Chatbots on the front line: consumer law risks businesses can’t ignore

The Australian Consumer Law (ACL) protects consumers from misleading or deceptive conduct and unconscionable conduct. Front-line customer service has always been a high-risk area for businesses, particularly where consumer rights are complex, customer interactions are frequent, and it can be difficult to capture and monitor the substance of those interactions.

As businesses increasingly adopt AI-powered customer service chatbots, there is a clear opportunity to streamline customer engagement, improve consistency in messaging and deliver faster outcomes for consumers. When well designed and appropriately governed, chatbots can reduce friction and improve the customer experience.

The ACCC’s position on chatbots and consumer law

As highlighted by the ACCC in its Recent developments in artificial intelligence industry snapshot, businesses using chatbots must ensure that the information provided to consumers is consistent with their obligations under the ACL.

AI-generated responses that mislead may expose businesses to regulatory action.

Refunds, returns and consumer guarantees

One of the most significant risk areas is refunds and returns. The ACL provides consumers with specific rights where goods or services do not comply with consumer guarantees. The ACCC has previously taken enforcement action - including seeking significant penalties - against businesses that misrepresented these rights.

Chatbots that provide incorrect information about consumer guarantee rights may inadvertently mislead consumers about their statutory entitlements.

Managing chatbot risk in practice

Businesses using customer service chatbots should ensure that:

• appropriate safeguards are in place to prevent misleading or incomplete information, particularly in relation to consumer guarantees, refunds and returns;
• any limitations in the chatbot’s capability are clearly disclosed to consumers; and
• customer interactions are actively monitored, to ensure customer queries are being resolved and potential issues are being escalated and addressed at an early stage.

As AI becomes increasingly embedded in customer-facing functions, governance and oversight will be critical to ensuring compliance with consumer law obligations.