Amendments to the Law on the Protection of the Rights and Interests of Consumers to Take Effect on March 15, 2014

by Davis Wright Tremaine LLP
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On Oct. 25, 2013, China's Standing Committee of the National People's Congress (the “NPC’s Standing Committee”) promulgated the Amendments to the Law on the Protections of the Rights and Interests of Consumers (the “Amendments”). The Amendments will take effect March 15, 2014. The Law on the Protections of the Rights and Interests of Consumers that is now in effect is referred to as the “Current Consumer Law.”

Highlights of the Amendments include:

New obligations to be imposed on business operators and stricter punishment for non-compliance

  • Obligation to provide physical security to customers (Article 4 and Article 21 of the Amendments): Businesses that operate hotels, shopping malls, restaurants, banks, airports, buses, railways and other transportation stations, seaports, cinemas and other business premises are required to protect the physical safety of their customers. Such business operators and customers are referred to, respectively, in this advisory as “business premises operators” and “consumers”. Note that under most consumer protection laws in the United States, the term “consumer” is limited to persons purchasing for “personal, household or family use”. Neither the Current Consumer Law nor the Amendments has such a limitation. In this advisory, the term “consumer” includes persons buying products and services for business or commercial use.

    This obligation to protect physical safety applies both to consumers who have already purchased products and to consumers who are simply visiting a shopping area without buying anything. Under the Amendments, business premises operators who fail to provide a safe premises for consumers may incur tort liability for any injuries suffered by the consumers as a result of the unsafe conditions. Therefore, business premises operators should take reasonable security measures and maintain the premises in a safe condition.

  • Obligation to recall products (Article 4 of the Amendments):
    • The Amendments expand the scope of the product recall obligation under the Current Consumer Law. The existing recall system applies only to certain products (e.g., cars, toys for children, etc.), but the Amendments expand the scope of the recall obligation to all products and services.
    • The Amendments remove the requirement in the Current Consumer Law that a product defect be “severe” before the product must be recalled. If a business operator (including, but not limited to, a business premises operator) discovers a defect in the goods or services it is selling that is likely to endanger personal or property safety, then regardless of how severe the defect is, the business operator must immediately report the defect to the relevant administrative departments and inform the consumers who purchased the defective goods and services.
    • The Amendments set forth procedures to follow in recalling products, including stopping sale, issuing warnings, conducting recalls, causing the product to be harmless, or destroying and stopping production or service.
    • When products are recalled, the business operators must bear any necessary expenses incurred by the consumers as a result of the recall.
  • Information disclosure obligation (Article 5 of the Amendments): Business operators must provide consumers with accurate and complete information concerning their goods or services, including quantity, performance, use, and expiration date.

  • Burden of proof (Article 7 of the Amendments): In the case of certain durable products and services, if an alleged defect is found within six months after purchase, the business operator will bear the burden of proving that the product or service is not defective. Those durable goods and services include motor vehicles, computers, television sets, refrigerators, air conditioners, washing machines, and decoration and furnishing services.

  • Restriction on standard terms (Article 10 of the Amendments): The Amendments further restrict the effectiveness of “standard terms” in limiting the consumers’ rights and interests.
    • Terms in a standard-form agreement that materially affect a consumer will be effective only if they are conspicuous and draw the consumers' attention to the information about goods or services that has a material impact on the consumers.
    • The Amendments give examples of circumstances under which the business operators often infringe the consumers’ rights and interests through standard terms, including increasing the liability of consumers through standard clauses, notices, announcements, and shop bulletins.
    • The business operators may not use standard clauses to force products on consumers by technological methods, which often occurs with electronic products such as cell phones.

According to an official from the Civil Law Chamber of Legislative Affairs Commission of China's Standing Committee of the National People's Congress, the Amendments do not dictate whether corkage fees, minimum consumption fees, etc. will be regarded as a “one-sided agreement” but rather leave it to the courts to make that determination based upon specific facts of each case.

The Amendments increase the sanctions imposed on the business operators that violate the Law on the Protections of the Rights and Interests of Consumers, especially those who commit fraud in providing products or services. In addition, under certain circumstances, the business operators that violate the Consumer Law will be entered into the operators’ credit reports and be announced to the public.

Greater protections for rights and interests of consumers

  • Protection of personal information (Article 2 and Article 12 of the Amendments): Consumers shall be entitled to enjoy the protection of their personal information.
    • Business operators must collect and use the personal information of consumers in a lawful and proper manner by following the principle that information collection or use must be genuinely necessary. They must expressly state the purposes, methods and scope of information collection or use, and obtain the consent of the consumers. To collect or use the personal information of consumers, business operators must disclose their rules for collecting and using information, and may not collect or use information in violation of law or in breach of the agreements between the parties.

    • Business operators and their staff must keep strictly confidential the personal information of consumers collected, and may not disclose, sell or illegally provide the information to others. Business operators must use technical and other necessary measures to ensure the information remains secure and to prevent leakage and loss. Business operators must immediately take remedial measures if information has been or may be divulged, damaged or lost.

    • Business operators may not send commercial information to consumers without their consent or request, or after the consumers have expressly rejected such information.

