Know Your Responsibilities: Replace, Repair, Refund

January 9, 2017

In this blog, I would like to tell you about the automatic consumer guarantees that exist in Australian Consumer Law.

Under the Australian Consumer Law it is not possible to display or state that you do not offer refunds under any circumstances. The automatic consumer guarantees state that consumers are entitled to a remedy if there is a problem with the goods or service you provide. However, there is a lot of flexibility in what kinds of remedy you offer and in what circumstances. It is also important to remember that while the Australian Consumer Law sets out the minimum requirements that you must comply with, before deciding on your policy you really need to think deeply about the kind of relationship you wish to build with your clients or customers.

Automatic consumer guarantees

These guarantees apply to all products AND services that were bought:

  • in Australia
  • on or after 1 January 2011
  • for $40,000 or less (or if more than $40K, were for personal or domestic use).

Change of Mind

The automatic guarantees only kick in if there is a problem (regardless of whether that problem is a minor or a major one) with the product or service. They DO NOT apply where the consumer has simply changed their mind or found your product cheaper somewhere else or discovered that they are over-committed and don’t have time to take your course, for example.

It is entirely up to you whether you want to give your customers and clients a 100% satisfaction guarantee. One entrepreneur I saw recently offered a full refund to clients who changed their mind about his program AND offered to pay them an extra $100 for their time in trying it out!

However, there is nothing that says you have to give a refund because a buyer changes their mind. The old saying “caveat emptor” – buyer beware – is still perfectly acceptable. None of these options is better than another – it is totally your choice, based on the experience you wish to provide.

Minor Problems

A minor problem with your product or service is one that can be easily fixed. You have an obligation to repair the product or fix the situation free of charge within a reasonable time. (If the minor problem is with a product you must provide a repair notice – ask if you require more information about this.)

Put yourself in your customer’s shoes. What kind of minor problems can you foresee? For a product,
minor faults could include a defect or fault that is easily fixed, or the wrong item being sent out, or minor damage occurring in transit. For an electronic download a minor problem might be a PDF that refuses to open, or a link that expires while the client’s internet is down. For a service, a minor problem might be the internet cutting out half-way through a call, or you are ill and unable to attend a scheduled meeting, or the client is ill and unable to attend. (Note, if the illness continues for a considerable time, this could become a major problem. Whether it is a problem outside human control and how you handle it will depend on the circumstances.)

When there is a minor problem, the client or customer must accept your offer to fix the problem for free, if you can do so in a reasonable time. However, if you do not offer to fix it, or it is something you cannot easily fix, or fixing it will take a long time, the customer or client is allowed to:

  • ask you for a replacement or refund;
  • have the problem fixed somewhere else and send the bill to you; or
  • ask for compensation to cover the difference between what they paid and what your product or service is worth taking the problem into account.

Major Problems

A major problem is:

  • one that would have prevented the customer or client from purchasing the product or service if they had known about it in advance;
  • where a product or service is unfit for its stated purpose and cannot easily be fixed within a reasonable time;
  • where a product or service is significantly different from the sample or description;
  • where a product or service is unsafe or creates an unsafe situation; or
  • where the customer or client has told you they want to achieve a certain result and the product or service fails to achieve that result or cannot achieve it within a reasonable time.

This is a very grey area, particularly in relation to coaching services – for example “the consumer told the supplier they wanted a specific result but the services, and any resulting product, do not achieve that result and cannot easily or within a reasonable time be made to achieve it”. You need to address this in your disclaimer and in your client agreement to ensure you are clearly specifying what results you offer.

NOTE: the client or customer is not entitled to a remedy if you have provided the goods or services with proper care and skill but something outside human control has intervened to cause the problem.

When a product or service has a major problem, the client or customer is entitled to choose what happens next. They can choose to:

  • cancel the contract and demand a refund;
  • seek compensation for the difference between the price paid and the services actually provided;
  • demand a replacement product.
How I can help

If you would like to talk to me about drafting a complying refund policy and other important consumer law issues, you might like to book a chat.

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