Panel wants changes to proposed new rules governing consumer contracts

The Financial Services Consumer Panel (FSCP) said that an exemption from a test of contractual 'fairness' contained in the Consumer Rights Bill was currently too broadly drafted and called for its scope to be limited.

"The exemption should apply only to a transparent price, agreed by the consumer at the point of entering the contract, and not to variable future fees or charges which are unknown at the time the contract is signed," the FSCP said in a statement.

The Panel said that it would be too easy for businesses to make their contractual terms exempt from the test of fairness under the current proposals. This "may render consumer protection from unfair terms in contracts meaningless", it said, since the contracts could be relied on by businesses.

"The Panel believes the exemption should be limited to the price of the contract, but only where the consumer has expressly agreed to pay a crystallised sum of money when entering into the contract," it said. "Terms in relation to future fees, hidden charges and costs, which have not yet become due to be paid - and as such cannot be fairly quantified and agreed to by a consumer at the point of entering into the contract - should be capable of being assessed for fairness in terms of [the provisions relating to unfair terms under the] Consumer Rights Bill."

The Panel has called for the Consumer Rights Bill to be amended to account for its concerns as it passes through Parliament. The Bill was debated and received a second reading in the House of Commons earlier this week. It passed through for scrutiny by Public Bill Committee without amendment. The Committee is scheduled to publish its report on the proposals by 13 March.

The Bill was introduced to Parliament earlier this month. It proposes new rules specifically to govern the supply of digital content to consumers, as well as traditional goods and services.

Under the draft new framework, businesses entering into most contracts with consumers will be obliged to ensure that the contract terms and notice is fair. Unfair terms or customer notice will not be binding on consumers.

A contract term is deemed, under the Bill, to be 'unfair' where it "causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer" and runs contrary to the requirement that the business acts in "good faith".

The Bill sets out a test for determining whether contract terms are fair or not. Under the proposals, fairness should be determined by "taking into account the nature of the subject matter of the contract, and by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on which it depends".

The fairness of contractual notice given to consumers is determined by a similar test. Fairness is determined in these cases by "taking into account the nature of the subject matter of the notice, and by reference to all the circumstances existing when the rights or obligations to which it relates arose and to the terms of any contract on which it depends".

However, businesses can ensure that their contractual terms are exempt from the test on fairness in some circumstances. Under the Bill the exemption applies where a contractual term "specifies the main subject matter of the contract, or the assessment is of the appropriateness of the price payable under the contract by comparison with the goods, digital content or services supplied under it". The term must be both "transparent and prominent" in order for the exemption to apply.

The Bill states that a contract term should be considered 'transparent' where "it is expressed in plain and intelligible language and (in the case of a written term) is legible". A term is 'prominent' "if it is brought to the consumer’s attention in such a way that an average consumer would be aware of the term".

An 'average consumer' is considered to be one who is "reasonably well-informed, observant and circumspect", according to the Bill.

However, the FSCP said that the definition of 'average consumer' should be worded differently.

"The phrase ‘taking into account social, cultural and linguistic factors’ should be added to the definition [of average consumer] in the Bill, to account for groups of consumers with different characteristics," the FSCP's statement said. It said this would align the new law with how the term had been defined by the Court of Justice of the EU.