New Zealand Law Society - Refunds for customers after first Unfair Contracts Term declaration

Refunds for customers after first Unfair Contracts Term declaration

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The Commerce Commission is urging customers of mobile trader Home Direct to check if they are eligible for a credit or refund, after the High Court declared that terms in its contracts relating to its “voucher entitlement scheme” were unfair and unenforceable by the company (Commerce Commission v Home Direct Ltd [2019] NZHC 2943).

“This is the first time that a court has made a declaration under the Fair Trading Act that terms in a standard form consumer contract are unfair,” says Commission Chair Anna Rawlings.

“We suggest that Home Direct customers who hold or held a Lifestyle account contact Home Direct to find out if they are affected by these declarations, as it is possible they are owed a credit or refund.”

The Commission says Home Direct sells consumer goods online and via telephone and mobile shops on deferred payment terms. It offers credit to customers on a facility known as a “Lifestyle account”. Customers are required to make regular payments towards the goods and pay interest on the balance. Prior to July 2018 Home Direct invited customers to opt-in to a “voucher entitlement scheme” when they opened the account.

It says that under the voucher scheme, customers continued to make direct debit payments after they had paid off their goods. Home Direct converted the additional payments into “voucher entitlements” which could only be used towards purchasing goods from Home Direct. Under the terms of the contract the “vouchers” were not refundable for cash and, if they were not used to purchase more goods, they would expire after 12 months and Home Direct would retain the money.

The scheme operated between 2009 and 2018 with more than $644,000 forfeited to Home Direct over the life of the scheme. The firm has identified more than 14,000 affected customers.

The Commission says that, in the High Court at Auckland, Justice Muir said that for the period 1 April 2017 to 14 December 2017 the terms and conditions relating to refunds and expiry of vouchers were “insufficiently clear” and “the absence of transparency adds a further layer of unfairness.” He said “the scheme did not provide any corresponding benefit to customers” such as a discount on the purchase of goods and “there were not countervailing obligations on Home Direct Ltd. It was in that sense ‘one-way traffic’.”

Ms Rawlings says some customers forfeited as much as $4,600. “It may not have been obvious to consumers that their funds were being forfeited as the vouchers dropped off customers’ accounts incrementally each week,” she says.

The Commerce Commission says Home Direct no longer operates the voucher entitlement scheme. It has credited customers over $133,000 and has agreed to refund any customers who had vouchers which were forfeited from 17 March 2015 when the unfair contract term provisions became law and the closure of the scheme in July 2018.