Unlock the Secrets of Japan’s Specified Commercial Transactions Act: A Lawyer’s Guide to Navigating Regulations and Cooling-Off Systems for EC and Subscription Businesses

Unlock the Secrets of Japan’s Specified Commercial Transactions Act: A Lawyer’s Guide to Navigating Regulations and Cooling-Off Systems for EC and Subscription Businesses

September 14, 2024 Catherine Williams - Chief Editor Business

What is the Specified Commercial Transactions Act?

For business managersSpecified Commercial Transactions Actis an important law that cannot be avoided when doing business.Preventing illegal and malicious solicitation activities by businessesdeath,Protecting consumer interestsThe purpose of this is to:

This law applies toLimited to BtoC (business-to-consumer) transactionsThis does not include BtoB (business-to-business) transactions or transactions with corporations or sole proprietors.

Scope of business to which the Specified Commercial Transactions Act applies

The scope of business to which the Specified Commercial Transactions Act applies includes door-to-door sales, mail order sales, telephone sales, multilevel marketing, the provision of specific ongoing services, business opportunity sales, and door-to-door purchasing.

Door-to-door sales

Door-to-door salesrefers to a business model in which a contract is concluded with a consumer at a location other than a sales office. For example, this applies when visiting a home to conclude a renovation contract or when selling products at a venue.

In this type of business model, businesses must clearly state their identity and the terms of the contract to consumers in advance, and provide them with a written document to prevent any problems down the line.

Mail Order

Mail Orderrefers to the sale of goods and services via the internet, telephone, or catalogues.

When selling products on an EC site, you must provide appropriate information to consumers in accordance with the Specified Commercial Transactions Act. Specifically, you must clearly display the sales price, payment method, product delivery time, and information regarding returns and cancellations.

Telephone sales

Telephone salesis a business model in which businesses call consumers and solicit them to buy products or sign contracts for services.

In this case, the business operator is obligated to state their name, company name, and product description at the beginning of the call.

In addition, even if the consumer applies after hanging up the phone, if the solicitation is made by telephone, it is subject to the Specified Commercial Transactions Act.

Multilevel marketing (network business)

Multilevel marketing transactionsis a form of network business in which individuals recruit other individuals, who then recruit others to expand their sales organization.

This format prohibits the use of misleading or exaggerated statements in solicitations.

Provision of specific continuous services

Provision of specific continuous servicesThis refers to services that are provided continuously over a long period of time and that incur high fees.

For example, beauty salons, cram schools, language schools, etc. Companies that provide these services are obligated to provide consumers with a written contract detailing the contents of the contract.

Regulation of Specified Commercial Transactions Act on Mail Order Sales

In accordance with the Specified Commercial Transactions Act, when conducting mail order sales, businesses must display the following information on their website (Specified Commercial Transactions Act Display):

  • Product/service name
  • Name of the seller
  • Representative Name
  • location
  • Contact Us
  • Sales price (price/usage fee)
  • Money to be borne by consumers (communication charges, shipping charges, etc.)
  • Payment Method
  • How to purchase products
  • Product availability
  • Returns and cancellations

Returns and cancellations

The thing to note here is:Returns and Cancellations” This is the regulation.

If the Specified Commercial Transactions Act does not state anything about returns or cancellations, consumers are free to return products. Businesses must check whether they have a “return or cancellation” policy.

Your “returns and cancellations” policy must include the following:

  1. Return Policy
  2. Return conditions
  3. Whether or not you will be responsible for shipping costs for returns

Therefore, it is necessary to clearly display important conditions for returns such as “No returns accepted”, “Returns accepted only within x days of arrival”, “Returns accepted only before the product is opened”, “Customer is responsible for shipping costs”, etc.

Amendment to the Specified Commercial Transactions Act (effective June 1, 2022)

It came into effect on June 1, 2022.Revised Specified Commercial Transactions ActNew regulations have been added, particularly regarding e-commerce sites.

For example, it is now mandatory to clearly display the details of the order that the consumer will receive on the screen immediately before placing the order. Specifically, the following items must be displayed:

  • Quantity of product (quantity of each purchase and total quantity in case of subscription purchase)
  • Sales price (total amount including shipping)
  • Payment timing and payment method
  • Delivery time
  • Matters regarding withdrawal and cancellation of application

E-commerce site operators need to be particularly careful, as failure to meet these requirements may result in the contract being canceled or refunds being issued.

Details of what must be displayed on the screen immediately before application

The 2022 revised Specified Commercial Transactions Act has tightened the requirement to display information on the screen immediately before application in order to enhance contract transparency and consumer protection on e-commerce sites.

This is to ensure that consumers understand what they are ordering before confirming their purchase, and is an important obligation, particularly for businesses that offer regular purchases or subscription-based services.

