New protection against unfair contracts
IF you’re taking out a new loan, signing up for a mobile phone plan or even just joining the local gym, chances are you’ll be asked to sign a contract. It always pays to read the fine print on any contract but since 1 July, consumers have the extra reassurance of new protection from unfair terms or conditions.
Many of the contracts we sign are ‘standard form’ contracts that don’t leave room for negotiation. You either sign on the dotted line and accept the conditions or take your business elsewhere.
The trouble with these contracts is that they can be lengthy, often with reams of fine print written in almost incomprehensible legal terms. That’s why plenty of people don’t always read, or understand the contract thoroughly.
And because many of us do business online these days, contracts aren’t always in hard copy. They can involve clicking an ‘I agree’ button on a web page, which can make it difficult to go back and review the terms of a contract.
The trouble is, the fine print can come back to haunt us if things go wrong. It’s often only when a problem arises that we discover the contract favours the service or product provider – not you, the consumer.
The sorts of problems I’m referring to are things like hefty exit charges if you want to refinance a home loan. Or over-the-top mobile phone charges, which are a key source of consumer complaints.
Since 1 July however new laws have been introduced that are designed to swing the balance of contracts back in favour of consumers. Under these laws, our courts are entitled to declare the terms of a contract as unfair if it significantly favours the provider. The unfair condition can be scratched, even though the remainder of the contract may still hold.
If you sign a contract, which you later discover unreasonably favours the provider while making life tough for you, the first step is to approach the provider or its dispute resolution scheme. Or you can take up the matter with ASIC or going a step further, take legal action.
While the new laws are a step forward I reckon it’s an area where an ounce of prevention is worth a tone of cure. Yes, the courts may be able to overrule the terms of a contract but getting to this point can involve tremendous hassle and expense.
What’s likely to be most beneficial for consumers is the new laws will help discourage more businesses from drafting unfair contracts. But in the meantime I stress that it is important to read any contract you sign. Don’t make assumptions about what it says.
If you don’t understand the terms of a contract, have it reviewed by someone who can explain it to you – your solicitor is a good choice. This is especially important for home loan contracts that involve significant amounts of money.
If you’re signing up for something relatively simple like gym membership, and you’re presented with an overly lengthy contract, the warning bells should start ringing. It may be best to go with an alternate business that can keep things simple.
The new rules only apply to contracts entered after 1 July 2010. For more information, ASIC has produced a booklet on unfair contract that you can download from www.fido.gov.au.
Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Financial Literacy Foundation and chief commentator for Money Magazine.