There are a number of other qualifying bodies with powers to challenge unfair terms under the Regulations, including the water industry's regulator (OFWAT), the Office of Communications (OFCOM) and the Office of the Gas and Electricity Markets (OFGEM).
The Financial Services Authority (FSA) became a qualifying body on 1 May 2001. It is envisaged that the FCA will become a qualifying body in due course.
By agreement with the OFT, the FCA is responsible for considering the fairness (within the meaning of the Regulations) of standard terms in financial services contracts issued by FCA authorised firms or appointed representatives of firms that undertake any regulated activity (as specified in Part II of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and subsequent amending legislation). This means that the FCA is responsible for considering the fairness of terms in many types of financial services contracts, including those relating to:
If the FCA considers the OFT is better placed to deal with the matter, it will pass the case to the OFT for it to decide whether action is required and, if so, what action is appropriate.
The OFT will consider the fairness (within the meaning of the Regulations) of standard terms in financial services contracts where activities are governed by the Consumer Credit Act 1974 and any subsequent amending legislation, including second-charge mortgage loans and non-mortgage personal loans. Further, the OFT may consider fairness under the Regulations in respect of financial services contracts involving activities within the FCA's remit where the firm is not an authorised firm or an appointed representative of such a firm.
All of this is set out in a Concordat, which details the working relationship and division of responsibility between the OFT and the FCA’s predecessor, the FSA.
We have set out our guidance on the use of our powers under the Regulations in the Unfair Contract Terms Regulatory Guide (UNFCOG) in the FCA Handbook.
In May 2005 we published a Statement of Good Practice on the Fairness of Terms in Consumer Contracts to help firms interpret and apply the Regulations, particularly in relation to variation terms. In January 2012, we published Final Guidance on improving standards in consumer contracts.
In parallel with our powers under the Regulations, we have our powers under the Financial Services and Markets Act 2000 (FSMA). If we can achieve the same level of consumer protection we may act under FSMA instead of under the Regulations.
Firms also have an obligation to act fairly under FSMA, through our Principles for Businesses (the Principles).
Principle 6 requires a firm to “pay due regard to the interests of its customers and treat them fairly” and Principle 7 requires a firm to “pay due regard to the information needs of its customers and communicate information to them in a way which is clear, fair and not misleading”. Taken together, Principles 6 and 7 reflect the previous Securities and Investment Board Principle that a firm “should observe high standards of integrity and fair dealing”.
There is an overlap between the Regulations and the Principles. The Regulations apply to the way contract terms are drafted. The Principles, however, apply to the way contract terms are used in practice and not just the way they are drafted. So a firm must not rely on a term unfairly in practice even if it has been drafted fairly. The Principles also apply to a “core term”, which is not subject to review for fairness under the Regulations. However, we still assess “core terms” to ensure they are meeting the requirement of being expressed in plain, intelligible language (Regulation 7).
If we think a term is fair and expressed in plain intelligible language, we will not challenge it under the Regulations. However, firms should remember their wider obligation to treat their customers fairly. We expect firms not to rely on narrow and technical interpretations of the Regulations to justify a contract term that may be unfair in the wider context, and thus open to challenge.
1 See UNFCOG 1.4.5 G, in the FCA Handbook
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