On 31 March 2023, the FCA published a Notice of Undertaking (the “Undertaking”) given by Policy Excess Insure Ltd (trading as Nova Direct) (“Policy Excess Insure”) under the Consumer Rights Act 2015 (“the Act”).
Among other things, the Act sets out the UK rules on unfair terms in consumer contracts. A term of a consumer contract is “unfair” for the purposes of the Act where, contrary to the requirement of good faith, the term causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of the consumer. An unfair term of a consumer contract is not binding on the consumer.
The Act also imposes a requirement on firms to ensure that a written term of a consumer contract is “transparent”. A term is transparent if it is expressed in plain and intelligible language and is legible.
Policy Excess Insure provided the undertaking in respect of its insurance broker contracts for the sale of Motor Breakdown, Home Emergency, Home Appliance, Gadget, Bicycle and Travel Insurance policies (the “Contract”). The Contract contained three terms that the FCA considered to be unfair for the purposes of the Act.
- Continuous Payment Authority (CPA). The CPA allowed Policy Excess Insure to “charge any sums due to your card and to take payments as and when they fall due”. The FCA considered that this term was likely to be considered unfair under the Act as it had the potential to allow Policy Excess Insure to charge any fees, rather than only the insurance premiums due under the policy. The FCA considered that Policy Express Insure could not reasonably have assumed that a consumer would have agreed to this in individual negotiations.
- Cancellation rights. The Contract stated that the premium would not be refunded to consumers who cancelled an automatically renewing contract before it was due to start. The overall cost to the consumer for cancelling a policy therefore had the potential to be disproportionately high, as the Contract allowed Policy Excess Insure to both retain the initial premium and also apply the separate cancellation fee. Policy Excess Insure confirmed to the FCA that, in practice, a consumer who opted out of the auto-renewal would receive a refund of the premium. On that basis, the FCA considered that the relevant term was likely to be considered insufficiently transparent as it did not reflect Policy Excess Insure’s practices.
- Renewals. The Contract permitted Policy Express Insure to charge clients an administrative fee if the client elected not to renew the policy. The FCA were concerned that consumers would not expect to have to pay a fee to cancel the policy when it came to an end, nor would they expect to pay a fee to avoid being automatically enrolled in a new policy. In the absence of such a term, the position at law would be that the contract simply expired. The FCA considered that Policy Express Insure could not reasonably assume that a consumer would have agreed to the term in individual negotiations. The FCA also considered that the term was not sufficiently transparent, as the fees listed in the Contract were inconsistent with those on the firm’s website.
It is interesting to note that in regard to the renewals and CPA clause, the FCA find the terms create significant imbalance between the firm and the consumer. In determining this, they point to the fact that the firm could not have reasonably assumed that the consumer would have agreed, in individual negotiations, to the terms. This language mirrors that used in previous undertakings obtained, in relation to unfair contractual terms, by the FCA since the Act came into force. Firms should bear this in mind when considering the inclusion of similar terms.
The undertaking required by the FCA in this case is the latest illustration to FCA-regulated firms of the FCA’s willingness to take action where it identifies instances of consumer-facing terms that fall below the standards required by the Act.
The FCA’s latest action in this area should be seen in the light of the incoming Consumer Duty regime, which will take effect from 31 July 2023, alongside the FCA’s statements in its 2023/24 Business Plan regarding “putting consumers’ needs first”. Among other things, the FCA states that it is bolstering its resources to ensure the Consumer Duty is embedded effectively within firms; and is planning to allocate additional staff dedicated to working with firms as they continue to support consumers struggling with higher costs of living. The use of undertakings where the FCA considers consumer-facing terms to fall below the standards required under the Act may be one means by which the FCA may pursue its consumer protection goals in the coming year, and beyond.
Firms should seek to mitigate the risk of being required to provide such undertakings in practice, by reviewing their existing consumer-facing terms, and any consumer notices, for compliance with the requirements of the Act, and related guidance; and taking those requirements and guidance into account when preparing consumer-facing terms and materials.