28 January 2014
The Financial Services Consumer Panel has called for amendments to be made to the Consumer Rights Bill in the following three areas:
Exemption from the ‘fairness’ test - the exemption should apply only to a transparent price, agreed by the consumer at the point of entering the contract, and not to variable future fees or charges which are unknown at the time the contract is signed;
The definition of ‘average’ consumer - the phrase ‘taking into account social, cultural and linguistic factors’ should be added to the definition in the Bill, to account for groups of consumers with different characteristics. This would also bring the definition in line with European Courts of Justice jurisprudence; and
The right to cancel for mortgage prisoners - the right to cancel may not protect consumers who cannot secure an alternative mortgage product. This set of circumstances should be added to the indicative list of unfair contract terms.
The Bill, which is due to have its second reading today, aims to update consumer law and clarify and simplify rights on goods and services for consumers and businesses.
While the Panel welcomes the Bill and the numerous positive benefits it will undoubtedly bring, it believes these amendments will make the legislation even more effective.
Sue Lewis, Consumer Panel Chair, commented:
“The Panel fully supports the introduction of the Consumer Rights Bill but we think it needs improvements to work better for financial services consumers, who are at particular risk of detriment. We would like to see the issues we have identified addressed as the Bill passes through Parliament."
Given this is the most radical overhaul of consumer law for more than three decades, it is important we get it right.”
Notes to editors
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The Panel’s concerns in full are as follows.
The Fairness assessment exclusion
The Consumer Panel is concerned that Clause 67 may render consumer protection from unfair terms in contracts meaningless, as firms would only have to make terms 'prominent and transparent' to secure exemption from the 'fairness test'. The Panel believes the exemption should be limited to the price of the contract, but only where the consumer has expressly agreed to pay a crystallised sum of money when entering into the contract. Terms in relation to future fees, hidden charges and costs, which have not yet become due to be paid - and as such cannot be fairly quantified and agreed to by a consumer at the point of entering into the contract - should be capable of being assessed for fairness in terms of Part 2 of the Consumer Rights Bill.
Definition of 'average' consumer
Clause 67(5) of the Bill provides that the 'prominent and transparent' test is determined by reference to 'the average consumer'. This is defined as a consumer 'who is reasonably well informed, observant and circumspect'. The Panel would wish to the add the words ', taking into account social, cultural and Justice jurisprudence, and linguistic factors' to this definition to align it with European Court of to ensure that the test has sufficient flexibility to include different groups of consumers with differing characteristics. Otherwise, the bar could be set too high with a one-sized fits all test, leaving room for leaving argument in relation to EU law.
The right to cancel
The Panel supports the Business, Innovation and Skills Select Committee point that a right to cancel is often insufficient to protect consumers who are 'mortgage prisoners' and unable to secure an alternative mortgage product. We support the Committee's recommendation at paragraphs 186-194 to add this very real scenario for UK consumers to the indicative list of contractual terms which may be regarded as unfair.
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The Consumer Panel is a statutory body under the Financial Services Act 2012. It was initially established by the Financial Services Authority in December 1998. The Panel advises the FCA on the interests and concerns of consumers.
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The Panel’s membership is drawn from a broad range of backgrounds with expertise including market research, law, financial services industry, financial inclusion, European Regulation, financial regulation, consumer advice, campaigning, communications, compliance and later-life issues.
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The emphasis of the Panel's work is on activities that are regulated by the FCA, although it may also look at the impact on consumers of activities outside but related to the FCA's remit.