Unfair contract terms
Fairness of Consumer Contract Terms - a visible factor in firms treating their customers fairly
This summary will be of particular relevance to all smaller firms
Firms have a legal responsibility to ensure that the contracts they enter into with consumers contain fair and balanced terms. This obligation comes from the Unfair Terms in Consumer Contracts Regulations 1999 ('the Regulations') and forms part of your wider responsibility to treat your customers fairly.
With the December 2008 Treating Customers Fairly deadline rapidly approaching, we remind you that having unfair terms in your consumer contracts may provide evidence that you are not treating your customers fairly.
We have recently carried out a project to see how firms have responded to their obligation to ensure that their consumer contract terms are fair. Here's a summary of what we found:
- Across all sizes of firms, most firms that we surveyed said that they had some systems and controls in place to review the fairness of their consumer contracts, however these are not producing the rights outcomes - over half of the sample contracts reviewed contained at least one variation term which was, in our view, drafted unfairly.
- A few smaller firms believed that the Regulations did not apply to them because they are not product providers.
- Smaller firms are generally less likely to review FSA publications, speeches and wider thematic project findings in reviewing how fair their contract terms are.
Key questions for smaller firms
Do the Regulations apply to smaller firms?
Yes.
Several of the smaller firms that took part in our project appeared to be unaware that the Regulations applied to them. Some smaller firms believed that the Regulations did not apply to them because they are intermediaries. Standard contracts between firms and consumers, such as terms of business that set out how intermediary services will be provided, fall within the scope of the Regulations.
For further information about the Regulations please see Unfair contract terms - FAQs.
Please see the link below for an example of how we have applied the Regulations to a smaller firm which provided a intermediary service.
What steps can smaller firms take to ensure their standard contracts with consumers are fair?
We believe that smaller firms should be proactive in reviewing their contract terms for fairness. Being fair is all about being clear and getting the right balance between your rights and the rights of your customer. We suggest that you review your contracts from time to time to ensure that the terms they contain are balanced and written in a fair way.
Things that might help you to do this are:
- having established procedures in place to review the fairness of the terms in your standard consumer contracts;
- considering the material we publish on unfair terms. This material includes the undertakings which we have received from other firms to stop using terms which we believe are unfair; and
- reviewing other FSA material such as publications, thematic project findings and speeches to help you understand issues concerning fair and balanced contract terms.
Further information
- For further guidance on the Regulations please see our regulatory guide.
- For further details of your legal requirements under the Regulations please see the Unfair contract terms webpages.