  • Changes to the “Three Warranties” (Article 8). “Three Warranties” means conditional warranties of return within 7 days, replacement within 15 days, and repair within respective warranty terms. The Amendments expand the scope of the “7-day return principle” under the Current Consumer Law:

    • The 7-day return principle will apply to all products and services rather than only certain products and services;

    • Consumers are entitled to return products or services regardless of the type of quantity problem; and

    • The commencement date of the 7-day period is changed from the date the invoice is issued to the date the products or services are received, which has the practical effect of extending the period for the warranties of return, replacement, and repair.

  • Joint and several liability of advertising agents, advertisement publishers, social groups, and other organizations and individuals (Article 18): If any advertising agent or advertisement publisher designs, produces or publishes any false advertisements about products or services concerning life and health of consumers, and such false advertisement causes harm to consumers, the advertising agent, advertisement publisher and business operator providing the products or services will be jointly and severally liable. If any social group or other organization or individual recommends any product or service concerning the life and health of consumers in any false advertisement or other false publication and thereby causes harm to consumers, such organization or individual will be jointly and severally liable with business operators who provide such products or services.

Provisions regulating new consumption patterns
It has been nearly 20 years since the Law on the Protections of the Rights and Interests of Consumers took effective in 1994. With the development of China’s economy, various new patterns of consumption have become common, such as purchasing over the Internet and by television, phone and mail order. The Amendments added new provisions to regulate these new consumption patterns.

  • No-fault return of goods (Article 9 of the Amendments): With certain exceptions, if business operators sell products over the Internet or by television, phone or mail order: (i) consumers may return the products within seven days after receipt, and (ii) the business operators must refund the payments already made by the consumers within seven days upon receipt of the returned products.

    The no-fault return of products gives consumers, in the case of off-site purchases, the right to change their minds and a time period to cool off. It allows the consumers to terminate such contracts unilaterally. However, the right of no-fault return applies only if the products are returned in “sound” condition.

    According to an official from the Consumers’ Rights and Interests Protection Bureau of the State Administration of Industry and Commerce, a product is “sound” only if it is undamaged excluding its packaging. For example, unpacked and unused cosmetics may be returned while unpacked and used cosmetics may not be returned. 
  • Protection on consumers’ right to know (Article 11 of the Amendments): Business operators that provide products or services via the Internet or by television, phone, mail order, etc., (and those providing financial services such as securities, insurance or banking services) must provide consumers with information including the business addresses and contact details of the business operators. They must also provide: (i) information regarding the quantity and quality, price or cost, period and method for performance; and (ii) a safety notice, risk warning, after-sales services and the identity of the person who will be responsible for liabilities related to the products or services.

  • Liabilities of transaction platforms providers (Article 17 of the Amendments):

    • Business operators that provide platforms for internet transactions (referred to in this Advisory as “platform providers”) must give their true names, addresses, and valid contact methods. If they fail to do so and a consumer’s rights and interests are violated in purchasing products or services through that Internet-transaction platform, then such consumer may demand compensation from the platform provider. If platform providers make commitments that are more favorable to consumers than the legally required rights and interests, then the platform providers must fulfill their commitments. After paying compensation to the consumer, the platform providers may have recourse against the persons selling products and services through the platforms (referred to in the advisory as “platform sellers”).

    • Platforms providers may bear responsibility for the actions of platform sellers. If a platform seller violates the rights of a consumer and the platform provider knows or should have known of such violation but fails to take the necessary actions to stop the violation, then the platform provider and the platform seller will be jointly and severally liable.

More functions granted to Consumer Associations

  • Two new functions are granted to the China Consumer Association and provincial level Consumer Associations:
    • Consumer Associations may participate in the formulation of laws, regulations, rules, and mandatory standards concerning the rights and interests of consumers (Article 15 of the Amendments).

    • The China Consumer Association and the Consumer Associations at the provincial level may bring lawsuits to the People’s Courts against activities detrimental to numerous consumers’ legitimate rights and interests (Article 20 of the Amendments).

  • More support will be provided for the Consumers’ Association (Article 15 of the Amendments): The governments shall provide supports, including necessary funds, for the Consumers’ Association to exercise their functions.

Enhancing supervision duties of administrative authorities

  • Random inspection of goods and services (Article 12 of the Amendments): Relevant administrative departments shall conduct random inspection of the goods and services provided by business operators on a scheduled or non-scheduled basis, and promptly make public the results of random inspection.

    If defects that may endanger the personal or property safety are found in the goods and services provided by business operators, the administrative departments shall immediately order the business operators to take measures to eliminate the danger by stopping sale, issuing warnings, conducting recalls, destroying, stopping production or services, etc.
  • Dealing with complaints (Article 19 of the Amendments): If a consumer lodges a complaint to the relevant administrative department, that department shall handle the petition within seven days upon receipt thereof.

  • More severe punishments for activities detrimental to numerous consumers’ legitimate rights and interests. Please see the  “More obligations and more severe punishment on business operators” section.

Conclusion
The Amendments impose greater obligations and liabilities on business operators, including adding new provisions to address new off-site methods of consumption. The Amendments also enhance functions and duties to the Consumers’ Association and the administrative authorities. These changes will require on-line and off-line merchants to adopt several additional consumer-protection measures to avoid potentially substantial areas of exposure.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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