CHAPTER FOUR
It amazes me to no end that people sign contracts without reading them. From today onwards, you need to read every word on any document you put your signature on. Gym memberships, cellphone contracts, loan documents, you name it. The fine print can be hard to read, but generally speaking, the smaller it is, the more likely it is to contain something that might give you second thoughts about signing.
Actually, what amazes me more is how many salespeople don’t know what’s in the contracts they ask you to sign. There have been a number of instances where I read the fine print on a contract, much to the chagrin of a salesperson, only to find out that they’ve either lied to me, were incompetent, or not up-to-date on the latest contracts.
When push comes to shove, the only leg you have to stand on in a dispute is what you put your name to. If you signed a contract, you are bound by it. A young couple told me recently about a vehicle they purchased a few years ago. They were excited that the last payment was due in a few months; they had been dying to make this final payment. They bought the vehicle at a time when they had a poor credit rating, so the interest rate on the loan was 12%. While they had it firmly in their minds that they would soon have no more payments to make, it turned out there was a balloon payment due on this last month (a final lump-sum payment) of more than $11,000. The couple was devastated. They had to finance the last debt payment because they didn’t have the money.
Instead of first thoroughly reading the document when it was presented to them, they just signed it. Perhaps they were overly focused on the monthly payments, and perhaps the salesperson skimmed over the details. Either condition is irrelevant. Their signature bound them to the terms of that contract.
If you are worried about wasting someone’s time while you read a contract in front of them, don’t be. If there’s a lot to read, chances are it’s in your best interest to take the time to read it thoroughly. Ask to take the contract home to read on your own time (the delay might even cause you to second-guess your purchase). If you don’t understand what it says, you can ask the salesperson, but it would be preferable to ask a friend, and if it’s warranted, a lawyer.
Here’s a real-world example of what reading the fine print can reveal: when I first started in the financial services, a friend of my branch manager died over the holiday season. The friend had both a private life insurance policy and a mortgage life insurance policy. A mortgage life insurance policy is one that might be offered to you by your bank (or other lender) when you are applying for a mortgage. You simply tick a box, the premium gets added to your mortgage payment, and if you die, you might reasonably expect to have the mortgage paid off. I’ll dig into this type of insurance in more detail in Chapter 8, but for now, I’ll just cut to the chase. The mortgage life insurance was underwritten at time of claim (death), but the private life insurance was underwritten at time of application.
My boss’s friend died in a snowmobiling accident and there was a trace amount of alcohol in his system. The company that provided the private life insurance delivered a cheque in two weeks. The mortgage life insurance claim was denied because one of the exclusions listed in the policy was that coverage would be denied if the insured died in a motorized accident with alcohol present in the bloodstream.
How many people would buy life insurance from an insurance provider that didn’t even determine if you qualified for their coverage until after you died?
DON’T SIGN CONTRACTS AT THE DOOR
Someone once told me that years and years ago it was perfectly acceptable to do business at your front door. That must’ve been a really long time ago. When I hear a knock on the door these days, I fantasize about answering it wearing Braveheart face paint while wielding a pitchfork or trident.
Times have certainly changed. Perhaps owing to the previous success of door-to-door sales, it continues in earnest today. And with many door-knockers working on straight commission, you just know some will employ unscrupulous sales tactics from time to time. And because some people who do not have your best interests at heart are sometimes the smoothest operators around, they’ve effectively ruined it for the few legitimate guys.
This leads me to one of my cardinal rules and I want to be very clear here: never sign a contract with someone you’ve never met who shows up unannounced at your door.
I had a guy show up at our house recently. He insinuated that he was associated with my water company, and offered a free inspection of our water heater. We let him in. Of course, he found lots of potential problems with our existing tank. He made it sound as if it was on the verge of exploding. We wouldn’t want the shrapnel piercing the walls and hitting the neighbour’s small child, would we? We’re rather fond of the neighbours, so we were concerned.
Well, the universe works in funny ways, because he just happened to have a program available that would make it possible to replace our tank with a brand new one, with no cost for the installation and no large, upfront, out-of-pocket costs to us. We just had to pay a monthly rental fee and if anything ever happened to the heater, the company would replace or fix it at no additional cost. It sounded like a fair proposition, assuming that the rental cost, which would include an insurance premium and perhaps a small margin for profit, was not much more expensive than going out and simply replacing the tank with a new unit paid for outright.
It turns out that assumption could not be further from the truth. When the “inspector,” who was now revealed to be a salesperson, asked if we were interested, I said no. He asked why, and I replied, “I can do math.”
The contract would have locked us in for 15 years, at a total cost to us of $5,545.58. To purchase and install a new tank would cost about $900. In theory, we could buy and install a new water tank every 3 years and still come out ahead. This was a total and utter rip-off. And lots of people have similar stories.
If you’re still in doubt, ask any salesperson who comes to your door to leave some literature behind so you can do some digging on your own time. If it’s truly a great deal today, it’ll be great tomorrow too. If they have the audacity to tell you they have no leave-behind brochures, but they do have legally crafted, 15-page contracts handy, I’d be inclined to chase them down the street with a trident.
If you want to hear me chastise a couple of door-to-door salespeople, download Episode 11 of “Mostly Money, Mostly Canadian” (my podcast on iTunes). Whenever someone comes to my door to sell something, I record the conversation, and if they are bad, I post it. If it saves someone from being duped, then it will have been worth the trouble. These guys were either incompetent, inexperienced, or just shady. Some people said I was too hard on them, but most find the podcast hilarious and informative at the same time. I’ll let you be the judge.
The essential message of this chapter is that you need to take the time to read every single word on any document you are thinking of signing. If it would take too long to read before signing, don’t sign it on the spot. Take a copy and find the time to read it and understand it. If you can’t figure it out, ask a friend, or preferably a lawyer, to help you understand it. No more head-in-the-sand bullshit.
If you’ve been a follower of my blog, you’ll know that I once wrote a post proclaiming Ellen Roseman, personal finance columnist with The Toronto Star, to be a saint. She recently penned the book Fight Back: 81 Ways to Help You Save Money and Protect Yourself from Corporate Trickery. It is filled with useful information that can help you negotiate lower prices, avoid common pitfalls and traps, and keep more money in your wallet.