The Council's submission to the Public Consultation Paper on Statutory Cooling-Off Period for Beauty and Fitness Services Consumer Contracts

1. In January 2019, the Commerce, Industry and Tourism Branch of the Commerce and Economic Development Bureau (CEDB) published the Public Consultation Paper on Statutory Cooling-Off Period for Beauty and Fitness Services Consumer Contracts (“Consultation Paper”).  The Consumer Council (the Council) is pleased to see that many of the views and recommendations in the Council’s Report to Advocate Mandatory Cooling-Off Period in Hong Kong published in April 2018 (“the Report”) have been adopted.  The Council welcomes the Consultation Paper as an important step towards the aim of introducing the relevant bill providing for a statutory cooling-off period into the LegCo in the 2019-20 legislative session.
    
2. The Council will set out below its views on the issues raised in the Consultation Paper.  Unless otherwise stated, the Council will adopt the same abbreviations as in the Consultation Paper.
    
3. It has always been one of the Council’s key initiatives to advocate for a mandatory cooling-off period in Hong Kong to safeguard consumer interests against unfair trade practices in particular high pressure sales tactics. Unless and until a legislation in this respect is enacted, the overriding objective of enhancing consumer protection by such means cannot and will not be achieved.  The Council therefore welcomes the legislative priority and timeline accorded by the Government in enacting the mandatory cooling-off period legislation in the present LegCo term.  

Question 1: Do you agree that a statutory cooling-off period requirement should be imposed on beauty and fitness services contracts with the proposed exemptions?

Answer: Yes and see comments below.

Beauty and fitness services contracts

4. The Council agrees with CEDB that a progressive approach should be taken to first focus on trades most commonly associated with aggressive commercial practices (ACP) as defined in the Consultation Paper and involving large amounts of pre-payment so as to accumulate enforcement experience. It is essential to strike a reasonable balance between the interests of consumers and traders. CEDB’s approach is supportable in view of the fact that a mandatory cooling-off period is unprecedented in Hong Kong; and hence, how it may impact on the consumers and traders is yet to be seen.
    
5. The Council notes that CEDB’s proposal is based on statistics from Customs and Excise Department (“C&ED”) which show that most ACP complaints are against beauty parlours or fitness centres which offer a variety of beauty or fitness services. 
    
6. In the Report, the Council proposed the imposition of a mandatory cooling-off period for these 2 types of contracts based on the relevant statistics between 2013 and 2017. The Council’s updated complaint statistics indicated that ACP continued to prevail in these 2 types of service contracts. In 2018, there were 1,058 and 1,012 complaint cases against the beauty and the fitness industries respectively, with almost half involving sales practices and variation/termination of contract. In the circumstances, there is ample objective evidence that beauty and fitness services are consistently and persistently the 2 types of trade most commonly associated with ACP in Hong Kong. On this basis, the Council supports the imposition of a statutory cooling-off period for beauty and fitness services consumer contracts.
    
7. Unsolicited off-premises contracts and distance contracts (other than online shopping) appear to have become less popular in Hong Kong.  The Council, when in proposing the inclusion of these 2 types of contracts in its Report, had taken into consideration the fact that mandatory cooling-off period was also extended to these types of contracts in most jurisdictions, though its relevancy and the degree of application varied according to the situation in the particular jurisdiction. These 2 types of contracts do not necessarily or commonly involve large amounts of prepayments. In addition, the inclusion of distance contracts was not concerned with ACP.   More importantly, statistics available do not support that ACP is prevalent in these 2 types of contracts in Hong Kong. Hence, the Council understands and accepts the reason behind their non-inclusion in the consultation paper.
    
