The FCA has warned that it will punish regulated firms which impose unfair terms in client contracts after a number of cases where clients were disadvantaged.
In one case, a financial adviser firm had to update its contracts after the FCA intervened when the firm tried to charge a customer £800 for time spent handling a complaint.
The FCA said the charge was included in the firm's terms and conditions but the watchdog considered charging for complaint handling “unfair” because it could deter people from making legitimate complaints.
The FCA said: “We also considered it inconsistent with the Consumer Duty and our own rules.”
The FCA says that it will use consumer contract fairness powers, in addition to the Consumer Duty, and it may ask firms to pay redress where contracts and contract terms are deemed to be unfair. It urged firms to review contracts and terms to avoid falling foul of the rules.
The warning comes in a new blog from Sarah Montgomery, FCA head department, cross-cutting policy and strategy.
She said that all firms were responsible for making sure that terms in their consumer contracts comply with the fairness and transparency requirements of the Consumer Rights Act (CRA) 2015.
She said: “When those terms don’t comply, our Consumer Contracts team has powers to challenge firms directly.”
Ms Montgomery said that where terms do not comply it will, “use the full range of powers Parliament has given us, not only those in financial services legislation, to tackle harm.”
She also warned that: “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.”
The FCA is reviewing contract terms identified through its supervision of firms, information on social media and referrals from consumers and other external stakeholders.
She said if unfair terms are identified the FCA can amend or delete them to ensure that a contract is "fair and transparent", and stop firms 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 ask a firm to give a voluntary undertaking under the consumer rights legislation.
She added: “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.”
She cited examples of cases where the FCA had stepped:
- 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 the FCA considered the term unfair because it could put people off making legitimate complaints. The FCA also considered it "inconsistent" with the Consumer Duty and its own rules.
- A crypto firm agreed to stop charging excessive storage fees which, in some cases, could exceed £40,000 a year. The firm removed the term and paid redress to affected consumers.
- 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.
She said firms should regularly check that their consumer contracts were, “fair, clear and transparent” and being used fairly in practice.
Firms should take into account consumers’ legitimate interests when designing contracts, use plain language and avoid “surprises”, by making important terms – fees, cancellation rights, variations, exclusions, complaints – easy to spot.
Firms should also review 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. They should also test whether customers actually understand key terms – not just assume they do.
She said there was also an obligation on firms to improve staff training to ensure staff meet the standards set out in product literature, including contracts and use complaints data to identify potentially unfair or unclear contract terms and make appropriate changes.
• Firms can report concerns about unfair or unclear terms to using this form.
Financial Planning Today Analysis: The comments from the FCA are a clear indication to regulated firms that consumer protection goes further than the Consumer Duty requirements. The FCA is increasingly stepping in to ensure consumers are not harmed by poor or unfair terms and conditions and this process will continue.