Why some contracts aren't worth the paper they're written on
Contracts exist in almost every aspect of your life.
For example, if you're employed, then you must have a written contract of employment to govern the relationship between you and your employer. If you're self-employed, freelance or a contractor, this looser association will also be governed by a formal contract.
Outside of working life, contracts also thrive and flourish. There's the agreement with your energy supplier to provide you with gas and electricity. Every insurance policy you take out -- from car insurance to home insurance to travel cover -- is also a contract. Likewise, your mortgage, credit cards and personal loans are all contracts between you and lenders.
What is a contract?
Hence, it's worth asking exactly what a contract is.
The Oxford University Press defines a contract as "a written or spoken agreement -- especially one concerning employment, sales, or tenancy -- that is intended to be enforceable by law."
In other words, a contract is a binding and legally enforceable agreement between two or more people or parties -- and is often an arrangement to supply goods or services at an agreed price.
However, the powerful problem is that the party creating the contract usually has a great deal more power than the other. In other words, many contracts are unbalanced, simply because the big company writing them has greater control and understanding than the ordinary person signing them.
When contracts cheat
Let me give you one real-life example of how a contract can be heavily weighted in favour of its creator.
When moving home in April 2011, I signed up with Virgin Media for digital TV, broadband and home phone. In return for signing an 18-month contract, my first six monthly payments were reduced by £10 to £23.90 a month, saving me £60. After the first six months, my payments then increased to £33.90 a month for 12 months. That's easy to follow, so no problem.
This year, Virgin Media has run a series of adverts featuring Jamaican sprinter Usain Bolt disguised as Sir Richard Branson. This ad campaign revealed that Virgin was doubling its customers' broadband speeds free of charge.
For me, this advert was doubly misleading. My uplift from 10Mb to 20Mb still hasn't happened, despite being listed for a mid-year upgrade. Also, from 1st April, my monthly payment went up by £2 to £34.90 a month. Even worse, it then was bumped up to £35.90 a month.
In other words, Virgin is now charging me £3 a month more, without my agreement or consent (and without giving me something extra for my money). Isn't this fundamentally a breach of contract?
Legal but underhand
Having signed up to an 18-month contract with agreed monthly payments, I fully expected to make those exact payments for a year and a half -- and not a penny more. Nevertheless, Virgin has torn up our original contract and happily put up my tariff by £36 a year.
Is this legal? As always, the answer lies in the small print.
Dig deep into this or any similar contract for your broadband, mobile, landline or digital television package and you'll find a crafty get-out clause. This gives the company the right to make 'reasonable' increases to its charges as market conditions require, simply by giving at least one month's notice to users.
However, if you deem any price hike to be excessive, then you have the right to withdraw from your contract without penalty.
While such clauses may be legal, I personally believe them to be grossly unfair, given the already one-sided balance of power between corporations and consumers. Even so, this sort of sharp practice -- raising fees at will for existing customers -- is rife throughout the worlds of communications and finance.
Complain to Ofcom
Should the UK's regulators be taking action to end such sneaky swindles? Of course they should, as these rip-offs hit tens of millions of adults and, as a result, almost everyone in the UK suffers financially.
The good news is that telecoms watchdog Ofcom has announced plans for a consultation on "how to protect consumers from unexpected price rises within fixed contracts for landline, broadband and mobile services."
Earlier this year, Ofcom launched a review into the fairness of certain contract terms, which identified a number of issues with the effectiveness of its current rules and the associated potential for consumer harm.
This earlier review examined 1,644 consumer complaints made to Ofcom about changes to terms and conditions during the period from September 2011 to May 2012, together with further evidence from the consumer champions at Which? magazine. The regulator found many consumers complained that they were not made aware of the potential for price rises in what they believed to be fixed contracts.
Many users felt that communications providers should not be able to impose price increases during the life of a contract. If they do, then consumers should be able to exit the contract without penalty. Other users complained specifically about the amount of the price increase and its impact on them.
Ofcom aims to publish its consultation into 'price variation terms in fixed-term contracts' by the end of this year. Let's hope that the watchdog shows its teeth by banning this industry-wide rip-off early in 2013.
As for me, my 18-month contract with Virgin is expiring and now I am free to switch tariffs or move to a new supplier. Take it from me, I'll be leaning hard on Virgin for a much better deal, otherwise I'm jumping ship to Sky or BT!