This post was originally published on fca.org.uk
How many of us read the terms and conditions of a contract before buying a financial product?
Contracts hold the detail that shapes everyone’s financial life, whether you’re taking out a loan, insuring your holiday, or signing up for a crypto wallet.
All firms are responsible for making sure that terms in their consumer contracts comply with the fairness and transparency requirements of the Consumer Rights Act (CRA) 2015. When those terms don’t comply, our Consumer Contracts team has powers to challenge firms directly.
This work shows how we use the full range of powers Parliament has given us, not only those in financial services legislation, to tackle harm.
Here’s why it matters: if a term is found to be unfair, it’s not just unenforceable – consumers may be due redress too. That’s why it pays for firms to get this right from the start.
We review contract terms identified through our supervision of firms, information on social media, and referrals from consumers and other external stakeholders.
When we take action
We consider our rules and guidance, including the Consumer Duty, when deciding whether to act and which of our regulatory tools to use.
Where we raise concerns about the fairness or transparency of terms, we expect firms to:
- Amend or delete the relevant terms so that the contract is fair and transparent, and stop relying on those terms in existing contracts.
- Pay redress to consumers if the firm’s use of the terms has caused harm; and
- In some cases, give us a voluntary undertaking under the CRA.
Where necessary, we can apply for a court injunction to prevent a firm from using or enforcing the term against its customers. We can also seek a court order requiring it to pay redress.
Examples of cases we’ve tackled
- A crypto firm agreed to stop charging excessive storage fees which, in some cases, could exceed £40,000 a year. We intervened after finding it had charged inactive customers a disproportionate amount. The firm removed the term and paid redress to affected consumers.
- A financial adviser updated its contracts after trying to charge a customer £800 for time spent handling a complaint. The charge was included in its terms and conditions, but we considered the term unfair because it could put people off making legitimate complaints. We also considered it inconsistent with the Consumer Duty and our own rules.
- A travel insurer clarified unclear terms about what counted as a 12-hour delay and paid out £18,000 in redress to customers whose claims had been wrongly denied. Here, ambiguous wording was the problem, so we pushed for clearer terms that told consumers exactly what they were entitled to.
- A lender improved the terms of a new credit product to give clearer information on costs and cancellation rights after we raised concerns ahead of launch. This is a good example of intervening early, through the authorisations process, to prevent unfair terms making it to market in the first place.
What we expect of firms
Firms should regularly check that their consumer contracts are fair, clear and transparent, and that they’re being used fairly in practice.
In practice, that means:
- Taking into account consumers’ legitimate interests when designing contracts.
- Using plain language, so customers understand what they’re agreeing to: for example, what they might have to pay and what rights they have. Nobody should need a law degree to understand what they’re signing up to.
- Avoiding surprises, by making important terms – fees, cancellation rights, variations, exclusions, complaints – easy to spot.
- Reviewing contracts regularly to stay compliant with the latest requirements, rulings and judgments, and to learn from complaints, claims, cancellations, fees, customer outcomes and other data.
- Testing whether customers actually understand key terms – not just assuming they do.
- Improving staff training to ensure staff meet the standards set out in product literature, including contracts. Using complaints data to identify potentially unfair or unclear contract terms and make appropriate changes.
How to report concerns about unfair or unclear terms to us
Concerned about an unfair or unclear term in a financial services firm’s consumer contract? You can report it to us using our form. We can’t always tell you what action we’ve taken, but, we can assure you, every report we receive gets considered.
