Economic Growth Minister Nicola Willis announced this week the government was "ratcheting up penalties" for misleading advertising and other breaches of fair trading law to deter underhand business practices.
Legislation to be introduced to Parliament early next year proposed increasing the maximum penalty for breaches of the Fair Trading Act, of $200,000 for individuals and $600,000 for body corporates, to the highest of either: three times the value of the commercial gain, the value of the transactions, or $1 million or $5m respectively.
There were circumstances at present where the gains to be made from breaching the Act outweighed the penalties for breaching it, Ms Willis said.
The number of fair trading complaints made to the Commerce Commission over the past five years had risen nearly 23%, and this new regime would "eliminate the financial incentives for breaching the Act", she said.
"Once the changes take effect, serious offenders will be liable for fines of up to tens of millions of dollars if they have gained significant amounts from breaching the law."
University of Otago consumer behaviour professor Dr Robert Aitken said the changes were "long overdue".
"It’s an interesting and important shot across the bows of these companies just to give them a heads up that things are going to be taken more seriously.
"The proof will be in the pudding."
Dr Aitken, who is also board chairman of Consumer NZ, said it seemed like a reasonable move, particularly for larger companies "who are mostly the ones at fault".
"I think the system has been exploited because there’s been no follow-up or serious expectation that companies do the right thing.
"Presumably, the amount of profits they make by not complying with the Fair Trading Act more than compensates them for any kind of fine that they were subject to — not that they’ve been subject to very many of them."
For Ms Willis to say the changes would eliminate the financial incentive to breach the Act was "a bit of a stretch".
"I certainly think it would make companies think twice.
"It won’t ever eliminate, it might just massively reduce."
Consumers were expecting companies to act more ethically and would be relieved by the changes, Dr Aitken said.
Ms Willis said not all breaches of the Act would incur higher penalties and the courts would continue to have discretion to consider a range of factors.
Maximum penalties for breaching management bans would increase from $60,000 to $200,000, while other conduct such as breaching consumer information requirements, consumer transaction rules and impeding enforcement will increase from $10,000 to $60,000 for individuals and from $30,000 to $200,000 for body corporates.
The changes are expected to become law later next year following public consultation through the select committee process.