Specific details of the display obligation

The screen immediately preceding the application must display important information about the product or service the consumer is ordering in a clear and easy-to-understand manner. In particular, the following items must be displayed accurately by law:

Quantity of product

The quantity, number of purchases, and purchase period of the product purchased by the consumer must be displayed. This includes not only single purchases, but also the “amount of each purchase” and the “total amount” in the case of subscription contracts.

For example, when offering a subscription service, you need to display the specific products or services provided each time and the total cost of each.

Sales price

The final amount to be paid by the consumer must be clearly stated, including any shipping and handling charges. In particular, for subscription purchases, the total amount to be paid over the entire contract period must be displayed, in addition to the amount of each installment.

For example, if a subscription contract for a health food product costs 5,000 yen per delivery and there are 10 deliveries scheduled over the subscription period, the total amount should be displayed as 50,000 yen.

Payment timing and payment method

You must clearly indicate when and how payments will be made, including when the initial payment will be made as well as each installment in a subscription agreement.

For example, if your first payment is due after the product is shipped, or if each payment is charged to your credit card at the beginning of each month, you must provide that information accurately.

Delivery time

It is also mandatory to indicate when the product will be delivered to the consumer. In particular, if the product is provided on a regular basis, the time of the first delivery and the schedule for each subsequent delivery must be indicated.

Matters regarding withdrawal and cancellation of application

The conditions and procedures for consumers to withdraw or terminate the contract must also be clearly displayed on the screen immediately before they make a purchase, including how to return or cancel the contract, contact details, and cancellation conditions.

For example, if you impose restrictions such as “Cancellation is possible by phone, but applications via email are invalid,” you must make this clear.

Furthermore, it is prohibited to establish complicated cancellation procedures that impose undue burdens on consumers.

Risks of not complying with labeling obligations

If these disclosure obligations are not met, the consumer can exercise his or her right to withdraw from the contract.

For example, if the information on the final confirmation screen is insufficient or incorrect, a consumer can cancel the contract and request a full refund.

In order to prevent such problems from occurring, it is important for businesses to display accurate information in accordance with the law and to be thorough in not misleading consumers.

Cooling off period

Based on the Specified Commercial Transactions ActCooling off periodis also an important point. There is an eight-day cooling-off period for door-to-door sales, telephone sales, and the provision of specific continuous services.

In addition, there is a 20-day cooling-off period for multilevel marketing transactions and business opportunity sales transactions.

The important thing to note here is thatThere is a risk that consumers can exercise the cooling-off period indefinitelyDid you know?

If you don’t have the legal documents

First, the documents required for the contract, i.e. “Summary written“or”written contract” has not been issued, the cooling-off period will be indefinite.

The Specified Commercial Transactions Act requires that these documents be provided to consumers in cases of door-to-door sales, telephone sales, multilevel marketing, etc.

Normally, the cooling-off period is 8 days (or 20 days) after the documents are delivered, but if the documents have not been delivered, this period does not apply and consumers can exercise the cooling-off period indefinitely. Therefore, it is necessary to carefully check whether the documents have been delivered properly.

When there are deficiencies in legal documents

Next, you should be careful if there are any deficiencies in the legal documents.

Due to recent changes in the law, notice of the cooling-off period can now be given not only in writing, but also by electronic means such as email.

However, if the contract does not state that “you may exercise your right to cool off in writing or by electronic record,” the contract will be considered to be defective, and the cooling-off period will be unlimited.

A common case is where the previous wording of “written cooling off period” is still used, while failing to address the issue of “electronic records” that came with the legal changes.

This means that consumers can cancel contracts at any time because they are not provided with a correct contract document. Be sure to check the contents of the contract in accordance with the latest laws and regulations.

If consent was not obtained at the time the contract was delivered by email

Furthermore, if a written contract is to be delivered by email, prior consent from the consumer is required.

In the past, contracts were generally delivered in paper form, but nowadays, with the consumer’s consent, they can be delivered by email, etc. However, unilaterally sending emails without this consent is not permitted.

There are detailed rules for this approval procedure, and the Consumer Affairs Agency’s guidelines “Guidelines for providing information to be included in contracts, etc., by electromagnetic means” You must proceed as follows.

If a contract is sent by email without obtaining proper consent, it is considered that a written contract has not been issued legally, and the cooling-off period is possible indefinitely.

summary

The Specified Commercial Transactions Act imposes strict regulations on business models such as door-to-door sales, telephone sales, the provision of specific continuous services, and mail order sales, and failure to comply with these regulations may result in significant risks.

In addition, by understanding the latest amendments to the Specified Commercial Transactions Act and operating your business in accordance with them, you can prevent complaints and problems from consumers before they occur.

You should also consider consulting a specialist lawyer or other professional to confirm whether your company’s business model is subject to the Specified Commercial Transactions Act and take appropriate legal action.