The not-so-fine print: making consumer contracts fair

What the FCA has set out

All firms are responsible for making sure that terms in their consumer contracts comply with the fairness and transparency requirements of the Consumer Rights Act (CRA) 2015, and the FCA’s Consumer Contracts team has powers to challenge firms directly when terms don’t comply. The FCA says this work shows how it uses the full range of powers Parliament has given it. If a term is found to be unfair, it is not enforceable and consumers may be due redress. The FCA says it reviews contract terms identified through its supervision of firms, information on social media, and referrals from consumers and other external stakeholders.

When deciding whether to act it considers its rules and guidance, including the Consumer Duty. Where it raises concerns about the fairness or transparency of terms it expects firms to amend or delete the relevant terms, stop relying on those terms in existing contracts, pay redress to consumers and in some cases give us a voluntary undertaking under the CRA. Where necessary, we can apply for a court injunction to prevent a firm from using or enforcing the term against its customers. We can also seek a court order requiring it to pay redress.

Examples of issues the FCA has challenged

The FCA gives several examples of terms it has intervened on. A crypto firm agreed to stop charging excessive storage fees which, in some cases, could exceed £40,000 a year; the firm removed the term and paid redress to affected consumers after the FCA intervened. A financial adviser updated its contracts after trying to charge a customer £800 for time spent handling a complaint; the FCA considered the term unfair and inconsistent with the Consumer Duty and its own rules. A travel insurer clarified unclear terms about what counted as a 12-hour delay and paid out £18,000 in redress to customers whose claims had been wrongly denied. A lender improved the terms of a new credit product to give clearer information on costs and cancellation rights after the FCA raised concerns ahead of launch, an example of intervening early through the authorisations process to prevent unfair terms reaching the market.

What firms should do and how to report concerns

The FCA sets out expectations for firms: regularly check that consumer contracts are fair, clear and transparent and that they are being used fairly in practice; take into account consumers’ legitimate interests when designing contracts; use plain language so customers understand what they are agreeing to; avoid surprises by making important terms – fees, cancellation rights, variations, exclusions, complaints – easy to spot; and review contracts regularly to stay compliant with the latest requirements, rulings and judgments and to learn from complaints, claims, cancellations, fees, customer outcomes and other data.

The FCA also says firms should test whether customers actually understand key terms, improve staff training to ensure staff meet the standards set out in product literature, and use complaints data to identify potentially unfair or unclear contract terms and make appropriate changes. Concerned consumers can report an unfair or unclear term using the FCA’s form; the FCA says every report it receives gets considered, though it cannot always tell reporters what action has been taken.