CP wrote: The price that Thorn actually pays for the fridge is what is regarded as the base price for charging interest. Thorn has no legal right to charge interest on RRP.
Treasury states (
http://kmo.ministers.treasury.gov.au/media-release/105-2016/):
The Base Price for new goods should be the recommended retail price or the price agreed in store, where this price is below the recommended retail price.
CP wrote: Warranty is provided by the manufacturer.
My Response: True, but it is a right to return, not a right for onsite servicing. It's pointless dwelling on this, because TGA does not use service expenses to puff its in-store prices above RRPs
CP wrote: The $1 try,buy scheme is a con.
My Response: This is an allegation Maurice Blackman has made, but it would be so crassly stupid for TGA to routinely welch on the $1-buy representation, that this is unlikely. Also, TGA would not accept a forensic joust if it cannot easily produce records to the contrary. Time will tell.
CP wrote: They are not selling the fridge, so have legal obligations for charging outlandish interest rates.
My Response: Your words are confusing, but I presume you mean that the implied interest rates in TGA's consumer leases are illegal. Currently there is no legal limit, but one based on current caps applicable to consumer loans is in the offing.
Treasury states (
http://kmo.ministers.treasury.gov.au/media-release/105-2016/):
. . . introducing a cap on total payments on a consumer lease equal to the base price of the good plus 4 per cent of that price per month.
Postscript: To clarify what Treasury is yet to enact, but which TGA has accept in advance, and has applied for years, pricing of the weekly rental applied to an items is based on the following steps:
- Establish what the RRP is, then use it, or a lower price, to establish the Base Price.
- Establish the term of the lease, but for the steps that follow, four years is the maximum.
- Calculate what 4% a month works out to for the duration of the lease.
- Add the amounts derived in Points 1 and 3, and divide them by the number of weeks established at Point 2. This is the usual weekly rental advertised.
- Adapt the rental derived at Point 4 to suit the payment cycle, which is usually 2 weeks.
The corollary of this calculation is that rental customers will pay the Base Charge times the following factors:
Yrs .. Factor
.. 1 ... 1.48
.. 2. .. 1.96
.. 3 ... 2.44
.. 4 ... 2.92
So it costs more to rent a fridge for a year than to buy it at the Base Price. That factor increases if one can buy the item cheaper than the lessor's Base Price from an alternative vendor. Likewise, shop-around buyers could buy a fridge at less than a third of what they would pay over four years if they rented a fridge from the likes of TGA, or any of its competitors. For used goods, the proposed rules are slightly different.
The problem for Government is that it has two agendas, one to force interest rates down, and the other to not exclude the riskier demographic from either providers of consumer leases, or providers of consumer credit, and hence it is loath to force interest, or imputed interest, rates too low. CCP for example, charges much lower interest rates than is allowed, but excludes high-risk applicants. Some people in Government favour leaving the population free to decide things for themselves, others favour a wet-nursing approach, and others take a position between those two extremes.
Philosophically, there is nothing wrong with high interest rates, whether implied, or overtly stated. For instance, if my car battery conks out, and I cannot raise a price of $100 until pay day a week out, what price premium would I be prepared to pay to get the battery immediately, and pay a week later? If the premium is $10, that is 10% for 7 days, which on a straight line basis is about 520% a year.
To add to what I said in reference to Maurice Blackburn, the allegations made in media releases are, as I have written above, almost certainly groundless. If Maurice Blackburn changes its forensic attack to argue that the deals were not Consumer Leases, but sales by installments, it changes the basis of the case, because the financing of these deals would be regarded as Consumer Credit Contracts, to which interest rate caps applied. However, the 4% per month caps were, and are, so generous that TGA probably worked within them, if my analysis of refrigerator offers over many years can be relied on. If I have any doubt, it relates to 2-year leases, which I have never analysed. But even for these, the consequence of treating them as SACCs is that in addition to the 4% per month, a 20% establishment fee was, and is, allowed, so TGA is probably on safe ground there. I genuinely believe that the matter will end up in TGA's favour. If the parties agree to settle on a walk-away basis, that would be good news, and if the matter is adjudicated by the courts in TGA's favour, then costs may be awarded against the litigant. In a shareholders class action against CCP, CCP ended up getting something like $2m awarded as costs. All this is what I think, it's not legal opinion, and I am not, and never have been, a lawyer.
. It is already being de-risked and will continue to be so.
