Frequently asked questions

The Unfair Terms in Consumer Contracts Regulations 1999 ('the Regulations') is a piece of consumer protection legislation, designed to ensure that terms in standard-form consumer contracts are fair and not 'significantly imbalanced' in favour of the firm, to the 'detriment of the consumer'. Our powers as a "qualifying body" under the Regulations allow us to:

• challenge firms that use unfair terms and/or terms that are not drafted in plain and intelligble language in their standard-form consumer contracts;
• once we have investigated a complaint and if we think a term is unfair, we can:
  
  • obtain documents and information from the firm;
  • ask the firm to give us an undertaking to stop using the unfair term and to change it; or
  • obtain an injunction to prevent continued use of the unfair term.

Either through complaints from consumers or other parties, or by conducting reviews of contracts in particular areas. For example, we have recently looked at mortgage exit administration fees (MEAFs), payment protection insurance (PPI) and mortgage early repayment charges (ERCs).

No. We can only consider complaints about standard-form consumer contracts.

Standard-form consumer contracts are those that have not been individually negotiated with the consumer. Adverts for financial services, a financial service product or Keyfacts Illustrations (KFIs) are not standard-form contracts, so other teams at the FSA look at them.

No. We will consider the fairness of terms in contracts issued by authorised firms or appointed representatives for carrying on any regulated activity. This includes contracts for:

• mortgages and selling mortgages;
• insurance and selling insurance;
• bank, building society and credit union savings accounts;
• pensions;
• investments; or
• long-term savings.

We do not cover contracts regulated under the Consumer Credit Act, such as credit cards and personal loans. These are dealt with by the Office of Fair Trading.

If we think a term is unfair, we will contact the firm to express our concerns and invite the firm to comment. If we still think the term is unfair, we will ask the firm for an undertaking to say it will stop using that term. If the firm refuses, we can ask the court for an injunction to stop the firm using the term, although in practice we have not yet had to do this.

An undertaking is a written agreement from a firm on how it has dealt or will deal with an unfair term we have identified. For example, the firm may give an undertaking that it will not rely on the unfair term.

The firm is formally no longer able to rely on the unfair term. Generally, it should also tell its customers the effect the undertaking will have on their contracts. Other firms should take note of undertakings and change any similar terms accordingly.

There are many benefits for consumers where a firm provides an undertaking. They will no longer be subject to the unfair term, which could protect them from significant financial detriment.

We usually require firms to do this, such as, where the unfair term causes, or potentially causes, a high level of detriment.

The Regulations set out a test for deciding whether a term is unfair. This test is fairly detailed, but an unfair term is essentially one that gives the firm a significant advantage over the consumer. For example, a term that allows the seller to change the terms of the contract without good reason and without consulting the consumer might be unfair. However, the courts have the final decision as to whether any term is unfair.

The test in the Regulations themselves is the key test, but we may also, where relevant, take into account other rules, guidance and any other relevant material to help our analysis. It is also important to note we take a risk-based and proportionate approach to regulation. When deciding whether to pursue an unfair term, we also consider factors such as the number of consumers that may be affected and the actual or potential harm that may occur. For example, it would not be proportionate for us to spend resources on a case where the number of consumers likely to be affected is low.

This is a term that sets out the main subject matter or price of a transaction. We do not review a core term for fairness, but we do review it for plain language.

No, only the unfair term is unenforceable. If it is possible, the rest of the terms in the contract remain intact. This can have a significant impact. For example, if a firm varies its MEAF as a result of an unfair variation term in the contract, the revised MEAF will not be payable and the consumer's only liability would be the original MEAF. Our MEAF work led to an estimated £2billion saving for consumers.

All terms in the contract (even core terms) must satisfy the plain language requirement. If they do not, they will breach the Regulations and the interpretation which is most favourable to the consumer prevails.