Unfair terms in consumer contracts

Research recently published by the Competition and Markets Authority shows that 54 per cent of businesses surveyed did not fully understand the rules on unfair terms in consumer contracts. This directly impacts on how businesses treat their customers and is particularly important in order to maintain good customer relations, brand integrity and to avoid costly mistakes which may have wide-reaching consequences for your business. Changing goods or services, increasing the price, or charging excessive cancellation fees may all constitute ‘unfair’ terms in a consumer contract.

Robert Goddard, commercial solicitor at Thackray Williams explains the rules.

Consumer protection law

The law protects consumers against unfair terms in contracts that they enter into with a business. For contracts made after 1 October 2015, the rules can be found in the Consumer Rights Act 2015. For contracts made before this date they can be found in a number of different pieces of legislation, the most notable of which are the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999.

The aim of the Consumer Rights Act is to simplify the law on unfair terms by putting it all in one place. The act provides that consumers will not be bound by standard terms in a contract made with a business if those terms are unfair, which is likely to be the case if the terms are not in plain and intelligible language and if they are not prominent and transparent. Consumers have the right to challenge terms they believe to be unfair, but if a business refuses to change them then a consumer would need to go to court to have the matter determined.

What is an unfair term?

An unfair term is one which has not been negotiated with the consumer in a fair and open way, or which causes a significant imbalance between the rights of the consumer and that of the trader, with the imbalance to the detriment of the consumer.

It is important to note that ‘unfairness’ under the Consumer Rights Act can only apply to standard contract terms; terms negotiated individually with the consumer are not covered by the legislation but may still be reported as unfair to local trading standards or the industry regulator.

How can I make sure my terms are fair?

To ensure that your consumer contracts are not likely to be challenged on the grounds of unfairness, it is vital to consider your standard terms and to ask yourself whether, viewed objectively, there is any risk of them being held to be unfair and therefore unenforceable.

Problems tend to centre around cancellation charges and terms which purport to allow a trader to change the terms of a contract after it has been agreed. It is therefore worth knowing that if a consumer cancels their contract, you can claim for any work started, loss of profit and administration and marketing costs, but you cannot claim for anything else; if you do, the additional charges may be deemed to be unfair. You also cannot make significant changes to the nature of the contract without giving the consumer the right to withdraw from it and get their money back. It may also be unfair for a trader to change the price of goods or services once the contract has commenced.

What will happen if a consumer challenges the fairness of my terms?

If a consumer believes that their contract with you includes an unfair term they can report your business to the Competition and Markets Authority, as well as their local trading standards department. You may alternatively receive a complaint which, if not resolved to the satisfaction of the consumer, could proceed to an ombudsman’s investigation, mediation or arbitration, or could result in county court proceedings. This can be time-consuming to deal with and, if the consumer is successful, could cost your business significantly. It may have wider implications for contracts with your other customers, and a consequent impact on profits. It is vital to seek the advice of a lawyer to ensure that your standard terms are fair to consumers.