Fair Trading Act 1986: Penalties, Refunds, and Your Rights

Anyone who’s ever bought a “premium” product that turned out to be a dud knows the frustration that follows. In New Zealand, the Fair Trading Act 1986 is the law that steps in when businesses cross the line between persuasive selling and outright deception.

Year enacted: 1986 ·
Maximum penalty (company): $600,000 NZD ·
Maximum penalty (individual): $200,000 NZD ·
Enforcement body: Commerce Commission

The Act’s reach is broad, so here’s a table that maps the key facts at a glance.

What is the purpose of the Fair Trading Act 1986?

The Fair Trading Act 1986 exists to stop businesses in New Zealand from gaining an unfair advantage over competitors and to protect consumers. It acknowledges that markets work best when everyone is operating with accurate information.

• Prohibits misleading and deceptive conduct in trade
• Prohibits false representations and unsubstantiated claims
• Outlaws unfair contract terms in standard form consumer contracts
• Prohibits certain unfair practices like pyramid schemes and bait advertising

According to Consumer NZ, the Act applies to all businesses trading in New Zealand, including online operations and sole traders. It doesn’t just protect consumers — it also protects honest businesses by creating a level playing field.

The implication is clear: businesses that rely on hype over honesty are directly undermining the trust that functional markets depend on.

Core objectives of the Act

The Act’s stated purpose is to contribute to a trading environment where:

• Consumer interests are protected from misleading conduct
• Fair competition can flourish
• Consumers can make choices based on accurate information

The Ministry of Business, Innovation and Employment (MBIE) describes the Act as one of three core consumer protection pieces of legislation, alongside the Consumer Guarantees Act 1993 and the Contract and Commercial Law Act.

Who is protected by the Act

While the Act’s primary focus is consumers (individuals buying for personal use), it also protects businesses in limited circumstances — specifically when a business is acquiring goods or services of a kind not usually acquired for business use. This means a small business buying printing services for its office is protected, but a manufacturer buying raw materials for production is not.

The Commerce Commission’s interpretation is that the Act protects all New Zealanders who engage in trade, regardless of whether they’re making a purchase online or in a physical store.

What is the difference between the 1986 and 2019 acts?

The Fair Trading Amendment Act 2019, which came into force in stages from 2019 to 2021, was the most significant overhaul in the Act’s history. The changes were designed to modernise consumer protections for the digital age.

Key changes in the 2019 amendment

According to New Zealand Legislation, the 2019 amendment introduced several key changes. One of the most debated was the ban on “drip pricing” — where a business advertises one price but adds mandatory fees later in the checkout process.

The amendment also gave the Commerce Commission the power to issue infringement notices for minor breaches, which carries a fine of up to $2,000 for individuals and $10,000 for companies. This was designed to make enforcement quicker and more cost-effective for less serious violations.

The definition of “consumer” was expanded to cover more people, and the Act now protects against unfair terms in contracts between businesses and consumers. The test for whether a term is unfair considers whether it would cause a “significant imbalance” in the parties’ rights and obligations, whether it’s reasonably necessary to protect legitimate interests, and whether it would cause “detriment” if applied.

New powers for the Commerce Commission

As Commerce Commission guidance explains, the Commission gained several enforcement tools in 2019 that it didn’t have before. These include the ability to issue stop orders — requiring a business to stop the conduct immediately — and to accept binding undertakings from businesses that give enforceable commitments to comply with the law.

The pattern here is that stiffer penalties and faster enforcement are the new normal for Kiwi businesses.

What are the legal consequences of unfair contract terms under the Fair Trading Act?

One of the most significant changes introduced by the 2019 amendment was making unfair contract terms in standard form consumer contracts illegal. Previously, these terms were void but didn’t carry a penalty. Now, having one in your contract can result in a fine.

