Lessons for consumers from Consumer Tribunal’s R1 million fine for Vodacom

Consumers can learn from the National Consumer Tribunal’s R1 million fine for Vodacom because the company levied an unlawful penalty on consumers to cancel a fixed term contract. According to the Consumer Protection Act, service providers cannot levy unreasonable penalties that will make it too expensive for consumers to cancel.

The Tribunal determined that Vodacom breached the Consumer Protection Act (CPA) by charging an unreasonable cancellation penalty of 75% when consumers wanted to cancel their fixed-term contracts before expiry. The Tribunal also considered other CPA breaches relating to fixed terms contracts.

The National Consumer Commission referred the matter to the Tribunal after receiving various complaints from consumers.

According to the CPA, consumers have the right to cancel a fixed-term contract before it expires at any time, subject to certain conditions, including that the supplier of goods and services can charge a “reasonable” cancellation penalty.

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A reasonable cancellation penalty

Armand Swart, director and Danelle Plaatjies, candidate attorney at Werksmans, say the CPA and its regulations provide that a number of factors must be considered when determining what a reasonable cancellation penalty is.

“This includes the amount the consumer owes up to the date of cancellation, the originally intended duration of the agreement, the value of the transaction up to cancellation, the value of any goods which will remain in possession of the consumer after cancellation and the general practices in the relevant industry.”

Swart says Vodacom’s defence was that the cancellation penalty was imposed on SIM-only contracts to recover discounted rates and “additional benefits” consumers enjoyed compared to prepaid consumers.

The Tribunal noted that Vodacom amended its terms and conditions in October 2022 to provide for a cancellation penalty equal to one month’s subscription fee. Vodacom also conceded that prepaid contracts had been inflated to “incentivise customers to enter into fixed term contracts“, Plaatjies, points out.

“The Tribunal held that that the 75% cancellation penalty was not justifiable and negated a consumer’s right to cancel a consumer contract and therefore it breached the CPA. In addition, the Tribunal held that Vodacom’s amendment to the terms and conditions was of no significance to the present complaints as Vodacom still contravened the CPA at the time.”

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Vodacom’s failure to cancel contracts timeously

The second complaint was that Vodacom failed to process cancellation requests timeously, Swart says. “Vodacom’s defence was that delays were caused by their third-party service provider who provided call centre services. Vodacom admitted that the service provider’s call centre agents deliberately avoided processing cancellation requests timeously to earn incentives from Vodacom.”

However, the Tribunal found Vodacom liable for the service provider’s conduct because the CPA provides that a supplier is liable for any act or omission committed by an agent (or employee) on its behalf.

In addition, the Tribunal considered complaints relating to Vodacom’s refusal to cancel contracts when the contract in question was in arrears and/or the consumer was unable to pay the cancellation penalty. Plaatjies says Vodacom argued that it was entitled to these payments before allowing the consumers to cancel.

“The CPA provides that “upon cancellation” of a fixed term contract, the consumer remains liable for any amounts owed in terms of the contact at the date of cancellation. The Tribunal confirmed that what the Act provided for was that a consumer remains liable for any outstanding amounts following cancellation but that a supplier may not prevent consumers from cancelling their contracts due to any arrear amounts or refusal to pay the cancellation penalty.”

Swart says the supplier must take legal steps to recover any outstanding amounts following cancellation. The Tribunal found that Vodacom contravened the CPA by refusing to cancel the consumer contracts on these bases.

“The Tribunal’s decision has far-reaching consequences because the CPA applies to all contracts between consumers and suppliers, unless specifically excluded by way of industry standards or other laws or other exclusions in the CPA, such as that transactions with consumers who are juristic entities and whose asset value or turnover exceeds R 2 million.”

What can consumers learn from this? “Consumers must ensure that they read and understand the terms and conditions of any transaction before agreeing to them. A consumer can then take up any unfair cancellation terms with a supplier before agreeing to the goods or services or they can explore alternative suppliers with more favourable terms.”

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What it means for businesses

And what does it mean for businesses? Swart says businesses should not commit any of the prohibited conduct that Vodacom was found guilty of. “They must allow consumers to cancel their fixed term contracts in accordance with the CPA, process cancellation requests timeously and only charge a cancellation penalty that is reasonable in the circumstances.”

He warns that businesses are not permitted to refuse to cancel a fixed term contract where the consumer is in arrears or refuses to pay a cancellation penalty. “Businesses are required to recover any arrear amounts following cancellation through legal processes. They must have clear cancellation provisions in their terms and conditions and must have policies and procedures in place to deal with cancellation requests.”

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Where to complain

Consumers who have an issue with a supplier’s cancellation terms can approach the Consumer Goods and Services Ombud who is the consumer goods and services industry’s ombud tasked with mediating consumer disputes. Specific consumer-facing industries may have their own dispute resolution bodies and procedures, Plaatjies says.

For example, the automotive industry has its own ombud: the Motor Industry Ombudsman of South Africa or MIOSA. Other examples of industries with specific bodies and procedures include financial services and the property industry.

It is also important for businesses to remember that these policies and procedures should extend and apply to their employees and third party service providers, because they can be held liable for their actions.