Contract terminations need careful handling

If you sign a two-year cellphone or gym contract, your financial obligation automatically ends on the “expiry date”, right?

Well no, but many consumers assume that, and understandably so. It’s an assumption that can be very costly.

Yes, the small print of the contract they signed at the outset states that the contract only ends when the consumer submits written notification – usually 30 days in advance – of cancellation, but those clauses are easy to miss and easy to forget over time. Clearly, over the years, companies have made a lot of money out of consumers not realising that they had to cancel in writing.

The Consumer Protection Act legislators tried to put a stop to that, not by going as far as having contracts automatically end on the “expiry date”, but by compelling companies to notify customers 40 to 80 days before that end date of their options – renew or cancel – and if the customer doesn’t respond, the contract will roll over on a month-to-month basis.

And there’s the important bit – the act says this notification must be “in writing or in any other recordable form”.

In other words, the companies must be able to prove that they sent this notification to the customer.

As I said in this column last year, to my mind it follows that if a company can’t prove that it notified a customer about their contract's “expiry date”, it had no right to continue to debit their bank account after that expiry date.

So I was more astonished to discover that the National Consumer Commission doesn’t see it that way.

Spokesman Trevor Hattingh put it like this: “As much as the law requires the supplier to notify the consumer in a recordable form of the impending expiry of a contract, it also requires from the consumer to actually cancel a contract upon its expiry or at any other time. There is thus a shared responsibility.

“What is very clear in the law is that the one party’s obligation is not dependent on that of the other.”

At the time I commented: “So bearing in mind that gyms, and other companies offering fixed-term contracts, would really prefer their customers not to cancel their contracts, there appears to be nothing to stop them from simply claiming that they notified a customer that their contract would roll over to month-to-month if they did not cancel.”

So I was thrilled to learn that the office of the Consumer Goods and Services Ombudsman, Advocate Neville Melville, believes that companies have no right to keep taking a consumer’s money after a contract’s end date if they can’t prove that they sent the required notification.

The dispute which came before that office in December was one which featured in this column last year. Jane Snethlage’s daughter, Caitlin, signed a six-month contract with Perfect Health Gym in Stellenbosch in 2012, and stopped using the gym after that time, but her mother unwittingly carried on paying the membership for more than two years via debit order.

When she discovered this, early last year, she asked to be refunded, but the gym claimed that her daughter had been sent the CPA notification about the impending end of the contract, and the need for written cancellation.

But they couldn’t prove this, saying the business had lost 4½ years of call recordings due to its hard drive breaking down, and insisting it would only refund 50% of the overpayments, arguing that Snethlage should have managed her personal finances better.

But Melville said the act’s wording: “must notify the consumer in writing or any other recordable form”, makes it clear that the legislature intended this to be complied with.

“The section does not expressly state the consequence of non-compliance with the obligation to notify the complainant in a recordable form, but it can be logically deduced that such a failure would mean that the contract does not continue in any form,” Melville said. “Accordingly, the supplier was not entitled to receive any payments after the expiry date.”

Melville concluded that in this case, Snethlage ought to have realised sooner that the gym fees were still being deducted from her account, thus the gym must repay not 100% of the overpayments, but 75%.

So where do the contradictory views of the Consumer Commission and the Ombud on this crucial issue leave the consumer?

Melville said there remains “a lack of authority on the interpretation of the CPA. It is necessary for the CGSO and other similar bodies to attempt to divine how the Tribunal and the courts will interpret the CPA when cases come before them. The decisions of the CGSO may in turn be considered by a person, court or Tribunal or the Commission when interpreting or applying the CPA (on this issue).”

Let’s hope so.