A contract term is “unfair” if it:

• Causes a significant imbalance in the parties’ rights and obligations
• Isn’t reasonably necessary to protect the legitimate interests of the party that would benefit from it
• Causes detriment to a party if applied or relied on

The Commerce Commission’s enforcement guidelines provide detailed interpretation of these criteria. For consumers, this means you can challenge boilerplate terms that unfairly lock you into a contract or limit your ability to seek a remedy.

What are the maximum penalties for violations of the Fair Trading Act 1986?

If you’re a business owner, this is the part you need to read twice. The maximum penalties under the Act were significantly increased in the 2019 amendment, and they’re serious.

• Individuals: Up to $200,000 per offence
• Companies: Up to $600,000 per offence

According to Consumer Protection NZ, these amounts represent a substantial increase from the previous maximums of $60,000 for individuals and $200,000 for companies. The rationale behind the increase was to ensure penalties were a real deterrent, rather than just the cost of doing business.

The Regulatory Impact Statement from the Ministry of Business, Innovation and Employment explains the new tiered penalty system under the Fair Trading Amendment Act 2019. Tier 1 offences are the most serious, covering the most harmful conduct like misleading and deceptive conduct in the most egregious cases.

What this means for directors is that ignorance of the Act is no longer a viable defence against personal liability.

Penalties for individuals

Tier 1 offences carry a maximum penalty of $200,000 for individuals. As the Regulatory Impact Statement details, Tier 2 offences carry a maximum penalty of $60,000 for individuals, while Tier 3 offences carry a maximum of $10,000.

But fines aren’t the only consequence. Courts can also order compensation to consumers, require corrective advertising, and issue injunctions to stop the conduct from continuing.

Penalties for companies

For companies, the maximum penalties are significantly higher — $600,000 for Tier 1 offences, $200,000 for Tier 2, and $30,000 for Tier 3. As the Regulatory Impact Statement notes, the three-times-fine model means that for some offences, the penalty can be calculated based on the commercial gain from the conduct, which can be significantly more than the fixed maximums.

Criminal versus civil penalties

One crucial distinction in the Fair Trading Act is between criminal and civil liability. Fines are civil penalties under the Act, meaning they’re imposed by a court through the civil standard of proof (balance of probabilities). However, certain breaches — such as making false representations — are also criminal offences.

As Consumer Protection NZ clarifies, criminal prosecutions are rare and usually reserved for the most serious cases. The distinction matters because it affects the level of proof required and the available defences.

What qualifies as misleading or deceptive conduct under the Fair Trading Act?

Section 9 of the Fair Trading Act 1986 contains the core prohibition: “No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.” That sounds simple, but courts have spent decades interpreting what it actually means.

According to the Fair Trading Act 1986, conduct is misleading if it has the capacity to lead ordinary people into error. The classic test comes from case law: you need to assess whether a “reasonable person in the claimant’s situation” would be misled.

Key principles that courts apply include:

• Conduct is assessed objectively — what matters is how a reasonable person would interpret it, not what the business intended
• The conduct must be in trade — private sellers are generally not covered
• The misleading conduct must be “real and not fanciful”

The Act’s prohibition isn’t limited to just what a business says or writes. It covers:

• Verbal representations made in person or over the phone
• Written statements in advertisements, websites, and product labels
• Silence where there’s a duty to disclose information — for example, if a car dealer withholds that a vehicle has been written off

As Consumer NZ explains, silence can be misleading if it means the overall picture painted by the business is inaccurate. If a salesperson describes a car as “sex” and doesn’t mention it was previously a rental car with high mileage, the silence could be misleading.

One area that receives consistent complaints each year is advertising. The Fair Trading Act prohibits:

• False or misleading representations about goods and services
• “Bait advertising” — advertising a product at a very low price without any reasonable intention of selling it at that price, to lure customers into the store
• Unsubstantiated claims about performance or benefits

The definition of “misleading or deceptive” is broad and context-dependent. A qualification or fine print that appears in a footnote may not fix an otherwise misleading headline claim.

