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Home > Opinion > Philip Ryley

FSA focus falls on poor practice with contract terms

Periodically the subject of unfair contract terms appears to come up as an area for concern for the FSA.

By Philip Ryley | Published Apr 26, 2012 | Regulation | comments

Last month the subject of unfair contract terms was raised again in a speech by Clive Gordon of the FSA, who outlined the regulator’s view of what consumer contract terms were considered to be unfair, what it considered to be good practice and what it considered to be poor practice.

The FSA published its finalised guidance, Unfair Contract Terms: Improving Standards in Consumer Contracts, in January of this year and much of Mr Gordon’s speech endorsed the content of the guidance.

Despite the importance of consumer contracts, the FSA remains disappointed in the lack of attention that many firms give to them. Examples of poor practice include not reacting to legal and/or regulatory developments at the FSA or the Office of Fair Trading, not reviewing contracts routinely, and lack of good staff training or not setting an example from the top down.

As part of the regulator’s recent Retail Conduct Risk Outlook, the FSA commissioned consumer-focused research and found that some customers had concerns about unilateral changes in their contract terms and the way that they were being treated by firms. The research findings revealed that consumers thought their contracts were too complicated and needed to be simpler, clearer and in plain English. They were unhappy about firms changing their terms and conditions before the end of the contract term and they wanted their contract terms to reflect the natural meaning of the words used.

Despite the importance of consumer contracts, the FSA remains disappointed in the lack of attention that many firms give to them

The key messages of the FSA are that it is each firm’s responsibility to ensure that its contracts are compliant and meet requirements for treating customers fairly so that they get a fair deal. Second, the FSA expects to see improvements in some firms’ contract terms. If those firms are not prepared to engage with the regulations, then the FSA is prepared to go to court to seek injunctions to prevent those firms from relying on any unfair terms.

The FSA is expecting more from firms as we move closer to the new regime of the Financial Conduct Authority.

Philip Ryley is head of financial services and markets at Michelmores LLP

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