8. As for timeshare contracts, it is important to note that in 2017, there was a sharp rise in the number of ACP related complaints concerning timeshare contracts. Between 2013 and 2016, the number of such complaints ranged between 12 and 23. In 2017, the number increased dramatically to 82.  As a result, in September 2017, the Council named and reprimanded one of the timeshare companies i.e. Great Time Universal for its ACP^[1] to alert the public to avoid such high-pressure sales tactics and to serve as a deterrent to other delinquent traders. The timeshare industry was thus included in the Report while recognizing that its complaint figures were far lower than that of the beauty and fitness services industries.  The Council notes that since the naming exercise, the overall complaint statistics of the Council on timeshare contracts have dropped by almost 40% (59 cases in 2018 versus 94 cases in 2017); whereas the number of such complaints relating to sales practices have dropped by about 46% (44 cases in 2018 versus 82 cases in 2017). Some of the complaints in 2018 were related to the trader which had been named and reprimanded in 2017.
    
9. When considering the Government’s proposal, the Council has reviewed the updated statistics concerning the timeshare industry again and observed that over the past few years, ACP delinquents are usually found among a handful of traders.  The Council believes that its name and reprimand exercise, together with stronger enforcement efforts since the coming into force of the Trade Descriptions Ordinance (Cap. 362) (“TDO”), have  gradually created an effective deterrent to the industry, as demonstrated by the drop in complaint statistics recorded in 2018 and up till now.  Therefore, as, first, there are signs that ACP in timeshare contracts can be curbed through other means (resulting in the absence of any consistent or persistent trend of ACP (unlike the beauty and fitness services)); second, the number of delinquent traders is considerably less, and third, the number of complaints involving ACP was significantly less than that in relation to the beauty and fitness services, its legislative priority, in terms of the need to introduce mandatory cooling-off period as an additional means to safeguard consumers’ interests, may not be as high as that of the beauty and fitness services industries.  Having regard to the Government’s goal of enacting the legislation within the present LegCo term, the Council is prepared to accept that timeshare industry is not included in the proposed legislation.
    
10. Having said that, as ACP may appear, re-emerge, and become prevalent in any particular trade or type of contract at any time, the Council cannot emphasize more that it is of paramount importance that the proposed legislation should be drafted in such a way so that it can respond timeously to any increase in ACP in timeshare or indeed any other industries or types of contracts. A progressive approach, as advocated by the CEDB and supported by the Council, implies that the enactment of the proposed legislation covering beauty and fitness services consumers contracts is not meant to be final; and it must be flexible and responsive to changing circumstances. Therefore, the Council sees the need to draft the proposed legislation in a manner so that the principal Ordinance should take the form of a “framework” legislation with the types of contract/trade to be included in a separate subsidiary legislation (i.e. a Regulation) which can be amended expeditiously to cover different trades or types of contract, if needed, as indicated by the CEDB in the Consultation Paper. In order to achieve, and not to frustrate, this objective, the principal Ordinance should be drafted in a way so that the operational arrangements may be applied irrespective of which trade, or type of contract, is involved. It is also desirable to make it clear in the object clause of the principal Ordinance that it is intended to cater for, and respond to, changing needs of society in order to avoid the risk of the legislation being narrowly or restrictively construed in the future.
     
11. Furthermore, although the Government’s current proposal is not to include timeshare service contracts in the legislation for the reasons mentioned, the Government should closely monitor the market practice of timeshare service contracts, and if and when there is a material increase in ACP in this industry, and if the public demands, the Government should consider to extend the mandatory cooling-off period to cover this type of contracts in a timely manner.

Proposed exemptions

12. The Council agrees that in order to strike a balance between consumer protection and freedom of contract, traders or establishments which are seldom associated with ACP should be exempt from a statutory cooling-off requirement. 
     
13. In view of our complaint statistics, the Council agrees that beauty^[2] or fitness^[3] services provided by specific establishments as proposed in the Consultation Paper should be exempt, subject to the views and comments below.
     
14. CEDB proposes to exempt places that provide only massage services. It is important to clarify the definition of “places that only provide massage services”.  Massage services could arguably include some forms of beauty services e.g. massage to the face with different beauty products or equipment and how such services should be classified or characterized may be controversial.  Further, on the one hand, it is possible that establishments which have obtained massage parlour licences under the Massage Establishments Ordinance could provide beauty services as part of the overall massage packages.  On the other hand, there are businesses offering facial massage services which do not require licences.  Clarification of the definition of massage services and the permissible scope of services is important to prevent this exemption from being abused.
     