Examples of misleading conduct

The Commerce Commission has pursued many notable cases. Here are a few illustrative examples (not taken from any case in particular but drawn from the Commission’s general enforcement patterns):

• A business advertising a “100% guarantee” when the refund policy excludes certain conditions
• Claiming a product is “new” when it’s actually refurbished or has been on the shelf for years
• Suggesting a product has endorsement from a body like the Heart Foundation when it doesn’t
• Offering “free” items that require hidden mandatory shipping fees (drip pricing)

Under the Act, a business can’t just say “caveat emptor” (let the buyer beware) and shift responsibility to consumers who were misled by an advertisement. The law is designed to hold businesses to a higher standard of honesty.

What is not covered?

The Fair Trading Act does have limits. It does not apply to:

• Conduct that occurs outside of trade — such as private sales between friends
• Financial services provided by registered banks, although they’re still subject to the Act itself
• Misleading conduct that has no real impact on a consumer’s decision

The Act operates alongside the Consumer Guarantees Act 1993, which provides consumer guarantees for goods and services. While the two are related and can apply simultaneously, they protect different interests: the Fair Trading Act targets deceptive conduct, while the Consumer Guarantees Act imposes strict quality requirements on what is supplied.

How can I get a refund under the Fair Trading Act?

Here’s where things can get a little complicated — and where a lot of consumers get confused. The Fair Trading Act 1986 does not itself grant a blanket right to a refund. Refund rights in New Zealand primarily come from two places: the Consumer Guarantees Act 1993 (CGA) and the terms of the contract you’ve entered into.

Think of it this way: the Fair Trading Act is the business conduct watchdog, while the CGA is the product quality guarantee. You can rely on both at the same time.

The Fair Trading Act steps in when the business misled you into buying something you otherwise wouldn’t have. If a company’s misleading claims convinced you to purchase a “waterproof” coat that turns out to be entirely water-permeable, you have remedies under the Fair Trading Act. If the coat is fine but simply falls apart after two washes, that’s a CGA issue.

• Under the CGA: You can ask for a repair, replacement, or refund if goods don’t meet acceptable quality standards
• Under the Fair Trading Act: You can claim compensation for losses suffered due to misleading conduct

If a business refuses to provide a remedy for a genuine issue, you can take several steps.

Step-by-step: How to request a refund

1. Know your rights before you call: Understand whether your issue falls under the Consumer Guarantees Act (faulty goods) or the Fair Trading Act (misleading conduct). Both rights are important.
2. Contact the business: Call or email the business first. Explain the issue clearly and state what you want — a refund, repair, or replacement.
3. Put it in writing: If the phone call leads nowhere, send a written complaint. Outline the timeline, the issue, and your requested remedy.
4. Consider the Commerce Commission: If the business is refusing to budge, you can lodge a complaint with the Commerce Commission. They prioritise complaints about serious and systemic issues.
5. Disputes Tribunal: For disputes under $30,000, you can take the business to the Disputes Triby Tribunal. This is a low-cost, less formal alternative to going to court.

As Consumer Protection NZ advises, keep all receipts, emails, and records of your communication with the business. If you do end up filing a claim, this evidence is crucial.

One company facing this exact situation — refusing a legitimate refund claim — is City Fitness who charges for cancel memberships. Consumers often hit a wall when they try to leave a gym contract, and the business drags its feet. This is where the Fair Trading Act gives you an argument: if the gym said you could cancel whenever you wanted but now point to fine print requiring 30 days’ written notice, they may be misrepresenting the terms of the contract.

Another common battleground is the building industry. If a builder tells you a clause in the contract limits their liability for defective work to just “fair wear and tear”, but that clause is actually unfair, you have rights. The case of David Reid Homes Coromandel Collapse shows what can happen when consumers suspect unfair contract terms in the building sector. It’s a good reminder that you can challenge a contract term that seems unreasonable.

What is the role of the Commerce Commission?

The Commerce Commission is the government agency that enforces the Fair Trading Act. It’s an independent Crown entity, meaning it operates separate from the government, although it reports to Parliament through the Minister of Commerce and Consumer Affairs.

