Unfair terms and consumers: Are you ready for the proposed unfair terms reform?
This briefing is relevant to you if you are involved in the provision of financial services to consumers, including high wealth individuals.
On Thursday 23 January 2014 the UK Consumer Rights Bill was finally introduced to the House of Commons and, as a result, has started its Parliamentary process. The intention of the Bill is to reform and consolidate the vast majority of UK consumer law, including provisions relating to the supply of goods, the supply of services, unfair contract terms, defective digital content and enforcement powers.
The Bill was previously published in June 2013 for pre-legislative scrutiny, with the BIS Select Committee publishing a report setting out its recommendations. Subsequent to this, the Government has now published the revised version of the draft Bill, which will now be subject to Parliamentary scrutiny, with the expectation that it is unlikely to become law until late 2015/early 2016.
Unlike the recent EU Consumer Rights Directive, which does not apply to the financial services sector, it is certain that the UK Consumer Rights Bill will apply to this sector.
Summary of the key unfair terms provisions contained in the Consumer Rights Bill
The Consumer Rights Bill attempts to streamline key consumer rights, covering contracts for goods, services, digital content and the law relating to unfair contract terms in consumer contracts.
Subject to any changes made as part of the Parliamentary process, set out below are some of the key provisions which will be introduced on the enactment of the Consumer Rights Bill:
- the unfair term provisions will apply to all contracts entered into between traders and consumers. This will therefore include terms which have been negotiated;
- the main subject matter and/or price terms will only be exempt from an assessment of fairness where such terms are “transparent and prominent”;
- for a term to be “prominent”, it must be presented in such a way that the “average consumer” (an EU concept) would be aware of the term; and
- a term is transparent if it is expressed in plain and intelligible language and (in the case of a written term) is legible.
Any terms not covered by the main subject matter and/or price term exemptions mentioned above would need to be assessed using the already established fairness test (i.e. a term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer).
A number of additional illustrative terms which may be regarded as unfair have also been included in the Bill, which were not previously included in The Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCR’s”). Where terms included in this list are contained in a consumer contract, such terms will not be able to benefit from the exemption from assessment of fairness provisions. By way of example, an additional term which will be subject to an assessment of fairness is a term which allows a financial services provider to impose a disproportionately high compensation sum where the customer/borrower decides not to conclude or perform the contract.
Impact on the Financial Services Sector
The proposals outlined above will apply to all types of consumer contracts, including those relating to the supply of banking and other financial services to individual consumers.
The particularly relevant changes to the financial services sector are those that require price terms to be “prominent” and also require all the terms to be “transparent”.
These will apply in addition to the raft of regulations that are specific to financial services (such as those imposed by the FCA). Businesses operating in the financial services sector will need to take an opportunity nearer the time to review their template consumer contracts, and related sales materials, whether the same are traditional printed terms and conditions or those incorporated on websites in light of the above proposals to ensure that they do not fall foul of the new legislation when it comes into force. Particular care may be required by financial services businesses using mobile devices apps, where space is severely limited, to prominently display legal terms.