Commission to begin enforcing unfair contract terms tomorrow

Media release

Issued 16 March 2015
Release no. 76

Commission to begin enforcing unfair contract terms tomorrow

The Commerce Commission will begin enforcing the new unfair contract terms provisions of the Fair Trading Act when they take effect tomorrow, with no grace period for businesses.

Unfair contract terms relate to clauses in standard form consumer contracts. The main hallmarks of these contracts are that the terms have been offered to the consumer on a ‘take it or leave it’ basis, and the contracts relate to goods and services that are usually for personal use. From tomorrow, it will be unlawful to include an unfair term in a standard form consumer contract.

“Businesses have had 15 months to prepare for these changes and we have taken steps to inform them of the laws, including by publishing our Guidelines last month. From tomorrow we will start targeting contracts in industries that have proven problematic overseas or where we have received complaints in the past,” Commerce Commission Chair Dr Mark Berry said.

“These sectors include telecommunications, rental cars, fitness, airline and online trading. We are also concerned about loan contracts, particularly those provided by lower-tier finance lenders that can be harsh on vulnerable consumers.”

The Commission will be paying careful attention to terms that limit competition, such as automatic ‘rollover’ or renewal terms and terms that lock consumers into contracts that they wish to exit, preventing them switching to a competitor.

The Commission’s guidelines are available online. A fact sheet for consumers that will enable them to identify unfair contract terms is also being developed and will be released shortly.

Background
Unfair contract terms will be prohibited in all standard form consumer contracts entered into on or after 17 March 2015, and also in those contracts (except insurance contracts) that are renewed or varied on or after that date. These new laws are of limited application to insurance contracts, with many of the key terms of insurance contracts being exempt.

The new unfair contract term provisions only apply to contracts signed after 16 March. The new laws also apply to any existing contract (except insurance contracts) that is varied or renewed after 16 March. Any earlier contract is not captured by the law.

The provisions allow the Commission to seek a declaration from a court that a term in a standard form consumer contract is unfair. While only the Commission can apply for a declaration, any person may file a complaint with the Commission on any contract.

The court may declare a term unfair if it is satisfied that the term:
• would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
• is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
• would cause some detriment (whether financial or otherwise) to the other party if applied, enforced or relied on.
Some terms cannot be declared unfair. These are terms that:
• define the main subject matter of the contract;
• set the upfront price payable under the contract, to the extent that the terms are transparent; and/or
• are required or expressly permitted by any enactment.

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