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Proposed Reforms to Unfair Terms in Consumer Contracts

Friday, 28 June 2013

In March 2013 the Law Commission published an Advice Paper recommending simplification and rationalisation of the law on unfair terms in consumer contracts.

What might this mean in practice for contracts concluded between traders and consumers?

The Aim of the Law Commission Recommendations

The Law Commission is attempting to give better protection to consumers from unfair charges mostly found in the small print of contracts. It recommends achieving this by tackling unfair surcharges, extra charges and early termination charges.

The proposed reforms would apply to all consumer goods and services contracts but would particularly affect the likes of utilities and mobile phone contracts.

What Reforms are Proposed to the Unfair Terms Legislation?

In order to achieve its aims, the law the Law Commission has previously proposed to use the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) as the basis for a consolidated piece of legislation.

Seeking a simplified and rational approach to unfair terms, the Commission has recommended that the subject matter and price terms exemptions from the unfair terms legislation should only remain exempt where those terms are ‘transparent’ and ‘prominent’.

The paper expands on the Commission’s meaning of ‘transparent’ and ‘prominent’ and suggests that guidance be provided to assist courts in ascertaining those factors:

  • The Commission has recommended that the term ‘transparent’ should be defined to mean plain and intelligible, readily available to the consumer and legible if in writing.
  • The Commission has interpreted the term ‘prominent’ to mean it must be presented in such a way that the ‘average consumer’ would be aware of the term. The more unusual the term is, the more prominent it needs to be.
  • The Commission has not said whether the term ‘average consumer’ would be a defined term, but it has recommended that it follow the EU interpretation. This would mean a hypothetical consumer that is reasonably well informed, reasonably observant and circumspect.

Additional Terms That May be Regarded as Unfair – the Grey List

In Schedule Two of the 1999 Regulations is a non-exhaustive list of terms that may be regarded as unfair, the ‘Grey List’. The Advice Paper has recommended that three more terms are added to the list relating to early termination charges and trader discretion:

  • Early termination charges where a trader claims inconsistent sums in compensation for goods or services which they have not supplied, due to the consumer cancelling their contract.
  • Trader discretion where a business exercises its discretion to set the price.
  • Trader discretion where the trader can alter the terms of the contract after the consumer has become bound by the contract.

The Fairness Test is to Remain Unchanged

Initially the Commission had planned to recommend that the ‘fairness test’ currently set out in the UTCCR also be changed. However, this original recommendation was abandoned and the ‘fairness test’ will not now change. 

To ensure that your contract terms are compliant with existing legislation and any forthcoming changes contact James Crichton via e-mail or by telephone on 0207 611 4848 for more information.