Bureau performs this task by investigating
alleged law violations, where necessary recommending that
the Commission takes the necessary enforcement measures.
The Bureau also undertakes research on competition issues,
preparing reports for the Congress and in co-operation
with the other Bureaus, it presents comments on specific
competition issues pending before other Government
agencies.
The Bureau of Economics
This Bureau considers the
economic impact of any actions that the Commission takes,
by providing economic analysis and support to antitrust
and consumer protection casework and rule making,
assisting the other Bureaus in this regard. It is
responsible for analysing the impact of government
regulation on competition and consumers and undertakes
research on the economic analysis of various aspects of
the industrial economy both for Congress and for the
Government.
The
Australian Competition and Consumer Commission (ACCC)
The ACCC replaced the former
Trade Practices Commission following the enactment of the
Competition Policy Reform Act of 1995, assuming the
functions of both the Trade Practices Commission under the
Trade Practices Act – the principal Australian Federal law
regulating competition and consumer protection – and of
the Price Surveillance Authority which under the Prices
Surveillance Act, was responsible for the promotion of
competitive pricing. Unlike the FTC, the ACCC is composed
of persons coming from a wide variety of backgrounds
including academic, business, industry and consumer
organizations with no direct political affiliation.
The ACCC is composed of a
Chairperson, a Deputy Chairperson and a number of
full-time Commissioners and part-time Commissioners. The
Chairperson, the Deputy Chairperson and the full time
commissioners are appointed by the Governor General of
Australia for a term not exceeding 5 years which term may
be renewed, whereas the part-time members of the
Commission which are designated as the “associate members”
of the Commission are appointed by the competent Minister.
Significantly the Trade Practices Act requires that at
least one full time commissioner must have knowledge of,
or experience in consumer protection.
The ACCC is the principal
federal competition and consumer regulatory body in
Australia. It is an independent statutory body with
offices in each of the Australian States and Territories.
In the area of consumer protection the ACCC complements
the role different State and Territory consumer regulatory
agencies, who in turn administer consumer protection
legislation which in many respects is similar to the
federal consumer legislation. The functions of the ACCC
include:
§
improving competition and efficiency in the market place;
§
taking action through compliance education programmes,
investigations, litigation or enforceable undertakings
where necessary to overcome market problems;
§
promoting compliance with fair trading practices in a
well-informed market place;
§
considering access issues concerning essential facilities;
§
enforcing product safety standards; and
§
providing guidance to business and consumers about the
Trade Practices Act and the Prices Surveillance Act
The Quebec Office de la protection du consommateur
The Office de la protection
du consommateur (OPC) is the competent regulatory body in
the Province of Quebec. A board composed of not more than
nine members including a full-time President heads the OPC.
The President and members are appointed by Government from
among persons who “…by reason of their activities, are
likely to contribute in a particular manner to the
solution of consumer problems”. The president is appointed
for a term of not more than five years, whereas the other
members are appointed for a term of not more than three
years. The Consumer Protection Act establishes that it is
the duty of the OPC to protect consumers. To this end the
OPC has the following functions :
§
supervising the application of the Consumer Protection Act
and any other laws whose supervision is the responsibility
of the OPC;
§
receiving consumer complaints;
§
educating and informing about consumer protection;
§
promoting the establishment and development of consumer
protection services or bodies and co-operating with them;
§
promoting the consumer interests before those government
bodies whose activities affect consumers;
§
evaluating goods and services offered to consumers;
§
making business aware of consumer needs; and
§
carrying out studies on consumer protection and where
required making recommendations to the competent Minister.
The President is responsible
for the administration of the OPC and exercises various
executive powers under the Consumer Protection Act. These
include the power to investigate any matter which is
regulated by any law administered by the OPC. In the
exercise of his duties the President has the right to
enter a business establishment at any reasonable time and
to examine the register, accounts and other documents and
if necessary require a trader to show the truthfulness of
an advertisement. He may also apply to the court for the
issue of injunction to prohibit certain unfair practices.
The Finnish Consumer Agency
Until little more than a year
ago consumer affairs in Finland was dealt with by two
organizations namely the Office of the Consumer Ombudsman
and the National Consumer Administration of Finland. These
two organizations have now been replaced by a single
authority – the Finnish Consumer Agency. Under this new
structure the Director General of the Agency acts also as
the Consumer Ombudsman. The Director General is appointed
by the President for a five-year term which may be
renewed. The Agency is divided into three main units –
dealing respectively with
§
consumer education and information,
§
consumer legal issues and compliance, and
§
testing and research.
