Unfair terms not only breach the Unfair Terms in Consumer
Contracts Regulations, but also firms' wider obligations to treat
customers fairly. Too many firms are passively relying on someone
else telling them when to amend their contracts, rather than
proactively reviewing all their standard terms on a regular basis,
according to the FSA.
The Regulations provide that a firm must not include terms in
standard contracts that disadvantage consumers by creating a
"significant imbalance" in bargaining power between the parties.
Such terms will not be binding on the consumer.
Terms that have been deemed unfair by the FSA include provisions
that prevent any refund if the customer cancels a single premium
payment protection insurance policy and excessive administration
fees imposed for the early redemption of a mortgage.
Breaches are usually resolved by the firm undertaking to remove
or amend the offending term. Undertakings are regularly published
on the FSA and Office of Fair Trading websites.
The FSA has spent the last few months measuring firms' knowledge
of and compliance with the regulations. Its findings were published
on 5th June, together with the results of an anonymous survey of
120 firms by independent research company GfK MOP.
Most of the firms questioned knew about the regulations, but
awareness levels were lower amongst smaller firms. Some
intermediaries, in particular, mistakenly believed the regulations
did not apply to them, even though they had standard terms of
business agreements with their consumer clients.
Smaller firms also tended to be over-reliant on the services of
external compliance consultants without properly checking the work
they were carrying out.
Over half of a sample of 60 standard contracts contained at
least one "variation term" which the FSA considered unfair under
the regulations.
Variation terms allow firms to make a change to the contract
without the consumer's agreement. Not all variation terms are
unfair, however, provided the firm abides by the FSA's published
statements of good practice.
For firms wishing to keep their contracts in order, the paper
recommends regular (not just annual) reviews of all standard
consumer contracts. Additional reviews should take place if the
firm receives a complaint, cancellation or anything else that
suggests a term might be unfair.
To keep themselves up to date, firms should carefully monitor
information on unfair terms published by the FSA and the OFT
(including undertakings given by other firms) and any industry
guidance issued by trade bodies.
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