Protection is key

UDO RYPSTRA says that the introduction of the Consumer Protection Act on 1 April will pose a number of problems to bus and coach operators

According to Professor Jackie Walters, advisor to the South African Bus Operators Association some provisions of the Act will be impossible or almost impossible to comply with. Referring to Section 23 of the Act which deals with disclosure of prices, he says: “It will be impossible for an operator, especially the larger operators to display their prices in any one place or on one display area because of the varying fares charged for a wide range of services. Also, there may be circumstances where varying fares are charged on one route depending where the passenger boards the bus and where he/she alights from the bus,” he says.

Walters says that in terms of Section 26 an operator will also be required to issue a written record of each transaction entered into with that passenger, to every one of its passengers, which contains all the information set out in the Act, except in cases where exemptions have been granted.

“The Minister may exempt certain service categories, but no such exemptions have yet been issued. Taking into consideration what happens in practice when a bus ticket is sold – be it a cash ticket and/or a multi-ride ticket – it will be practically impossible to issue the required documentation to every passenger who purchases a ticket. Besides, most tickets are just too small to display all the required information. Ticketing equipment currently in use cannot accommodate these requirements either,” Walters said.

SABOA has identified other sections in the CPA which are problematical for the industry, one being clip cards. Walters pointed this out at the SABOA convention recently in his overview of the bus industry:

3.1.3 Section 63 – Prepaid certificates, credits and vouchers
Operators offer their customers prepaid clip cards which the customer can purchase as a monthly and/or weekly ticket from the operator which entitles the customer to a certain number of bus rides for a specific period. If the customer has not used all the rides by the end of the period, the ticket expires and the customer does not receive a refund. Upon request, an operator may extend this period if the customer is unable to utilise the ticket due to, for example, being hospitalised, or similar.

It is conceivable that the clip card and or multi-ride tickets could constitute a “prepaid service or voucher” in terms of the CPA and as a result there are certain implications for operators.

Section 63
“(1) This section applies only to a transaction in which a supplier –
(a) accepts consideration from a person in exchange for a prepaid certificate, card, credit, voucher or similar device; and
(b) expressly or implicitly agrees to provide goods or services to any person who subsequently presents that certificate, card, credit, voucher or similar device, up to the value represented by it, but does not apply with respect to such a device, or the value represented by it, after all of the value of the device has been exchanged for goods, services or future access to services.”

In terms of section 63(2) of the CPA:

“(2) A prepaid certificate, card, credit, voucher or similar device contemplated in subsection (1) does not expire until the earlier of—
(a) the date on which its full value has been redeemed in exchange for goods or services or future access to services; or
(b) three years after the date on which it was issued, or at the end of a longer or extended period agreed by the supplier at any time.

(3) Any consideration paid by a consumer to a supplier in exchange for a prepaid certificate, card, credit, voucher or similar device contemplated in subsection (1) is the property of the bearer of that certificate, card, credit, voucher or similar device to the extent that the supplier has not redeemed it in exchange for goods or services, or future access to services.”

Section 63(2) makes it clear that the prepaid certificate, card, credit, voucher or similar device does not expire until the earlier of the date on which its full value has been redeemed or three years after the date on which it was issued or such longer period as may be agreed by the supplier. Accordingly, an operator will no longer be entitled to limit the clip card and/or multi-ride ticket to a six week period after which any of the remaining bus rides left on the ticket will expire. Instead, the operator will have to allow the consumer to utilise all the rides before allowing the ticket to expire (unless they have not all been utilised within the three year period after the date on which the ticket was issued in which case the ticket will expire).

The cancellation of tickets is currently a significant problem for operators, and even electronic systems are open to abuse by drivers and passengers. An extended validity period will aggravate this situation.

Subsection (3) provides that any consideration paid by a consumer to a supplier in exchange for the prepaid card is the property of the bearer of that card to the extent that the supplier has not redeemed it in exchange for goods or services.

