Developments on the Legal Front
The Consumer Protection Act (CPA)
The Consumer Protection Act (CPA) was promulgated last year but will take effect only on 24th October 2010. This was intended to give affected businesses sufficient time to update contracts and do everything else necessary to ensure compliance.
Unfortunately, the all-important Regulations which will clarify essential aspects of the Act have still not been published. All we know for sure is that the Act will impact strongly on franchising. With this in mind, we will be keeping a watchful eye on developments. The moment the Regulations have been published, we will write a summary of the salient points and publish it on www.whichfranchise.co.za within days.
Deposits taken by franchisors
One of the issues that will be addressed by the CPA is the issue of franchisors taking deposits from prospective franchisees and how these are administered. The Franchise Association of South Africa (FASA) is receiving complaints from prospective franchisees against franchisors, not necessarily members of FASA, who are quick to demand deposits but slow in refunding them if the deal fails to materialise.
This has prompted FASA to issue a stern warning, formulated by FASA Council Member Ian Jacobsberg of Eversheds and published on FASA’s website – www.fasa.co.za. Modified extracts follow.
“It is reasonable for a franchisor to ask for a deposit as a show of intent to invest in a franchise. After all, the franchisor incurs costs in assessing the candidate and preparing the necessary documentation. FASA’s Code of Ethics requires a franchisor to deposit any monies received from a prospective franchisee as a deposit into a separate bank account or attorney’s trust account.
“Should an agreement not be concluded, monies paid over, less reasonable out-of-pocket expenses incurred by the franchisor during negotiations, should be refunded without delay. Unfortunately, it appears that some franchisors place deposits received from prospects into their regular bank accounts and use the money to fund business operations. On occasion, this results in the money not being available if and when a refund is required.”
FASA has indicated that they are currently working on an amendment to their Code of Ethics that will empower FASA’s Council to take strong measures against non-compliant members, should complaints of this nature be lodged against them. We shall keep you updated.