‘We are aware that consumers often do not read the contracts they sign’ – Mark Stivala

In the business world, millions of contracts govern transactions and agreements between different parties every day. They set clear parameters within which a relationship can function, from the most complex to the simplest. Changes to a contract normally means that one of the parties would be allowed to opt out of the agreement, yet things may become slightly more complex.

The topic has been the subject of debate for several years in the telecommunications industry, making it all the way to the Court of Justice of the European Union. While normally contracts do not allow for second thoughts, a watershed piece of case-law has rendered matters less straightforward, in this case.

By way of context, it all happened when an Austria-based telecommunications operator chose to insert a clause, in its original telephony contracts, stating it reserved the right to change prices according to the consumer price index. Called ‘price indexation clauses,’ these would serve to protect the company from any negative effects derived from inflationary fluctuations and market changes. The local consumer association challenged the operator, claiming that such a clause would imply a change in the contract, so the operator was still obliged to give its clients the option to exit their contracts without incurring any early termination fees. However, the European Court ruled that the clause itself did not amount to a change of contract, so the company was not required to provide such an opt-out.

This ruling inspired several operators to insert price indexation clauses in their contracts, around the world.

The Malta Communications Authority has taken this situation very seriously. “We are aware that unfortunately, consumers often do not read the contracts they sign. They might even be getting into contracts that may contain clauses that would affect them adversely down the line,” explains Mark Stivala, End-User Affairs Manager at the Malta Communications Authority.

In fact, the Malta Communications Authority was concerned about lack of consumer awareness about these clauses and potential misunderstandings about their impact. Such changes would potentially give rise to uncertainty about total costs of the contract period, given the unpredictability of changes in fees and charges.

“Such changes would also mean that price-comparison exercises on the consumers’ parts would become irrelevant, since these could change mid-way through a contract, turning a great deal into an unsavoury situation. To mitigate this, we introduced a series of regulations to safeguard consumers and raise awareness on the subject following a wide-ranging public consultation process which took place last year,” Mr Stivala continues.

Starting from the beginning of 2024, the MCA mandated that contracts containing price indexation clauses cannot be longer than six months. Companies are at liberty to provide other longer contracts which can be as long as 24 months, as is normal practice, however these cannot contain price indexation clauses.

Providers are obliged to obtain explicit consent from consumers before concluding contracts which include price indexation clauses. This measure forms part of a host of initiatives which are designed to enhance transparency for contracts and websites publicising plans with price indexation clauses.

In relation to existing contracts, or contracts entered before the publication of the MCA’s new regulations, consumers have the right to terminate their contracts after six months from their date of signing, without incurring early termination fees, if providers implement price changes based on the indexation clause.

And, it looks like it’s working, since the two local operators that were including price indexation clauses in their contracts have decided to drop such clauses from new contracts offered to consumers as of January 2024. Further, the MCA is the first regulatory authority in Europe to take concrete steps in order to mitigate against this practice.

Mr Stivala wraps up by emphasising that “while consumers are expected to take responsibility for the legal agreements they enter, the MCA is going out of its way to raise awareness among end-users about this practice, how it operates and how the implementation could affect them.”