The National Consumer Tribunal recently issued Vodacom with a R1-million fine for contraventions of the Consumer Protection Act (CPA). The tribunal determined that Vodacom breached the CPA by levying an unreasonable cancellation penalty of 75% on consumers who cancelled their fixed-term contracts before expiry. The tribunal also considered other CPA breaches relating to fixed-term contracts.
But what lessons should consumers and businesses take from the decision?
The National Consumer Commission (NCC) received various complaints by consumers that Vodacom had breached the CPA. After an investigation, it determined that Vodacom had breached the CPA in relation to its fixed-term contracts with consumers. The NCC referred the matter to the tribunal for determination, which made its finding last week.
In terms of the CPA, a consumer has the right to cancel a fixed-term contract prior to its expiration at any time, subject to certain conditions being met, including that the supplier of goods and services may charge a “reasonable” cancellation penalty.
The CPA and its regulations provide a number of factors to be considered when determining what a reasonable cancellation penalty is, including the amount the consumer owes up to the date of cancellation, the originally intended duration of the agreement, the value of the transaction up to cancellation, the value of any goods which will remain in possession of the consumer after cancellation and the general practices in the relevant industry.
Vodacom’s defence to this complaint was that the cancellation penalty had been imposed on Sim-only contracts to recover discounted rates and “additional benefits” such consumers enjoyed compared to prepaid users.
The tribunal noted that in October 2022, Vodacom had of its own accord amended its terms and conditions which now provides for a cancellation penalty equal one month’s subscription fee. Vodacom also conceded that prepaid contracts had been inflated to “incentivise customers to enter into fixed term contracts”.
The tribunal held that that the 75% cancellation penalty was not justifiable and negated a consumer’s right to cancel a consumer contract and therefore breached the CPA. The tribunal also held that Vodacom’s amendment to the terms and conditions was of no significance to the present complaints as Vodacom still contravened the CPA at the time.
The next complaint was that Vodacom failed to process cancellation requests timeously. The company’s defence was that delays were caused by a third-party service provider of call centre services. Vodacom admitted that this service provider’s call centre agents deliberately avoided processing cancellation requests timeously to earn incentives.
The tribunal found Vodacom liable for the service provider’s conduct because the CPA provides that a supplier is liable for any act or omission committed by an agent (or employee) on its behalf.
The tribunal also considered complaints relating to Vodacom’s refusal to cancel contracts when the contract in question was in arrears and/or the consumer was unable to pay the cancellation penalty. Vodacom argued that it was entitled to these payments prior to allowing the consumers to cancel.
The CPA provides that “upon cancellation” of a fixed-term contract, the consumer remains liable to the supplier for any amounts owed in terms of the contact at the date of cancellation.
The tribunal confirmed that what the legislation provided for was that a consumer remains liable for any outstanding amounts following cancellation but that a supplier may not prevent a consumer from cancelling their contract due to any arrear amounts or refusal to pay the cancellation penalty.
The supplier is required to take legal steps to recover any outstanding amounts following cancellation. The tribunal found that Vodacom had contravened the CPA by refusing to cancel the consumer contracts on these bases.
Ultimately, the tribunal fined Vodacom for the various CPA breaches to the tune of R1-million. The decision has far-reaching consequences because the CPA applies to all contracts between consumers and suppliers, unless specifically excluded, such as by way of industry standards, other laws or other exclusions in the CPA (for example, transactions with consumers who are juristic entities and whose asset value/turnover exceeds R2-million).
The following considerations apply to consumers and businesses:
Consumers should ensure that they read and understand the Ts&Cs of any good or services before agreeing to them. A consumer can then take up any unfair cancellation terms with a supplier before agreeing to the goods/services, or they can explore alternative suppliers with more favourable terms.
For consumers who have an issue with a supplier’s cancellation terms that they are subject to, they can approach the Consumer Goods and Services Ombud (CGSO). The CGSO is the consumer goods and services industry’s ombud tasked with mediating consumer disputes. Specific consumer-facing industries may have their own dispute resolution bodies and procedures.
For example, the automotive industry has their own ombud: the Motor Industry Ombudsman of South Africa. Other examples of industries with specific bodies and procedures include financial services and the property industry. Consumers should be aware of which bodies and procedures apply to the services/goods they are purchasing.
Businesses should not commit any of the prohibited conduct that Vodacom was found guilty of. Businesses must allow consumers to cancel their fixed-term contracts in accordance with the CPA, process cancellation requests timeously and only charge a cancellation penalty that is reasonable in the circumstances.
Businesses are not permitted to refuse to cancel a fixed-term contract where the consumer is in arrears or refuses to pay a cancellation penalty. Businesses are required to recover any arrear amounts following cancellation through legal processes. Businesses should have clear cancellation provisions in their Ts&Cs and are well minded to have policies and procedures in place to deal with cancellation requests.
These policies and procedures should extend and apply to their employees and third party service providers, whose actions they can be held liable for.
- The author, Armand Swart is a director at Werksmans Attorneys