By Susan Ning and Liu Jia
As the Spring Festival approaches, the National Development and Reform Commission ("NDRC") has ordered local price authorities to step up enforcement efforts against price fraud conducts by retail stores, upon widespread consumer complaints. On 26 January 2011, NDRC issued an announcement titled "Retail stores such as Carrefour are suspected of price fraud, local price authorities will hand out grave penalities" , condemning price fraud conducts by retail stores, based on investigations by local price authorities.
In its announcement, NDRC identified the following 4 specific types of price fraud conducts by a number of retail stores:
- Exaggerating discount margin by marking up the "pre-discount" price;
- Charging higher prices at the cashier than the prices indicated on the price labels;
- Not fulfilling price commitment advertised;
- Misleading price tagging. (eg. using RMB13 8.0 for RMB138.0)
According to NDRC’s announcement, the retail stores which are found to engage in the above listed conducts will face penalties of confiscation of illegal gains and monetary fine 5 times the amount of the illegal gains or monetary fine no more than RMB500,000 (approximately, USD75,950) in the event that there are no illegal gains or there is no way to ascertain the amount of illegal gains.
In China, the prohibitions against price fraud conducts mainly consist of the following law and regulations:
- Article 14 of the Price Law is the overarching provision against price fraud conducts. Article 14 prohibits business operators from using deceitful or misleading means in terms of prices to entice consumers or other business operators into transaction.
- The Rules on Prohibition against Price Fraud Conducts expand on and provide further guidance on Article 14 prohibition of price fraud conducts, explicitly outlawing 13 categories of price fraud conducts, including but not limited to the four types of conducts indentified in NDRC’s announcement.
- The Price Tagging Rules of Commodities and Services, which don’t specifically address price fraud, prohibit price fraud by means of price tagging.
- The Provisions on Administrative Penalty against Price-related Unlawful Practices provide following penalty for price fraud conducts: (1) confiscation of illegal gains and monetary fine 5 times the amount of the illegal gains or monetary fine no more than RMB500,000 (approximately, USD75,950) in the event that there are no illegal gains or there is no way to ascertain the amount of illegal gains; and (2) suspension of operation and revocation of business license in grave circumstances.
We noticed that NDRC’s announcement does not disclose whether the local price authorities have taken the factor "intention" into consideration in their findings of price fraud. Is "intention" an indispensable factor for finding certain price fraud conducts? This could be an important issue but has not been clearly addressed.
All the retail enterprises, especially those large scale ones with a huge customer base, shall be aware of the above law and regulations in their daily management.