By agreement with the CMA, 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. We are responsible for considering the fairness of terms in many types of financial services contracts, including: consumer credit, mortgages; general insurance; bank, building society and credit union savings accounts; life assurance; pensions; investments; and long-term savings.
If we believe the CMA is better placed to deal with the matter, we pass it on for the CMA to decide whether action is required.
All of this is set out in a Memorandum of Understanding, which details the working relationship and division of responsibility between the CMA and the FCA.
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.
Our Statement of Good Practice on the Fairness of Terms in Consumer Contracts helps firms interpret and apply the Regulations, particularly in relation to variation terms. We have also 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.
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’.
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.
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.
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