2. Regulatory Regime for Auctioneers
The Auctioneers Act requires all auctioneers to be licensed. Entry to the occupation is dependent upon persons being able to satisfy the Courts that the provisions of the Act have been complied with, that the applicants are "fit and proper", and that they are financially stable.
Because restricting entry to an occupation through licensing workers imposes costs and reduces flexibility more than any other means of intervening in the conduct of an occupation, it should be reserved for cases where the inappropriate conduct of an occupation could pose a significant risk of harm.
The Ministry of Economic Development has identified two potential risks that auctioneers can pose. These are:
- financial harm to consumers; and
- auctioneers selling stolen goods through auctions.
It needs to be determined whether each of these categories pose problems serious enough to justify the continuation of government regulation. The following sections provide a discussion of these risks.
Consumer Protection Issues
Incompetent and/or Reckless Conduct by Auctioneers
This section revolves around whether an incidence of incompetent, reckless, or dishonest conduct by an auctioneer can expose consumers to financial risk, and if so:
- whether there are safeguards in the market that could limit these risks; and
- given the nature of the risks and the characteristics of the market, what kind of regulatory regime is optimal to manage these risks?
Information problems may exist in the auctioneering industry in which consumers do not have the information, the time, or the ability to judge the competence of a potential auctioneer. In addition, it may be difficult for consumers to judge the quality of the service they are receiving. Because of this, it might be possible for substandard auctioneers to remain in the market.
Financial risks can present themselves in a number of ways, including the following:
- Consumers not receiving money owed to them by auctioneers. This could occur either through: inadequate record keeping by the auctioneer; the auctioneer becoming insolvent in the period immediately after the sale; or the auctioneer misappropriating consumers' money;
- Consumers purchasing items from auctions that turn out to be of a poor quality, or don't perform the functions they were led to believe they would. In this case, consumers are not afforded protection by the Consumer Guarantees Act 1993 as this legislation does not apply to the quality of goods purchased by auction;
- Auctioneers selling consumers' items for much lower prices than could potentially have been obtained. This could be an issue of competency or of fraud;
- Bid rigging being used to illegally increase the prices of goods being auctioned;
- Auctioneers stealing consumers' items they have been given to sell; and
- Consumers unknowingly purchasing stolen goods through auctions, which will have to be relinquished if they are discovered to be stolen.
At the same time, however, consumer protection is offered to varying levels through the following channels:
- Fair Trading Act 1986: This prohibits misleading and deceptive conduct. Any auctioneers that mislead customers about the items they are auctioning will be in breach of this Act;
- Crimes Act 1961: Under the Crimes Act it is illegal for auctioneers to steal consumers' money, or items they have been given to auction;
- Sale of Goods Act 1908: This Act requires that goods must be of "merchantable quality". Note that auction houses can remove this form of protection by having a clear sign at the auction, or statement in the catalogue, or by making a spoken statement at the auction that the Sale of Goods Act will not apply;
- Commerce Act 1986: Bid rigging is an offence under the Commerce Act;
- Consumer Guarantees Act 1993: This Act provides a guarantee of reasonable care and skill upon the supply of services of a kind ordinarily acquired for personal or household use. Consumers who engage the services of an auctioneer receive this guarantee.
- Common law actions, such as the tort of negligence;
- Buyers being able to inspect goods before they bid to enable them to judge the quality of the items;
- The requirement that any terms of the sale must be made clear to buyers at the time of the sale or before the auction begins. If the auction house does not make their terms clear or does not make them at all, the buyer cannot be held to those terms;
- The requirement for auctioneers to pay a bond when applying for a licence which can be used to compensate clients for any losses sustained; and
- Vendors generally being able to set reserve prices on their items before the commencement of the auction.
Use of Regulation to Counteract the Risks
Regulation can be used to protect consumers in the event of reckless or incompetent conduct by an auctioneer, and to prevent certain persons from being able to obtain auctioneers licences. However, regulation imposes costs that in some cases could outweigh the benefits it provides to consumers.
The Ministry wants to determine whether the continuation of a regulatory regime for auctioneers is desirable, and if so, what would be the best way of regulating the occupation. Accordingly, the Ministry would like to hear your views on the following matters:
- In the absence of an Auctioneers Act, would there be consumer protection issues or problems that are not addressed by existing consumer legislation?
- If there are gaps in existing consumer legislation, what are the options for dealing with them?
- If regulation of auctioneers is desirable, what form should it take and why is it the most appropriate form of regulation?
Issues Relating to the Management of Stolen Property
Auctions can be used for disposing of stolen goods. Generally, the property stolen in burglaries is not retained by the offenders, but is on-sold or traded. The Police say that some stolen property is on-sold through auctions. It is not known how much stolen property actually does pass through auctions. However, the Police say that in 1998/1999 there were 134,417 reported thefts, of which 26493 were resolved3. This means that the supply of stolen goods that could potentially pass through auctions is very large.
At present, the Police perform checks on all licence applicants then provide recommendations to the District Court on whether or not the licences should be granted. While the Courts take the Police's recommendations into consideration, the Courts have the final decision making powers and do not necessarily have to follow the recommendations of the Police.
Apart from the Police checks being carried out, there are few, if any, provisions in the Act that attempt to enhance crime prevention.
On the assumption that the regulation of auctioneers assists in tracing stolen goods, the Police have come up with a number of proposals that may reduce the amount of stolen property passing through auctions. At any time, a combination of these initiatives could operate. They are as follows:
- Establish holding requirements for goods that are of the type that are commonly stolen, for example, televisions, VCRs, and stereos. Require auctioneers to hold these goods in a public place for a certain period of time, such as two weeks, before they can be sold to allow a sufficient amount of time for goods to be reported stolen and/or inspected.
- Enable licences to be revoked or suspended if the auctioneer commits certain criminal acts or breaches of the Auctioneers Act.
- Enable the Police to oppose district court licensing decisions.
- Require auctioneers to get at least two forms of identification from vendors to assist in the tracking of the movement of goods that may be stolen.
- Require auctioneers to keep records of transactions of all sales, with details of the parties involved in the transactions.
- Allow the Police to seize records for the purpose of making copies.
- Allow the Police to seize items, without warrant, that they have reasonable grounds to believe are stolen.
- Require auctioneers to retain goods and immediately contact the Police if they suspect they are being offered stolen goods or are in possession of stolen goods.
- Enable the Police to enter premises without warrant and inspect goods and records, including employee records.
Note that not all of these proposals require a licensing system to be in place.
Some questions the Ministry would like to receive your views on are:
- Should the Auctioneers Act have a crime prevention or detection role?
- Does the current form of the Auctioneers Act successfully contribute to crime prevention or detection? Are there ways of usefully amending the Act to reduce the scope for stolen property to pass through auctions? If so, what would the associated compliance costs be?
- Should those who only auction products that have a low risk of being stolen property (for example, real estate, and fresh produce) be exempted from some or all of the requirements of the Auctioneers Act?
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