Media Releases

Commission releases approach to unfair contract terms

25 February 2015

The Commerce Commission has today published its final Unfair Contract Terms Guidelines and its approach to enforcing the new unfair contract terms law when it takes effect next month.

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 17 March 2015, it will be unlawful to include an unfair term in a standard form consumer contract.

Commerce Commission Chair Dr Mark Berry said the Guidelines are intended to help businesses comply with the law.

“Parliament delayed the introduction of these laws for 15 months to give businesses time to prepare for them. We have taken steps to inform businesses about these new laws, including through public presentations and publishing our Guidelines. But it is important that businesses note that there will be no grace period. The Commission will be actively enforcing these new laws.”

The Commission will initially focus on known potential problems.

“To start with, we will focus our attention on industries and practices that have proven problematic overseas, or where we have received complaints in the past about potentially unfair contract terms. Industries commonly falling into these categories include telecommunications, rental cars, fitness, airline and online trading,” Dr Berry said.

“We will also concentrate on those contracts that are causing harm to vulnerable consumers in the consumer credit area.  Loan contracts, including credit related contracts for the sale of goods or services, can be particularly harsh on vulnerable consumers so we intend to check a range of contracts to make sure they comply with the new law, and take appropriate steps if they don’t.”

The Commission will also pay particular attention to terms that limit competition.

“The types of terms that concern us include those that have the effect of limiting 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. We will also look closely at any term that allows a business to increase the price it charges for goods or services without the customer being allowed to terminate the contract with no penalty,” Dr Berry said.

“It’s important that consumers understand that 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 Commission issued draft consultation guidelines in July last year and received approximately 30 submissions back. The guidelines have now been finalised and are available on the Commission’s website.

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 unfair contract terms 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.