ETIG Analysis: Implications of the new Consumer Protection Act on consumer companies : 23-07-2020

It is after over three decades that the consumer protection law has undergone a change in India, with the new Consumer Protection Act, 2019 (CPA) providing more powers to consumers in the context of current realities.

Celebrity branding may no longer be an easy route of marketing products: Social pressure on celebrities endorsing brands has been building for some time. Several celebrities, for instance, faced the heat recently for having endorsed fairness creams. The CPA now holds the celebrities too accountable in case of a misleading advertisement featuring them. This will lead to celebrities turning further cautious of the brands they endorse and consumer companies like Emami, Hindustan Unilever, Pepsi and Coca-Cola that have built large brands on the back of celebrity endorsement will have to do so more responsibly.

Risk of litigation to amplify for companies: With consumers now being eligible under the CPA to file complaints from the place where they live or do business and also having the legal recourse to file class action suit and settle for mediation of disputes, companies are in for litigations on several fronts in case of deficiency in their service or defect in products. For instance, the recourse to file class action suits would probably have made it easier for patients to seek compensation from Johnson & Johnson for its faulty hip implants. Besides, product liability and product recalls are the two new terms that the CPA has introduced.

Investment in quality control and customer service to increase: The empowerment of consumers under the CPA will compel companies to become quality conscious to avoid litigation and bad publicity. Increased investment in quality control and complaint redressal mechanisms is likely to follow suit. For instance, auto companies right now voluntarily undertake product recalls. However, with the authorities empowered to order product recalls under the CPA, it will have higher financial and legal ramifications for companies when ordered to do so. Under their annual business responsibility report, listed companies are required to mention the number of consumer complaints received by them during the financial year. With increased litigation, the number of consumer complaints may become an important monitorable for ESG (environmental, social and governance) investors.

Ecommerce to grow more responsibly: The fastest growing segment of distribution for consumer goods has been brought under the purview of the CPA. This will ensure that unchecked growth of ecommerce and online markets stands arrested. The Act has brought off-radar distribution channels like telemarketing and multilevel marketing too into the ambit of the law.

Shifting of consumers from unorganised to organised markets to get expedited: Consumers now have a strong reason to move away from the unorganised space since they can better assert their rights and seek legal redressal of their complaints in case of disputes with a player from the organised market. Correspondingly, the premium of products and services sold by organised players over those by the unorganised ones is also likely to increase due to higher safeguards and investment made in the products by the former.

23 jul 2

Source : Financial Express