Unfair contract terms for consumers

All of us enter into contracts in our everyday lives with sellers or service providers. A consumer is a person who is buying a service or a product from someone whose normal business it is to sell that product or service. Contracts may be written or verbal. It is easier to know precisely what the terms are in a written contract. Still, an oral contract may have many terms but is also enforceable by law. A contract is an agreement between two or more people that is enforceable by law, and the contract between buyers and sellers for the supply of goods and services is called a consumer contract. Consumer contracts may differ, and there are no hard and fast rules governing what terms should be in a consumer contract. 

The contract may contain a mandatory, core, and optional terms. The sellers usually decide on the optional terms imposed by the big buyers in some rare instances. These buyers typically buy a significant percentage of the total production and are in a position to dictate any term. The consumers’ contract between big sellers or service providers is subject to unfair contract terms due to uneven financial and logistic strength. The service providers like banks, insurance, housing companies, clubs, amusement parks, etc., have been observed to impose unfair contract terms, usually non-negotiable in the written order form or agreements. These are mostly ‘standard and non-negotiable’ terms.

There may be implied terms in the consumer contract. An example of an implied term might be that the product or service will last for a reasonable length of time, taking the cost of the item or service into account. Mandatory terms must remain in the contract law and have to be included in contracts – these are not common in consumer contracts. 

The core terms set out the main conditions of a contract. In a consumer contract, these core terms might include the price of the product or service. The core and mandatory terms are not considered unfair terms of contracts. 

The suppliers of goods and services and the consumers are often in dispute regarding unfair contract terms. The unfair contract terms will typically be in a contract that has been prepared by one party to the contract (the supplier) and is not subject to negotiation between the parties – that is, it is offered on a ‘take it or leave it’ basis. 

In case of legal dispute, the court may consider the circumstances surrounding the conclusion of the contract and whether the product or service was sold to the consumer fairly and equitably.

An unfair term in a consumer contract is a term that can cause a significant imbalance in the parties’ rights and obligations to the detriment of the consumer. There are three main categories that unfair terms may fall into. This term may be in disguise of other terms and conditions.

Terms that give the supplier of goods or services the right to change the contract terms. - Terms that limit the liability of the supplier of goods and services. For example no liability for death or personal injury arising from an act or an omission by the supplier of goods or services. - Terms that put an unfair burden on the consumer. 

Unfair terms violate the principle of good faith. If one party enters a contract in good faith, the party’s intention is honest. For example, a term states that a deposit will be kept by the supplier of goods or services if the consumer cancels the contract but does not include a term saying that the supplier of goods or services will pay compensation if it does not fulfill its commitments. 

Sometimes the seller inserts some terms in the small print of the contract agreement that the consumer cannot see easily. This is a violation of good faith. In the case of written contracts, all terms must be written in plain, understandable language. The standard law and convention of many other countries enforce that, if there is a doubt about a term’s meaning, the most favorable meaning to the consumer will prevail. The terms of contracts should be negotiated between both parties and should not be a standard contract.  

It is essential to study whether the contract is standard or negotiated between and whether one of the parties has all or most of the bargaining power, whether the contract was prepared by one party before any discussion relating to the transactions occurred, whether other party was required to accept or reject the terms of the contract in the form in which they were presented, whether a party was given an effective opportunity to negotiate the terms of the contract. The contracting parties should consider the specific characteristics of a party or the particular transactions. 

The European Union issued regulation for EU countries for all standard term contracts entered into since 1 July 1995 and make unfair terms unenforceable against the consumer. They apply across various industries, including the financial services sector. Article 5(1) of the Regulations sets out a test for assessing the fairness of a contract term and provides that “a contract term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties rights and obligations arising under the contract, to the detriment of the consumer.” The ‘Doctrine of Reasonableness’ will determine the situation to evaluate the factors mentioned to determine reasonableness. 

The upfront price payable under the contract or required or permitted by a country’s law is not treated as unfair. Still, other charges like the up-front mortgage price include the amount borrowed and the interest payable, and any fees disclosed when the contract is entered into but do not include contingent fees, such as default fees. As a result, principal and interest cannot be challenged under the unfair contract terms provisions.

The financial sector has a free hand virtually in Bangladesh, and there is hardly any institution to look into the situation and suffering of consumers. Usually, the situation where at least one party is an individual acquiring the financial product or financial service wholly or predominantly for personal, domestic or household use or consumption.

A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance between the rights and obligations of the firm and the consumer, to the detriment of the consumer. The terms charge the consumer a disproportionately large sum if they do not fulfill their obligations under the contract or cancel the contract. An agreement may tie a consumer into the contract while letting the seller decide whether or not to provide the service. The contract gives the seller the absolute right to determine if its products or services have met the requirements under the contract or to interpret any term of the contract as it sees fit. There are occasions in a contract when any of the terms require the consumer to fulfill all their contractual obligations, while letting the firm avoid its own. 

The Financial Institutes (FI) enjoys unbelievable immunity of their acts, and all liability of their acts and omission are transferred to the shoulders of borrowers due to Banking act and Artho Rin Adalat Act. FI will charge Tk 25 for each phone call or letter and Tk 300 for each visit to the borrower as conveyance charges. Customers must pay all loan processing fees, documentation charges, legal fees of FIs, etc. The borrower will have to pay an additional 2 per cent for payment of installation of loan repayment originally proposed by FIs and shall pay 5 per cent extra in case of final settlement of loan before the agreed date. 

Some remarkable conditions, as appeared in some contracts and undertakings of borrowers, indemnify the bankers of all losses or damages that may cause due to improper documentation.  

If a term that automatically extends a fixed-length contract where the deadline for the customer opting not to extend the contract is unreasonably short (e.g. these could apply to some renewable insurance contracts). If there is any term that limits a firm’s obligation to honor its agents’ commitments to the consumer (e.g., “whole agreement” clauses). If any term ties the consumer into the contract, even if they have not had a real opportunity to understand the terms before they sign it. If any term that misleads the consumer about the contract or their legal rights. If the contract has any terms that exclude or limit the consumer’s legal rights or remedies when the firm has failed to meet its obligations under the contract. 

Any contract having any condition that has to be included in contracts by law is a valid contract. On the other hand, any condition of contract between businesses is not considered an unfair contract term. Any contract between private individuals, employer- employee, partnership, etc. may contain unfair contract term/s. The regulations should not apply to any term that has been individually negotiated in a contract between a consumer and a supplier of goods and services. They also do not cover contracts between individuals selling products or services outside the course of their regular business or between one trader and another. Other contracts relating to employment, succession rights, family law, or the formation of companies or partnerships are not covered by the regulations.

The writer is a Legal Economist and Adviser, Bangladesh Competition Commission. He can be contacted at [email protected]