Consumer Protection Act to Have Impact on Auction Industry

The Department of Trade and Industry’s announcement that Consumer Protection Act legislation will not take effect in October 2010, as originally planned, is good news for the auction industry, which is not ready to implement major changes prescribed by the act.  “This extension will luckily allow the auction industry to prepare for the first direct auction rules ever legislated in South African history,” says Auction Alliance CEO, Rael Levitt.

According to Levitt, the effective date for the act will now be April 1, 2011 and certain parts of the act will have major implications for auctioneers. The Department of Trade and Industry has granted the extension to facilitate government’s implementation of the act and will also give business and the public sufficient time to prepare themselves for compliance with the new law. “This is good news for the auction industry. The majority of auctioneers have not applied their minds to the new legislation, never mind getting their businesses ready for it,” explains Levitt.

Although the act applies to every transaction in South Africa, it does not apply to transactions where the purchaser or the seller is a juristic person or whose asset value or turnover exceeds a certain threshold, to be determined by the Minister. “The Consumer Protection Act will affect most auction sales,” says Levitt, “and strangely there are few pieces of law dealing with auctions outside the Estate Agency Affairs Act. It’s almost as if auctions have been forgotten but because the industry has grown so aggressively in the last decade, government and legislators are now making provisions for auctions. This is in essence good for an industry which has now come off age.

“As auctioneers we welcome the Consumer Protection Act, although it will put pressure on our back-end processes. Auction consumers have been ignored for too long when it comes to this growing multi-billion Rand sector,” says Levitt.

There are several areas which affect auctions, including the relationship between auctioneers and sellers in respect of mandate agreements. These will now be subject to the act;  when a seller is selling property in the ordinary course of his business, the act will apply to these transactions.

One of the more controversial aspects of the act is that a cooling-off period will be available to sellers in respect of auction mandates within five business days after signing of the mandate agreement.  “Auctioneers are obliged to inform the seller of this right in writing and it must be included in mandate agreements,” says Levitt.

Auctioneers will now also be subject to several rules which affect  brokers; a prohibited period will be prescribed during which purchasers and sellers may not be visited at their homes for the purpose of inviting them to auctions or to obtain mandates, unless they expressly or implicitly request or agree otherwise. Maximum periods may also be prescribed for mandates. Sellers may terminate any mandate at any time, with 20 business days’ written notice, and all documentation must be in plain language.

With regards auction bidding, a new piece of legislation will affect the actual auction sale and will affect the way auctioneers conduct sales. Now bids may be retracted until the fall of the hammer and cannot be made non-retractable before this point. South African auctioneers will now follow worldwide trends which puts the power back in the consumer’s hands. Gone will be the days when someone accidentally bids and is then made liable for their purchase. They now have the power to retract a bid, as long as it’s before the fall of the hammer.

Another new piece of legislation envisaged in the act is that the Minister may prescribe requirements to be complied with by an auctioneer. This pertains to the actual conducting of an auction, records to be maintained regarding property placed on auction and the sale of such property by auction.

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