FCA publishes consumer protection undertaking from e-money firm

On 4 October 2023, the FCA published a Notice of Undertaking (the “Undertaking”) given under the Consumer Rights Act 2015 (the “Act”). The Undertaking relates to the providing firm’s e-money terms and conditions (the “Contract”), but the terms to which it relates are of broader application. This article sets out summary details of the Undertaking and some thoughts as to what it means for regulated firms in respect of their consumer-facing terms and conditions.

Background

A principal objective of the Act is to regulate unfair terms in consumer contracts. Under the Act, a provision within a consumer contract is ‘unfair’ if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer. An unfair term in a consumer contract is unenforceable against the consumer.

The Undertaking

The Contract contained three terms that the FCA considered to be unfair under the Act.

1. Excluding liability as a result of account suspension. This provision excluded the firm’s liability for any losses suffered by consumers, should the firm suspend their account in accordance with the provision, irrespective of the circumstances. The FCA considered this to be unfair under the Act as it permitted the firm to deny consumers compensation to which they may otherwise be entitled due to such a suspension, even if the firm had caused the relevant loss. Therefore, the FCA considered that the term as drafted caused a significant imbalance to the detriment of consumers, contrary to the requirement of good faith.
2. Limitation of compensation available to consumers. The Contract purported to limit the sum of compensation a consumer was entitled to receive in the event of a loss to the sum the consumer had paid to the firm in the year prior to making the claim. The FCA considered that this term derogated from the position under national law, as it limited a consumer’s right to obtain the proper amount of compensation in the event of a contractual breach by the firm. The FCA considered that the firm could not reasonably assume a consumer would have agreed to such a term in individual negotiations, because a consumer would most likely expect that if the firm had done something wrong and caused them loss, they would be entitled to commensurate compensation regardless of what they had paid to the firm. The FCA was also concerned that the term favoured the firm’s commercial interests, in that it would lead to the firm being in a virtually neutral financial position if they had to compensate a consumer, whereas a consumer may still be left at a loss.
3. Exclusion of commitments that may be implied by law. The Contract included a term that enabled the firm to exclude any commitments that may be implied by law, to the extent that it was permitted to do so. The FCA was concerned that this provision lacked adequate transparency, as consumers were unlikely to be aware of the extent to which the firm would be able to exclude their liability under obligations implied by law.

Comment

The Undertaking is the latest in a long list of examples of the FCA’s willingness to act to protect consumers against what it considers to be unfair terms in consumer contracts.

The FCA has once again stated that its test as to whether a term in a consumer contract is unfair is whether the firm could have reasonably assumed that the consumer would have agreed, in individual negotiations, to the relevant terms. This language stems directly from the judgment given by the European Court of Justice in the case of Aziz v Caixa d’Estalvis de Catalunya (C-415/11), in which the court adopted a broad interpretation to the meaning of good faith. While the UK is no longer subject to the jurisdiction of the EU courts, this does not as yet appear to have led to a change in the FCA’s approach to determining whether a term in a consumer contract is unfair. Firms should take this test into account in the preparation of all consumer-facing terms and conditions in respect of their regulated business.

It is interesting that the Undertaking does not mention the FCA’s Consumer Duty regime. In one sense this is unsurprising: the Consumer Duty and the Consumer Rights Act 2015 are two entirely separate regimes, and the FCA’s power to require undertakings from firms in respect of consumer contracts derives from the latter. However, there is clear cross-over between the aims of the two regimes, and it is reasonable to assume that the FCA may regard the inclusion by regulated firms of unfair terms in consumer contracts as indicative of a failure to comply with their obligations under the Consumer Duty. Firms would therefore be prudent to regard compliance with the unfair consumer contract requirements of the Act as part of their overall compliance with their obligations under the Consumer Duty.

Co-authored by Abbie Douglas