A new law will protect consumers from unfair contract terms that are routinely buried in lengthy “Terms and Conditions” fine print. Jessica Black reports

Do you read before you sign? Image: Jessica Black

Changes in market trends have led the Australian Competition & Consumer Commission (ACCC) to demand more far reaching powers to protect consumers.

The legislation which comes under the Trade Practices Amendment (Australian Consumer Law) Act (No.1) 2010 will be effective from today and will cover unfair contract terms (UCT) and comes as a response to a productivity review that saw Australia falling behind overseas jurisdictions in consumer protection.

“UCT law will help to address the kind of problems consumers have when they have a contract they can’t negotiate, so called take it or leave it contracts,” said ACCC Vice President, Peter Kell.

These contracts make up the bulk of product and service contracts in circulation today.

The non-negotiable nature of “take it or leave it” contracts are inclined to disadvantage the consumer in favour of the provider, according to Greg Weeks, a Professor of Law at the University of New South Wales, in Sydney.

“It’s not like a traditional contract whereby person “A” and person “B” negotiate an agreement…terms and conditions are entirely there for the benefit of the provider,” he said.

This perceived imbalance of power between supplier and consumer has been taken into consideration by the ACCC in putting together the UCT.

“We’re [the public] all increasingly entering into these sorts of contracts [standard product or service contracts] in the market place so the law aims to ensure that in these types of contracts where the consumer typically has no ability to bargain that they don’t end up with an unfair outcome because of terms that are unreasonable,” said Kell.

Kell said service contracts are more complicated, as they often involve the question of future usage – whether the consumer will use the service the same way within the time stipulated by the contract, and how their usage might change – and therefore are entered into by the consumer with a degree of uncertainty.

Brad Schmitt, a spokesperson for consumer advocacy group Choice , said they lobbied hard for these changes.

In particular, Choice was concerned with the cost of exit or termination fees, which will now fall under UCT.

“During the global economic crisis there were many complaints from people wanting to switch lenders to take advantage of falling interest rates, only to hit a brick wall in the form of high exit fees,” he said.

The transparency of a given term will also have to be taken into consideration when judging whether it is unfair.

It was a lack of clarity that tripped up student Francesca Fauvet when she requested to exit a two-week free trial Fitness First membership.

Conscious of the two-week window, Fauvet requested her membership be terminated several days before the cut off. Having stated this, she was told there would be a consultation to discuss continued membership. However, Fauvet assumed her membership to be void from the moment of the request, and did not follow up when she was unable to attend.

Several months later, she received a call saying she owed the gym $400, as the contract had not been officially terminated.

“I only found out later that the consultation was where the cancellation took place,” she said.

“The experience was just really unpleasant because I tried so hard not to get tangled up in their contract but I still got bitten.”

Fitness First did not return calls by the time this article was published.

Fauvet’s experience is not uncommon, said Schmitt.

“Gym memberships have a bad history when it comes to lack of transparency and unclear terms and conditions and we expect the ACCC will target these fees under the new unfair contract laws.”

However transparency alone will not protect a term found to be unfair.

“Even if a term is transparently disclosed, that may not be enough to ensure it is not unfair,” said Kell.

“Transparency is one issue but it’s not the only issue – is it expressed in reasonably plain language? Is it legible? Is it presented clearly? Is it readily available?”

With the question of legibility however, there is also the question of length.

While Professor Weeks says the use of plain English will be a step forward, there also needs to be a change in consumer perception.

“A change of culture, I think, would be the first step toward that and making people feel that they were still secure without the page and pages of what more or less amount to a legal security blanket [for the provider],” he said.

Monetary penalties have also been introduced by the UCT to encourage businesses to produce reasonable and clear contract terms.

The law will apply to all contract terms entered into from July 1 2010.