The Consumer Protection Act (CPA) has had a great impact on fixed term agreements in South Africa. Suppliers can no longer bind consumers to fixed term agreements as they did in the past. Section 14 of the CPA regulates fixed term agreements (though it doesn’t apply to all fixed term agreements).
What are the rights of the consumer and the supplier in this regard? Let’s have a careful look at the CPA.
The applicability of Section 14 of the CPA
Section 14 of the CPA applies to all fixed term agreements entered into with natural persons. However, it does not apply to agreements entered into between two juristic persons. For ease of reference, “juristic persons” include Closed Corporations, Companies, Trusts, Partnerships, Associations and a body corporate.
The regulations stipulate that the maximum period of a fixed term agreement is 24 months, unless the consumer and supplier expressly agree to a longer period and the supplier can demonstrate a financial benefit to the consumer, or regulation or industry code provide otherwise.
What are the consumer’s rights?
A consumer has the right to terminate a fixed term agreement upon expiry or at any time, by giving the supplier 20 business days notice in writing or any other recorded form.
It is important to note that even though the consumer is entitled to cancel the agreement prematurely, they still remain liable for amounts owed to the supplier up to the date of cancellation and can also be liable for payment of a cancellation penalty in this instance.
What are the supplier’s rights and obligations?
The supplier may cancel the agreement 20 business days after giving the consumer written notice of a material breach on the part of the consumer, e.g. where the consumer has breached any terms of the agreement.
In addition, the supplier is obliged to give the consumer notice of the impending expiry date and any material changes that would come into effect if the agreement was to be renewed by the consumer (e.g. if the rental will increase at the expiry date) and the options available to the consumer (e.g. the right to renew or cancel the agreement). This notice must be given to the consumer not more than 80- and not less than 40 business days before the expiry date of the fixed term agreement and can be in writing or any other recorded form.
Where no notice is given by the consumer at the time of expiry, the agreement will continue on a month-to-month basis.
Cancellation penalty
When levying a cancellation charge, the supplier must ensure that it is reasonable and in doing so must take into account the following:
- The amount which the consumer is still liable for to the supplier up to the date of cancellation.
- The value of the transaction up to cancellation.
- The value of the goods which will remain in the possession of the consumer after cancellation.
- The value of the goods that are returned to the supplier.
- The duration of the consumer agreement as initially agreed.
- Losses suffered by or benefits accrued to the consumer as a result of the consumer entering into the agreement.
- The nature of the goods or services that were reserved or booked.
- The length of notice of cancellation provided by the consumer.
- The reasonable potential for the service provider, acting diligently, to find an alternative consumer between the time of receiving notice and the time of the cancelled reservation.
- The general practice of the relevant industry.
Regulation 5(3) of the CPA further provides that suppliers “…cannot charge a consumer a charge that 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.”
In light of the above it is clear that a supplier will no longer be able to enforce a cancellation period which is longer than 20 business days, even though a consumer may have signed off and accepted such terms of an agreement. The CPA strictly regulates fixed term agreements and clearly protects both the supplier and the consumer. However, despite the early termination allowed for under the CPA, consumers still remain liable for payment cancellation penalty fee, which means that no one is left at a disadvantage. Suppliers are cautioned to ensure that they distinguish between juristic persons and natural persons when enforcing their terms and conditions on fixed term agreements, in order to ensure compliance with the CPA when dealing with consumers.
ABOUT THE AUTHOR
Remolla Naidoo obtained her B.Soc.Sci (Law), LLB and LLM (Business Law) degrees from the University of the KwaZulu-Natal. She is currently a legal advisor for SEESA Consumer Protection & POPI at our Durban Office.