Laws to protect consumers aren't working - academic Alexandra Sims

Tuesday, 6 September 2016

Researchers from the University of Auckland have found 1086 unfair contract terms in the 114 consumer contracts they studied.

A law designed to protect the public from unfair contracts isn't working and must be changed, a leading consumer law expert has claimed.

Alexandra Sims, the head of commercial law at the University of Auckland Business School, said New Zealand should follow the Australian example of dealing with unfair contracts.

Alexandra Sims from the University of Auckland's Business School has called for an overhaul of laws protecting the public from unfair contract terms.

Last year, an amendment to the Fair Trading Act was meant to make contracts fair, Sims said.

But the way the law was worded meant it was failing because it didn't allow members of the public to challenge unfair contract terms themselves.

* Commerce Commission identifies unfair power contracts**

'Even if you recognise their unfairness, you can't make a complaint,' Sims said. 'Worse still, unless the Commerce Commission challenges them, and a court finds them unfair, the courts and tribunals must enforce unfair terms against consumers.'

In Australia, people can challenge unfair contract terms themselves in courts and tribunals, and Sims said the same should be allowed here. All people could do at the moment was ask the commission to investigate.

Sims heads a team of researchers soon to publish a study which will show unfair terms remain rife in 'terms and conditions' contracts for a broad range of everyday services, from hairdressers to digital music, and airlines to energy.

Researchers analysed 114 retail contracts over the summer of 2014/2015, and then looked at them again nine months after the law change came into effect, Sims said.

Before the law change, they found all the contracts contained unfair contract terms, with 1225 unfair terms in total.

After the law change, only a third of contracts had been changed, Sims said. All still contained at least one unfair term, with 1086 unfair terms in total.

More than half of contracts gave businesses the freedom to vary prices and/or the provision of goods and services at any point, but still compelled consumers to pay termination fees and charges if they wanted out of the contract. Only 9 per cent of businesses allowed the consumer to cancel the contract without paying fees or charges.

Some companies still stated they were not liable for any loss or damage arising from their goods or services, which Sims said was both unfair and a breach of the Consumer Guarantees Act and the Fair Trading Act.

'The Unfair Contract Terms law is clearly not working,' Sims said. 'What's more worrying, is that consumers cannot challenge unfair contract terms – only the Commerce Commission can. And unless an unfair term also breaches another part of the Fair Trading Act or the Consumer Guarantees Act, courts and tribunals are actually obliged to enforce an unfair term against the consumer.'

The Commerce Commission has an ongoing project to review standard consumer contracts in various industries for unfair terms, she said.

'The worst term I've seen comes out of the energy retailer review,' Sims said. 'One of the companies made customers who purchased a property with an existing electricity installation liable to pay outstanding charges from the previous occupant in order to continue their connection. That's simply outrageous.'

'The commission has said that following its review energy retailers have, or will soon, amend their contracts. But it shouldn't take a review to make contracts fair,' Sims said.

'These are some of New Zealand's largest businesses and should be complying with the law and not waiting until the regulator comes calling to suddenly act on their desires to follow the law!'