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15 Aug 2011

“Reasonable” Cancellation Penalty – Cell-phone Contracts (Part 2)

Cellphone Contracts, Consumer Protection Act (CPA) 4 Comments

Staff Writer @ Lucid Living

As a result of the volume of comments and complaints, we have received from our readers and clients – on this issue of early cancellation penalties – we decided to do some investigation into the matter. See Part 1 on this topic.

According to call centre agents at the 3 largest cellular companies, to get out of a new fixed-term contract, subscribers have to settle the entire balance of the deal (i.e. monthly instalments for the remaining term of the contract), and – in some cases – also pay in an amount for the handset.

Call centre staff at Vodacom and MTN advised that subscribers would be liable for the balance of the contract. MTN will also charge a “claw-back” fee for the handset, while Cell C will not only charge the balance of the contract, but also the rest of the cost of the handset and a R1 000 penalty fee, we were told by the call centre agents. These statements are in contravention of those cellular companies‘ own policies.

Vodacom’s official policy is that the cancellation fee is now 75% of the outstanding balance, which applies to all contracts entered into after April 2011, says Portia Maurice, chief officer of corporate affairs.

Robert Madzonga, chief corporate services officer at MTN SA, says if subscribers cancel post-CPA contracts, it will charge a cancellation fee of R1 710 for the handset, and a month’s subscription fee.

Cell C general counsel Graham Mackinnon says its policy is that customers cancelling post-CPA contracts will only pay a “reasonable” cancellation fee, which is linked to the cost of the handset, and not for any more airtime.

Virgin Mobile, according to its call centre, only charges subscribers for the outstanding balance on the handset. The call centre’s statement is in line with its officially stated policy.

8ta’s call centre could not clarify how much would be charged as a cancellation fee, other than to say it would be a “certain amount”. 8ta says there is a “termination fee”, which is on the outstanding handset value and an “administration” charge.

These policies may well be in contravention of the CPA. The CPA prevents cellular companies from charging hefty penalties that invalidate subscribers’ rights to cancel a fixed-term contract early. In terms of the CPA only a “reasonable fee” can be levied. The regulations provide guidance on how to determine that fee. Applying a blanket cancellation fee, is not consistent with the CPA.

As a result of the mis-information being communicated to consumers, by the cellular company’s call centers potentially thousands of subscribers’ rights to cancel their fixed-term contracts have been negated since the inception of the CPA in April 2011.

Arthur Goldstuck, MD of World Wide Worx, says the information being given out by call centers will put people off cancelling their fixed-term contracts if they do not know any better. Cellular companies must bring their call centers in line with the CPA, but appear unlikely to fulfill that obligation until they are forced to, he notes.

4 Responses to ““Reasonable” Cancellation Penalty – Cell-phone Contracts (Part 2)”

  1. DIpak Hirjee says:

    Arthur Goldstuck, MD of World Wide Worx, says the information being given out by call centers will put people off cancelling their fixed-term contracts “if they do not know any better.” Cellular companies must bring their call centers in line with the CPA, but appear unlikely to fulfill that obligation until they are forced to, he notes.

    what does “if they do not know any better.” mean?
    what options do we have?

  2. RandolphLucid says:

    Good day

    He is suggesting that for those consumer’s who do not know their legal rights (e.g. the right to cancel a fixed-term contract, on 20 days written notice), the service provider’s call centers are misleading them into believing that they cannot. And thereby getting consumers to maintain their contracts, despite having the legal right to terminate these contracts.

  3. SH says:

    Hi Randolph,

    To clarify: it is my right to cancel any post-CPA contract with 20 days written notice and am liable to be charged a ‘reasonable’ penalty.

    How do we decide what a reasonable fee is, and how do you go about disputing this with the provider? I have 2 separate contracts (both post CPA) that I will need to be canceling as I am moving abroad, so figuring out exactly what this ‘reasonable’ cost is (and how to make a provider agree to it), is quite important to me. Any advice?

  4. RandolphLucid says:

    Good day

    The NCC has not been prescriptive on this issue.
    Each service provider has there own “formula” for determining the penalty fee.
    The NCC has however steered towards a 10% (of the remaining future monthly instalments) guideline.
    This will be a tooth and nail battle – to agree a “reasonable fee” – we have engaged in this negotiation on behalf of many customers.

    Contact us on 010 590 5617, we can assist you in this regard.

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