Sinead Ryan: Think before you switch...leaving a contract early could cost you dear
I had a caller to my door the other night from a utility provider. He was encouraging me to switch from my own gas and electricity supplier to his.
I don’t like unsolicited calls at the best of times (and it’s usually the worst of times, when I’m putting dinner on the table), so I politely told him I was locked in an annual contract and would review it when that was up.
To my surprise he said it would be better value for me to switch now and pay the break-fee to do so as I’d save hundreds. This is both unlikely and, as it turns out, not true, so I sent him on his way.
Many customers of everything from mobile phones and gas to bank loans don’t realise most contracts carry exit fees. This is a charge the company makes when you crash out of a contract you’ve signed before it’s up.
While switching is good, it’s important to only shop around for new providers when your 12 or 18 months come to an end. Most companies reserve their best prices and discounts for customers who sign up for a specified period. This is fine, but everyone should know that there’s a fee if you leave early.
Every supplier should tell you they exist, but I’ve found they often don’t, leaving customers bewildered when they find or are swayed towards a better offer, only to see a final charge app-lied from their own supplier which can be quite hefty.
Exit fees used to apply only to fixed-rate mortgages as banks recoup the loss of interest foregone by a customer leaving. They’re huge: up to six months’ repayments just to move, so it’s usually better to hold off until your fixed-rate period is up.
However, telecom providers, cable TV and mobile companies all seem to be at it now. You’re fleeced just for exercising common sense.
Comparison site Switcher.ie has done some research into exit fees, which often form the basis of complaints to industry regulators from disgruntled customers who claim they weren’t informed of them. They can be hidden in the T&Cs and are hard to spot.
Two-thirds of gas and electricity or broadband customers, it found, weren’t aware there was a penalty for leaving the contract early. As the average termination payment is €180, it can wipe out any saving you’re making elsewhere.
The research found energy suppliers were the clearest, with penalties displayed on websites, or charging a flat fee instead of several months’ payments. The Regulator now insists all gas and electricity suppliers give 30 days’ notice to customers when they’re coming to the end of their contract. That allows them the breathing space to look elsewhere, which is a good move.
Insurance companies for motor, house and other products also do this. It’s fair warning to shop around. Consumer law also says contracts must have a 14-day minimum cooling off or change-of-mind period.
However, the survey found telecoms companies lag behind. It can be tricky to find the exit fee information on websites, and some charges may not be clear. If you cancel a contract with six or more months remaining, it can cost up to €300, which is hefty.
In fairness to some companies, they do provide equipment with their contract, such as a set-top box or handset and modem, so it makes sense to forward-proof the cost of these, as they can’t really re-use them when returned.
If you’re getting the latest iPhone on a €50-a-month contract, for instance, why should you be allowed to exit a couple of months in without paying for it? The handset on its own would cost hundreds, so that makes sense.
There’s one circumstance where companies can’t charge exit fees for early breach of contract, and that’s where they’re responsible for it. If you’ve signed up to a 12 or 18-month fixed price and the company suddenly announces a price increase halfway through, as Vodafone, Three, Sky and others have done recently, then the customers get to switch out early without penalty.
There are normally a few hoops to jump, such as putting your request in writing before a certain date, but it means you get to switch without charge. This is your right under consumer law, and the letter informing you of the increase in charges will state it.
The best bet is, when signing up in the first place, to ask about exit fees in the event you find a better deal later on. I’d also ignore callers to the door. I never sign up for any-thing on the spot anyway, but you can take a leaflet and be polite.