Fixed-Term Consumer Exploitation?

XBOX deal… or no deal

With the launch of the new Xbox S and X, gaming consoles coveted by gaming enthusiasts, both young and old, Vox Telecommunications (Pty) Ltd is offering these consoles for rent. After reading this article on MyBroadband, we decided to take a look at the Terms and Conditions of these offers, to determine whether it complies with relevant legislation.

www.vox.co.za

These consoles are available to rent from R420.00 per month for the entry level console over 36 months, to R1 620.00 per month for the high-end model over 12 months. To top it all off, you don’t become owner of the console after the rental period, you have to return the console.

These consoles sell for a cash price of R7 000.00 to R12 000.00 depending on the store and the model.

Purpose of this Article

MyBroadband already looked at the financial side of these rental options and we will look at the legal side thereof.

We would not have written this article, had it not been for the unfair terms and conditions of the rental options from Vox. At the time of publishing, the terms and conditions of the rental agreement can be found here.

Clause 11 of the terms and conditions reads as follows: Cancellation of the Xbox Equipment rental agreement will incur a cancellation penalty equating to the total remaining monthly payments of the rental term.” (own emphasis).

This means that Vox will (or at least try) to hold you liable for the full contractual amount, even if you cancel before the end of the contract term. In such a case, you will pay the same money for even less.

It is exactly this type of exploitation that the Consumer Protection Act 68 of 2008 (“the Act”) combats and prevents. Section 14(2)(b)(i)(bb) of the Act provides that a consumer may cancel a fixed term agreement (such as the Vox rental agreement), by giving the supplier 20 business days’ written notice of the cancellation. When cancelling early, Section 14(3)(b)(i) only allows a supplier to impose a reasonable cancellation penalty with respect to any goods supplied, services provided, or discounts granted.

By insisting on full payment of the rentals for the full term upon early cancellation, Vox clearly contravenes Section 14(3)(b)(i) of the Act, since a “cancellation penalty” equal to the rentals for the remainder of the rental term, is hardly reasonable. Regulation 5(2) of the Act provides as follows: “…a reasonable credit or charge… may not exceed a reasonable amount, taking into account:
(a) the amount which the consumer is still liable for to the supplier up to the date of cancellation;
(b) the value of the transaction up to cancellation;
(c) the value of the goods which will remain in the possession of the consumer after cancellation;
(d) the value of the goods that are returned to the supplier;
(e) the duration of the consumer agreement as initially agreed;
(f) losses suffered or benefits accrued by consumer as a result of the consumer entering into the consumer agreement;
(g) the nature of the goods or services that were reserved or booked;
(h) the length of notice of cancellation provided by the consumer;
(i) the reasonable potential for the service provider, acting diligently, to find an alternative consumer between the time of receiving the cancellation notice and the time of the cancelled reservation; and
(j) the general practice of the relevant industry.

In our opinion, a reasonable cancellation penalty in this instance, taking into consideration that you will have to return the goods, should not exceed the actual (and proved) depreciation in the value of the goods since entering into the agreement and the return of the goods.

At the advertised rental amounts, you will pay the full value of the goods long before the end of the rental term, so Vox would be well compensated for any depreciation in the value of the goods by the rentals paid up until cancellation of the agreement, so no cancellation penalty should be paid.

Conclusion

If you have entered into one of these agreements (or a similar unfair agreement), just know that you are entitled to cancel the agreement, without paying all the rentals for the remainder of the rental term, and this is a FACT. Regulation 5(3) expressly provides that “the supplier may not charge a charge which would have the effect of negating the consumer’s right to cancel a fixed term consumer agreement as afforded to the consumer by the Act.” By charging all the rentals for the remainder of the rental term, would be negating your rights in terms of the Act to cancel the agreement.

In addition to the above, it is worth mentioning that Regulation 5(2) of the Act also provides that the maximum term for a fixed-term agreement is 24 months, unless the supplier can show a demonstrable financial benefit to the consumer. We doubt that Vox would be able to show any financial benefit for its 36-month agreements.

One would expect of a company with the following values…

www.vox.co.za

…to respect consumer’s rights and ensure that their Terms and Conditions complies with relevant legislation.

The author of Vox’s Terms and Conditions is not identified therein, so we are unable to determine whether the unfair cancellation penalty was deliberate or an honest mistake. We guess Vox’s response to this will clear up any confusion.

If you are unhappy with your rental agreement and decide to cancel it, just know that you are within your rights to do so. If a dispute arises about the “cancellation penalty”, you can refer the dispute to the CONSUMER GOODS AND SERVICES OMBUD.

Side Remark

Section 44 of the Electronic Communications and Transactions Act 25 of 2002 (“ECTA”) provides for a cooling-off period of 7 days. If you have entered into an online (or other transaction), you have the right to cancel the transaction within 7 days after entering into the agreement.

If you need any assistance with consumer exploitation, our Attorneys are ready to assist you in enforcing your rights.