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It’s not generally well-known, but transactions on Trade Me are sometimes protected by the Consumer Guarantees Act (CGA) — but mostly not. Regulators hate anomalies so the CGA has been going through a review process (of this and other necessary updates to the act) which is likely to lead to a makeover.

The CGA generally requires that any good or service offered for sale by businesses to consumers:

• is of acceptable quality
• is fit for its intended purpose
• complies with its description
• is similar in key particulars to any samples displayed
• has repairs and spare parts reasonably available

The CGA also spells out remedies and rights available to consumers if goods or services do not measure up.

When the Act became law in 1993, the Internet was still just a spring chicken in New Zealand. Neither Trade Me nor eBay had been invented; and auctions typically took place in a poorly lit room with a hyperventilating auctioneer and a bevvy of secondhand dealers competing for underpriced bargains to resell at obscene profits.

From the perspective of the lawmakers at the time:

Under section 41(3) of the Consumer Guarantees Act, an item sold at auction or by competitive tender is exempted from the guarantees of acceptable quality, fitness for purpose, and the other guarantees under the Act.

Auctions are exempted because they are conducted on a buyer beware basis and on the understanding that there are no rights of redress after completion of the sale. A traditional auction is a method for determining the value of a commodity that has an undetermined or variable price, although in some cases, there is a minimum or reserve price; if the bidding does not reach the reserve, there is no sale.

Auctions are not defined under the CGA — legislators relied on the Auctioneers Act for that description. Unfortunately, the Auctioneers Act was passed into law in 1928, when neither Trade Me nor its ilk could have been reasonably foreseen.

Some curious anomalies arise with Trade Me sales as a result of the march of technology:

• If you purchase an item on Trade Me by bidding in an auction, you are not protected by the CGA (although the Fair Trading Act does apply)
• If on the other hand you use the Buy Now button (turning the auction into a fixed price transaction) AND you are dealing with someone who is operating as a business in their Trade Me deals, then the CGA does apply
• Similarly, an item listed as up for auction escapes the CGA. However if that item fails to sell at auction and a fixed price offer is made, that offer DOES come under the auspices of the CGA

In other words, current CGA regulations create confusion and inconsistency.

As the CGA review which is currently taking place notes:

There would appear to be justification to clarify that Trade Me style auctions should not be exempted from the Consumer Guarantees Act.

Most likely outcome: bit of a makeover to tidy things up.

Related posts:

1. The Trade Me Top Ten for 2009
2. The Cult of The Consumer
3. Commandments of Consumer Generated Advertising
4. Following FTC eCommerce Guidelines