Unfair Contract Terms in Financial Services Consumer Contracts

A new private members bill and a new EU directive relating to unfair contract terms in consumer contracts are both currently being debated with a view to clarifying the law relating to unfair contract terms in financial services consumer contracts.

New Private Members Bill

The Financial Services (Unfair Terms in Consumer Contracts) Bill (the "Bill"), was published on 20 October 2010. In essence, it deals with the issue of the fairness of ancillary pricing terms in contracts for the supply of personal financial services.

The Bill seeks to amend the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) ("Regulations") and to ensure that ancillary pricing terms in consumer contracts can be assessed for fairness and for connected purposes. The Bill also provides that in any proceedings under the Regulations, there should be a presumption that ancillary charges do not form part of the core terms of the contract (ie. those terms that define the goods and services and the price paid), unless proved otherwise.

New Consumer Rights Directive

In October 2008, the European Commission put forward a proposal for a new Consumer Rights Directive relating to all consumer contracts for the supply of goods and services, to facilitate a better functioning of the business to consumer market in the EU. It reviews a number of directives, including the Unfair Contract Terms Directive (93/13/EC). If implemented, this directive will impact on the requirements of the Regulations and, more specifically, the classification of what terms can be assessed for fairness in financial services consumer contracts. As existing EU legislation on financial services is reasonably comprehensive, the proposed directive will only cover contracts relating to financial services to the extent necessary to fill any regulatory gaps, such as the rules on unfair contract terms.

Neither the Office of Fair Trading ("OFT") or the UK government believe that the current wording of the proposed Consumer Rights Directive makes it sufficiently clear that the assessment of unfairness is intended to cover contingent and/or ancillary charges outside the core terms of the contract. The key issue of concern for the OFT is transparency and whether charges included in consumer contracts are likely to be noticed and understood by consumers when they enter into a contract. It is therefore anticipated that the UK government will propose that the directive is amended to include clear principles...