Control of Price Related Terms in Standard Form Contracts: General Report

Abstract

Competitive market economies work with the basic assumption that the supply side cannot charge more than their cost of supply given that rational and perfectly well-informed customers know their preferences and are responsive to any price change in the market. However, markets are never fully transparent, and findings of behavioural sciences show that especially consumers act based on imperfect rationality due to systematic biases. Pricing structures that serve to hide rather than reveal the real cost of the goods and services pose one of the main challenges to markets as they abuse biases on the demand side to the greatest extent possible. “Hiding” price related terms in standard form contracts is a prominent way of creating non-salient prices and is therefore a debated issue in many recent high court decisions of different countries. This paper conducts a comparative study on developments in 28 jurisdictions and discusses the efficiency of ex ante regulatory as well as ex post judicial intervention. The results show that controlling prices and price related terms is a multifaceted and complicated issue which entails a holistic approach, involving more transparency, smarter information to be provided to customers, but sometimes also hard paternalistic interventions such as price caps. Besides, more effective ways of collective proceedings and redress mechanisms need to be implemented.

Annex: Questionnaire for the National Reporters

1.1 General Information on the Scope of Freedom of Contract

In this introductory part, brief information should be provided on the acceptance of freedom of contract as a rule, and if this is the case, the provisions/court decisions guaranteeing this freedom. It is important to see whether the parties, in principle, are free to set the contractual price, whether the rules of liberal market economy are applied, and whether there is a mechanism (autonomous body or state department) to protect competition in the market.

1.2 General Information on Control of SCT

This part should give an overview on judicial (and if the case might be administrative) control of standard contract terms. Especially whether control is applied only in B2C contracts or also in B2B contracts; the general norm allowing for a judicial review of standard terms; whether there is a “black” (forbidden without discretion of the judge) and/or “grey” list of unfair terms (presumed to be unfair); the effect of an “annulment” of an unfair term by courts/or an administrative body; the inter partes effect of a court decision and its exceptions; possible registers in which unfair terms are listed and their effect; whether there are means of collective action against usage of unfair terms in standard contract terms.

1.3 Judicial Control of Price Terms in SCT

Are there special provisions that give the courts the right to control price terms in SCT, or forbid such control? Do courts control price terms in SCT even though there is a limitation or no express authorization? If yes based on which arguments? If there is a parallel provision to Article 4(2) Directive 93/13/EEC do courts distinguish between main and ancillary price terms? Please also advise if an administrative body is vested with this function instead of courts.

Representative examples from case law are very important in this section. The authors are free to give all kind of additional information, which they judge to be relevant.

1.4 Special Regulatory Provisions Controlling Price Terms

This section should give information on different regulatory responses directly intervening into price terms. Obviously, these interventions can occur in very different sectors. However, given the scope of the topic the major contracts we look for are those were standard contract terms are widely used and therefore also a judicial control of price terms could occur. Insurance contracts, contracts with energy, internet, cell-phone, pay-TV providers, banking contracts, contracts with health clubs would be typical examples. However, price caps introduced by the regulatory regarding e.g. pharmaceuticals are not relevant. Examples of regulatory intervention could be:

• Limiting the number of services banks can charge: examples from Israel,³⁶² Romania³⁶³ and Turkey.

• Setting price caps:

  • General caps regarding contractual and default interest rates³⁶⁴ or special caps applicable just for e.g. interest rates in credit card contracts or overdraft accounts;

  • Special caps regarding some charges, e.g. roaming charges³⁶⁵;

  • Caps regarding contractual penalty fees, specifically in the banking sector,³⁶⁶ or generally for consumer contracts;

• Forbidding certain types of fees or penalties;

• Limiting or forbidding price bundling or price partitioning;

• Any comparable regulatory provision.

It would also be very important to explain the interrelation of administrative provisions and judicial price control. That is, if courts can still practice price control, or do so de facto, even though a regulatory provision regarding price control is existent.

1.5 Special Disclosure Regulations Promoting Price Transparency and Competition

In this section it is aimed to find out about the different regulatory means applied in the participating countries in order to ensure price transparency and comparability (either in addition or as an alternative to price control).

A prominent example can be given again from EU law: Since 1987 creditors in a consumer credit contract are under the duty to declare the “annual percentage rate of charge APR” (meaning the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit) in consumer credit agreements at the latest at time of conclusion of the contract. This should enable and give an incentive to consumers to compare the different APR’s of different creditors and choose the cheapest one.³⁶⁷ Given that the APR calculation formula is standardized by the EU, consumers can simply resort to this figure to get an overview of the market. The Directive 98/6/EC is another example of such legislation aiming at unifying price indications and thereby facilitating “informed choices on the basis of simple comparisons”.³⁶⁸

Recently price information has been refined in some countries by “product-use information”. Consumers can, for example, choose the right plan for a cell-phone contract much easier if they are not only informed about the amount they have to pay in a month but also about the average usage of a consumer, and even better, about their own past usage patterns. Especially serving this type of information during the life span of a contract is important as it could motivate consumers to get additional quotes from other providers on the market and thereby make switching more attractive.

Any type of comparable provisions which aim at simplifying and fostering comparison-shopping and thereby stimulating competition is of interest in this section:

• Special labelling requirements for prices,

• Comparative listing of prices by independent institutions on websites,³⁶⁹

• Transparency requirements which balance the effect of price-partitioning³⁷⁰ or price bundling.³⁷¹

• Product-use information at contract conclusion and regularly during the contract performance.³⁷²

• Special information whenever a fee or penalty is going to be applied. E.g. alert systems for overdraft accounts.³⁷³

Just like under section IV, this section too should include comment on the relation of transparency/disclosure regulations to judicial price control. Whether these exclude each other or applied together is of crucial importance.