Ask LH: Are Non-Refundable Deposits Legal?

Dear lifehacker, What's the deal with non-refundable deposits? I've been caught out and pressured into a transaction before when I've put down a small amount of my hard earned cash as a deposit and having second thoughts isn't a good enough excuse to change your mind. Is taking a non-refundable deposit against consumer law or smart business? Ripped off

Picture by Ben Husmann

Dear Ripped Off,

The particulars of your deposit will be contained in the contract you signed at the time of first payment. Whether you realised it or not, this was a legally binding agreement between you and the seller.

Businesses are allowed to charge a termination fee if a consumer decides to cancel their lay-by. This is ostensibly to cover the seller's outside costs, such as being forced to discount the item due to seasonal changes or the emergence of newer technology.

The maximum they are allowed to charge varies from state to state. In Queensland, the non-refundable deposit fee cannot exceed $100, for example. In NSW, however, the trader may be entitled to retain all of your deposit.

As the NSW Fair Trading website explains: "The actual amount the trader is allowed to retain depends on the circumstances. This money compensates the trader for the time and expense devoted to the transaction, but should not be so high as to constitute a penalty."

As you only paid a small amount, it unfortunately looks like you may be out of luck. The moral to the story is to always carefully read any document you are asked to sign so you know what the potential penalties for pulling out are.

However, if the termination fee was not stipulated in the written agreement, the business is required to refund the full amount that the consumer has paid. By Australian law, all terms and conditions relating to laybys/deposits must be laid out in writing in easy to understand language, including any termination charges.

It therefore might be worth re-checking your contract: it could contain the loophole you're looking for. If you think you've got a case and the seller refuses to play ball, contact your state consumer protection agency.

See also: A Guide To The New Australian Consumer Protection Laws

Cheers Lifehacker

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    rule of thumb; if you sign it, you agree to it. It is your duty as a consumer to understand what you are signing and to go elewhere if you do not like the terms..

    The only legal protection realistically is against deceptive behaviour, which you cant really claim when theres a firm and clear contract..

    I don't really understand the point of a refundable deposit. This is what deposits are actually for... anyone care to enlighten me?

      While I agree with you there, I've received my deposit back in the past because the seller did not honour the agreed time period to supply the item.

      Yeah, I'm not sure 'Ripped off' understands what a deposit actually is or does.

    if you sign it, you agree to it

    If you fail to proceed with finalisation of this sale you agree to give up your first-born child...

    Excepting the fact that you cannot contract out of the law..

      A contract can require you to waive your rights, however. But that aside, there's nothing outside the law about charging and keeping deposits.

    Depends how you were pressured into the transaction. Door-to-door sales require by law to refund the entire deposit for 10 days after contract signed, gym memberships is 48 hours. But if it's a deposit for something like a layby, hotel room, etc. then no, there's no ;law. That's what deposits are for. Otherwise there's no point taking a deposit.

    That is pretty much the norm. Especially in the auto industry. Had a fleet company source a car for me. In order to lock down any deals however it required a $1000 deposit (thought would go on the car), if I changed my mind before actually purchasing the car I'd lose it (to the fleet company). This was made very clear to me before proceeding.....I did get a good deal, but later realised it was a pretty #%*@ car. lol

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