Financial services and the Consumer Rights Act 2015

The main provisions of the Consumer Rights Act 2015 (CRA) are now in force. The CRA aims to consolidate, modernise and simplify consumer protection law in the UK. In particular, the CRA introduces reforms to the law on unfair terms in consumer contracts. It also reforms the rights and remedies relating to services provided to consumers.

Although the often stricter Financial Conduct Authority rules will continue to apply, the changes introduced by the CRA will affect financial services. In particular, firms will need to ensure that their terms and conditions, and their communications with customers, comply with the CRA.

The CRA applies to contracts and communications between a “trader” (which includes businesses providing services) and a “consumer”. Among the main changes of relevance to financial services are:

Consumer contracts for services

• Service contracts must be performed with reasonable skill and care.
• If not otherwise agreed, the price the consumer pays for services must be reasonable and the services must be performed within a reasonable time.
• Anything said or written to a consumer, and which is taken into account by the consumer when deciding to enter into the contract or when making a decision about the service after conclusion of the contract, is treated as a term of the contract. However, a trader will be able to qualify such statements, preventing the consumer from claiming that the statement was taken into account.
• In addition to existing remedies (such as an action for damages), the consumer is entitled to require repeat performance of a service where it does not conform to a contract, either because it is not performed with reasonable skill and care or because it is does conform to the information about it which was given to the consumer. Where repeat performance is not possible, or the service is not performed within a reasonable time, the consumer is entitled to a reduction in price.

Unfair terms

• The general rules about fairness of contractual terms remain unchanged. A term is unfair if, contrary to the requirements of good faith, it causes a significant imbalance in the parties’ rights and obligations to the detriment of the consumer.
• Terms may not be assessed for fairness to the extent that they specify the main subject matter of the contract or to the extent that the assessment is of the appropriateness of the price. But contract terms on subject matter and price are only exempt from the fairness test if they are transparent and prominent. Transparent means in plain and intelligible language and, if written, legible. Prominent means brought to the consumer’s attention in such a way that the average consumer would be aware of the term.
• All written terms of a contract must be transparent.
• The ‘Grey List’ of terms which may be unfair now includes:

(i) terms which provide for disproportionately high charges where the consumer decides not to conclude or perform the contract, or for services which have not been supplied;

(ii) terms which allow the trader to determine the characteristics of the subject matter after the consumer is bound; and

(iii) terms which allow the trader to determine the price after the consumer is bound.

• Contracts which are secondary to a main contract (e.g. agreements made after, before or in addition to the main contract) are covered by the rules.
• The ‘fairness’ test has been extended to consumer notices (e.g. promotions and renewal notices) which either relate to the rights and obligations between a trader and a consumer, or which purport to exclude or restrict a trader’s liability to a consumer. Consumer notices must be transparent. Terms in consumer notices which are unfair are not binding on the consumer.
• In proceedings before it which relate to a consumer contract, a court is under a duty to consider the fairness of the contract even if the issue of fairness is not raised by either party.

Impact on financial services

The simplification and clarification of UK consumer law by the CRA should be welcomed by consumers and businesses alike. It is hoped that disputes will become rarer, or at least easier to resolve.

However, the CRA is likely to have important consequences for financial services firms. In particular, firms will need to be vigilant that they are not unintentionally bound by written and oral statements made by or on their behalf to consumers. Both their employees and agents will need to be alerted to the risks and trained accordingly. Websites, advertising and marketing materials will need to be carefully worded.

Firms’ processes and procedures, for example telephone scripts and complaint handling, will need to be reviewed.

If they have not done so already, it will be important that firms review and, if appropriate, amend their current terms and conditions to ensure that they comply with the new law. Consideration must be given to the transparency and prominence of contract terms. The terms of consumer notices will require similar scrutiny.