The
focus of the Agency in the area of consumer law
enforcement, is to anticipate problems before they arise
rather than to re-act to them. The functions of the Agency
include:
§
taking action on current consumer problems and supervising
codes of practice,
§
informing and educating consumers and traders about their
rights and duties at law;
§
assisting consumers in any complaints that they may have
§
to positively influence any decisions that may affect
consumer interests ; and
§
to control the safety of consumer goods and services, and
to undertake research and testing.
The European Union Directives – what do they say about
regulatory structures
Most of the EU consumer
policy directives do not go into any detail as to how the
competent consumer regulatory authorities should be
structured. The only Directive that does establish certain
criteria with regard to the competent regulatory authority
that may be in place in a Member State, is the Directive
on misleading and comparative advertising. According to
this Directive a Member State in regulating misleading and
permitted comparative advertising may confer on the courts
or the competent “administrative authorities” various
powers including the power:
“- to order the cessation of,
or to institute appropriate legal proceedings for an order
for the cessation of misleading advertising or unpermitted
comparative advertising, or
- if the misleading
advertising or unpermitted advertising has not yet been
published, but publication is imminent, to order the
prohibition of, or to institute appropriate legal
proceedings for an order for the prohibition of, such
publication”. The same rule further provides that Member
Sates can confer other “powers” to enable the such
administrative authorities to eliminate the continuing
effects of misleading advertising or unpermitted
comparative advertising the cessation of which has been
ordered by a final decision.
The Directive however
explicitly provides that if an administrative authority is
empowered to exercise the above powers then that
administrative authority must satisfy the following three
criteria, namely that it must:
§
be composed in such a way so as not to cast any doubt on
its impartiality;
§
have adequate powers to monitor and effectively enforce
its decisions; and
§
normally give reasons for its decisions.
Furthermore the Directive in
this regard states that if the said powers are to be
exercised exclusively by an administrative authority then
provision must be made for procedures whereby the improper
or unreasonable exercise of such powers or the improper or
unreasonable failure to exercise of such powers by the
administrative authority, is subject to judicial review.
In contrast other Directives
are silent as to the criteria that an administrative
authority should adhere to in the exercise of any powers
given, to ensure compliance with national legislation
implementing an EU consumer policy directive. Hence the
Directive on unfair terms in consumer contracts simply
provides that Member States must ensure that “adequate and
effective means exist to prevent the continued use of
unfair terms in contracts…” and that such means “….shall
include provisions whereby persons or organizations having
a legitimate interest under national law in protecting
consumers, may take action according to the national law
concerned before the courts or before competent
administrative bodies for a decision as to whether
contractual terms drawn up for general use are unfair, so
that they can apply appropriate and effective means to
prevent the continued use of such terms.”
It is curious to say the
least as to why the Directive on misleading advertising
expressly established definitive criteria if an
administrative authority is empowered to prohibit
misleading advertising, yet conversely as we have seen, no
such criteria are required in the case of an
administrative body which decides if a contractual term is
unfair or not.
The Directive on injunctions
for the protection of consumers’ interests provides that
Member States shall designate the courts or administrative
authorities competent to rule on proceedings undertaken
under this Directive, whereby among other matters, an
application is made for the issue of an order for the
cessation of an infringement of any of the directives (as
implemented under national law) listed in the annex to the
Injunctions Directive. Again despite the far-reaching
powers that an administrative authority may have as a
result of the implementation of this Directive, no
criteria are stated to ensure among other things that the
said administrative authority acts with impartiality and
gives reasons for its decisions.
A
COMPREHENSIVE REGULATORY sTRUCTURE for Malta?
A common feature of the
various models considered in this contribution, is that
all enjoy some degree of autonomy in the exercise of their
executive functions and that all operate within a
comprehensive structure. To my mind the present consumer
affairs set-up in Malta is hampered by two principal
shortcomings - a lack of autonomy and no clear chain of
command. Any future regulatory structure must have an
effective executive arm operating within a
comprehensive consumer agency enjoying a certain degree
of autonomy from the Government of the day. Such
autonomy would ensure that the Agency is able to act
effectively even with regard to those commercial entities
in which government has an interest. In this context my
proposal is to establish a Consumer Agency or Commission
headed by a Chairperson exercising executive powers
similar to the Quebec or Nordic model.