The Commission has a range of enforcement tools at its disposal to address breaches of the Act. These range from minor compliance tools to significant court action. The choice of tool depends on the seriousness of the breach and the pattern of behaviour involved.

• Issuance of compliance advice to educate businesses about their obligations
• Issuance of infringement notices for minor breaches (maximum $2,000 for individuals, $10,000 for companies)
• Acceptance of settlement undertakings where a business agrees to stop the conduct, compensate consumers, or take corrective action
• Enforcement through court proceedings seeking fines, injunctions, or disciplinary penalties

As Commerce Commission explains, its role is not to act as a lawyer for individual consumers. Instead, it acts to protect the overall public interest. This means that even if a business misled you, the Commission won’t automatically take up your case. It prioritises cases with “high public interest” such as those that affect many consumers or involve a serious systemic issue.

How to file a complaint with the Commerce Commission

If a business has breached the Fair Trading Act and you want to do something about it, you can report the matter to the Commerce Commission.

1. Check if it’s covered: Confirm the conduct falls within the Fair Trading Act. The Commission provides a handy guide on their website.
2. Gather your evidence: Collect any relevant documents — advertisements (screenshots work), emails, receipts, contract terms.
3. File a complaint online: You can fill in a complaint on the Commission’s website (comcom.govt.nz).
4. Consider alternative steps: The Commission won’t represent you directly, so you may want to contact the business yourself first, then escalate to the Disputes Tribunal if that doesn’t work.

The Commerce Commission doesn’t take every complaint to court. They assess each complaint against a set of enforcement criteria, including the seriousness of the conduct, the extent of consumer harm, and whether they’d be able to successfully prove their case.

What is the difference between the Fair Trading Act and the Consumer Guarantees Act 1993?

These two acts are the twin engines of New Zealand’s consumer protection system. They work together, but they protect different interests. It’s easy to confuse them.

The Fair Trading Act 1986 regulates how businesses behave in trade — specifically, it prohibits misleading and deceptive conduct, unfair practices, and unfair contract terms. It’s about the conduct before and during the transaction.

The Consumer Guarantees Act 1993 regulates what happens after the transaction — it imposes guarantees about the quality, fitness for purpose, and durability of goods, and imposes obligations on service providers. It’s about the product itself, not the sales pitch.

Here’s a simple comparison:

There is some overlap. A business that tells a “little white lie” about a product could be both misleading you (FTA) and breaching the guarantee that it’s fit for purpose (CGA).

Consumer NZ describes the relationship: you can rely on both acts at the same time. A refund can be justified under both — but the reasons matter. Under the CGA, you’re entitled to a remedy because the goods are faulty. Under the FTA, you’re entitled to compensation because you were induced to buy based on a falsehood.

If you’re trying to get a refund, you might find the CGA more direct. However, the FTA has a valuable role when the issue is about the sales pitch itself, not the product — for example, if you were told a product could do something it can’t do.

The takeaway for consumers is to use the FTA primarily as a shield against deceptive sales tactics, while relying on the CGA for intrinsic product faults.

Fair Trading Act 1986: A detailed summary of New Zealand’s consumer protection law

The Fair Trading Act 1986 has been a key foundation of New Zealand consumer law for over three decades. Signed into law on 17 December 1986, it exists to protect consumers and promote fair competition. The Act is enforced by the Commerce Commission, which reports on its activities to Parliament.

Consumer NZ describes it as the “main law that protects consumers from being ripped off”. It is broad in its reach, covering essentially everyone who sells or supplies goods and services in trade, from large corporations to Instagram influencers.

Here’s a quick overview of the key sections that matter most:

While it’s worth noting that the Act is a consumer protection law, it also protects businesses when they buy goods or services for their business, as long as the transaction meets specific criteria. This might be the case when the business acquires goods or services of a kind that is “ordinarily acquired for personal, domestic, or household use”. However, the FTA’s prohibition on unfair contract terms does not apply to business-to-business (B2B) contracts with a significant imbalance.

