Unfair contract terms

Our powers

We have powers to challenge unfair terms in financial services consumer contracts. We have these powers as a regulator under the Consumer Rights Act 2015 (CRA), and as a qualifying body under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs).

Using these powers we may seek an undertaking from a firm that it will amend or remove an unfair contract term from its future consumer contracts. We can also apply to a court for an injunction to prevent a firm from using or enforcing the term against its existing customers.

We coordinate our work with the Competition and Markets Authority (CMA), which has a leadership role in enforcing both the CRA and the UTCCRs.

The CRA and the UTCCRs 

The UTCCRs protect consumers against unfair terms in standard contracts between firms and consumers. They implemented the Unfair Terms in Consumer Contracts Directive (93/13/EEC). The UTCCRs and their previous version (the Unfair Terms in Consumer Contracts Regulations 1994) apply to contracts entered into from 1 July 1995 to 30 September 2015 inclusive. 

On 1 October 2015, the UTCCRs were revoked and replaced by the CRA. The CRA applies to consumer contracts entered into from 1 October 2015 onwards.   

The unfair terms provisions of the CRA protect consumers against unfair terms in contracts and notices, including terms that have been individually negotiated between a consumer and a firm.

Additional powers to take action

In parallel with our powers under the CRA and UTCCRs, we have powers to take action under the Financial Services and Markets Act 2000 (FSMA). If we can achieve the same level of consumer protection in relation to a term we have concerns about, we may act under FSMA instead of under the CRA or UTCCRs.

Firms also have an obligation to act fairly, through our Principles for Businesses, specifically:

• Principle 6 requires a firm to ‘pay due regard to the interests of its customers and treat them fairly’.
• Principle 7 requires a firm to ‘pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading’.

These Principles apply both to the way contract terms are drafted and also to how contract terms are used by firms in practice.

Unfair Contract Terms and Consumer Notices Regulatory Guide

The Unfair Contract Terms and Consumer Notices Regulatory Guide (UNFCOG[1]) is the part of our Handbook which contains information on how we exercise our powers under the CRA in relation to unfair terms and consumer notices. (Firms should refer to the previous version of this Guide[2] for an explanation of the FCA’s policy regarding the UTCCRs which will continue to apply to contracts entered into before 1 October 2015).

What firms should focus on

There are five key messages we encourage firms to focus on:

• Firms should take into account consumers' legitimate interests in relation to contracts
• Fairness is not contrary to the prudent management of the business, but part of it
• Focusing on narrow technical arguments to justify a contract term that, in fact, may be unfair, risks future challenge
• Schedule 2 to the CRA and the UTCCRs each contain an indicative and non-exhaustive list of types of terms that may be regarded as unfair. The fact that a term does not resemble any of the indicatively unfair terms listed in Schedule 2 may not in itself, remove the risk of unfairness. Firms need to assess whether a term is fair under the CRA/UTCCRs as a whole and in the context of the particular product or service
• Firms should take into account developments in legislation and relevant case law concerning the fairness and transparency of terms in consumer contracts.

Our unfair contract terms library[3] page gives details of our publications on unfair contract terms.

In addition, we encourage firms to read the CMA’s published guidance[4] on the unfair terms provisions of the CRA.