Since the mid-1990s, gift cards have become an increasingly popular product for Australian consumers. While the use of gift cards continues to grow, concerns about the risks for consumers have been raised. This follows the insolvency of a number of high profile Australian and New Zealand retailers.2
At a meeting of the Ministerial Council on Consumer Affairs (MCCA)3 held on 3 June 2011, Ministers noted concerns relating to the purchase and use of gift card products. On behalf of MCCA, the Hon David Bradbury MP, then Parliamentary Secretary to the Treasurer, now Assistant Treasurer, provided CCAAC with terms of reference to conduct a review of gift cards in the Australian market.
CCAAC has reviewed the operation of the Australian gift card market and considered a range of options to assist consumers in making the most of their gift cards. CCAAC also notes a number of suggestions made to gift card issuers to assist consumers when using gift card products. Importantly, the review has been informed through consultation processes which engaged consumers as well as key industry stakeholders.
Context of the review
On 9 December 2011, the Hon David Bradbury MP released the Gift Cards in the Australian Market issues paper (the Issues Paper) for industry and community consultation. The period for submissions closed on 2 March 2012, and CCAAC received 75 written responses to the Issues Paper.
In addition, CCAAC conducted targeted consultation meetings with industry and consumer stakeholders.4
Defining the problem and formulating solutions
Concerns about the use of gift cards in the Australian market can be broadly classified as those relating to:
- gift card terms and conditions (such as expiry dates); and
- the administration of gift card programs (such as whether gift cards can be replaced when they are lost, damaged or stolen).
Terms and conditions such as expiry dates have caused some difficulties for consumers who use gift card products. Some consumers suggest that some terms and conditions are unfair and in some cases, are poorly disclosed. It also apparent that consumers have some concern over administration practices, particularly in relation to those that may impact on consumers in the event of insolvency. The Issues Paper outlined these concerns and invited interested stakeholders to comment on the issues.
Through examining the Australian gift card market, it is possible to review issues related to the purchase and use of gift cards in the light of the many benefits that are gained through their use. Policy responses can be regulatory or non-regulatory in nature and are best formulated to minimise any adverse impacts on the market. Policy responses should be justified through the material benefits afforded by the policy response.
Identifying consumer detriment
Examining the nature and cause of consumer detriment assists in defining and assessing the problem. Consumer detriment can be described as a loss in consumer welfare such as where consumers are misled into making purchases they wouldn't otherwise make or where they pay more for purchases than they would if they were better informed.5 It is noted that not all forms of consumer detriment warrant a policy response. Markets are often able to generate useful solutions to assist consumers in avoiding negative experiences.6 Despite this, there may be circumstances where consumer detriment is of such significance that government intervention may be appropriate.
Consumer detriment can be classified as structural or personal.7 Structural consumer detriment occurs where market conditions limit choice or result in inflated prices. By contrast, personal detriment occurs where individuals experience welfare losses associated with their individual experiences. Making such a distinction is useful in informing policy makers on the scope of potential policy responses.
Assessing consumer detriment
In assessing possible policy responses, the underlying cause of any identified consumer detriment should be well understood. Consumer detriment, in the context of gift cards, appears to occur where the terms and conditions established by the gift card issuer are not effectively communicated to the final receiver of the gift card. For example where a gift card issuer fails to communicate that an expiry date applies, personal consumer detriment can occur where the holder fails to redeem the gift card within the expiry period despite their intention to do so. This type of personal detriment is caused by asymmetric information between the gift card holder and the issuer. By their nature gift cards are intended to be passed to a third party recipient. There is a higher responsibility to ensure key information is provided in a way that is likely to be read by the end user. Relying on the purchaser to convey terms and conditions is unlikely to result in adequate disclosure for the purposes of the receiver.
At the first instance policy responses may be more effective where they address the underlying cause of a problem. Understanding the cause of the problem is also important so that it can be considered in the light of existing consumer protection measures that may, to some extent, already address some of the underlying concerns.
Assessing policy options through a cost benefit analysis
Decisions can be made more confidently where policy makers ensure that they are well supported by the available evidence. Evidence, which can be both qualitative and quantitative in nature, is essential in determining the costs and benefits of any proposed policy options. Commentary on the Issues Paper has also highlighted the need for an evidence based assessment of consumer detriment to ensure any 'cure' associated with intervention is 'not worse than the disease'.8
Where consumers have been able to successfully use gift card products, policy makers need to be aware of any negative impacts that potential policy responses may have on the broader gift card market. In particular, policy responses should be supported by a cost benefit analysis and through this lens are shown to be more favourable than alternative policy options.
