On 12 July 2017, the Financial Conduct Authority (“FCA”) published on its website notice of an undertaking given by London General Insurance Company Limited (“LGIC”) in respect of the terms and conditions of LGIC’s extended warranty policy (the “Policy”). The Policy is provided by Nationwide Building Society (“Nationwide”) to certain of its current account customers.
The undertaking was given under the Consumer Rights Act 2015 (the “CRA”), which entered into force on 1 October 2015. Section 68 of the CRA requires that businesses ensure that written terms in their agreements with consumers are “transparent”. For these purposes, a “consumer” is an individual acting for purposes that are wholly or mainly outside of their normal trade, business, craft or profession. A term is “transparent” if it is expressed in plain and intelligible language and is legible.
Term 3A of the Policy listed items eligible for cover under the Policy. This list referred to “items such as” dishwashers, DVD players, fridges, laptops, radios, and TVs, among others. The FCA considered that this wording was not transparent for the purposes of the CRA. It took the view that the use of the term “items such as” meant that the list contained examples of items that were covered, rather than being a comprehensive list. However, the FCA identified other information, including information on Nationwide’s website, indicating that the list in term 3A of the Policy was a comprehensive list of eligible items. In the FCA’s view, this could have caused confusion to customers about whether their item was covered by the Policy, and therefore whether they could make a claim. LGIC and Nationwide confirmed to the FCA that the items listed in term 3A had been treated as an exhaustive list when handling claims under the Policy.
LGIC agreed to amend the term to remove the words “such as”, to expand the list of items stated to be covered by the Policy and to make it clear that only the listed items are covered. LGIC has also reviewed past claims since November 2014 when term 3A was included in the Policy and has paid out in the region of £47,000 in redress to approximately 300 customers whose claims were incorrectly rejected due to their items not being included on the list.
The LGIC undertaking is the first undertaking to be published by the FCA since January 2014, and the first to be given since the CRA entered into force.
It is also the first publication by the FCA on unfair terms in consumer contracts since March 2015, when the FCA withdrew a number of undertakings and guidance materials on unfair contract terms from its website in response to the publication of guidance by the Competition and Markets Authority (“CMA”) on the unfair terms provisions of the CRA. The FCA has declined to issue further guidance on its approach in this area, stating simply that the withdrawn documents should no longer be relied upon and encouraging firms to read the CMA’s guidance.
The CRA provisions on transparency are similar to the equivalent provisions under the Unfair Terms in Consumer Contracts Regulations 1999, the predecessor to the CRA. It is worth noting in this regard that the FCA has previously required undertakings from a number of firms in respect of customer-facing terms that were not expressed in plain and intelligible language, for example the Devitt Insurance Services undertaking. It is perhaps therefore unsurprising that the FCA’s approach to the LGIC undertaking is broadly in line with its approach in similar previous undertakings.
What is clear from the LGIC undertaking is that the FCA will take action against authorised firms that it considers are not compliant with their obligations under the CRA, which it should be noted are broader than the requirement for transparency. It remains to be seen how the FCA will approach other types of breaches of the CRA by authorised firms. However, it would be prudent for firms to review their customer-facing terms for CRA-compliance.