Waving goodbye to exit charges
A pervasive new norm has crept into utility providers which is annoying customers hugely. It's the imposition of exit fees, or breakage clauses, into contracts.
There's nothing illegal about them, and generally nothing you can do about them either, but it does mean that if you sign up for a contract for your mobile phone, electricity or insurance, in order to avail of a discount or better deal, you are locked into it on pain of penalty... and the penalties can be severe.
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This week I'm looking at how exit fees work, why they are there at all, and how you can avoid them. The panel below shows the common ones out there with some well-known utility providers, but it's always worth checking before you commit to any contract what the rules are.
Switching is a good thing, but only when your existing contract is up. Most of us don't keep a diary of those dates, so if you see a deal or want to shop around, just give your existing provider a call to make sure you're out of contract. In many cases, they'll offer you a deal themselves to hold on to you. Research by comparison website Switcher.ie found the information about break fees can often be hidden in the T&Cs and is hard to spot.
Many companies are getting better though, and making it clear on their websites for one and two-year offers that a break clause may apply. Energy suppliers in particular are good at this. Two thirds of gas and electricity or broadband customers, the company found, weren't aware there was a penalty at all for leaving a contract early. As the average termination payment is €180, it can wipe out savings you're making for moving.
As a general rule, I never sign up to anything I haven't asked for, and that includes being pressured on my doorstep by an enthusiastic seller of gas/electricity/charity etc, who is trying to get me to avail of a 'once-in-a-lifetime' deal if I sign here and hand over my bank details.
Recently, I told one of them (electricity in this case) that I was already on a two-year contract with another provider; he tried to convince me it was a better deal to cancel it and pay the exit fee as the savings would be greater. Nonsense.
The fees themselves can be huge. On a mobile phone contract, especially where you've received a fancy new iPhone as part of the package, they can hit you with hundreds of euro to move account. To be fair to the providers, they need to 'forward-proof' their handset costs so this is a good reason to charge customers who bag a high-priced discount only to move elsewhere.
Exit fees generally apply to fixed-rate mortgages as banks recoup the loss of interest foregone by a customer leaving. Up to six months repayments isn't unusual, which can run into thousands of euro.
Interestingly at the moment, because interest rates are so low, and banks keen to lend, many are not actually invoking their break clauses, so if you're locked in a fixed-rate loan, give them a call and see if you can move to a lower, variable rate without being penalised.
Avoiding exit fees
Obviously, not signing up to a fixed-price contract means you won't be caught out, but you can miss out on discounts offered. If any company suddenly changes its prices mid-contract (as Vodafone, Three and Sky have done), then you have the right to switch out early without penalty. You may have to write to the company to tell them, but in a mobile phone contract, you do get to keep the handset.