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Hill & Stewart's second Fair Trading conviction

Hill & Stewart's second Fair Trading conviction this year: disclose all costs of credit

Media Release 1999/87

The second Fair Trading Act conviction this year for retail chain Hill & Stewart Appliances Limited is a warning to all businesses offering hire purchase agreements: if they advertise interest rates they must show all additional costs.

The Commerce Commission prosecuted Hill & Stewart for making false or misleading claims in newspaper advertisements. It advertised goods at 10 percent interest and gave weekly repayment figures. However, the true cost of credit was around 17 percent per year. The advertisements did not adequately disclose that the repayments included other charges, such as booking fees and consumer protection insurance.

Customers would not have known about the extra costs and the true cost of credit until after they had decided to buy, when they were given a contract to sign.

Hill & Stewart pleaded guilty and was ordered to pay fines and costs totalling $10,000 in the Auckland District Court yesterday.

Commission Acting Chairman Mark Berry said that this case is a warning to all businesses advertising goods on credit: “If you advertise an interest rate you must also show all the costs of the credit. The interest rate on its own in not enough.

“Extra charges can significantly increase the true cost that consumers pay. In this case, the true cost for some goods was approaching double the interest rate.

“False or misleading advertising entices customers to the advertiser’s business. Once customers are in the door they are more likely to buy, even at a higher price than that advertised.

“That also disadvantages competitors because misleading advertising can be used to create the view that the advertiser is offering a better deal than its competitors.”

Hill & Stewart has 10 branches in the greater Auckland area. It advertised home appliances in the New Zealand Herald on January 29 last year and in eight Auckland suburban newspapers on February 11 and 12 last year. These newspapers had a combined circulation of around 540,000.

In January this year Hill & Stewart pleaded guilty to breaching the Fair Trading Act by not clearly disclosing that Sanyo cordless telephones it advertised were second-hand.

Included in the list of features available with the telephones was “second selection”. Hill & Stewart had instructed its advertising agency to use those words to describe telephones that had been sold to customers in New Zealand and had been returned.

In that earlier case, the Auckland District Court ordered Hill & Stewart to pay fines and costs totalling $2,900.

The Fair Trading Act prohibits false or misleading claims about prices (section 13(g)). The Credit Contracts Act states that advertisements offering credit must state the true cost of credit including any insurance, administrative and other fees (section 36).

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