The Financial Conduct Authority has published draft guidance which says firms must be transparent when making changes to their consumer contracts.
The new guidance takes into account the latest case law and legislation and replaces guidance which was recently withdrawn.
In the document, the FCA outlines a number of areas it believes firms should consider when drafting and reviewing variation terms, which allow firms to make changes to a contract.
These include the validity of the reasons for varying a term, the transparency of the variation term and the provision for notice in the variation term.
Firms should also consider the provision for freedom to exit the contract should a consumer not wish to accept the variation.
In its guidance the FCA said: "A large proportion of the contract terms referred to us give firms the right to vary contracts without obtaining consent from consumers.
"We acknowledge the benefit of fair unilateral variation terms to firms and consumers. Because these terms provide scope for changes in the lifetime of long or open-ended contracts, they give consumers greater choice and flexibility.
"However, appropriate drafting is required as variation terms, if they are unfair, risk causing consumer harm through unfair use."
The draft guidance outlines factors for firms to consider when seeking to draft variation terms, and also considers a number of reasons the FCA has observed firms commonly include when drafting variation terms allowing them to alter their consumer contracts.
The FCA said it did not propose conducting a proactive systemic review assessing the fairness of variation terms in contracts entered into prior to any eventual final guidance being issued.
The watchdog said: "Our day-to-day unfair terms case work has considered variation terms from a variety of products and does not suggest that variation terms have generally been used in a manner likely to cause widespread harm to consumers."
damian.fantato@ft.com
