SUBJECTS: Unfair contract terms, penalty/exit fees
MADONNA KING:
Now you've told me stories on some of the fees and charges you've been stuck with. Soon new laws will be enacted to challenge unfair contract terms, and that includes bank exit fees. Chris Bowen is the Assistant Treasurer of Australia, welcome to 612 ABC Brisbane Mr Bowen.
CHRIS BOWEN:
Good morning Madonna, good to be back with you.
KING:
Consumer will be able to challenge unfair terms in contracts. What does 'unfair' mean?
BOWEN:
Well, the situation has been, up until now, that it is 'buyer beware'. If you sign a contract, you've got to cop it, even if some of the terms are unfair. So what we are doing, is taking a system that has been in place in Victoria for a number of years, and the United Kingdom as well, and applying that across the country. That will mean for a standard-form contract – not a negotiated contract where both parties sit down and work through the issues and terms, you won't be able to challenge those terms because you have been involved in the negotiations – but a standard-form contract that is 'take it or leave it', if you want this product, sign here, no discussion.
If there is an unfair term in there, you will be able to have it struck out; the regulator will be able to challenge that.
KING:
Who determines whether something is unfair or not?
BOWEN:
Well the regulators, who are the ACCC, and the state regulators; Departments of Fair Trading and Consumer Affairs, will be able to begin actions to have that term struck out. Now what's 'unfair'? We are still currently drafting the law, it's still a work in progress, but there are lots of contract terms that put all of the risk onto the consumer and not onto the supplier.
So whether it is banks, as you say, or mobile phone companies or gyms; this will apply across the economy, wherever you a standard-form contract and all of the risk is on the consumer and not the retailer or supplier, they are the sorts of things that this law will capture. So it might be punitive fees to end a contract because circumstances change or are outside your control. You sign up for a good or service – you have to move – you back and say 'look I no longer need this' and say 'okay, here is the fee' and it is astronomical. And as you say, this is often a concern in relation to mortgages and other financial products…
KING:
Let's…can I ask you about banks, is it really the high penalty and exit fees that have been brought to your attention?
BOWEN:
The exit fees are getting a lot of attention at the moment, because people are looking very closely at their loan products and seeing if they represent best value, and if they go to change the product, they find there is a fee in place. Now that will be one of the areas that get's close scrutiny under this law. I'm not pre-empting that all exit fees would be…often there will be some sort of fee for leaving the contract. The question is, under all circumstances, is that fair?
At the moment we are working through the drafting; I put a discussion paper out on how the law should be drafted. I've had 90 submissions back, which I am working through. There are some areas where we are still working through, for example, do you just set up an unfair contract terms provision and leave it to the regulators and courts to decide? Or do you have a list and say 'the following terms will be regarded as unfair' and have a list which the parliament regards as being unfair? Or do you have what we call a 'grey-list' where you might say 'the following terms give us cause for concern and in some circumstances may be regarded as unfair, but really it is up to the regulators and courts to look at each particular instance.
KING:
Our listeners this morning may have a view on that, if you do, let me know on 1300 222 612. You are listening to the Assistant Treasurer of Australia, Chris Bowen. Would this apply to standard-form contracts with both fixed and variable interest rate loans for example?
BOWEN:
It will apply to all standard-form contracts, but what it won't apply to is the upfront price. So you won't be able to say 'I've bought this product but it was too expensive, whether it was the interest rate or an upfront payment' because that was very clear to you what the costs are.
One of the things we are dealing with is how do you address the situation where the supplier can adjust the cost of the contract without any discussion with you. Now this is a vexed issue. Obviously banks need to be able to change interest rates; there is no question about that. But there are other areas where a contract might say that a supplier agrees to supply with you a good or service for a period of time, where we reserve the right to increase our charges with no reference to cost, or no reference to you. Is that unfair? In many circumstances it will be. So over the coming weeks, we will need to work through the best way to target that without creating an unfair burden on those businesses that are doing the right thing.
KING:
Does this apply to any other country at the moment?
BOWEN:
The United Kingdom has had unfair contract term laws for some time.
KING:
And as well as banks, I think you mentioned mobile phone companies and gyms. Anything else?
BOWEN:
It will apply to any industry that has standard-form contracts. The ones that I have mentioned are ones that come in for a lot of public discussion. As I say, people getting home, looking to change their contract when they realise that it may not be in their best interest – it was shoved in front of them, they signed it, they were in a rush, and then get home and read it and think 'well actually, this isn't quite for me or their circumstances might change [inaudible]' and they find themselves locked in. it's trying to target those things that are unfair…
KING:
Alright.
BOWEN:
Where there is an uneven relationship, with one consumer against many big suppliers.
KING:
Alright, Chris Bowen, thank you.