The Consumer Protection Act and Cell Phone Contracts

What is the impact of the Consumer Protection Act (CPA) on cell phone contracts and the cellular industry? Many people are asking the question and articles are being written in the press. In this article, we answer some of the questions people ask.

Q1. Is the Act too broad and therefore ambiguous in terms of implementation?

A: The Act is basically designed to establish and enforce a culture of fair, reasonable and honest business practices wherever these do not already exist. So it is extremely ambitious, and inevitably quite complex, because it effectively covers all issues that affect consumers at every stage of the business cycle for almost all goods or services. Any law this ambitious and complex is bound to contain some ambiguity, but a lot of this is to do with the exceptions to the general rule.

The broad default position is therefore that businesses need to make sure they operate ‘fairly’ towards their average customers, especially if they are vulnerable or disadvantaged. For example, standard terms of business must be easy to understand.

At this stage the Act will not apply to the supply of goods or services to companies turning over more than three million rand a year (though there is an exception to this exception as well).

Where there is ambiguity, businesses should look at the overall aims of the Act again, and use common sense to comply with the spirit of these aims as far as possible. They should ideally give the benefit of any doubt to the consumer, because this is what a court or the Tribunal will do anyway where the Act is unclear. If still in doubt on important issues, businesses should take expert advice for their specific situation.

Q2. If so, could the regulations fix that issue?

A: The regulations are expected to help understand the detail of how some of the Act’s provisions will be interpreted, for example by specifying that certain types of business practices or contract terms will automatically be regarded as unfair. However, the regulations may not address quite a few of the important issues, and some ambiguity may only be cleared up by decisions of the Tribunal or the courts. It is important to remember that the regulations cannot make law, so any flaws in the Act can only be fixed by Parliament in an amendment.

Q3. How will the section on direct marketing affect the cellular companies? What does it mean for consumers?

A: It will affect the cell companies in exactly the same way as other companies who engage in direct marketing. Consumers’ rights to ‘opt out’ of any direct marketing are now legally entrenched, and they will even be able to block all direct marketing in advance. Companies need to make sure they stop direct marketing to a particular person when they are asked to do so, free of charge. Certain days and times of day will be ‘out of bounds’ for direct marketing, to protect a consumer’s privacy.

Consumers can generally pull out of transactions resulting from direct marketing without reasons or penalties if they do this within the ‘cooling-off’ period of five business days of the sale or delivery (whichever is later).

It’s worth noting here that another new law* will push unsolicited direct marketing from an opt-out system towards one based on ‘opt-in’. This means that a cellular company will still be able to direct market to a customer it has sold a phone or cell phone contracts to in the past on an opt-out basis.

However, it will not be allowed to contact someone it has no prior business relationship with unless the person has expressly agreed to this (opted-in), for example by sending an SMS asking for more information about a product or service, or by ticking a box to this effect.

Because direct marketing by SMS is going to change from a opt-out regime to an opt-in regime, there are going to be a lot fewer SMSs being sent. This may impact the bottom line of cellular companies.

(*Protection of Personal Information Bill, not to be confused with the Protection of Information Bill, also referred to as the Secrecy Bill.)

4. Re section 63, which speaks to the validity of vouchers. Could this also affect prepaid minutes and, if so, at what stage does the time frame come in. It seems that it is not clear whether this is when the cellular company sells the minutes, or when the vendor sells them, or is it three years from activation?

In our view section 63 does affect prepaid minutes. In this case, we should first consider the plain and ordinary meaning of ‘issued’, in context. There are varying views on this section, but the intention is probably for prepaid minutes to be valid for three years from the date they are sold to the end-user consumer by a vendor. It does not seem fair or in keeping with the aims of the Act that an ‘ordinary consumer’ could buy airtime that only has six months validity because the vendor has had it for two and a half years. Especially since airtime does not have a ‘shelf-life’.

If any ambiguity cannot be resolved in any of the usual ways, the interpretation that most favours the ordinary consumer will be the correct one.

5. Can you clarify how the handset subsidy part of the Act works, what does it mean? Also, could it be superseded by ICASA, if they ever get around to that?

Both sections 13 (consumer choice and bundled offerings) and 14 (fixed-term agreements) could apply to handset subsidies. In general a retailer cannot force consumers to buy particular handsets as part of a bundled package deal unless the deal offers real benefits or the consumer can buy the handset separately.

