The Commerce Commission is taking legal action against companies which operate power and broadband services under the Slingshot and Orcon brands alleging they failed to adequately disclose early termination fees of between $130 and $250.
But the company behind the brands, Vocus Group, says it believes the court action is unwarranted and it intends to defend the case.
The commission is seeking refunds for up to 5222 affected customers of $1,017,617 in a civil proceeding being taken at the High Court in Auckland.
The action is being taken against Callplus Services, Orcon and Switch Utilities - all subsidiaries of the Australian Vocus Group.
The commission alleges they breached section 36L of the Fair Trading Act 1986 for customers entering into uninvited direct sale agreements between June 17, 2014 and June 20, 2020.
The law requires written disclosure of the total price payable and any other considerations to be given, on an uninvited direct sale.
The commission has also issued a warning to Callplus Services for likely breaching the law when it wrote to 20,533 customers in January 2019 advising it was increasing the monthly broadband price by $1.
The terms and conditions of those customers' contracts stated that charges would not go up unless the increase was "as a result of a change in the price from a supplier for an input required for your Slingshot Broadband Service".
While direct input costs required for broadband services had increased by between 27 and 33 cents per month that was less than a third of the price increase charged to customers.
The commission said the majority of the price increase covered indirect anticipated costs averaged out across all customers – including things such as fault call out fees and installation charges.
Anna Rawlings, Commerce Commission chair said: "Businesses must ensure that any representations they make to consumers, particularly those about pricing, are not at risk of misleading their customers about the rights and obligations contained in contract terms and conditions."
The commission said Callplus had responded to its concerns by updating the terms and conditions of its contracts to clarify the circumstances in which it may increase prices for in-contract customers, and the rights that a contract variation would trigger for those customers.
It had also taken steps to refund in-contract customers who terminated their agreements and were charged early termination fees following the January 2019 price increase.
Taryn Hamilton, chief executive consumer and business for Vocus Group said it had been working with the commission on this matter and believed the court action was unwarranted.
"The company intends to defend the case."