Unfair trading: New rules for contracts


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If you join a gym, take out a mobile phone plan, sign up to have electricity supplied to your home or get a new mortgage, the chances are you will sign a "standard form contract".

These are generally contracts that are not open to negotiation and are offered by companies on a take it or leave it basis. And because of the unequal power that exists between big companies and consumers they often contain terms, usually in small print, where the balance goes too far in the company's favour.

The new unfair contract terms (UCT) law which came into effect on July 1 is designed to address this imbalance. These provisions give additional protection to consumers and investors by giving courts the power to find that a term is unfair. If this is the case the term will be void and therefore not binding, although the rest of the contract may continue if it is capable of operating without the unfair term.

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"The Australian Competition and Consumer Commission (ACCC) will seek suppliers' cooperation to remove terms that may be unfair from consumer contracts," says ACCC deputy chair Peter Kell. "Where necessary, the ACCC will take further steps, including enforcement action, if faced with a contract term it believes to be unfair to consumers."

The Australian Securities & Investments Commission (ASIC) has law enforcement and consumer redress powers with regard to these new laws. "Under the legislation, a term will be regarded as unfair if it causes significant imbalance in the parties' rights and obligations," ASIC chairman Tony D'Aloisio told a Senate economics legislation committee.

"These are rights that consumers have that they can take up either through alternative dispute resolution mechanisms or through action that they may take in a court of law, or ASIC may take action." Early termination and mortgage break fees will come under the spotlight. If lenders do not remove or modify these, the issue may be resolved in the courts (see Banking, page 26).

ASIC, the ACCC and state and territory consumer protection agencies will work together to ensure consistency in the approach to the UCT provisions and consumer law more generally. To help consumers and businesses understand the changes these bodies have published a joint guide to the new law. This is available on both the ACCC and ASIC websites.

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Money's founding editor Pam Walkley stepped down in early 2015 after more than 15 years at the helm. Before that she was at the Australian Financial Review for 11 years, holding several key roles including news editor, chief of staff and property editor. Pam is now a senior writer for Money.