Contract Terms Found To Be Unfair And Used Irresponsibly By Mobile Trader
Delayed delivery terms used in contracts entered into by Ace Marketing Limited (Ace), a mobile trader targeting lower socio-economic communities across the North Island, have been declared unfair by the Courts, preventing Ace from relying on the terms in current or future contracts.
Ace also breached the responsible lending principles under the Credit Contracts and Consumer Finance Act through failing to highlight and explain the delayed delivery terms in a way that helped consumers reach an informed decision about entering into the contract.
An injunction prevents Ace from providing credit to consumers under any new contracts until it amends them to comply with the relevant responsible lending principles.
A second business, Xtreme Kiwi Deals, has been warned by the Commission for similar conduct and has provided enforceable undertakings that it will not apply the delayed delivery terms in any current or future contract.
Commerce Commission General Manager of Credit, Louise Unger, says the two investigations have highlighted a need for those businesses selling door-to-door to better understand their obligations to ensure their contracts do not include unfair terms and that provisions are clearly communicated to consumers.
Ace Marketing – Court releases reasons judgment
Ace primarily sold consumer goods to vulnerable consumers in low socio-economic communities, at prices much higher than other retailers’ prices – a common feature of the business practice of mobile traders in New Zealand.
“Our investigation found that consumers would purchase goods from Ace on deferred payment plans, meaning that they would not receive their goods until they had made a specified minimum, often large, number of payments. If a payment was missed, Ace would delay the delivery even further,” Ms Unger says.
“While the principle of delaying delivery by, for instance, one-week for a missed payment may be reasonable, our investigation found that Ace would increase the delivery times significantly into the future. For example, sometimes up to seven weeks later than originally agreed for one payment missed.”
A reasons judgment, obtained by the Commission in July 2022, confirmed that these terms around the delayed delivery provisions were unfair contract terms under the Fair Trading Act.
“The Court agreed that the terms weighed too much in favour of Ace, and customers faced harsh consequences for missing just one payment which weren’t justified to protect Ace’s own commercial interests,” Ms Unger says.
The Commission’s investigation also found that Ace did not clearly explain or highlight that delivery would be delayed if a customer missed payments, which resulted in customers not necessarily understanding all the terms of the contract before signing up.
“Because these terms were confusing to customers, Ace breached the responsible lending principles under the Credit Contracts and Consumer Finance Act by failing to help them reach an informed decision before entering the contract,” Ms Unger says.
The Commission has published the reasons judgment for Ace Marketing on its website here.
Xtreme Kiwi Deals – warning letter and accepted enforceable undertakings
The Commerce Commission has also issued a formal warning letter and accepted enforceable undertakings from another mobile trader, Xtreme Deals Ltd, trading as Xtreme Kiwi Deals (Xtreme).
Ms Unger says that as with Ace, Xtreme sold consumer goods such as electronics on deferred payment plans.
“We have warned Xtreme on the same matters as Ace Marketing - including potentially unfair terms about delayed delivery in the contract and failing to make those contract terms clear and easy to understand.
“Xtreme has also agreed through enforceable undertakings not to apply the terms about delayed delivery in any active contract, and not to include the terms about delayed delivery in any new contracts.”
The Commission has published the warning letter, and enforceable undertakings agreed with Xtreme, on its website here.
Both Ace and Xtreme operated from Hamilton. Both companies sold consumer goods at prices significantly higher than what is charged in mainstream stores, via door-to-door sales agents.
The Commission understands the companies have stopped entering into new contracts.
Unfair Contract Terms
When deciding whether a term in a standard form consumer contract is unfair, the court will look at whether the term will significantly advantage or benefit one party over the other, whether the term is reasonably necessary to protect the interests of the party relying on the term, and whether the term causes harm to the party against which the term is applied. The court will also look at the extent to which the term is transparent, and whether there are other provisions in the contract that can balance the term.
Responsible Lending Principles
When providing credit, lenders must ensure they comply with the lender responsibility principles. The lender responsibility principles impose obligations on lenders when advertising, before entering into a loan, and during all subsequent dealings with borrowers and guarantors.
One of the key principles is that lenders must help borrowers and guarantors make an informed decision about whether to enter into the loan/give the guarantee. This includes lenders ensuring that advertising and information provided to the borrower or guarantor is not likely to be misleading, deceptive or confusing. The terms of the loan and guarantee must be expressed in plain language in a clear, concise and intelligible manner.
Mobile traders selling household goods such as clothes or electronics are a common sight in some neighbourhoods in Aotearoa New Zealand. These businesses tend to work on a model of convenience and instant access to credit. The ‘get it now and pay later’ method they use can appeal to consumers who do not have access to transport or credit. There are laws that mobile traders must comply with, including the Fair Trading Act and the Consumer Credit Contracts and Consumer Finance Act.
More information on these laws are on the Commission’s website here.