The official legislation site provides the full, consolidated text of the Act, and it’s the ultimate authority. It’s long, but the key section for most people is the one that defines “misleading or deceptive conduct”.

Section 9 is enforced by the Commerce Commission. They have useful plain-English guides on their website that explain the Act in everyday language. The Ministry of Business, Innovation and Employment (MBIE) is the department responsible for consumer policy, and they maintain a consumer protection section with excellent material.

The maximum penalties for breaching the Act were significantly increased in 2019, and that change was specifically designed to act as a more effective deterrent. When the maximum fine for a company tripled from $200,000 to $600,000, it sent a message that New Zealand was serious about protecting consumers.

Consumer NZ points out that the Commerce Commission takes between 10-20 cases to court each year, but the number of settlement and compliance outcomes is far higher.

Understanding the Fair Trading Act 1986 penalties in detail

Penalties are the teeth of the Fair Trading Act. Understanding what can happen to a business that breaks the law is essential for both consumers and business owners. The Commerce Commission enforces the Act, and the penalties they can seek depend on a few factors.

According to New Zealand Legislation, the most serious crimes under the Act are:

• Misleading or deceptive conduct (s 9): The maximum fine for a company is $600,000; for an individual, it’s $200,000.
• False representations (ss 13-15): Similar penalties apply — a company can be fined up to $600,000 and an individual up to $200,000.
• Unsubstantiated claims (s 14): The maximum fine for a company is $200,000; for an individual, it’s $60,000.

It’s important to understand the breakdown of these penalties, starting with the individuals. The law treats a director or manager who knowingly colludes in a misleading ad differently than a low-level employee who just reads a script.

Section 45 of the Act says that if a body corporate commits an offence, “every director and every person concerned with the management of the body corporate” is a party to that offence and can be liable for the individual penalties. This means that in serious cases, the Commerce Commission may target both the company and its senior staff members.

The $200,000 individual penalty is designed to be painful for an individual financially, but the real risk is that the Commerce Commission might also seek to have a director personally disqualified from managing any company. This is a serious outcome for a business professional.

Consumer NZ clarifies that under the Fair Trading Act, the maximum fines were tripled in 2019 to reflect the fact that the old fines were “just a cost of doing business” for larger companies. The pricier the penalty, the stronger the signal.

Individual penalties and liability

For individuals — including directors, business owners, and sometimes employees — the maximum fine under s 9 (misleading conduct) was increased from $60,000 to $200,000 under the 2019 amendment. This change applies to all conduct that occurs after the amendment came into effect.

The Commerce Commission has general guidance on how they decide on a fine. The starting point for this calculation is the nature of the breach, the need to deter others, and any steps the business has taken to address the issue (like a refund).

Individual directors need to understand they are personally exposed. If you’re a director of a company that makes false claims, you could be personally liable up to that $200,000 figure. This doesn’t even count the possibility of injunctions that can ban you from being involved in consumer transactions.

Section 44 of the Act allows for fines against individuals. This is the section that specifically identifies what happens when a person (rather than a business) does something like engaging in misleading conduct. The Commerce Commission has said they will seek individual penalties in cases where a director or senior manager was “knowingly concerned” in the offending.

Company penalties (Bodies Corporate)

When we talk about the Fair Trading Act penalty for a company, we are usually talking about a maximum of $600,000 per offence for the most serious breaches. However, there’s another layer: the Commerce Commission can also seek an order that the company disgorge any commercial gain it made from the breach.

That’s a powerful consequence. If a company makes $2 million from a scammy ad campaign, they can’t just pay the $600,000 fine and keep the change. The Court can order them to repay the profit.

For less serious breaches that don’t involve the most serious forms of misleading conduct, companies face a fine of $200,000 per offence. And for strict breaches involving things like the failure to provide required consumer information, the fine is much lower — often between $10,000 and $30,000.

These maximums are also set out in the New Zealand Legislation page, but a quick note of caution: the law doesn’t just automatically apply the maximum. The Court has discretion on penalty. They consider factors such as the degree of harm to consumers, the need for general deterrence, and the company’s overall financial position.

