Cancellation Fees - Legal?

backfoot

Cancellation Fees on Fixed Price contracts have crept in over recent months.Some now are approaching £100 on Dual Fuel.They seem to be ever increasing.

Are these cancellation fees legal? How are they arrived at and what do they cover? Are they an Unfair Contract Condition? Why have they crept in when they didn't exist with some of the earlier fixes? Are they anti competitive?

Wasn't there some legislation/regulation governing this?

Any other thoughts?

Cardew

There was(is) a penalty on the BG 2010 deal introduced in 2005.

I can't think how it can be an unfair contract condition if you are notified about it in the Terms and Conditions - which you accept; and it is not mandatory to apply for a fixed tariff.

Penalty clauses are commonplace in all sorts of long term agreements in Finance.

You take a gamble on any fixed/capped tariff and that is surely part of the gamble.

backfoot

Yes but we know from other examples that fees and charges must be reasonable and cover the actual costs to the company. The competitve market started out having rolling 28 day contracts to encourage competition. Beyond that timeframe you were entitled to switch as many times as you wished free of charge.

What is to stop them charging several hundreds of pounds? What if fuel poor customers get involved in a fixed price contract to 2012 because BG have scared them to death only to find that energy prices fall back.

Wouldn't a way of redressing the imbalance of the big six and their false competition be to prohibit these fees encouraging change if the product sold was no longer suitable.

The contracts are currently sold on 'isn't this a good thing to do' when no one really knows whether or not it is. Energy purchases shouldn't be about gambling.

Npower's Fixed Price 2011 does not have cancellation fees.Why do others have to?

I have at the back of my mind that when these Fixed Price contracts were first allowed by the Regulator, there was some rule about cancellation fees being prohibited?

Cardew

backfoot,

I absolutely agree that essential purchases like energy shouldn't be about gambling.

However gambling is not just about fixed/capped tariffs. Do you for example, change to Ebico or Click 5 and hope that they are not going to raise prices soon.

Take your example of energy prices falling back and being able to get off the tariff penalty free. If you enter an agreement with a company for a capped tariff and energy prices soar, should the company be allowed to break the agreement? What is good for the Goose etc

I assume the energy companies do a cost analysis of how many people to allow on a fixed contract, forward costs and revenue and could well justify the leaving penalties.

backfoot

I don't think it's as simple as that. It is in there interests to fix, a certain volume of customers, because it covers a first tranche of their purchases. For those integrated companies this is especially true. So in a properly working market,they would set these fixed tariffs attractively enough to get up that volume.They then wouldn't have to worry about customers leaving.Why else do they do it?

I get the impression now that these fixed deals are not as attractive as they have been in the past and that following the huge hikes they want to fix and tie in customers knowing prices will fall back or at least not reach the fixed rate premium.

You see they have all the knowledge and all the aces if they can add on a retaining fee to cover lost profits.(Note not admin costs).I know I am suggesting a one way deal but quite frankly we have all been ripped off for so long the balance needs redressing.

We would then see how competive these fixed deals are.

Cardew

backfoot,
Methinks you are 'moving the goalposts' and the discussion has gone from legal justification to moral indignation!!

You may well be correct that these deals are rubbish etc, but if the T&Cs clearly spell out the conditions, and you apply to go on the tariff, I cannot see that it is other than legal.

Banks, insurance companies, telecoms, Sky TV etc etc all have agreements that entail financial penalties if you leave before the term is finished.

backfoot

You may well be right.Sometimes we have to throw in something to test the waters.