Protect Golf Day 21 June 2016 Richard Bostock FLA Tiger Bostock Introduction Firms will now need to review the use of the core terms exemption in its amended form initial prices are now assessable if they are not ID: 586841
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Slide1
Impact of recent Unfair Contract Term Court cases and the Consumer Rights Act 2015?
Protect Golf Day, 21 June 2016
Richard Bostock, FLASlide2Slide3
Tiger
BostockSlide4Slide5Slide6Slide7
Introduction
Firms will now need to review the use of the
core terms exemption
in its amended form – initial prices are now assessable if they are not
transparent and prominent
(Consumer Rights Act 2015)
Review how you use ‘
valid reasons
’ in contracts in light of greater focus on the matter, as a result of the 2015 Act and certain European Court Judgements…and UK one too
Some firms might consider this a good time to review overall arrangements for provision of information to customers (including contract terms). Also bare in mind FCA work in this area, including having Unfair Terms as one of its forward-looking risk areas (in its latest Business Plan), Smarter Disclosure etc..Slide8
Introduction
Worth noting that UK Courts are obliged to take into account criteria identified by the Court of Justice of the European Union (CJEU) when assessing the fairness of contract terms in consumer contracts
As far as the 2015 Act implements the Directive
on
Unfair Terms, UK Courts will interpret the Act
in the
light
of
the CJEU Judgements
FCA recently commented that CJEU cases will be specific to each firm and its contracts, but…The CJEU judgements make it clear that it’s best not to use the catch-all formulae “or any other valid reason”.Slide9
Conclusion
Members might want to look at their contract terms to see if they comply with the general fairness test in relation to significant imbalance and good faith or provision of information in
general, with
a view to being satisfied
that
as an overall
package consumers
review clear, intelligible and (where appropriate) prominent
information.
Check substantive terms for fairness and imbalances e.g. what would an ‘average’ customer reasonably expect? And do the terms help to meet them?Slide10
Conclusion
Use plain, intelligible language
– e.g. do not use technical language or references to law or regulation, unless you have to. And where you do, consider including brief, plain language explanations in glossary in user-friendly accompanying literature e.g. a summary that is cross-referenced to, if practicable.
Pay special attention to the higher-risk terms
, e.g. typically, contract clauses relating to – unilateral interest rate variations; fees, costs and expenses; discretion to make changes to other contract features potentially to a consumer’s detriment – as far as practicable, assess contingencies in advance in order to be transparent by including them in the
contract
A
nything
that potentially reduces a consumer’s legal
rights could be problematic.Slide11
Conclusion
Examine such terms in relation both to
substantive fairness
and also
transparency, prominence and reasonable explanation
– as far as practicable, try to eradicate unfair surprises for the consumer
Consider carefully any specified valid reasons
Remember that
initial prices
are now within scope of assessment, unless they are set out in plain, intelligible language and transparent and prominent etc.Consider reasonable ways to mitigate potential customer detriment where practicable e.g. by building in notice, free exitWherever possible ensure fairness in relation to terms varying interest rates – not primarily because of the 2015 Act, but due to certain ECJ JudgementsSlide12
Conclusion
Examine terms to ensure consistency with other customer materials e.g. marketing, product literature, FKI’s etc. And transparency is more likely to be achieved if information is conveyed early on, in brochures and even advertisements
CMA’s
guidance
contains a discussion of transparency and prominence in the context of the ‘core terms’ exemption. It suggests, consider all the information given prior to conclusion as well as relevant aspects of sales process, way terms and conditions laid out, including structure and length and amount of time given to consider contract etc.. i.e. importance of clear and transparent sales, advice and information processes
Also worth noting that the fundamental fairness test is that set out in Section 62(6) of the 2015
ActSlide13
Conclusion
Finally, worth noting that
Section 50
of the Consumer Rights Act (2015) is new i.e. anything written or said to a consumer would now be bound in the contract and the consumer could rely on. Would include advertising etc.Slide14
Lessons for Insurers
There’s read across. What FCA says to one of its constituents is usually across the piece (e.g. SMR)
FCA have made it very clear Contract Terms is high up on their agenda (within latest Business Plan)
Why? It’s all about fair outcomes for consumers and a balance of power reference consumers vs Financial Services
The acid test is do you think a term is fair? Slide15
Lessons for Insurers
What firms should focus
on according to the FCA. These
are the key messages
FCA
encourage firms to focus on:
Take into account consumers' legitimate interests in relation to contracts over which
they have
had no influence but to which they will nonetheless be
bound.Fairness is not contrary to the prudent management of the business but part of
it.
Relying
on narrow technical arguments to justify a contract term that, in fact, may be unfair, risks future
challenge.
The
fact that a term does not resemble any of the terms listed in Schedule 2 of the CRA/UTCCRs may not, in itself, remove the risk of unfairness. Firms need to assess whether a term is fair under the CRA/UTCCRs as a whole and in the context of the particular product or
service.
Take
into account developments in legislation and relevant case law concerning Council Directive 93/13/ECC on unfair terms in consumer contracts (including relevant UK and European case law
).
The
CMA published guidance
on
the unfair terms provisions of the CRA on 31 July 2015.
They encourage
firms to read this guidance.Slide16
Lessons for Insurers
Previous slides shows what FCA are looking for at a high level
But they’ve removed their guidance because they say it no longer represents their views in light of the CRA and recent ECJ judgements
But unhelpfully not been too specific what their views are! (previous slide is indicative)
Appear to be relying on the Competition and Market Authorities (CMA) Guidance in this area.Slide17
Lessons for Insurers
Rather unhelpfully they have also stated firms should seek their own legal advice!
Key though is transparency and contract terms being in plain and intelligible English (case law talks about a typical consumer being able to understand not only the contractual language but also its effect)
Under the CRA certain terms in consumer contracts are assessed for unfairness, by ascertaining whether the terms leads to an imbalance between a trader and a consumer. So be aware!Slide18
Further Sources of Information
CMA Guidance
FCA
(Unfair contract
t
erms
l
ibrary)
Further FCA information
(Unfair contract terms)