If any individual consumer cancels a fixed-term agreement before it expires, they remain responsible for amounts owed up to that date. They may also have to pay a reasonable cancellation penalty in respect of any goods supplied or discounts granted.

Our understanding is that ICASA has shelved its draft regulations under the Electronic Communications Act regarding handset subsidies and replaced them with a draft Code of Conduct. To the extent any regulations or code of conduct actually introduce greater transparency for sales and subsidies of handsets (which was the intention), there is not likely to be much conflict between them and the aims of the Consumer Protection Act, which are similar. However, any inconsistency between the two laws will ultimately be decided in favour of consumers.

6. With the cooling off period after direct marketing, what would happen if someone wants to return a cellphone they have used?

If relying on this Act (and not the ECT Act) the supplier must give a full refund if the packaging is unopened. The supplier can charge the reasonable costs of repackaging and usage if the cell phone is still in ‘original condition’ with its original packaging. Otherwise, the supplier may charge the reasonable cost necessary to restore the phone to a condition in which it can be sold again (‘fit for re-stocking’).

To the extent a phone cannot be restored to a ‘brand new’ marketable condition, the supplier could probably charge any reasonable loss it will suffer as a result of the difference between the cost of a brand new phone and the price for which it could sell a used ‘as new’ phone. The consumer carries the risk and cost involved in returning the handset within the cooling-off period.

7. The ‘fit for use’ clause – how is this defined? I’m thinking about a cellphone that is sold, and then returned as being unsuitable after use. The cell companies won’t be able to resell a used handset.

Fit for use or purpose is not explicitly defined, but the Act does say that goods must be ‘reasonably suitable for the purpose for which they are generally intended’. A cell phone that works, but has a maximum speaker volume that is too low for an average phone call in a public place is probably not fit for purpose. Nor would it be fit for purpose if the keys are too small for the average user.

However a consumer may indicate that they want a smart phone that is primarily a cell phone, but also specifically suitable as a computer, navigation device and radio for crossing the ocean on a yacht. Not all smart phones that have these features will necessarily be suitable for this purpose. This places an onus on suppliers of high tech products to have sales personnel with sufficient technical knowledge and experience of their products.

The Act implies that fitness for purpose also includes the requirements that something must be in good working order, must last for a reasonable time and must comply with ICASA and SABS standards.

All the ‘circumstances of supply’ are relevant for deciding if something is suitable for use. So a basic model of cellphone with limited functionality should not be advertised as ‘suitable for business use’, because many business users have demanding requirements. All promotional material and applications forms must be in plain language that an ordinary consumer with minimal experience of the product can understand.

Assuming the returned phone can be restored to fitness for its general or any specific purpose, it would have to be resold according to the Act’s provisions for reconditioned or second hand goods.

8. s54 – how is quality service defined? For example, what if I cannot get a signal in my house – can the cell co be fined if I can get a signal 20m away?

Quality of signal is variable and depends on numerous circumstances beyond most cellular companies’ control, such as natural obstacles, atmospheric conditions, thick walls and so on. This is a largely unavoidable feature of certain frequencies on the wireless spectrum, and in our opinion consumers of cell phone services, like consumers of radio services generally, cannot reasonably expect to receive perfect signal everywhere.

Also, a cellular company’s terms of business will usually draw consumers’ attention to the condition that signal is variable, and they will be able to rely on this to avoid liability. In other words, cellular companies can contract out of responsibility for poor signal. Note, however, that if the cellular company’s terms of business are not in plain and understandable language, it could be liable in some circumstances. And if a cellular company fails to maintain or repair a mast and this leads to service issues, consumers would probably have a legitimate grievance.

9. Please explain what happens when cell phone contracts run out. My cell phone contracts automatically go onto a month-to-month basis. How will this change?

Cell phone contracts will usually still continue automatically on a month-to-month basis. However, the cellular company needs to notify individual consumers (not companies) about the expiry of the agreement between 40 and 80 days before this happens. The notice must tell consumers about any changes that would apply to any renewal of the agreement, and that they have the option to end it on the expiry date by instructing the provider accordingly, or that they may be able to renew the agreement for a further fixed term.