Consumer Rights Act 2015 – changes to unfair contract terms
The Consumer Rights Act 2015 (the Act) is due to come into effect in October 2015. Part of the Act focuses on unfair terms in consumer contracts or consumer notices and aims to protect consumers from unfair terms.
The purpose is not to wrap the consumer in cotton wool but merely to provide a level playing field for both traders and consumers. The existing legislation (the Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999) are enhanced by the new Act which applies to contract terms between a trader and consumer and to consumer notices issued by a trader for the attention of consumers.
The Core Exemption (only applies to contract terms not notices)
Provided that the definition of the main subject matter of the contract and the price are “transparent” (expressed in plain and intelligible language) and “prominent” (brought to the consumer’s attention) they cannot be assessed for fairness as they describe the essential features of the bargain and allow traders and consumers to enter into contracts which reflect their mutual agreement.
If a price was subject to the fairness assessment this would prevent anything being bought or sold for more than it was worth. This would disadvantage the trader from selling a highly sought item for more than market value and also prevent a willing buyer from paying over the odds for a desired item.
Terms or notices which reflect the law
Terms or notices which are included because they are legally required to be are exempt as long as their inclusion is for that purpose and is explained to the consumer.
All other contract terms and notices have to be both fair and transparent – the tests for both are considered below:
For a term or notice to be considered “fair” it should satisfy the following:
- Respect the consumer’s legitimate interests
- Not be ‘significantly imbalanced’ in favour of the trader or to the detriment of the consumer
- Not place the consumer in a worse position that it would be under the law
- ‘Good faith’ – the term’s substance should be in good faith as well as the way it is expressed
This should be clear to the consumer. The term should not contain hidden pitfalls and the trader should be mindful of the fact that consumers tend to have a weaker bargaining power and they should not exploit this.
It is important to note that for a term to be deemed “unfair” it does not have to have caused harm.
For example… terms which may be considered unfair.
- Exclude or limit liability
- Provide for non-returnable consumer prepayments
- Unfair cancellation clauses
- Binding consumers to hidden terms
- Hindering or preventing consumers from taking legal action
- Requiring the consumer to bear inappropriate risks
The transparency test does exactly what it says on the tin! Gone are the days of writing onerous terms in illegibly small print to try hide them from the consumer!
Consumer contracts should be; jargon free; unambiguous; reader friendly in their layout; legible; comprehensible; informative; and if necessary accompanied by pre contract information. Specific terms in contracts should follow the same rules and the contract should be set out in a way so that consumers can make an informed decision as to whether to sign up or not.
The “Grey List”
This is a list which provides terms which may be considered ‘unfair’ in some circumstances. The Act provides a full list of potentially problematic terms and these include terms which:
- Deny consumers full redress if things go wrong
- Tie the consumer in unfairly
- Allow the business to not perform its obligations
- Provide for consumers to lose prepayments if the contract is cancelled
- Subject the consumer to unfair penalties
- This list is not exhaustive but provides a useful tool in determining when terms may be deemed unfair when considered in the bigger picture of the whole contract.
The “Black List”
This is a list which provides terms which will be considered unfair in all circumstances. The Act provides a full list of blacklisted terms and these include terms which:
Exclude or restrict liability for death or personal injury resulting from negligence of the trader’
Relieve traders from their ordinary obligations under the Act such as;
- Products not having to be of satisfactory quality
- Services not having to be provided with reasonable skill and care
The blacklist is contains terms which will automatically unenforceable.
What Could Happen?
The potential consequences of having unfair or blacklisted terms in a contract or consumer notice:
- enforcement action may be taken by the Competitions and Markets Authority, Trading Standards services or other relevant bodies if the unfair terms or notices fail fairness or transparency tests, or if blacklisted terms are used
- terms will not be legally binding on consumers
To find out more about what the changes to the Act means for businesses, please read our article here.