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Campaign targets unfair contract terms

Consumer NZ has launched a campaign to target the use of unfair terms in consumer contracts.

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Chief executive Sue Chetwin said the “Play Fair” campaign was being launched to coincide with a ban on unfair terms which takes effect from 17 March 2015.

Ms Chetwin said companies had been given generous notice of the ban to give them time to review their contracts and remove unfair terms. “However, there’s little evidence this had happened. We’re launching our ‘Play Fair’ campaign to highlight companies which continue to use unfair terms despite the ban,” she said.

These terms unfairly privilege the seller over the buyer, Ms Chetwin said. “They can include terms that give the company unilateral rights to vary the contract, the goods or services supplied, or even the price.”

Ms Chetwin said gym contracts would be one of the first targets of its campaign.

“Gym contracts can give the gym wide-ranging rights to vary its services. But the rights available to the consumer may be extremely limited and costly to use,” she said.

In Australia, which introduced a ban on unfair terms in 2010, companies are now being taken to court over the use of these terms. A Federal Court ruling in 2013 forced an Australian telco to remove terms that gave it unilateral rights to cancel and to vary the price without allowing customers to opt out.

Ms Chetwin said the ban on unfair terms was one of the most significant changes to New Zealand’s consumer law in the past 20 years.

The ban, introduced in amendments to the Fair Trading Act in 2013, will apply to unfair terms in standard-form consumer contracts – the pre-written terms and conditions used by electricity retailers, telcos, finance providers, pay-TV operators and many other companies.

Ms Chetwin said Consumer would be filing complaints with the Commerce Commission about any company which continues to use unfair terms after the ban takes effect on 17 March.

Campaign FAQs

The Fair Trading Act defines a term as unfair if it:

  • would cause a significant imbalance between the rights of the company and the consumer
  • is not reasonably necessary to protect the legitimate interests of the company
  • would cause detriment, whether financial or otherwise, to the consumer if it were to be applied or relied on.

The Act contains a list of terms that the courts are likely to regard as unfair.

The list includes terms that allow a company to unilaterally:

  • cancel or renew the contract
  • vary the terms of the contract or the good or services supplied
  • vary the price payable without providing a right for the consumer to end the contract
  • avoid or limit performance under the contract
  • penalise the consumer for breaching or cancelling the contract
  • assign the contract to the detriment of the consumer
  • determine whether a contract has been breached.

It also includes terms that limit:

  • the company’s liability for its agents
  • the consumer’s right to sue the company
  • the evidence the consumer can present in legal proceedings.

The ban applies to standard-form consumer contracts which are entered into, varied or renewed from 17 March. Standard-form contracts are the pre-written terms and conditions used by electricity retailers, telcos, finance providers, pay-TV operators, gyms and a whole host of other companies.

However, the ban won’t apply to insurance contracts. After successful lobbying, the insurance industry was exempted from the ban. This exemption means any existing insurance policy is allowed to contain unfair terms. Only new policies taken out after 17 March will be affected by the ban albeit to a limited extent. The Act exempts key terms in new insurance policies from challenge, including terms that:

  • specify the sum or sums insured
  • provide for the payment of premiums
  • identify the uncertain event or the risk insured against
  • exclude or limit the liability of the insurer to indemnify the insured for certain events or in certain circumstances
  • describe the basis on which claims may be settled or that specify any contribution due from the insured in the event of a claim
  • relate to the duty of utmost good faith that applies to insurance contracts
  • specify requirements for disclosure, or relate to the effect of non-disclosure or misrepresentation, by the insured.

Only the Commerce Commission can challenge unfair terms in the courts. However, anyone can ask the commission to seek a declaration from the court that a term is unfair.

We’d like the law amended so individual consumers can challenge these terms in the Disputes Tribunal.

Any company which tries to impose an unfair term on its customers runs the risk of breaching the Fair Trading Act and getting a $600,000 fine.

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