15. Another proposed exemption which, though not objectionable in principle, should be kept under review is charitable organisations. Presumably, charitable organisations are intended to cover entities falling within section 88 of the Inland Revenue Ordinance. Noting that charitable organisations can vary in size and be highly diverse in nature and operation, it is possible for profit-making business entities adopting ACP to collaborate with charitable organisations in an attempt to take advantage of the exemption. The Council invites the Government to keep this exemption under review so that such an exemption will not be open to abuse; for instance, the exemption should apply only to services provided exclusively by the charitable organisations.
     
16. In respect of fitness services, the CEDB proposes to exempt places that provide fitness services but are not equipped with exercise machines. Examples of exercise machines include treadmills, rowing machines, stationary bikes, weight machines, and climbing machines etc. The phrase “exercise machines” must be clearly defined. Further, the distinction may be fine and open to abuse: for instance, while dance studios are intended to be exempt, fitness centres offering dance classes are not. Clarification is therefore necessary.

Question 2: Do you agree that a statutory cooling-off period requirement should apply to any beauty or fitness services contract that involves a prepayment of $3,000 or above (that is, the consumer’s total potential payment obligation under the contract is $3,000 or above, where all or part of the services are to be provided in future)?

Answer: Yes and see comments below.

17. In view of  the amount of money usually involved in beauty and fitness services contracts, the Council supports the Government’s proposal of setting the threshold at $3,000 or above for beauty and fitness services contracts involving prepayment.
     
18. Having said that, the minimum amount should and must reflect the changing circumstances in society and also correspond to the types of contract/trade covered by the legislation. Hence, the Council is of the view that the minimum amount should also be prescribed in the subsidiary legislation instead of the principal Ordinance so that amendments may be made expeditiously if and when that becomes necessary.

Question 3: Do you agree that beauty and fitness services provided by registered healthcare professionals or in private healthcare facilities should not be exempt from a statutory cooling-off period requirement?

Answer: Yes.

19. This proposal is in line with the Council’s proposal in the Report.  In the light of the potential loopholes envisaged by CEDB as set out in para.4.7 of the Consultation Paper, the Council agrees that services provided by registered healthcare professionals or in private healthcare facilities should not be exempted.

Question 4: Do you think that the cooling-off and refund period should be –

1. 3-working-day cooling-off period with 7-working-day refund period; or
2. 7-calendar-day cooling-off period with 14-calendar-day refund period?

Answer: (b) and see comments below.

20. The Council supports option (b): 7-calendar-day cooling-off period with 14-calendar-day refund period. The Council believes that the 3-working-day cooling-off period proposed under option (a) is too short and inadequate to protect the consumers’ interests.
     
21. However, consumers could be concerned with how they could effectively exercise their cancellation rights if the last day of the cooling off period were to fall on a public holiday or if on that last day, there happens to be a black rainstorm warning or a gale warning.  Under the Government’s proposal, the consumer must inform the trader of his/her decision to exercise the right of cancellation in writing; and that the consumer should send the cancellation form using a method that could record the date on which the notice is sent. In the examples given, the consumer would not be able to post the cancellation form in a post office by registered mail, and they may not be able to submit the cancellation form in person by visiting the trader’s premises. Although the Interpretation and General Clauses Ordinance (Cap 1) stipulates that in computing time for the purposes of any Ordinance, if the last day of the period is a public holiday or a gale warning day or black rainstorm warning day, the period shall include the next following day, not being a public holiday or a gale warning day or black rainstorm warning day (section 71(1)(b)), the Government should consider to insert specific provisions to cater for such scenario which may result in the consumer being deprived of the full 7-calender-day cooling-off period in practice. The same observation applies to the 14- calendar-day refund period applicable to the traders. Under Government’s proposal, in making a refund, the traders are required to use the same means as that used by the consumer in effecting payment when the contract is concluded unless the consumer has expressly agreed otherwise. In the given examples, the trader will encounter difficulties if, for instance, the refund needs to be made in cash at the trader’s premises.

Question 5: Do you agree with the other proposed operational arrangements?

