30 May, 2018
Background
In April 2018, the Consumer Council (Council) published A Report to Advocate Mandatory Cooling-off Period in Hong Kong (Report). The Report signifies the Council's renewed effort in advocating for a mandatory cooling-off regime in Hong Kong after the issue was last considered in around 2010 to 2011 when amendments of the Trade Descriptions Ordinance (TDO) were being discussed.
This note discusses the key observations and proposals in the Report.
Observations made by the Council
Common high pressure sales tactics identified by the Council include keeping consumers in enclosed premises without access to outside communication, prolonged sales pitches and making physical or mental threats.
- Despite the lack of a mandatory regime in Hong Kong, some industries have voluntarily instituted their own cooling-off periods for certain products, such as the Industry Code of Practice for Telecommunications Service Contracts promulgated by the Communications Association of Hong Kong which prescribes a 7-day cooling-off period for unsolicited contracts.
- However, the lack of common standards may result in customer confusion.
- Beauty services, fitness clubs, timeshare, telecom services and wedding services frequently involve or require pre-payment. Complaints about sale practices form a major portion of the annual complaints for the beauty, fitness and timeshare industries. The monetary value involved can be high. In 2016, the average amount involved per case for complaints relating to timeshare products was as high as HK$70,000 per case, while that for beauty services and fitness clubs was around HK$30,000 on average.
Proposals made by the Council
The Council stressed that an "across the board" mandatory cooling-off regime is neither practicable nor advisable. In the Report, the Council considered the mandatory cooling-off regimes currently in force in other jurisdictions, including the European Union, the United Kingdom and Singapore, and made the following key recommendations:
- A mandatory cooling-off period is recommended for 5 types of consumer contracts:
- unsolicited off-premises contracts
- distance contracts (other than online purchases)
- fitness services contracts with a duration of not less than 6 months or involving prepayment
- beauty services contracts with a duration of not less than 6 months or involving prepayment
- timeshare contracts, which are a tourism product giving the purchaser a right to stay at designated accommodation on a time-interval basis, e.g. paying HK$500 a month for the right to occupy a resort during Christmas every year.
The Council suggested that certain subject matters should be exempted from the regime as separate regulatory regimes are already in place, including financial services, property transactions, professional services such as legal services and accounting services, etc.
Apart from the above, the Council further suggested that certain categories of contracts should be exempted since imposition of mandatory cooling-off will likely result in disproportionate costs of compliance or is simply impracticable, such as purchases involving low monetary values, e.g. lower than HK$500, custom-made goods and urgent household repairs, etc.
The Council has proposed the following operational arrangements:
- Length of cooling-off period: The proposed length of the cooling-off period is 7 days.
- Information to be provided: Traders should be required to provide certain information to consumers before he/she enters into the contract if mandatory cooling-off period is applicable, including any applicable administrative fees in case of cancellation and details of the cancellation right contained in a standard cancellation form, etc. If traders fail to provide such information, the cooling-off period should not commence until the information is received by the consumer, subject to a maximum of three months.
- Refund arrangement: The time limit for refund should be no more than 14 days. Refunds should be done using the same means of payment which the consumer used to pay for the transaction.
- Deduction from refund: Traders should be allow to deduct from the refund sum:
- up to 3% of the credit card transaction amount if payment and refund is done by credit card payment
- express delivery charge
- deduction in value of goods due to improper handling by the consumer during the cooling-off period
- value of services supplied within the cooling-off period.
Traders should notify the consumer prior to completion of transaction that these charges might be deducted from refund. Otherwise, traders may not make such deductions.
Return of goods: Where a sales contract is involved, the consumer should be required to return the goods to the trader within 14 days after cancellation by any method of return. The costs of returning the good should be borne by consumers.
Ancillary contracts: If the consumer cancels a contract within the cooling-off period, any ancillary contracts, e.g. credit card instalment payment plan, should also be terminated automatically.
Mandatory cancellation right: Traders and consumers should not be allowed to agree to waive or restrict the cancellation right.
Enforcement regime: The mandatory cooling-off regime should be backed by civil but not criminal sanctions. A public body should be formed or appointed to oversee enforcement of the regime.
What does it mean for businesses in Hong Kong?
The Report is a significant step in renewing discussion on whether a mandatory cooling-off regime should be imposed in Hong Kong. Some believe that a mandatory cooling-off regime will enhance consumer protection in Hong Kong and bring about overall economic benefits to the market. In fact, some traders have already voluntarily offered a cooling-off period for as long as 30 days for consumers to return goods without requirement to state reasons.
A mandatory cooling-off regime will however likely bring about more compliance requirements for businesses. Although the initiative in implementing a mandatory cooling-off regime is still under discussion, it is another testament to the fact that consumer rights are on the rise so it is crucial for traders to review their trade practices to enhance transparency and fairness to consumers.
