What the consumer protection law means for foreign businesses

3. Adopting the reversal of burden of proof;

4. Stipulating the return of a commodity within seven days upon receipt;

5. Regulating internet shopping and other new consumption patterns;

6. Strengthening the obligations of advertising agents and advertisement publishers;

7. Increasing the penalties on business operators' fraudulent behaviours;

8. Recording violations in credit files.

Protecting personal information

Disclosure of personal information is a serious problem in China. It was recently reported that the employees of a certain courier went so far as to publicly sell courier receipts, which included customers' personal information, like mobile phone numbers and home addresses, at a fairly low price. The leakage of personal information through different channels has caused some people great losses due to the unlawful use of their personal information, and others have had to endure tiresome commercial messages, marketing calls and junk emails.

With the intention of improving this situation, the Decision added content for the protection of consumers' personal information. The Decision generally provides that consumers enjoy the protection of personal information in accordance with law. Then it further provides: 1) the rules for business operators to collect consumers' personal information; 2) business operators and their staffs' obligations to the keep the security of collected consumers' personal information; and 3) the restriction on sending commercial information.

We noted that these stipulations are consistent with the Standing Committee of the National People's Congress, Decision on Strengthening the Protection of Online Information (全国人民代表大会常务委员会关于加强网络信息保护的决定) (Online Information Decision), which came into effect on December 28 2012, and has parallel protections for personal information. This indicates that it is a trend in China to strengthen the protection of personal information, and enterprises in China should pay more attention to the protection of consumers' personal information.

Recalling defective products

So far, the defective product recall system has not fully matured in China. The current Consumer Protection Law and the PRC Product Quality Law (中华人民共和国产品质量法) do not provide specific provisions regarding the recall of defective products. Though there are some administrative rules establishing recall policies for specific commodities, like automobiles, food and toys for children, China is still in need of setting up a recall system at the national level.

The Decision, though not complete, provides preliminary provisions for the recall of defective products. It requires that once a defect is discovered in a commodity or service that may jeopardise personal safety and the safety of property, business operators should report relevant situations to the concerned administrative authorities and notify consumers. In the meantime, these business operators should take measures to stop sales, issue warnings and conduct recalls. Further, the Decision makes it clear that for any recalls, business operators should bear the necessary expenses of consumers caused by a product recall.

Burden of proof

The Decision introduces the reversal of burden proof. Many consumers indicated to the legislature in a survey that it was hard to enforce consumer's rights and the burden of proof was one of the main reasons. To improve the situation, the legislature decided to adopt a reversal of burden of proof for durable commodities, including automobiles, computers, televisions, and decoration or furnishing services. According to the Decision, where disputes arise because consumers find defects in durable commodities or services provided by business operators within six months of acceptance, the business operators should bear the burden of proof regarding the defects.

Due to the reversal of the burden of proof, we believe business operators that provide durable commodities and services should pay attention to preserve relevant evidence and material that can be used to prove the good quality of their commodities or services in case disputes occur. This burden seems to weigh heavier for business operators. However, as the aim of the Decision is to protect the rights and interests of consumers, and the difficulty for consumers to bear the burden of proof has long existed, it is not hard to understand why the legislature has reversed the burden of proof.

Seven days to return

The so-called “Three Guarantees” (guarantees for repair, replacement and return) is a well-known policy stipulated by the current Consumer Protection Law, though the specific period for each guarantee was not provided. The Decision addresses this issue, to a certain extent. According to the Decision, for commodities provided by business operators which fail to meet quality requirements, consumers have the right to return the commodities within seven days of receipt, if there are no national provisions or no other agreement between the business operators and consumers. After the seven-day period, consumers may return the commodities in a timely manner if the statutory conditions for terminating the contract are satisfied. Otherwise, consumers may request the business operators to replace or repair the commodities or carry out other obligations. In addition, the Decision requires the business operators to bear transportation and other necessary expenses caused by returns, replacements or repairs.

Internet shopping

One significant point in the Decision is the coverage of new consumption patterns. With the great success of e-commerce in China, Taobao, Jindong, Yihaodian, Amazon and other online platforms and sellers have quickly become an integral part of many Chinese citizens' daily lives. In addition, other non-traditional consumption patterns like television shopping have also emerged. As the current Consumer Protection Law does not provide specific provisions on these new consumption patterns, the legislature has included relevant provisions into the Decision to help the law keep up with the trends of the times.

Generally, large-scale online sellers can actively provide and publish complete information about commodities, contact information, after-sales service policies and possible risks. However, some individual sellers might neglect to disclose sufficient information about the deal, for example, the business address or safety precautions. Business operators are required to bear more obligations on information disclosures to safeguard the consumer's right to know. According to the Decision, in addition to the contact information and basic information about the commodities, like quantity, quality and price, period and method of performance, the business operators are further requested to provide more information related to the commodities, including safety precautions, risk warning, after-sale services and civil liabilities.

Generally, when shopping on the internet, or by television or phone, consumers can only judge the appearance, quality, and size of commodities depending on the descriptions given by the business operators. This makes it possible that the commodities received by consumers will not satisfy their needs. In practice, for reducing consumer's concerns, many sellers adopt the policy that consumers may return the commodities within seven days of receipt without providing any reason. When carrying out this return policy, some sellers will actively bear the transportation fees, while others require the consumers to pay the fees. The Decision now makes the practice of offering such a return policy law. According to the Decision, consumers that purchase commodities on the internet or television, phone or mail order have the right to return the commodities within seven days of receipt and are not required to provide reasons. The commodities returned by consumers should be intact and in good condition.