The following are some points
to be considered in the creation of this new Commission:
§
Overall responsibility should
vest in the Chairperson
enjoying autonomy in the exercise of his day-to-day
executive functions. This is imperative if the Chairperson
is to be able to investigate practices in the marketplace
of commercial enterprises paid for from public funds or
else in which government has an interest;
§
The post of Chairperson should be of a renewable five year
term and on a full time basis;
§
Executive powers are to be the responsibility of the
Chairperson who may delegate such powers to a chief
executive answerable to and acting under the Chairperson’s
directions;
§
Procedure should be quick and effective.
Certain abuses in the marketplace require an effective and
quick response. Where possible the Chairperson should not
be shackled by lengthy and burdensome procedures requiring
the approval of the Courts or of an
administrative/consultative body before he is able to act.
§
The Commission should be composed of persons with a proven
track record in consumer and business affairs and who are
able to contribute substantially. In choosing some of the
members, consultation should be made with various interest
groups such as consumer associations and business. My
proposal is that the Commission be composed of
Ø
a
Chairperson acting also as a Consumer Ombudsman exercising
executive powers,
Ø
six other members two of whom are technocrats, two chosen
in consultation with registered consumer associations, two
in consultation with private business and
Ø
a
non-voting ex-officio chief executive.
§
The purpose of the Commission
should broadly be:
Ø
To give independent advice and propose policies on
consumer issues to government. Once these are approved the
Commission should ensure that these are implemented and
adhered to;
Ø
To undertake independent investigations on issues that
affect consumers free from government influence but with a
wide range of expertise;
Ø
To provide a voice for legitimate consumer concerns which
is seen as both credible and balanced as a result
of the composition of the Commission;
Ø
To supervise the overall operations of the executive arm
of the consumer regulatory agency; and
Ø
To serve as a means of contact with the various sectoral
interests.
Questions that have to be considered
The
following are questions which I retain must be answered
before any substantial progress in consumer policy can be
registered.
§
Should
a consumer affairs regulatory structure be autonomous?
If the competent regulator in consumer affairs is to
oversee the commercial activities of both public and
private organizations, then the regulator must per force
enjoy some form of autonomy. The question perhaps is not
if such a regulator should be autonomous from the
Government of the day, but rather to what extent?
§
Should
there be a single authority that is comprehensively
responsible for both consumer affairs and competition?
As we have seen this is the option which has been followed
in various jurisdictions notably in Australia and the USA.
This also is the option proposed by the Malta Labour
Party. The obvious advantages in adopting such a
structure, is that in some areas competition and consumer
issues are closely linked. In addition one would avoid the
duplication of human resources, with for example a single
information unit, a single legal office etc, a measure
which in a country with limited human expertise on the
subject makes a lot of sense. The main argument against,
is the latent danger that consumer issues may end up
playing second fiddle to the more ‘important’ competition
issues.
§
Should
there be a Council and if so how should it be composed?
In having a Council one must be clear as to the role of
the Council and of its different members. Will the Council
serve as a point of contact or of reference to the various
interest groups or else will its role be primarily of
advising government and formulating the required policies.
There are three options as to how such a Council may be
composed:
Ø
technocrats – persons with a proven track record in
consumer and commercial issues;
Ø
persons representing different sectors including consumer
associations, pensioners, industry and business; or
Ø
both technocrats and persons representing sectoral
interests.
My
preference would be to opt for the last option. A council
representing the various sectoral interests would
certainly be more democratic. However there is the latent
danger that the various representatives might be prone to
promote their sector’s interests at the cost of the
general public interest. Ideally one should strive to
strike a balance between the first two options –
having in place a council with persons well-versed in the
subject some of whom are appointed in consultation with
the various sectoral interests. This in practice is the
solution adopted in several jurisdictions.
§
Should there be separate
regulators for the providers of essential services such as
energy or water?
In a small country like Malta does it really make sense to
have a regulator for each sector? Having separate
regulators may lead to duplication of work that is
currently done by the Office of Fair Competition or the
Department of Consumer Affairs. What may make sense and
work well in larger countries like the UK, may not
necessarily be the ideal solution for Malta. Moreover
there is the latent possibility there we will have a
proliferation of inadequately staffed regulatory offices
ill-equipped to undertake their tasks. Does it not make
more sense to have a comprehensive authority responsible
for consumer – and possibly even competition – issues
including those involving public utilities providing
essential services. The advantages of a comprehensive
structure are obvious – limited human resources would be
rationalized whilst ensuring that there is access to
common services such as information and legal services.
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