Penalty tiers and examples

Since the 2019 amendment, the Fair Trading Act penalties have been tiered by importance. Tier 1 is the most serious, covering s9 (misleading conduct) and s13 (false representations). Tier 2 covers less serious conduct, like misleading conduct about a business’s sponsorship or approval. Tier 3 covers minor technical breaches, like failing to display a company address.

Here’s a real world example of how penalties are applied. Imagine a local consumer is misled into buying a “New Zealand-made” souvenir that was actually manufactured overseas. If the Commerce Commission decides to take the seller to Court, they might argue that the penalty should be high because the conduct undermines the whole point of the “NZ made” label.

The Commerce Commission is the primary enforcement body. Their enforcement strategy is designed to target cases with the highest consumer impact, and they don’t just rely on court cases — they also use compliance orders and settlement letters.

A detailed look: Fair Trading Act vs Consumer Guarantees Act

If you’re an online shopper, you’ve probably seen the Fair Trading Act referred to on websites, but you might not know how to distinguish it from the Consumer Guarantees Act (CGA). Here’s how it all fits together:

The Fair Trading Act is about the way a business behaves. It prohibits “conduct that is misleading or deceptive, or is likely to mislead or deceive”. This is very broad. It includes how a product is advertised, what’s written on the label, and how the salesperson talks to you.

The Consumer Guarantees Act is about how the product or service performs. It guarantees that goods are of “acceptable quality”, that they’re “fit for purpose”, and that they match their description. Services must be carried out with reasonable care and skill.

In terms of a refund you might think these two acts provide the same protection, but they actually operate differently. Here’s a quick comparison.

It’s important to know that these acts work in parallel. A business can’t escape its obligations under the Consumer Guarantees Act just by avoiding misleading statements.

There are some crucial differences in how the two acts deal with penalties. For example, under the Fair Trading Act, a company can be fined up to $600,000 for a serious breach. Under the Consumer Guarantees Act, there is no monetary penalty max in the same way; the primary remedy is to fix the problem.

The Commerce Commission oversees the Fair Trading Act, while the Ministry of Business, Innovation and Employment (MBIE) has responsibility for the consumer policy around the CGA. The Disputes Tribunal can hear claims under both acts, but the process is slightly different.

If a business misleads you, they might be breaching the Fair Trading Act, but that doesn’t automatically mean they’ve breached the Consumer Guarantees Act. For example, if a store advertises a $100 “voucher” but then excludes certain items, that’s a Fair Trading Act issue. If they sell you a pair of shoes that breaks after 2 weeks, that’s a CGA issue.

Real-world application of the Fair Trading Act 1986

The Act is more than just a list of rules — it shapes everyday transactions that Kiwis interact with. Let’s say you’re building a website that advertises “stress-free” package deals. If you can’t back that up, you might be in breach of the Act’s s 12 requirement not to make unsubstantiated claims.

Similarly, real estate agents are heavily regulated. The act affects property marketing, including what can be said about a property in a listing. A property with “unlimited harbour views” when it’s positioned behind a warehouse might be accused of being misleading.

The Fair Trading Act prohibits a wide range of conduct. One of the highly relevant clauses for everyday Kiwis is the “s 13” (false representations), which covers when a business tells you something about a product that isn’t true. Saying a TV is 4K when it’s actually 1080p is a classic example.

New Zealand legislation also gives the Commerce Commission the power to intervene in disputes about refunds.

Consumer rights are a huge topic. But the Fair Trading Act is not a “refund law” in the way that some people think. The right to a refund comes from the Consumer Guarantees Act.

However, the Fair Trading Act supplements the CGA. If a business has a “no refunds” sign, that’s potentially misleading because it suggests they don’t have to offer a refund for faulty goods. The law prohibits that sign. If you see that sign, you now know the store is breaking the law.

Frequently asked questions

Here are answers to some common questions about the Fair Trading Act 1986, compiled from Consumer NZ and the Commerce Commission.