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Harvey Norman fined for misleading customers

2 June 2005

Harvey Norman fined for misleading customers

National retailer Harvey Norman was fined $16,000 in the Manukau District Court yesterday for making misleading representations to consumers that resulted in customers paying higher instalments than they expected.

The misrepresentations were made in respect of the monthly payments for furniture purchased in a nationwide four year interest-free deal offered by the company in October 2002.

The charges were laid by the Commerce Commission under the Fair Trading Act and the Chair of the Commission, Paula Rebstock said the fines were a salutary reminder to retailers to be absolutely scrupulous in making sure their customers are properly informed about the price they pay for goods and the nature of the credit arrangements they are entering into.

In sentencing Harvey Norman, Judge Kerr said that fundamentally insufficient thought had been given to the instalment amounts for the 48 month interest-free promotion. He also accepted that monthly costs were an important consideration to consumers who purchased goods on finance and that, as a result of the misrepresentations, Harvey Norman had obtained an unfair competitive advantage in the very competitive retail furniture market. In setting the penalty Judge Kerr also said that he took into account the company's guilty plea.

In this case two customers were told that they would be able to pay off the financed portion of the purchase in equal monthly instalments. However, the finance offered was a revolving credit arrangement which meant that initial payments made by the customer were higher than they were told by Harvey Norman, and they found themselves with higher monthly bills from the finance company than they'd been expecting.

One customer was told that the repayments would be 'fifty something dollars monthly' but the initial repayments turned out to be $85. The other customer was quoted $40 but the initial repayments were $58 per month.

They did not realise that the repayments had been misrepresented until they received their first statement several weeks after the transaction. In addition, if customers made the minimum payments required by the finance company, one of the customers would have taken five years to pay off the account while the second would take seven years. After four years the customers would have to pay interest.

"The customers went to significant trouble in an attempt to get their agreements altered to the promised equal instalments, and in fact one just gave up. Ultimately, as a result of complaints to Harvey Norman the company adjusted the repayments to reflect the equal payment structure in over 100 of 1,080 accounts created through the offer," Ms Rebstock said.

"Harvey Norman contracts its financing arrangements to a finance company, and their arrangements included sending consumers a credit card. One of the complainants did not want a credit card and said that, had she known about the type of finance she was getting, she would not have signed up," she said.

"This is Harvey Norman's second prosecution under the Fair Trading Act within four years. It is important that major retailers such as Harvey Norman ensure that they have effective compliance systems so that all representations made to customers about financing arrangements, products and pricing are correct," she said

ENDS

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