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Law change to protect customers

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Mind your Ts and Cs: unfair consumer contract terms rife, study finds

Ever agreed to terms and conditions without reading, let alone understanding them? Chances are, you’ve signed up to terms recognised by a new law as unfair. But here’s the sting: even if you recognise their unfairness, you can’t make a complaint. Worse still, unless the Commerce Commission challenges them – and a court finds them unfair – the courts and tribunals must enforce unfair terms against consumers.

A legal expert is calling for a law change to protect consumers following a study that found unfair terms were rife in “terms and conditions” contracts for a broad range of everyday services, from hairdressers to digital music, and airlines to energy.

This is despite a 2015 law change that was meant to make contracts fair, modernise New Zealand consumer law, and bring it in line with Australia’s.

Trading Act amendment

Under an amendment to the Fair Trading Act, contract terms are considered unfair in a contract between a business and a consumer when they would cause significant imbalance in the two parties’ rights and obligations, are not necessary to protect a legitimate business interest and would cause detriment to the consumer.

Consumers having to pay termination fees when they want to cancel a contract after it is automatically renewed, or after the business puts up its price or makes other unilateral changes to its terms, are common examples of unfair terms.

Some findings

Researchers analysed 114 retail contracts over the summer of 2014/2015, and then revisited them in the summer of 2015/2016, nine months after the law change came into effect. They found:

1. Before the law change, all the contracts contained unfair contract terms – 1225 unfair terms in total (with the exception of four contracts that were more like delivery terms)

2. After the law change, only 33% of contracts had been changed to try to comply with the new law. All contracts still contained at least one unfair term – 1,086 unfair terms in total

3. Large companies were more likely to have made changes (39%) compared to small companies (27%)

4. 56% of contracts gave businesses the freedom to vary prices and/or the provision of goods and services at any point, but still compelled consumers to pay termination fees and charges if they wanted out following the changes – an unfair term. Only 9% of businesses allowed the consumer to cancel the contract without paying fees or charges

5. Some companies still state that they’re not liable for any loss or damage arising from their goods or services – another unfair term and also a breach of the Consumer Guarantees Act and the Fair Trading Act

6. “The Unfair Contract Terms law is clearly not working,” says study lead Associate Professor Alexandra Sims, Head of Commercial Law at the University of Auckland Business School.

“What’s more worrying, is that consumers cannot challenge unfair contract terms – only the Commerce Commission can. And unless an unfair term also breaches another part of the Fair Trading Act or the Consumer Guarantees Act, courts and tribunals are actually obliged to enforce an unfair term against the consumer.”

Contracts review

The Commerce Commission has an ongoing project to review standard consumer contracts in various industries for unfair terms. The two reviews completed so far, on telecommunications and energy retailers, found significant numbers of unfair terms in contracts.

“The worst term I’ve seen comes out of the energy retailer review,” says Professor Sims. “One of the companies made customers who purchased a property with an existing electricity installation liable to pay outstanding charges from the previous occupant in order to continue their connection. That’s simply outrageous.”

The Commission has said that following its review energy retailers have, or will soon, amend their contracts. But it shouldn’t take a review to make contracts fair, says Professor Sims.

“These are some of New Zealand’s largest businesses and should be complying with the law and not waiting until the regulator comes calling to suddenly act on their desires to follow the law!”

Line-up with Australia

Associate Professor Sims says the New Zealand law needs to be fully brought in line with Australian law.

In Australia, unlike New Zealand, both consumers and regulators can challenge unfair contract terms, and consumers can do so in the Australian equivalent of the Disputes Tribunals.
Another major difference is that in Australia, but not New Zealand, fees and charges can be complained about.

“Unsurprisingly, the biggest complaint over unfair terms in Australia has been over fees and charges, and there’s no reason to think it would be any different here,” says Professor Sims.

“The Commerce Commission’s reviews are welcomed and the Commission is doing a really good job, but it simply does not have the resources to effectively police the Unfair Contract Terms Law. Even the reviews only look at a subset of companies in the sectors reviewed – fewer than half in the telco one,” she says.

“The law must be changed to allow consumers to challenge unfair contract terms in both the Disputes Tribunal and the courts, and to challenge fees and charges – as is the case in Australia.”

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Photo Caption: Professor Alexandra Sims

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