Cancelling a contract can be expensive

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Cape Town - A longer contract may mean cheaper monthly repayments, but you’ll pay dearly if you opt to cancel early.

The Consumer Protection Act (CPA) aimed to put an end to consumers being “locked into” contracts from which there was no escape for several years.

The first draft of the regulations gave consumers the right to escape any fixed contract, such as a cellphone, gym or home security contract – by giving 20 days’ written notice of cancellation at any time – and paying just 10 percent of the remaining subscriptions.

Oh, happy day, I told readers at the time – finally, an end to the shackles!

Alas, the jubilation was short-lived. When the act came into effect on April 1, 2011, that 10 percent mention had vanished, and in its place was a regulation giving them virtual carte blanche – they may impose a “reasonable” cancellation policy.

I have yet to come across a company that has decided that 10 percent of remaining subscriptions is reasonable.

Funny that. Cancellation penalties range from about 30 percent in the case of gym contracts to 75 percent in the case of cellphone contracts.

Of course, the longer the period of the contract that you’ve signed, the bigger the cancellation penalty will be.

Which is why it makes sense to commit yourself to the shortest period possible.

The CPA limits a fixed-term contract to two years, but gives companies the right to make their customers commit to longer periods – provided they can demonstrate that there is a benefit for the consumer in doing so.

And that the consumer agrees to this.

The companies which do this – usually in respect to three-year contracts – say this results in lower monthly subscriptions, but are generally silent about the much larger cancellation penalty those consumers will be forced to pay should they wish to cancel during year one or two.

The following two examples illustrate the point.

Pretoria-based Body Lab Gym has eight branches, four in Gauteng and four in Durban.

I’ve dealt with several complaints from people who signed three-year contracts with various branches in Durban, among them a student, a gardener and a car guard. All claimed they didn’t know what they were committing to when they were asked to sign documentation at those gyms.

Most had been stopped by Body Lab representatives in the street with the offer of a month’s free training.

Some say they were just told to write down their details in case they decided to join later, or that they thought they were just accepting the free training offer.

So they signed, trustingly, without reading the contract. A very expensive mistake.

Almost all Body Lab contracts signed are the three-year ones, and when people default, the gym claims the entire three years of subscriptions, plus six monthly maintenance fees, which comes to R8 700.

The contract does state that members can cancel with a month’s notice, and pay 30 percent of the remaining subscriptions as a cancellation penalty.

That’s fairly normal practice in the fitness club industry.

But the Body Lab contract also states that if a member’s monthly payment is just a week late – just once – they become liable for the entire three years’ worth of fees.

With such a harsh default policy in place, the “financial benefit to the consumer” argument in favour of a fixed term longer than two years becomes unstuck.

Aron Phethwa, a gardener, signed a contract with a Body Lab gym in Durban’s CBD last May.

Having never signed such a contract before, he believed that because he had had second thoughts about the R200-a-month payment and had thus never visited the gym, he didn’t owe them any money.

Last month the chairman of the body corporate for the residential complex Phethwa works for received a garnishee order, instructing her to pay an amount of R577 a month from Aaron’s salary to attorneys De Beer & De Klerk of Pretoria to settle a Body Lab debt of R13 633, being the full amount of the three-year contract, plus costs and interest.

That monthly deduction is more than 10 percent of his salary.

Consumer Watch is investigating the means by which that garnishee order was obtained, which will be the subject of another column.

Christo Bennett, a “member” of Body Lab, and also chief executive of Bennett & Associates, the debt collection agency which pursues Body Lab “defaulters”, said the three-year contract was popular with members, but he didn’t answer my question about how many of them cancel or default shortly after.

He found it strange that people chose to breach their contracts by defaulting instead of exercising their right to cancel.

But even cancellation is an expensive business.

If someone cancelled after, say, six months – because they lost their job, moved, got ill or injured or were unhappy with the facilities – they’d be liable to pay 30 percent of fees owing on the remaining 30 months’ membership, which amounts to almost R2 000.

There are 50 complaints on Hellopeter.com, in the past 12 months alone, about Body Lab, many complainants alleging that they were duped into signing a three-year contract, having been told it would only come into effect if they chose to join after their month’s free trial.

 

Bennett said given the total membership across eight branches, this was a very small percentage.

“Most of our members are paying, happy clients.” - Cape Times


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