Truck shop operators have been driven out of the industry after a Commerce Commission compliance clampdown saw 18 out of 26 mobile traders either choose to leave the sector or shift to an online or by phone business model.
The Commission kicked off its compliance project into mobile traders, or truck shops, in October 2020 and it wrapped up in July of 2021. It focused on mobile traders who offer customers goods on credit, and whether the traders were fulfilling their obligations under the Credit Contracts and Consumer Finance Act 2003 (CCCFA).
Mobile traders offer consumers everyday goods and bigger ticket items like bikes, but usually at much higher prices than traditional brick-and-mortar stores, and are known for targeting lower income communities.
The Commerce Commission’s general manager for credit, Louise Unger, said the Commission got in touch with all mobile traders it was aware of that were selling on credit to find out whether they were giving customers the information they needed about what they were signing up for, and whether the terms people signed up for were affordable.
Unger said initial disclosure of the terms of credit contracts is “a big one” for the Commission because the information these businesses provide is critical to enable consumers to be fully informed about whether they should enter into an agreement, and also what their rights and obligations are.
The Commission met with 26 mobile traders and had voluntary discussions with them which had resulted in a “range of outcomes,” including that some of them exited the industry altogether.
Unger said the Commission opened investigations into some truck shop operators which resulted in compliance letters which it then followed up on.
“Pleasingly, what we saw as a result of those follow ups, was that a number of those that were still in the industry had changed their practices, as we required and suggested they do, and also some of those decided to either leave the industry completely or changed their business model to go online or over the phone.”
Those mobile operators who chose to move their businesses to online or by phone now won’t fall under the CCCFA, but will still be captured by the Fair Trading Act, Unger said.
She said the monitoring project had shown the Commission a general increase in compliance from mobile traders and mobile traders' willingness to comply had improved since a previous project in 2014/15.
“We’ve also heard from community groups and financial mentors that we work closely with that they are seeing an increase in mobile traders understanding the laws, which is positive, and also that consumers they are working with are starting to understand their own rights and obligations when it comes to lending.”
That previous compliance project identified 32 mobile traders which were operating throughout the country, with the majority of them in the North Island and “particular concentration” in Auckland.
It found the size of the operations varied from owner-operators through to businesses with more than 35,000 customers and annual revenue of more than $7 million.
The report found the market for mobile traders was “dynamic” with traders frequently entering and exiting.
But it also uncovered systemic compliance issues with the industry with regards to the CCCFA.
New rules, new breaches
Mobile traders who offer goods on credit have been captured under new CCCFA rules for the industry since June 2020.
In 2021 the Commission notched up a win against a mobile trader with a chequered history, Ace Marketing.
In December of 2021 New Zealand courts found Ace Marketing, which is solely owned by sole director Sandip Kumar, had breached the Fair Trading Act’s ban on unfair contract terms, and the CCCFA.
Its delayed delivery terms fell foul of the credit rules. These terms meant consumers who bought goods from Ace on deferred payment plans wouldn’t get the goods until they had made a specified number of payments.
If a payment was missed, the delivery date would be pushed out even further.
These terms were found to be unfair and the mobile trader also breached responsible lending principles under the CCCFA because it didn’t highlight the terms to consumers or explain how it would work, so consumers would understand what they were signing up for.
Ace was also placed under an injunction to stop it offering credit to consumers until it changed its terms.
In April 2020 an investigation was opened into mobile trader Xtreme Kiwi Deals, with concern about its delayed delivery terms.
By June 2022 a warning letter had been issued by the Commerce Commission, and Xtreme accepted an enforceable undertaking not to enter into consumer credit contracts that contain delayed delivery provisions, or rely upon or enforce these provisions in any contracts already entered into, and to give customers who were charged “administration fees” when they cancelled their contracts some money back.
“We have warned Xtreme on the same matters as Ace Marketing - including potentially unfair terms about delayed delivery in the contract and failing to make those contract terms clear and easy to understand," Unger said at the time.
Ace Marketing has form in falling foul of the rules. In 2016 it was fined $150,000 for breaches of the CCCFA for failing to give thousands of its customers adequate disclosures and charging unreasonable credit fees. It also admitted breaching the Fair Trading Act and misleading consumers about their rights.
This ruling also provided a window into the business model.
Kumar said in an affidavit that mobile traders appeal to customers who can't buy goods upfront with a lump sum of money who might have bad credit. He said the default rate in the industry was high and the cost of debt recovery uneconomical.
This justified the higher prices charged, he said.
At that time, in 2015, Ace Marketing had 20 staff based in New Zealand a further 15 at a call centre in Fiji.
But now it is about to be removed from the Companies Register after failing to file its annual financial return.