1. Impact of recent Unfair Contract Term Court cases and the Consumer Rights Act 2015? Protect Golf Day, 21 June 2016 Richard Bostock, FLA

3. Tiger Bostock

7. Introduction Firms will now need to review the use of the core terms exemption in its amended form – initial prices are now assessable if they are not transparent and prominent (Consumer Rights Act 2015) Review how you use ‘valid reasons’ in contracts in light of greater focus on the matter, as a result of the 2015 Act and certain European Court Judgements…and UK one too Some firms might consider this a good time to review overall arrangements for provision of information to customers (including contract terms). Also bare in mind FCA work in this area, including having Unfair Terms as one of its forward-looking risk areas (in its latest Business Plan), Smarter Disclosure etc..

8. Introduction Worth noting that UK Courts are obliged to take into account criteria identified by the Court of Justice of the European Union (CJEU) when assessing the fairness of contract terms in consumer contracts As far as the 2015 Act implements the Directive on Unfair Terms, UK Courts will interpret the Act in the light of the CJEU Judgements FCA recently commented that CJEU cases will be specific to each firm and its contracts, but… The CJEU judgements make it clear that it’s best not to use the catch-all formulae “or any other valid reason”.

9. Conclusion Members might want to look at their contract terms to see if they comply with the general fairness test in relation to significant imbalance and good faith or provision of information in general, with a view to being satisfied that as an overall package consumers review clear, intelligible and (where appropriate) prominent information. Check substantive terms for fairness and imbalances e.g. what would an ‘average’ customer reasonably expect? And do the terms help to meet them?

10. Conclusion Use plain, intelligible language – e.g. do not use technical language or references to law or regulation, unless you have to. And where you do, consider including brief, plain language explanations in glossary in user-friendly accompanying literature e.g. a summary that is cross- referenced to, if practicable. Pay special attention to the higher-risk terms, e.g. typically, contract clauses relating to – unilateral interest rate variations; fees, costs and expenses; discretion to make changes to other contract features potentially to a consumer’s detriment – as far as practicable, assess contingencies in advance in order to be transparent by including them in the contract Anything that potentially reduces a consumer’s legal rights could be problematic.

11. Conclusion Examine such terms in relation both to substantive fairness and also transparency, prominence and reasonable explanation – as far as practicable, try to eradicate unfair surprises for the consumer Consider carefully any specified valid reasons Remember that initial prices are now within scope of assessment, unless they are set out in plain, intelligible language and transparent and prominent etc. Consider reasonable ways to mitigate potential customer detriment where practicable e.g. by building in notice, free exit Wherever possible ensure fairness in relation to terms varying interest rates – not primarily because of the 2015 Act, but due to certain ECJ Judgements

12. Conclusion Examine terms to ensure consistency with other customer materials e.g. marketing, product literature, FKI’s etc. And transparency is more likely to be achieved if information is conveyed early on, in brochures and even advertisements CMA’s guidance contains a discussion of transparency and prominence in the context of the ‘core terms’ exemption. It suggests, consider all the information given prior to conclusion as well as relevant aspects of sales process, way terms and conditions laid out, including structure and length and amount of time given to consider contract etc.. i.e. importance of clear and transparent sales, advice and information processes Also worth noting that the fundamental fairness test is that set out in Section 62(6) of the 2015 Act

13. Conclusion Finally, worth noting that Section 50 of the Consumer Rights Act (2015) is new i.e. anything written or said to a consumer would now be bound in the contract and the consumer could rely on. Would include advertising etc.

14. Lessons for Insurers There’s read across. What FCA says to one of its constituents is usually across the piece (e.g. SMR) FCA have made it very clear Contract Terms is high up on their agenda (within latest Business Plan) Why? It’s all about fair outcomes for consumers and a balance of power reference consumers vs Financial Services The acid test is do you think a term is fair?

15. Lessons for Insurers What firms should focus on according to the FCA. These are the key messages FCA encourage firms to focus on:  Take into account consumers' legitimate interests in relation to contracts over which they have had no influence but to which they will nonetheless be bound.  Fairness is not contrary to the prudent management of the business but part of it.  Relying on narrow technical arguments to justify a contract term that, in fact, may be unfair, risks future challenge.  The fact that a term does not resemble any of the terms listed in Schedule 2 of the CRA/UTCCRs may not, in itself, remove the risk of unfairness. Firms need to assess whether a term is fair under the CRA/UTCCRs as a whole and in the context of the particular product or service.  Take into account developments in legislation and relevant case law concerning Council Directive 93/13/ECC on unfair terms in consumer contracts (including relevant UK and European case law).  The CMA published guidance on the unfair terms provisions of the CRA on 31 July 2015. They encourage firms to read this guidance.

16. Lessons for Insurers Previous slides shows what FCA are looking for at a high level But they’ve removed their guidance because they say it no longer represents their views in light of the CRA and recent ECJ judgements But unhelpfully not been too specific what their views are! (previous slide is indicative) Appear to be relying on the Competition and Market Authorities (CMA) Guidance in this area.

17. Lessons for Insurers Rather unhelpfully they have also stated firms should seek their own legal advice! Key though is transparency and contract terms being in plain and intelligible English (case law talks about a typical consumer being able to understand not only the contractual language but also its effect) Under the CRA certain terms in consumer contracts are assessed for unfairness, by ascertaining whether the terms leads to an imbalance between a trader and a consumer. So be aware!

18. Further Sources of Information CMA Guidance FCA (Unfair contract terms library)FCA Further FCA information (Unfair contract terms)Further FCA information