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UNFCOG 1.1 Application and purpose

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1This Guide explains the FCA's policy on how it will use its powers under the CRA in relation to unfair terms and consumer notices.3

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3The Unfair Terms Regulations will continue to apply to contracts entered into before 1 October 2015. Firms (see 1.1.5G) should refer to the previous version of this Guide for an explanation of the FCA’s policy regarding the Unfair Terms Regulations.

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3The unfair terms provisions in Part 2 of the CRA apply to consumer contracts entered into on or after 1 October 2015 and consumer notices issued on or after 1 October 2015.

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3In this Guide, ‘consumer notice’ has the same meaning as in section 61 of the CRA.

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We have agreed with the Competition and Markets Authority ("CMA")2 that the FCA will consider the fairness (within the meaning of the CRA3) of those3 financial services contracts and consumer notices specified in the Memorandum of Understanding between the CMA and the FCA on the use of concurrent powers under consumer protection legislation (http://www.fca.org.uk/fca-cma-consumer-protection-mou)3.

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Where 2 the firm concerned is not a firm or an appointed representative, the FCA will liaise with the CMA or (as appropriate) another CRA regulator3 (see EG 10.193).

2 2
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This Guide applies to:

  1. (1)

    firms;

  2. (2)

    appointed representatives;3

  3. (3)

    other persons, whether or not a person with permission, who use, or recommend the use of, contracts to carry on regulated activities;3

  4. (4)

    electronic money issuers; and3

  5. (5)

    payment service providers.3

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This Guide uses "firm" to refer to all such persons.

UNFCOG 1.2 Introduction

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This Guide explains the FCA's formal powers under the CRA in relation to unfair terms and consumer notices.2 It does not contain comprehensive guidance on the CRA itself,2 and you should refer to the CRA2 for further details.

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This Guide also provides guidance on the approach we take before considering whether to exercise our formal powers under the CRA in relation to unfair terms and notices.2

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The FCA has powers as a regulator and an unfair contract terms enforcer2 under the2CRA. Under the CRA2 our functions are treated as functions under the Act. This:

  1. (1)

    makes the statutory objectives relevant to forming policy that governs the discharge of our functions under the CRA2;

  2. (2)

    means that any complaints about the FCA's activities under the CRA2 can be referred to the Complaints Commissioner;

  3. (3)

    allows the FCA to make full use of its information disclosure powers;

  4. (4)

    allows the FCA to use its power to give guidance;

  5. (5)

    protects the FCA against liability in damages in respect of its activities under the CRA2; and

  6. (6)

    allows the FCA to raise fees to fund its activities under the CRA2.

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  1. (1)

    As such, we may2 publish on our website details of cases that result in a change in the 2terms and notices2 used by the firm. This may happen through either an undertaking by a firm or injunction obtained from the courts.

  2. (2)

    Under paragraphs 4(1) and 6(3) of Schedule 3 to2 the CRA, 2the FCA has a duty to pass details of these cases to the CMA1.

  3. (3)

    The CMA 1 also publishes details of cases that it, and other regulators2, have dealt with in accordance with the CMA's1 duties under paragraph 7 of Schedule 3 to the CRA2.

UNFCOG 1.3 The CRA2

Terms and notices to which the CRA applies2

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  1. (1)

    Part 2 of the CRA applies2, with certain exceptions, to a contract2 between a trader2 and a consumer. Part 2 of the CRA also applies to consumer notices2.

  2. (2)

    Terms or notices2 cannot be reviewed for fairness within the meaning of the CRA2 if they2 reflect:

    1. (a)

      mandatory statutory or regulatory provisions; or

    2. (b)

      the provisions or principles of an2 international convention2 to which the United Kingdom2 or the EU is a2 party.

      1
  3. (3)

    Terms which are transparent and prominent (as defined in section 64 of the CRA)2 cannot be reviewed for fairness within the meaning of the CRA to the extent that2:

    • they specify2the main subject matter of the contract; or
    • the assessment is of the appropriateness2 of the price payable under the contract by comparison with2 the goods, digital content2 or services supplied under it2.

