Your service agreements, The CPA and ECTA

Following on from a previous article on service agreement essentials, this article considers some of the important provisions of the Consumer Protection Act 68 of 2008 (“CPA“) and the Electronic Communications and Transactions Act 25 of 2002 (“ECTA“) that will likely apply when your customer qualifies as a ‘consumer’ (in terms of consumer laws). These should be carefully considered when preparing your service agreement, customer policies or terms and conditions.

A CPA ‘consumer’ is an individual or juristic person (company or CC) with an asset value or annual turnover that does not exceed R 2 000 000 and usually applies to all transactions between suppliers and consumers. ECTA applies to electronic transactions and does not differentiate between individuals and juristic persons, so applies to both. Unless an agreement is specifically excluded from the ambit of the CPA and/or ECTA, these acts will apply wherever the customer is a ‘consumer’. In our view, some of the important provisions of the CPA and ECTA to bear in mind when contracting with consumers and preparing your service agreements, are sections 14 (Expiry and renewal of fixed-term agreements) and 17 (Consumer’s right to cancel advance reservation, booking or order) of the CPA, and sections 42 (Scope of application) and 44 (Cooling-off period) of ECTA.

If a transaction is concluded electronically, and ECTA applies, the supplier will also need to comply with other ECTA obligations. These include providing the consumer with certain information set out in section 43. This calls for the disclosure of certain information about the supplier and requires the supplier to provide the consumer with an opportunity to review the entire transaction and costs and withdraw from the transaction before placing the final order. For online transactions, systems therefore need to enable this.

Returns and cooling off rights (for non-defective goods and services)

A cooling off right allows a consumer to return goods or cancel an order for services without reason where the consumer has simply changed his/her mind. Consumers have a “cooling off” right, but only in the following circumstances:

  • For sales that are not concluded online, there is a 5 day cooling off period for sales resulting from direct marketing. This means that the supplier directly approached the customer to sell him/her the goods and the customer bought the goods as a result of the direct marketing. This is a right in terms of section 16 of the CPA and allows the consumer to return the goods within 5 business days of delivery or cancel the transaction 5 business days after it was concluded.
  • If an online sale, ECTA provides a 7 day cooling off period (and there is no direct marketing requirement as per the CPA), but there are some exceptions to this cooling off right and not all goods/services can be returned. For services, the cooling off right lapses as soon as the services are used, and certain other transactions are also excluded from the cooling off right including certain financial services, auctions, consumable foods, customised goods, software that has been unsealed by the consumer, newspapers, periodicals, magazines and books, gaming and lottery transactions (see section 42(2) of ECTA).

In these cases, the customer has the right to a full refund when returning the goods within the prescribed period, but the customer will have to pay the costs associated with returning the goods to the supplier.

It is important to remember that the return policies of suppliers and retailers generally provide extended rights to consumers. If the consumer is returning goods outside his/her CPA/ECTA rights, then the terms of the return policy of the supplier will apply and both the consumer and the supplier will need to comply with those terms. This means that if, as the supplier, you offer better return rights than those provided for in the CPA/ECTA, you will be bound by the more generous terms offered in your returns policy.

Cancellation fees and deposits 

Section 17 provides that a supplier may require a deposit to be paid for an advance booking, reservation or an order for goods or services that will be supplied at a future date, and furthermore that a supplier may charge a reasonable cancellation penalty if the consumer cancels the advanced booking, reservation or order.  What is reasonable depends on the circumstance, but the cancellation penalty will be unreasonable where it exceeds a fair amount. To determine what is fair in the circumstances, the supplier must consider the nature of the booked goods or services, the length of notice, the potential to find an alternative customer and general industry practice.

Fixed term agreements

Fixed term contracts are very common and often a valuable mechanism that can be used by a supplier to ensure guaranteed income for a minimum period. These agreements are subject to the terms set out in section 14 of the CPA, which requires both suppliers and consumers to comply with specific requirements regarding the maximum term of the agreement, termination (before the agreed term ends), notice periods and cancellation fees.

The maximum duration of a fixed term agreement is 24 months, however this term can be extended where the additional period is to the consumer’s financial benefit. A common example of this is a cell phone contract that extends over 36 months, thereby allowing the consumer a longer period to pay for the device.

A consumer may cancel a fixed-term agreement on the expiry of the agreement without penalty (the consumer will remain liable to the supplier for any amounts owed to the supplier under the agreement until the date of cancellation), or at any other time (during the fixed term) by giving the supplier 20 business days of notice. Where the agreement is cancelled before the end of the fixed term, the supplier may charge the consumer a reasonable cancellation penalty. A cancellation penalty must be reasonable and must not have the effect of negating the consumer’s right to cancel the fixed term agreement. The regulations to the CPA have set out a list of aspects that must be considered when determining what a reasonable cancellation penalty would be.

A supplier may also cancel a fixed term agreement, but only if the consumer has breached the agreement. If the agreement has been breached (for example, the consumer hasn’t paid the monthly fee), the supplier must give the consumer written notice that the agreement will be cancelled if the consumer does not remedy the breach (pay the monthly fee) within 20 business days. In that case, the consumer will still be liable to the supplier for any amounts owed to the supplier at the date of cancellation.

If you have a fixed term agreement, you will also need to consider section 14 if your agreement automatically renews for additional fixed terms or continues on a month to month basis after the initial fixed term ends.

*Importantly, section 14 of the CPA does not apply to fixed term agreements where the consumer is a juristic person, regardless of the annual turnover or asset value of the juristic person.

Conclusion

The above sections of the CPA and ECTA are only a few of the important aspects to consider when preparing your service agreement, and the pertinent sections will differ depending on your specific business and industry. It is important to make sure that your policies on returns, booking fees and deposits (and when these would be forfeited) are set out clearly and that your customer is aware of and understands these policies. If entering into fixed term agreements, you need to ensure that your cancellation penalty is reasonable and that your customer understands both the implications of them cancelling the agreement prematurely and what will happen at the end of the fixed term.

Get in touch to discuss these aspects and other important CPA and ECTA provisions that may be applicable to your business.

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