In interpreting section 63(3) attention must be paid first to the meaning of the word “property” in that subsection. Ordinarily, as soon as money is paid to another it loses its identity by co-mingling, so ownership of the money passes and the consumer has only a personal right to the property (ie the money). The use of the word “property” in this subsection indicates that ownership of the money does not pass to the operator and that the operator will have to keep the money received for the card separate from its own. In essence, the money is kept “safe” or “in trust” for the consumer.

It seems that an operator will have to keep the money received from consumers for clip card and/or multi-ride tickets separate from its own until such time as the relevant ticket has been fully utilised by the consumer or has lawfully expired. This will cause a huge admin burden on the industry and will require systems changes that will be very costly to implement. Section 65(2) reinforces this requirement and provides that:

“65(2)  When a supplier has possession of any prepayment, deposit, membership fee, or other money, or any other property belonging to or ordinarily under the control of a consumer, the supplier
(a) must not treat that property as being the property of the supplier;
(b) in the handling, safeguarding and utilisation of that property, must exercise the degree of care, diligence and skill that can reasonably be expected of a person responsible for managing any property belonging to another person; and
(c) is liable to the owner of the property for any loss resulting from a failure to comply with paragraph (a) or (b).”

In summary, clarity needs to be obtained about the applicability of Section 63 for the following reasons:
• Most ticketing systems technology cannot provide the required information to adhere to section 63
• Accounting systems are not able to deal with deposits on this scale, and the accounting of income will be a huge and very expensive challenge. As stated above, ticketing systems cannot supply the required information to undertake proper recording of income in order to comply with this section of the Act
• A major problem at present is that only 3 to 5% of trips are being checked by inspectors. An extended validity period will provide a larger incentive for drivers and passengers to avoid cancellations. The result will be substantial revenue losses.
• Companies also prefer to sell multi-journey tickets as it limits the amount of cash on a bus which in turn discourages theft, as well as of drivers being robbed.
• Future fare increases will be complicated by section 63. At present fare increases are implemented on a specific date, at a new increased fare – all tickets bought at the old fares, expire. In terms of section 63 a substantial number of trips paid for at the old fare may still be valid (unused) requiring the bus operator to:

– Refund the passenger for unused trips, or
– Charge the passenger a “top up” on the unused portion of the ticket, or
– Allow the passenger to use the unused trips without paying the “top up” thereby losing the increased portion of the new fare until all unused trips are used.

The above will require major changes to ticketing systems (which are generally prescribed within the bus contracts) and control procedures will have to be improved at large costs in order to minimise revenue losses.

• Contracts held by most bus operators expire in March 2011. Tickets valid after this date, or after a possible extension, might cause problems for the new operator if passengers do not submit tickets for unused trips to be refunded at the date of contract expiry. The extent of the liability taken over by the new operator is unknown, which poses a serious financial risk to the new operator
• One of the main reasons for bus operators to sell multi-trip tickets is the benefit of having money up front. This is an important factor in the cash flow management of operators, and operators offer these multi-trip tickets at a considerable discount in exchange for this benefit. If such monies from passengers cannot be considered as income, operators might decide not to offer the option of multi-trip tickets, or at the very least, not to offer these tickets at discounted rates. Fares will therefore increase for most passengers as approximately 90% of passengers purchase multi-trip tickets

This is a very onerous provision and will have severe implications for operators, especially in respect of their operational income. There is no doubt that exemption will have to be obtained in respect of clip card and multi-ride tickets.

To conclude this section, SABOA has briefed Council on the matters raised above concerning the CPA and will advise members shortly of what the industry stands to do about the implications of the CPA on the industry. It unfortunately seems as if exemption from certain clauses of the CPA will be difficult and concerns have been expressed that an industry code will also be very onerous and virtually impossible to achieve. SABOA has engaged the DOT on these matters and the DOT has in turn had meetings with the DTI to discuss the industry’s issues.