Answer: Yes and see comments below.

Traders must provide specified information

22. The Council supports the Government’s proposal that the information to be provided shall include the particulars as set out in Appendix 2 of the Consultation Paper.

No curtailment of cooling-off right

23. The Council supports the Government’s proposal that any wavier, restriction or modification of consumers’ statutory contract cancellation right by agreement between a consumer and a trader shall not have legal effect.

Refund arrangement

24. The Council supports the Government’s proposal that, unless the consumer has expressly agreed otherwise, the refund should be made by the trader by the same means of payment as that used by the consumer in effecting payment when the contract is concluded.

Administrative fee

25. The Council supports that if a consumer pays by cash, the trader is not allowed to deduct any administrative fee; and if a consumer makes a one-off payment by non-cash means, the trader may deduct an administrative fee of up to 3% of the transaction amount, or up to 5% of the transaction amount for payment by non-cash IPP. The amount of such fee for particular traders would differ depending on many variables. The percentages proposed by the Government are in line with the information made available to the Council as stated in the Report.
     
26. As to administrative fees to be charged upon cancellation, given the difference in fees chargeable for a one-off payment versus payment by IPP, the Council proposes that traders should be required to clearly explain the difference in administrative fees in writing before the consumer enters into the contract and makes such any decision on the method of payment.  The consumer should also be informed that the fee to be charged for payment by IPP would be on the whole transaction amount instead of only on the instalment amount.  This explanation is necessary to enable consumers to have a clear understanding of the difference between the two methods of payment insofar as administrative charges are concerned so that they can make an informed decision on what payment method to choose.

Charges for services consumed

27. As to charges for services consumed, the Council supports the Government’s proposal that traders should set out clearly in advance that such charges be calculated on a pro-rata basis.  This is in line with Council’s proposal in the Report.
     
28. Owing to the fact that the focus of the legislation is on ACP, the proposed operation arrangements in this respect only apply to service contracts but not sales of goods contracts.  As there shall be a subsidiary legislation which could, in due course, introduce such contracts into the legislation, when drafting the principal Ordinance, as mentioned, an operational framework for matters such as the return of goods and deduction in value of goods due to improper handling etc, should be included in order to cater for such situations. 

Ancillary contracts

29. The Council supports that all ancillary contracts will be automatically cancelled upon cancellation of the main contract. An ancillary contract refers to a contract entered into between the consumer and the trader or a third party arranged through the trader for the provision of services that are related to the main contract.

Redress mechanism

30. The Council supports the Government’s proposal of creating a civil cause of action in favour of the consumer. The proposed legislation should create a statutory cause of action prescribing clearly in what circumstances the consumer may commence civil proceedings to recover his/her loss resulting from the failure/refusal of the trader to comply with various legal provisions concerning the mandatory cooling-off period. Depending on the amount involved, such a civil action is likely to be handled by the Small Claims Tribunal or the District Court. Insofar as necessary, the relevant rules and regulations of the Small Claims Tribunal or the District Court should be amended to facilitate such claims.
     
31. The Council also supports the Government’s further proposal that the C&ED should be given the power to issue an enforcement notice to require a trader to remedy the contravention or desist from further contravention, subject to the trader’s right to challenge the issuance of the enforcement notice before the Administrative Appeals Board. Non-compliance with the notice will then be a criminal offence and liable to a fine on conviction. 
     
32. However, the Council takes the view the criminal sanctions (including imprisonment being one of the options) to be imposed for failing or refusing to comply with an enforcement notice (in particular, without any good and reasonable cause) should be sufficiently severe in order to produce the intended deterrent effect. The proposed legislation shall empower the court to order the convicted defendant to pay compensation to any consumer who has suffered financial loss resulting from the offence (cf. section 18A of the TDO). The levels of fine or other penalties to be imposed should also be put in the subsidiary legislation so that amendments may be made expeditiously if and when this becomes necessary.  In line with section 20 of the TDO, the Government should consider to include the imposition of criminal liability on the director, shadow director, principal officer or manager of a body corporate as well as a partner or manager of an unincorporated body.   

Consumer Council

April 2019