“This is the first time that a Court has made a declaration under the Fair Trading Act that terms in a standard form consumer contract are unfair. We suggest that Home Direct customers who hold or held a Lifestyle account contact Home Direct to find out if they are affected by these declarations, as it is possible they are owed a credit or refund,” said Commission Chair Anna Rawlings.

Home Direct sells consumer goods online and via telephone and mobile shops on deferred payment terms. It offers credit to customers on a facility known as a “Lifestyle account”. Customers are required to make regular payments towards the goods and pay interest on the balance. Prior to July 2018 Home Direct invited customers to opt-in to a “voucher entitlement scheme” when they opened the account.

Under the voucher scheme, customers continued to make direct debit payments to Home Direct after they had paid off their goods. Home Direct converted the additional payments into “voucher entitlements” which could only be used towards purchasing more goods from Home Direct. Under the terms of the contract the “vouchers” were not refundable for cash and, if they were not used to purchase more goods, they would expire after 12 months and Home Direct would retain the money. The only way to avoid forfeiting funds was to purchase more goods from Home Direct.

The scheme operated between 2009 and 2018 with more than $644,000 forfeited to Home Direct over the life of the scheme. Home Direct has identified more than 14,000 affected customers.

In the High Court at Auckland Justice Muir said that for the period 1 April 2017 to 14 December 2017 the terms and conditions relating to refunds and expiry of vouchers were “insufficiently clear” and “the absence of transparency adds a further layer of unfairness.” He said “the scheme did not provide any corresponding benefit to customers” such as a discount on the purchase of goods and “there were not countervailing obligations on Home Direct Ltd. It was in that sense “one-way traffic”.”

Ms Rawlings said “although Home Direct had intended to limit the vouchers customers could hold to $1,500, some customers forfeited amounts as high as $4,600. It may not have been obvious to consumers that their funds were being forfeited as the vouchers dropped off customers’ accounts incrementally each week.”

Home Direct no longer operates the voucher entitlement scheme. It co-operated with the Commission throughout its investigation and consented to the declarations being made. It has credited customers over $133,000 and has agreed to refund any customers who had vouchers which were forfeited from 17 March 2015 when the unfair contract term provisions became law and the closure of the scheme in July 2018.

“We recommend that Home Direct customers who think they may have subscribed to the scheme during this period should contact Home Direct to check whether they had vouchers which were forfeited,” said Ms Rawlings.

Warning for software error

If Home Direct customers do not recall opting into the voucher scheme, the Commission is anyway urging them to contact Home Direct to see whether they have been enrolled in the scheme in error.

A Home Direct software error meant that some customers who had not opted into the voucher scheme had their credit balance converted to vouchers without their authority, and in some cases vouchers subsequently expired. This error occurred throughout the life of the scheme, from 2009 to 2018.

The voucher scheme was also supposed to limit vouchers to a value of $1,500. However, some customers who had opted into the voucher scheme had credits of more than $1,500 converted to vouchers, some of which also later expired.

Home Direct has been warned that, in the Commission’s view, representations that these customers had agreed to purchase vouchers, and that Home Direct was entitled to convert more than $1,500 into vouchers, were likely to breach the Fair Trading Act 1986.

About 6,000 customers have already been credited or refunded a total of $22,000 as a result of these errors.

Home Direct has also made a donation of $35,000 to a charity working in the credit sector, reflecting the amount it has not yet been able to refund or credit to affected customers. Those customers can still seek refunds or credits by contacting Home Direct.

Past and existing customers should contact Home Direct to see if they have been affected and to get credits to their accounts or refunds paid to them if they are owed them.


Unfair Contract Terms

The law applies to standard form consumer contracts, which are ‘take it or leave it’ contracts where the consumer does not have a meaningful opportunity to negotiate the terms.

Only the Commerce Commission can ask a court to make a declaration on whether a term is unfair. If a court decides a term is unfair a business cannot enforce it and is liable for prosecution if it does.

Businesses can visit the business guide to unfair contract terms page on our website for videos, quick guides and guidelines and consumers can read our fact sheet on unfair contract terms.

Warning letters

A warning explains the Commerce Commission's opinion that the conduct at issue is likely to have breached the law. Only the Courts can decide whether a breach of the law has in fact occurred.

The purpose of a warning letter is to inform the recipient of the Commission’s view that there has been a likely breach of the law, to suggest a change in the recipient’s behaviour, and to encourage future compliance with the law.