Unfair Contract Terms

The FSA previously published an undertaking relating to a term in a firm's contract requiring consumers to declare that they had read and understood the terms of the contract. They have now published a statement providing further information about their views and the approach that firms should take when drafting or relying on consumer declarations. There are four key messages to focus on.  Firms should 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.  Dwelling on narrow technical arguments to justify a contract term that, in fact, may be unfair, risks future challenge.  The fact that a clause does not offend any of the terms listed in Schedule 2 of the Regulations may not, in itself, remove the risk of unfairness. Firms need to assess whether a term is fair under the Regulations as a whole and in the context of the particular product or service. The test of fairness includes the need for firms to take into account consumers' legitimate interests in the context of the inequality of bargaining power between a firm and its consumers. This is important, for example, to a firm in deciding on the extent of any discretion that it will reserve to itself at the time of drafting a standard form contract. If a firm retains extensive and/or open-ended discretion as to if, when and how it changes a contract variable, this may indicate a failure to take into account consumers’ legitimate interests and so make the term(s) unfair. You can find out more detail using the following link: http://www.fsa.gov.uk/Pages/Doing/Regulated/uct/index.shtml

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