    However, we can fully2 review terms concerning these matters for fairness within the meaning of the CRA2 if they are not transparent and prominent2.

  4. (4)

    But, the subject matter and price exemption in (3) only applies to terms. It does not apply to a term of a contract listed in Part 1 of Schedule 2 to the CRA.2

  5. (5)

    It is a requirement under section 68 of the CRA that a written term of a consumer contract, or a consumer notice in writing, is transparent.2

When a term or notice is 'unfair' within the meaning of the CRA2

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Terms or notices2 are unfair if, contrary to the requirement of good faith, they cause a significant imbalance in the parties' rights and obligations to the detriment of the consumer.

The main powers of the courts, regulators and unfair contract terms enforcers under the CRA2

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  1. (1)

    As an unfair contract terms enforcer under Schedule 5, we have powers in relation to the production of information. Under paragraph 14 of Schedule 5, an enforcer or an officer of an enforcer may give notice to a person requiring the person to provide the enforcer with the information specified in the notice.2

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  1. (1)

    Unless the case is urgent, we will generally first write to a firm to express our concern about the potential unfairness of a term or terms (within the meaning of the CRA2) and will invite the firm to comment on those concerns. If we still believe that the term is unfair, we will normally ask the firm to stop using or proposing or recommending the use of that term in a consumer contract2. If the firm continues to rely on that term or2 declines to give an undertaking, or gives an undertaking but fails to follow it, the FCA will consider the need to apply to the courts for an injunction under paragraph 3 of Schedule 32.

  2. (2)

    In deciding whether to ask a firm to undertake to stop using or proposing or recommending the use of a term in a consumer contract2, we will consider the full circumstances of each case. Several factors may be relevant for this purpose and the following list is not exhaustive, but will give some indication of the sorts of things we consider:

    1. (a)

      whether we are satisfied that the contract term may properly be regarded as unfair within the meaning of the CRA2;

    2. (b)

      the extent and nature of the detriment to consumers resulting from the term or the potential harm which could result from the term;

    3. (c)

      whether the firm has fully cooperated with the FCA in resolving our concerns about the fairness of the particular contract term.

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  1. (1)

    2In relation to a consumer notice, where we are concerned about the potential unfairness of the notice, we will generally contact a firm to ask the firm to amend or withdraw the notice.

  2. (2)

    The FCA can also ask a firm to undertake to amend or withdraw a consumer notice. Under paragraph 6 of Schedule 3, a regulator may accept an undertaking from a person against whom it has applied, or thinks it is entitled to apply for an injunction or interdict. The undertaking may provide that the person will comply with the conditions that are agreed between the person and the regulator about the use of terms or notices, or terms or notices of a kind, specified in the undertaking.

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  1. (1)

    Under paragraph 3 of Schedule 3, a regulator may apply for an injunction or (in Scotland) an interdict against a person if the regulator thinks that:2

    1. (a)

      the person is using, or proposing or recommending the use of, a term or notice to which Schedule 3 applies; and2

    2. (b)

      the term or notice:2

      1. (i)

        purports to exclude or restrict liability of the kind mentioned in paragraph 3(2) of Schedule 3; or2

      2. (ii)

        is unfair to any extent; or2

      3. (iii)

        breaches the transparency requirement.2

  2. (2)

    A regulator may apply for an injunction or interdict in relation to a term, whether or not it has received a relevant complaint about the term.2

  3. (3)

    The FCA is a regulator2 for the purposes of Schedule 32. Our approach to seeking an injunction under the CRA2 is set out in EG 10.

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Under sections 62 and 67 of the CRA,2 an unfair term is not binding on the consumer but the contract will continue to bind the parties if it is capable of continuing in existence without the unfair term. If2 the court finds that the term in question is unfair, the firm would have to stop relying on the unfair term in existing and future2 contracts governed by the CRA.2

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2Under section 62 of the CRA, an unfair consumer notice is not binding on the consumer.

