Widespread Uncertainty amongst Consumers about Early Exit Fees from Household Contracts

New research out today from Switcher.ie shows the majority of Irish consumers are still in the dark about early exit penalties on household utility contracts and this could be costing people dearly.

Analysis of exit fees shows that consumers face penalties of up to €300 for leaving a utility contract six months early. However, the real danger for consumers is not so much that they could unwittingly be forced to pay a fee. Instead it’s the fact that these fees, which are largely avoidable, are acting as a fear factor or deterrent, preventing them from actively seeking out better value or more cost-effective deals.

The findings show that the majority of utility customers either don’t know if they would incur a penalty for breaking their contract early, or are unsure of the amount they would be charged. This applies to two-thirds of electricity (65%), gas (65%), home phone (65%) and broadband (63%) customers, and over half of TV (54%), bins/recycling (52%), and mobile phone (51%) customers.

The majority of utility suppliers do charge early exit penalties, but only around one in ten electricity (11%), gas (9%), home phone (11%) and mobile phone customers (11%) know the exact amount they would be charged for cancelling early.

Worryingly, this low level of awareness about early exit penalties appears to be across all the main household utilities, with just 13% of broadband and TV customers and 5% of bins/recycling customers fully in the know about these fees.

Relatively low switching levels in Ireland mean that only one-fifth (17%) of utility customers say they have been charged early exit fees in the past for a utility. But, with the average termination charge amongst these consumers standing at €180, consumers still can’t afford to be complacent, and need to be aware of these fees before signing up to a contract.

Energy suppliers appear to be leading the way in terms of transparency, with these fees displayed clearly on websites, and most charging a flat fee of €50 per fuel for cancelling a contract early. New regulations from the Commission for Energy Regulation also mean that, from October, energy suppliers will have to give consumers 30 days’ notice before they come to the end of their contract. This is a positive move and should help to increase customer awareness of the date from which they are free to switch without being charged an early exit fee.

However, telecoms companies still have a way to go, as it can be difficult to find the information on some providers’ websites. Charges for cancelling telecoms contracts tend to be higher, too, reaching up to €300 for someone who cancels their contract with six months remaining. Unlike most energy deals, broadband, TV and phone plans often come with equipment such as set-top boxes, modems and handsets included, so this could explain the higher charges. It’s also worth noting that early exit fees are waived in certain circumstances.

Utility providers have an important role to play in ensuring that consumers are given clear and simple information about any early exit penalties. At the same time, consumers can help themselves by making sure that they read and understand their utility contracts, so they shouldn’t allow uncertainty about exit penalties to stop them from shopping around. Householders could lose out on hundreds of euro each year if they stick with a supplier or contract that is too expensive and doesn’t meet their needs.

Eoin Clarke, Managing Director of Switcher.ie, said: “With the cost of living already squeezing household finances, consumers need to feel free and able to shop around for better value utility deals. Unfortunately, we’ve already seen that many consumers are being put off switching by the fear of getting tied into a contract[6] – it’s crucial that fear of early exit penalties is not allowed to act as a further deterrent or barrier to getting a better deal.

“It’s vital that consumers have all the information they need to empower them to engage with the market. We’d encourage suppliers to highlight things like the minimum term, discount period and early exit fees as clearly as possible, both when consumers sign-up, as well as on their websites – and we’d urge consumers to take note of these things before entering into a contract. It’s also important for consumers to remember they’ve always got a 14-day cooling-off period with these kinds of contracts.

“If consumers are better-informed about when their minimum term or discounted period ends, they’ll be free to shop around for better deals on their household essentials, in what is a highly competitive market.

“It’s also worth noting that broadband and phone companies are starting to appreciate that customers don’t always want to be tied into a long contract and, as a result, we’re seeing more and more 30-day contracts for the likes of broadband, TV and mobile phone. These can be a great option for people who are on a short-term lease, or want to try out a service before committing to a longer deal, without the fear of high early exit fees hanging over them.”

Early termination fees per energy supplier

Source: Switcher.ie – Data correct as at 20 September 2017. Early exit fees relate to typical gas and electricity 1 year fixed term contracts, and excludes tariffs with prepayment meters and smart thermostat devices.

Early termination fees per broadband provider – cancelling 6 months before contract-end

*Comparison is based on a customer leaving the broadband provider with six months left on their contract.

Source: Switcher.ie – Data correct as at 20 September 2017. Table based on providers’ basic entry level home broadband and home phone bundle (where provider also has a phone plan). List of instances where exit fees are waived included in notes below.

Early termination fee per mobile phone provider

Source: Switcher.ie – Data correct as at 20 September, 2017. Early exit fees listed are for contract services only. SIM-only 30-day contracts have no exit fees – customers need to give relevant notice.

For more information, visit Switcher.ie