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One of the most prevalent forms of unfair contract is the misuse of an automatic rollover clause, but there are many other ways that unscrupulous companies can take advantage of the unsuspecting consumer. Clauses like the automatic rollover can be extremely benign offering nothing more than a guarantee of continuity of service or they can be very sinister with strict cancellation periods, variations in rates and penalties for early cancellation even after the first term has expired - see refences at Cleanaway Case 1 and NPower UK. We show below some of the main pitfalls to beware of when signing a contract.

Rollover Clauses

Ensure that the rollover clause is equitable and beware of clever attempts to hide the true nature of the clause. See the Cleanaway Case 1 for a great example of a cleverly written rollover clause. A clever rollover clause can guarantee the writer either repeat business or an exhorbitant fee when a customer leaves their service. Clever rollover clauses can really boost the profitability of a company but they do nothing to help with customer referrals or word of mouth accolades.

Continued below...

Unilateral Variation Clauses

Unilateral contract variation clauses allow one party, usually the company providing the service, to vary contract conditions at will. Believe it or not, there are many of these types of contract being written and signed every day.

Some companies may have these unilateral variations in their contracts as a matter of course, and rarely act upon them. When they do act upon the clause and provide variations to the contract, the variations may be quite understandable.

Other companies however write these clauses into their contracts with the intention of acting on them at the earliest opportunity. These companies use the initial low priced contract as bait to win over a customer, and then begin to vary the contract to their advantage almost immediately. By signing a contract allowing for the company to vary conditions at will you could quite easily end up paying double the original contract price or more.

See Cleanaway Case 1 for an example of unilateral variation clauses.

Also see Choice article on unilateral variations.

Exit fees and penalties

Check your contracts thoroughly for exit fees, cancellation fees and penalties. Often these fees bear no relationship to the costs incurred by the company when you cancel your contract, and they are in fact simply a deterent so that you won't cancel your contract. Cancel your contract too early and you get a hefty penalty, leave it too late and the rollover clause comes into effect locking you in for another term.

Monthly administration fees

Have you ever considered what percentage of the remaining capital your monthly administration fees may represent? Sometimes you may be tempted by an offer of consumer goods at 0% interest for 2 years. If the loan is for say $1200.00 and you are paying $50.00 per month that deal doesn't sound too bad does it? But what about that $5.00 per month administration fee that was in the fine print? In your first month of the contract the administration charge represents an annual charge of 5%, but with each monthly payment the capital goes down by $50.00 and so your administration charge as a percentage goes up. After 6 months you are still paying $5.00 per month admin charge, but the loan is now only $900.00. That admin charge now represents 6.67%. After a further 6 months the capital is down to $600.00 so the admin charge now represents 10% p.a. interest. A further 6 months and your admin charge represents 20% p.a. on the remaining capital. The following months it will represent 24%, 30%, 40%, 60% and 120% p.a. Interest fee? Yeah right!

Click-Wrap online contracts

Click-wrap contracts are the little pop-up windows that will not allow you to proceed to an online site until you click the "I agree" button on the entry page. Often these click-wrap contracts attempt to remove your statutory rights such as saying that the goods have no warranty. Contract terms such as these may be illegal and you should check with your consumer watchdog such as the ACCC or Fair Trading offices in Australia.

Abridged contracts

Sometimes consumers are expected to sign an abridged version of a contract, with the full version being available "on request". Signing a contract of this type is not wise until you have read, understood and kept a copy of the full contract.

The above information was provided courtesy of

Unfair Contracts Info Site
All types of information on unfair contracts, hoaxes and scams. Exposure of the manipulation of rollover clauses by Cleanaway and NPower.
www.unfaircontracts.info

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