UNFCOG 1.4 The CRA: the FCA's role and policy3

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The FCA may consider the fairness of a term or notice3 within the meaning of the CRA3 following a complaint from a consumer or other person or on its own initiative if the term or notice3 is within its scope.

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There are three main ways in which we might receive a complaint from a consumer or other person. These are:

  1. (1)

    directly; or

  2. (2)

    from another regulator3 which considers that the FCA should deal with the complaint; or

  3. (3)

    from the CMA2.

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  1. (1)

    The main way in which we would act on our own initiative is to undertake a review of contracts or consumer notices3 in a particular area of business. This might involve looking at the terms or notices3 used by several firms in a particular sector.

  2. (2)

    We will, for example, consider launching such a review if multiple consumer complaints or other intelligence lead us to believe that under the CRA3 there may be an issue relating to contracts or notices 3of wider significance to firms and consumers.

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If, following either a complaint or an own-initiative review, we consider that a term or notice3 is unfair, we may challenge firms about their use of that term or notice3.

Interaction with the FCA's powers under the Act

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  1. (1)

    The FCA will consider using its powers under the CRA3 in the context of its wider regulatory powers under the Act.

  2. (2)

    In some cases, it might be appropriate for us to use other powers to deal with issues identified under the CRA3. The powers available to the FCA under the Act may vary depending on the regulated activities which the firm carries out. For example, the use of an3 unfair term might involve a breach of a Principle or a rule in BCOBS,3COBS, CONC,2MCOB or ICOBS and the use of an unfair notice might involve a breach of the financial promotions rules3. If so, the FCA might also address the issue as a rule breach.

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  3. (3)

    We may, in some circumstances, consider treating the matter under our powers in the Act itself and also under the CRA3.

  4. (4)

    However, the use of our powers under the Act will not be possible in all cases where a firm has used an unfair term. If we consider using an enforcement power under the Act, we will do so in accordance with the policy relating to that power as set out in EG.

UNFCOG 1.5 Risk Management

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  1. (1)

    Where a firm has given an undertaking or a court has ruled the firm's term unfair, then the FCA considers it desirable that the firm should promptly notify clients with whom it has already concluded contracts of the effect the undertaking or ruling will have on their contracts.

  2. (2)

    The firm should also, as part of its risk management, consider the effect on its own business, including whether there are relevant risks which need mitigation. For example, firms should consider the effect of section 62 of the CRA2 which provides that an unfair term or consumer notice2is not binding on the consumer.2

  3. (3)

    Section 67 of the CRA provides that where a term of a consumer contract is not binding on the consumer, the contract continues, so far as practicable, to have effect in every other respect. Mitigation may involve the firm contacting existing customers to ask that they agree to an amended contract, although any such amendment will itself need to avoid unfairness within the meaning of the CRA and to comply with the law of contract generally.2

    1
  4. (4)

    As part of their risk management, firms that have not given an undertaking or been subject to a court decision should remain alert to undertakings or court decisions about other firms, since these will be of potential value in indicating the likely attitude of the courts, the FCA, the CMA or other qualifying bodies to similar terms or notices or those intended to have similar effects.2

UNFCOG 1.6 Redress

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  1. (1)

    Under the CRA, the FCA (as a regulator and an unfair contract terms enforcer)1 does not have the power1 to grant redress to consumers who have suffered loss because of an unfair term or notice1. Consumers may choose to complain to the firm and to seek redress from it. If the firm does not satisfy the consumer's complaint, the consumer may choose to refer the complaint to the Financial Ombudsman Service, if appropriate.

  2. (2)

    If the use of an unfair term also amounts to a rule breach, and that breach causes loss to consumers, the FCA can apply to court for restitution or require restitution. The FCA will consider whether to use these powers in accordance with the policy in EG 11.

  3. (3)

    The FCA can use its powers under section 404 of the Act to make rules requiring authorised persons, electronic money issuers and payment service providers to establish and operate consumer redress schemes. The FCA can also impose a requirement on an authorised person, electronic money issuer and payment service provider under section 404F(7) of the Act to establish and operate a scheme that corresponds to, or is similar to, a consumer redress scheme under section 404 of the Act.1