One submission9 referred to the Australian Government's own regulatory impact analysis requirements including that a Regulation Impact Statement (RIS) should be prepared where a decision made by the Australian Government is likely to have a regulatory impact on business. The Office of Best Practice Regulation (OBPR) specifies that a RIS should '… conduct a comprehensive assessment of the expected impact (costs and benefits) of each feasible [policy] option' and that '… costs and benefits, whether quantitative or qualitative, should be based on evidence, with data sources and assumptions clearly identified'.10 It is noted that CCAAC is an advisory council and so the analysis of this report has not been prepared to fulfil the requirements of a RIS. However, all findings are made based on the available evidence and in recognition that further evidence may be needed if policy makers were to pursue regulatory options.
OECD Consumer Policy Toolkit
The approach taken by CCAAC to examine gift cards in the Australian market is consistent with the process of consumer policy making outlined within the Organisation for Econ
omic Co-operation and Development's (OECD) Consumer Policy Toolkit (the Toolkit).11 The Toolkit is a key project of the OECD Committee on Consumer Policy and examines how behavioural economics can be used to support consumer policy development. The Toolkit provides a framework through which consumer problems can be assessed and where policy options can be evaluated (see Figure 1). CCAAC will analyse the issues relating to gift cards by applying the frameworks outlined within the Toolkit. CCAAC would also encourage policy makers to consider the Toolkit when reviewing the findings of this report.
Figure 1: Process of consumer policy making
Source: OECD Consumer Policy Toolkit.
Australia's consumer protection framework
Consumers are provided with a safety net of consumer rights that apply to the sale of all consumer goods and services. These consumer rights are based on generic principles that apply across all industries, businesses and to all consumers. This includes provisions on misleading or deceptive conduct, false or misleading representations, unfair contract terms, unconscionable conduct, product safety and consumer guarantees that are enshrined in legislation under the Australian Consumer Law (ACL) with mirror provisions in the Australian Securities and Investments Commission Act 2001 (ASIC Act). Together, these provisions allow consumers to engage confidently in markets while enjoying consistent consumer rights when purchasing goods and services.
The ACL is a key part of the regulatory reforms under the Council of Australian Governments' (COAG) National Partnership to Deliver a Seamless National Economy. It applies in each State and Territory through application laws and is enforceable by all Australian courts and tribunals, including those of the States and Territories.
It is noted that under the consumer protection framework, consumers who have received a gift card and have experienced a loss may be reluctant to enforce their rights where relatively low values are involved.
In addition, the gift card holder's ability to enforce their rights under the contract has been discussed12. It would not appear as though the tripartite nature of a gift card transaction has presented any practical difficulties for gift card holders. CCAAC notes that at the first instance gift card holders are able to refer a complaint to the gift card issuer and if they remain unsatisfied, ACL regulators are able to receive a gift card holder's complaint and respond accordingly.
Australia's consumer protection framework applies generically across all industries and products. Industry specific regulation may be considered where unique challenges are associated with consumer participation in that market. For example, some financial products are subject to disclosure requirements due to the complex nature of these products. Any policy response to the issues examined is considered within this context.
Further information about the ACL, including guidance about enforcement and remedies, is available on the Consumer Law website.
Structure of the report
This report explores a variety of issues relating to gift cards, and contains a number of findings about the consumer detriment associated with gift card use as well as policy options that could be used to address any consumer detriment that has been found. Part II will examine the Australian gift card market and Parts III and IV will explore consumer issues relating to gift card terms and conditions as well as administration practices. The need for a regulatory approach will be assessed in Part V before non-regulatory options will be considered in Part VI.
CCAAC considers that policies implemented to address consumer concerns relating to the purchase and use of gift cards should be appropriate to the nature and underlying cause of consumer detriment. Policy solutions should be targeted appropriately and regulatory options should only be considered where they are supported by a cost benefit analysis. CCAAC supports the OECD Consumer Policy Toolkit as a framework through which consumer problems can be assessed and where policy options can be evaluated.
2 For example, the February 2011 appointment of external administrators for REDGroup Retail Pty Ltd, which owned and operated Angus & Robertson, Borders and Whitcoulls (New Zealand).
3 Which has since been replaced by the COAG Governance and Legislative Forum on Consumer Affairs (CAF).
4 See Appendix 1 for an outline of these consultation processes, Appendix 2 for a list of submissions and Appendix 3 for a summary of submissions.
5 Organisation for the Economic Co-operation and Development 2010, Consumer Policy Toolkit, p 52.
6 For example, reputational mechanisms allow consumers to identify suppliers that are likely to offer suitable products.
7 Organisation for the Economic Co-operation and Development 2010, Consumer Policy Toolkit, p 52.
8 Griggs, L. 'Gift Vouchers – the forgotten present?' Competition and Consumer Law, February 2012, p 228.
9 Australian National Retailers Association, p1.
10 Australian Government 2010, Best Practice Regulation Handbook, p 36.
11 For information on the toolkit, including a companion prepared to provide practical guidance on its application in an Australian context, please see the Consumer Law website.
12 See Jones, N (2009) 'Gift Vouchers and Expiry Dates: When the Gift Stops Giving', Queensland University of Technology Law and Justice Journal, 9(2) 213-231.