A primer on prohibited standard clauses
Article 18 of the Consumer Protection Law prohibits the following types of standard clauses. These clauses are seen as unfair to consumers, and are commonly seen in the market, e.g., in retail outlets, on consumer invoices and websites, etc.
- Clauses transferring the responsibility of the business. This prohibits clauses that seek to exonerate a business from liability that arises when they fail to carry out their duty.
- Clauses reserving the right to refuse to accept product returns or reserving the right not to refund the price of a product. It should be noted that the Consumer Protection Law does not provide a general right to consumers to return products without cause. Rather this prohibition is best understood as a protection of consumers' rights to seek compensation for losses that they suffer due to a defective product. That compensation includes the right to return the product and receive a non-defective product or a refund. This type of clause would effectively nullify this right.
- Clauses setting evidentiary rules in a consumer transaction. An example would be a clause stating that if a consumer breaks the product, the consumer is regarded as having purchased the product. This is seen as an unfair assumption of the consumer's intent, which effectively denies the possibility that the consumer is not at fault.
- Clauses allowing a business to take unilateral actions with regard to products purchased by consumers. This clause is concerned with actions such as taking possession of a product or selling it off in order to settle a consumer debt. The intent is to prevent abuse by businesses that could result in consumers never having quiet enjoyment of the product. Note that this is subject to exemptions under other laws, such as those applicable to the financing industry.
- Clauses allowing a business to forfeit or reduce the benefits of a product or to reduce the property of a consumer that is the object of the consumer transaction. This is particularly relevant for consumer financing/leasing. The object of a transaction is the property of the consumer that is subject to a financing contract with the business. To ensure fairness, the consumer should have full use of the product to enable it to pay the credit.
- Clauses subjecting consumers to new, revised or additional terms and conditions that are set unilaterally by the business.
- Clauses authorizing a business to impose a mortgage, pledge or guarantee against the goods purchased on instalment by a consumer. This is similar to the clauses discussed in point d above. The consumer should have the right to give or refuse consent for such actions; otherwise businesses could unilaterally deny their quiet enjoyment of the product. Note that this does not actually prevent a business from requiring consumers to enter into a financing contract before agreeing to sell the product to them. That separate financing contract may include a mortgage or other securities.
An ounce of prevention is worth a pound of cure
The standard clauses may be associated with the phrase "Broken means sold" in retail outlets. That kind of clause is likely to cover merchandise that may be a bit pricey but where the value is not material to the business (e.g., a set of ceramic dinnerware in a store). Standard clauses concern transactions of very high value (e.g., sale of real property that may be subject to mortgage), as well as terms impacting potentially millions of consumers (e.g., terms and conditions of use of an application). The liability that may arise from the violation of standard clauses can be quite substantial for each transaction, and with millions of transactions, they can add up. And this does not yet take into account the potential reputational harm to the image of the brand.
Considering the above, businesses should note that they can prevent unnecessary liability (including potential criminal liability) by taking sensible, common sense preventive measures. For example, instead of providing that breaking a product is regarded as a purchase, a business may simply reserve the right to seek damages if the consumer does damage a product due to negligence. Another example would be asking consumers to opt-in or otherwise indicate their consent whenever the terms and conditions imposed on customers are revised.
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