This article focus on the impact of the forthcoming changes under the Consumer Rights Act 2015 on financial institutions dealing with consumer clients.
On 01 October 2015, the Consumer Rights Act 2015 (Act) will come into force, reforming and consolidating a large part of the UK’s general consumer protection laws relating to unfair terms, the supply of goods and services, defective digital content, enforcement powers, and class actions for breach of competition law.
The Act will have a significant impact on the financial services sector, directly affecting firms which contract with consumers for financial services products such as personal bank accounts, mortgages, investments, ISAs, loans, credit cards, pensions, and insurance, as well as wealth management, private banking, and other services for high net worth individuals. Any firm which deals with consumers will need to check that they have completed the changes necessary for readiness with the UK’s new consumer protection laws.
There are three parts to this article. The key areas of the Act for the financial services sector discussed in Part I of this article relate to the effect of statements made about the firm or services, and the application date. Part II discusses the fairness of contractual terms and notices. Part III of the article discusses consumer statutory remedies, digital and online services and products provided by firms, such as banking and payment apps and online banking services; and future challenges and risks to firms.
On the same day, the UK will implement the Alternative Dispute Resolution Directive in relation to disputes with consumers. For discussion of the changes under the Alternative Dispute Resolution Directive, please see our elexica article Complaint handling and the Alternative Dispute Resolution Directive.
For the related articles, please see The Consumer Rights Act 2015 for financial institutions Part II and The Consumer Rights Act 2015 for financial institutions Part III .
01 October application date
The Act will apply to:
- any contracts directly between a firm and a consumer entered into on or after 01 October, and
- any notices provided or communicated to consumers on or after 01 October.
The Act will not have retrospective effect. Any contract entered into with a consumer, and any notice provided or communicated to a consumer, before 01 October will be governed by the existing laws (including the existing Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs).
A “consumer” will mean an individual acting for purposes wholly or mainly outside that individual’s trade, business, craft or profession. The individual must therefore be acting exclusively or predominately for private purposes. Firms should note that an element of business purpose would not prevent the individual from being deemed to be a “consumer” under the Act. The burden will be on the firm to show that an individual is not acting exclusively or predominately for private purposes.
What is said or written about a firm or the services
From 01 October, every contract for the provision of services will be treated as including a term in the contract, anything that is said or written to a consumer, where it is taken into account by the consumer:
- when deciding whether to enter into the contract, or
- when making a decision about the service, after entering the contract.
This covers both statements made about the firm, and statements made about the services, making these into binding contract terms if relied upon. It extends to anything a firm’s agents say or write about the firm or the services. Different statutory remedies will flow from breach depending on whether the statement was about the services or the firm.
Firms should carefully review the extent to which communications made to consumers in the pre-contract phase, or after the scope of services are contractually agreed, may incorporate additional terms into the contractual relationship. Such communications may be found in marketing materials, websites, forms, telephone scripts and other documentation and processes. Contracts with third parties engaged in communications to consumers should also be reviewed to ensure suitable controls on what the third party can say.
It is possible for firms to qualify statements that are made, preventing the consumer from claiming to have taken clearly qualified statements into account. Firms may wish to review the scope of qualifications made in communications to consumers with this in mind. The firm and the consumer can also agree to a variation of the statement, but changes have to be expressly agreed between the parties.
Firms should note that the drafting of any such qualifications, and any variation terms, would subject to the rules on unfair terms. Pre-contractual information provided to a consumer may also be taken into account in any assessment of fairness of a contract term, in light of European Court of Justice (ECJ) case law under the Unfair Terms Directive.
Relationship with regulated financial services
The relationship between the Act’s rights and remedies for the provision of services and sector specific legislation is not definitive as firms might have desired. Financial services are not expressly carved out of the Act’s rules on services, as BIS intends the Act to operate as a safety net for all services, regulated or otherwise. Sector specific legislation, subordinate legislation, rules, regulations and instruments are intended to apply instead of, or alongside, the Act’s statutory rights and remedies for services. However, by not expressly excluding financial services, the Act leaves the door ajar for a consumer to argue for statutory redress provided by the Act if there is no sector specific rule or if the sector specific rule is not as advantageous to him as the Act’s statutory rights and remedies.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.