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It Pays to Read the Fine Print in Contracts

How to decipher common phrases in contract clauses, terms of agreement and more

Woman holding a contract and a man signing the contract

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En español | When a new trash collection company came to town, Angela Cable decided to switch, so she called her current service to cancel. Turns out, the 54-year-old Rock Springs, Wyoming, resident had made a three-year commitment. The fine print also said the contract automatically renewed for another 36 months at expiration unless she canceled it in writing. No problem, she thought; her contract was up in about a month. But buried in the fine print was another provision: “You must give us 90 days’ notice” to cancel. Cable had no clue she'd agreed to that. Negotiating her way out of the arrangement resulted in lots of headaches.

We've all been there. Contracts are full of fine print that can cost you big bucks. Buried within the language are many legal words and phrases that should serve as a red flag to potential hassles or rip-offs. Here's a list of common phrases in contracts and service agreements that should cause you to proceed with caution.

Before you buy

1. “Free” Nothing is free. If you aren't paying for the product, then you are the product — your information is likely being sold to advertisers who will barrage you with online solicitations. Or, maybe it is “free” now, but you are committing to pay later. 

2. “Free trial” It's often accompanied by phrases like “We will not charge your credit card [until 30 days from now].” This enters you into a game of “Will you remember to cancel on the 29th day?” That's a game corporations often win.

3. “For 6 months” Along with the similar “introductory price,” this is a variation of the free trial game. Maybe $39 a month for cable TV sounds good to you in January, but if it's $137 by August, is that really a good deal? Will you remember to cancel in July?

4. “Automatically renews” The zombies of the consumer universe; such clauses mean you keep paying even if you don't realize it or want the service anymore. Sure, if you want the convenience, sign up. (For the record, AARP offers automatic member renewal for those who choose it.) But beware if such an arrangement is tucked in the fine print.

5. “Fees” Consumers rarely compare late payment fees and other penalty charges when shopping, but they should. We all eventually screw up; the cost of such a mistake shouldn't be unreasonable.

Paying with your privacy

6. “Opt out” The phrase means companies can use your data however they wish unless you take a step — you “opt out” — to stop it. Their lawyers know most people just accept the default “opt in” setting. If you go with the product or service, opt out if you don't want them to share or sell your information.

7. “Third party” This can mean you and your data are being sold to other companies for marketing purposes and you'll ultimately receive unsolicited mail, email and other sales materials. Many free offers are just bait for third-party marketing tricks.

8. “Learning more about your interests” This phrase suggests the company is augmenting what you are telling it with outside data in order to know more about you. It might “onboard” real-world data like grocery store loyalty card purchases with your stated “likes,” then target you with precise advertising.

'I wish I hadn't'

9."Restocking fee” Sales folks will talk you into taking a product home to try it and promise that you can bring it back for a refund. But restocking fees can be steep — 15 percent for electronics, for example.

10. “Extended warranty” Consumers can find extended warranty costs snuck into monthly payments. The value of such warranties is debatable, but consumers should always be fully informed about the cost.

11. “Not covered” Many warranties are full of exclusions that can lead to disappointment. In cars, “wear” parts like brake pads usually aren't covered, for example.

12. “Void the warranty” Sometimes, warranties become useless if consumers break terms that make them “void,” such as getting an electronic gadget wet.

'Legal loopholes'

13. “Mandatory arbitration” If a product injures you or you feel misled, you can't sue in a court of law; you must submit to arbitration.

14. “Class action waiver” If you've been ripped off only a small amount, it's not practical to sue a company. Instead, you might join a class action lawsuit, which combines your gripe with others'. But many contracts force consumers to waive this right.

15. “Liquidated damages” With this phrase, the corporation attempts to cap potential damages you might be able to receive if you do manage to win a courtroom battle.

16. “Limitations for suit” This may shorten your window for potential lawsuits, says Jeffrey Carton, a class action litigator. Check terms and conditions to understand any abbreviation of time period.

17. “Hold harmless and indemnify us” Watch out for this. These words can give corporations the potential to force a consumer (or worker) to pay the company's legal fees in the case of a lawsuit.