Changes to the rules on unfair consumer termsPrint publication
The Consumer Rights Act 2015 (the Act) consolidates and expands the law on unfair terms in consumer contracts. Traders that supply goods, services or digital content to consumers should review their terms and conditions to ensure they are still fit for purpose when the Act’s provisions come into effect, expected to be 1 October 2015.
The general position under the Act on determining whether a term is unfair is similar to the current position under the Unfair Terms in Consumer Contracts Regulations 1999. A term will be unfair if “contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer”.
In determining whether a term is fair, account will be taken of the nature of the subject matter of the contract and also of all the circumstances existing when the term was agreed and of all of the other terms of the contract or any other contract on which it depends.
In addition, under the Act, a trader will remain unable to limit its liability for death or personal injury resulting from negligence and to restrict or exclude the protection given to consumers by the statutory implied terms related to the characteristics of the goods.
Which terms are covered?
Under the Act all terms – whether standard or negotiated – can be assessed for fairness (subject to the exemption for “core terms”). For the first time therefore individually negotiated terms will be capable of being assessed for fairness.
“Core” terms will be exempt from a fairness assessment. As currently, these are terms concerning the main subject matter of the contract and the price.
However, core terms can only benefit from the exemption where they are both transparent and prominent. Guidance published by the Competition and Markets Authority on 31 July 2015 states that prominence means the term must be “brought to the consumer’s attention in such a way that the average consumer would be aware of it”. The guidance makes the point that potentially surprising terms, particularly onerous terms or terms which are particularly difficult to understand, e.g. relating to complex pricing mechanisms, require enhanced prominence and that the average consumer cannot generally be expected to read the small print thoroughly.
In practice, suppliers should ensure that terms relating to subject matter and price are set out prominently, for example, at the start of the agreement. Traders should also consider adopting different levels of prominence depending on the risk of detriment to consumers of individual terms. This may necessitate a re-think about the whole structure of the terms and conditions.
The guidance also states that:
- to benefit from the “main subject matter” exemption, the terms must describe the nature of the goods sold. Delivery arrangements, for example, would not be exempt
- price setting terms can be assessed for fairness save to the extent that they relate to the appropriateness of the price, so the timing, method or variation of the payment may be scrutinised for fairness.
The guidance also emphasises that terms that have the effect or object of greylisted terms (as explained below) cannot benefit from the ‘core exemption’, for example terms granting a trader the unilateral right to vary the price or the definition of the goods.
Non-contractual notices and communications
The fairness requirement is extended to all communications to the consumer, not just contractual terms. Specifically, it applies to all “announcements, whether or not in writing, and any other communication or purported communication” which seeks to limit the supplier’s liability to the consumer, or otherwise relates to the respective rights and duties between the supplier and the consumer. This marks a departure from the current regime, which does not apply to non-contractual communications. So, for example, a notice on the supplier’s premises or website purporting to exclude or limit liability to the consumer, can be subject to a fairness assessment.
The Act retains the “grey list” used in the current regime but makes some additions. Examples of greylisted terms (and therefore at risk of being void and unenforceable):
- a term the object or effect of which is that where the consumer decides not to proceed, the consumer must pay the trader a disproportionately high sum in compensation for services that have not been supplied.
– The guidance states that disproportionate termination fees will be open to challenge where they do not reflect any savings for a business that no longer has to provide the goods, services or digital content, any ability to mitigate its loss (e.g. by finding another customer), and any benefit of receiving early payment. Minimum “tie in” periods will be viewed with particular suspicion. This reflects the approach taken by the High Court in OFT v Ashbourne Management Services Ltd and Others 
- a term the object or effect of which is that the trader may determine the characteristics of the subject matter of the contract after the consumer has become contractually bound
– Immaterial changes may be fair but wider variations may not be and the guidance suggests that in order to achieve fairness it may be necessary to give the consumer the right to cancel the contract, as well as explaining clearly the variation
- price variation and determination clauses must enable the consumer to foresee clearly how the price will be varied and/or determined. Again, to achieve fairness it may be necessary to give the consumer the right to cancel
- sliding scale cancellation charges may be acceptable so long as they are proportionate and represent a genuine pre-estimate of loss. Such a sliding scale also needs to be given appropriate prominence
- excessive notice periods for consumer cancellation should be brought to the consumer’s attention before entry into the contract and the guidance states, inter alia, that the consumer must be sent a reminder at a reasonable time before the renewal takes effect which outlines the terms of the proposed renewal and the steps the consumer should take if he decides he does not want to renew the contract
- terms conferring on the trader the right to vary will generally be at risk. In fixed-term contracts, terms that allow a trader to change what it supplies or the price at which it does so are particularly likely to be blacklisted
- terms which purport to limit the trader’s obligations to honour pre-contractual commitments given by its agents (e.g. entire agreement clauses) are at risk
- a trader’s right to assign without consent may be unfair.
The commencement of the Act’s provisions is almost upon us. If they have not done so already traders should review their existing terms, and other notices, to ensure compliance with the new regime.