However, this provision is not applicable to five kinds of commodities specifically listed by the Decision (for example, tailor-made commodities, fresh and perishable commodities), and other commodities which are not suitable for return as determined by their nature and as confirmed by consumers upon purchase. In the meantime, the Decision makes it clear that the transportation costs for returning the commodity should generally be borne by the consumers, unless both parties otherwise reach an agreement. Finally, business operators are required to refund the payments within seven days of receipt of the returned commodities.

These provisions set up the seven plus seven model for the return of commodities. We believe that this provision balances the rights and obligations between consumers and business operators, because though consumers have the right to return the commodities, they have to pay the transportation fees. In addition, the request for consumers to pay the transportation cost can, to a certain extent, prevent the behaviour of returning commodities for malicious reasons. Moreover, we believe that though it seems the provision puts a burden on business operators, it may prompt more deals conducted through new consumption patterns as consumers will feel more confident about their ability to return unsatisfactory commodities.

Online transaction platforms

Many online sellers do not register their information with the local Administration of Industry and Commence, the authority administering enterprises, as the current Chinese law does not require them to do so. What if such online sellers suddenly disappear? If consumers suffer from losses due to a commodity or service and want to find the sellers, will the provider of the online transaction platform be obligated to provide compensation? The Decision provides the answer. According to the Decision, if the platform provider fails to provide the true names and addresses and valid contact details of sellers, the consumers may request compensation from them. In addition, if the platform provider made a commitment more favourable to the consumers, it should fulfil it. Of course, the platform provider may claim back the compensation paid to the consumers from the sellers. Aside from the aforesaid obligations, if the platform provider knows or should know that the seller using the platform is infringing consumers' rights, and does not take necessary measures, it should bear joint and several liabilities with the sellers.

So as to comply with the Decision, we believe that the platform provider should carefully verify the identity of sellers, record valid contact information and routinely update such information. In addition, certain deposits from the sellers might be necessary for ensuring that sellers will not provide defective products, which could damage consumers.

Advertising obligations

On the one hand, good advertisements can help to spread the reputation of commodities and services; however, on another hand false advertisements may cause damage. According to the current Consumer Protection Law, business operators should compensate consumers for their losses caused by commodities or services due to false advertisements. Only if advertisement agents cannot provide the real names and addresses of the business operators should they bear the compensation liabilities.

The Decision first adds advertisement publishers as the responsible party, and then requires advertising agents and advertisement agents to further provide the valid contact details of the business operators along with their real names and addresses.

In addition, for better restriction of false advertising, the Decision further strengthens the obligations of advertising agents and advertisement publishers by requiring them to bear joint and several liabilities with business operators for false advertisements. According to the Decision, for those advertising agents and advertisement publishers that design, produce or publish false advertisements for goods or services related to the life and health of consumers that then cause harm to consumers, the advertising agent or advertisement publisher should bear joint and several liability with the business operators. In light of this new stipulation, advertising agents and advertisement publishers should conduct due diligence to review the content of advertisements.

Fraudulent behaviour

The current Consumer Protection Law only requires business operators who have engaged in fraudulent behaviour to provide, at the request of a consumer, twice the purchase price of the commodity or service as compensation. Under the current law, this penalty is no longer sufficient to deter business operators' unlawful behaviour. To give an example, if a consumer spends Rmb5 ($0.82) buying a bag of salt, the weight of which is lighter than marked, he can only request the business operator to compensate him for Rmb10. Usually, the consumer will not exercise this right to claim such a small amount of compensation. Even if the consumer does so, this small compensation does not affect the business operator.

The Decision addresses this problem. It raises the original compensation of double the purchase price to three times and sets minimum compensation at Rmb500. It further specifies that if business operators knowingly provide defective goods or services for consumers which result in the death of, or serious damage to the health of consumers or other victims, the victims will have the right to demand from the business operators both compensation and punitive damages of up to twice the losses suffered. In actuality, the PRC Tort Liability Law (中华人民共和国侵权责任法) issued in 2009 provided punitive damages for losses caused by defective products, but did not provide the amount. The Decision specifies the amount.

Credit files

The Decision briefly specifies that as part of the punishment the authorities should include relevant violations of the law in the credit files of business operators and make it public. Though such provision is brief, it is quite powerful. It should draw particular attention from business operators as in the event they violate the consumer protection law, they will not only receive punishment from the authorities, but also face the risk of impairment of goodwill, which is absolutely essential to a business entity.

Other improvements

Aside from the above points, the Decision also expands the functions of consumer associations, further clarifies the regulatory responsibility of administrative agencies, and improves the Consumer Protection Law from other perspectives.

Generally speaking, the promulgation of the Decision is designed to address the major issues of importance in the current business environment. We think it has not gone too far in the protection of consumers nor in setting out the liabilities of business operators. Though the obligations and liabilities of the business operators have increased in several aspects, they will not be too severe for business operators in China.

Henry Chen and Samon Sun, MWE China Law Offices, Shanghai

From the CLP database:

• Protecting the consumer, December 2011/January 2012
• Protecting enterprise names in China, June 2011

Related legislation:

• PRC Law on the Protection of the Rights and Interests of Customers
  (中华人民共和国消费者权益保护法)
• Standing Committee of the National People's Congress, Decision on Strengthening the Protection of Online Information (全国人民代表大会常务委员会关于加强网络信息保护的决定)
• PRC Product Quality Law (中华人民共和国产品质量法)