ENF 20.4 The Unfair Terms Regulations: the FSA's role and policy

The FSA may consider the fairness of a contract within the meaning of the Unfair Terms Regulations following a complaint from a consumer or other person or on its own initiative if the contract is within its scope according to ENF 20.1.2 G.

There are three main ways in which the FSA might receive a complaint from a consumer or other person. These are:

1. (1)

   directly; or

2. (2)

   from another qualifying body which considers that the FSA should deal with the complaint; or

3. (3)

   from the Office of Fair Trading.

1. (1)

   The principal way in which the FSA would act on its own initiative is to undertake a review of contracts in a particular area of business on its own initiative. This might involve investigating the contract terms used by several firms in a particular sector, rather than waiting for complaints regarding a particular firm.

2. (2)

   The FSA will, for example, consider launching such a review if multiple consumer contract complaints or other intelligence lead it to believe that under the Unfair Terms Regulations there may be a contractual issue of wider significance to firms and consumers.

If, following either a complaint or an own-initiative review, the FSA considers that a term in a contract which is within its scope as described in ENF 20.1.2 G is unfair within the meaning of the Unfair Terms Regulations, it may challenge firms regarding their use of the term, as described in ENF 20.4.6 G.

1. (1)

   The FSA will consider using its functions under the Unfair Terms Regulations in the context of its wider regulatory powers under the Act.

2. (2)

   In some cases, it might be appropriate to use other powers to deal with issues identified under the Unfair Terms Regulations. The powers available to the FSA under the Act may vary depending on the regulated activities, if any, which the firm carries on (see ENF 20.1.2 G). For example, the use of the unfair term might involve a breach of a rule in COB, and, if so, it would also be open to the FSA to address the issue as a rule breach.

3. (3)

   The FSA may, in some circumstances, consider treating the matter under its powers in the Act and under the Unfair Terms Regulations.

4. (4)

   The use of powers under the Act will not be possible in all cases in which a firm uses an unfair term. If the FSA is considering using an enforcement power under the Act, it will do so in accordance with the policy relating to that power as set out in ENF.

1. (1)

   If the FSA decides to address issues using its powers under the Unfair Terms Regulations, and the contract is within its scope as described in ENF 20.1.2 G, it will, unless the case is urgent, generally first write to a firm expressing its concerns about the potential unfairness within the meaning of the Unfair Terms Regulations of a term or terms in its contract and inviting the firm's comments on those concerns. If the FSA remains of the view that the term is unfair within the meaning of the Unfair Terms Regulations, it will normally ask the firm to undertake to stop including the term in new contracts and stop relying on it in contracts which have been concluded.

2. (2)

   If the firm either declines to give an undertaking described in (1), or gives such an undertaking and fails to follow it, the FSA will consider the need to apply to court for an injunction under regulation 12 of the Unfair Terms Regulations, described in ENF 20.3.3 G.

3. (3)

   In determining whether to seek an injunction against a firm, the FSA will consider the full circumstances of each case. A number of factors may be relevant for this purpose. The following list is not exhaustive; not all of the factors may be relevant in a particular case, and there may be other factors that are relevant:

   1. (a)

      whether the FSA is satisfied that the contract term which is the subject of the complaint may properly be regarded as unfair within the meaning of the Unfair Terms Regulations;

   2. (b)

      the extent and nature of the detriment to consumers resulting from the term or the potential detriment which could result from the term;

   3. (c)

      whether the firm has fully cooperated with the FSA in resolving the FSA's concerns about the fairness of the particular contract term;

   4. (d)

      the likelihood of success of an application for an injunction;

   5. (e)

      the costs the FSA would incur in applying for and enforcing an injunction and the benefits that would result from that action; the FSA is more likely to be satisfied that an application is appropriate where an injunction would not only prevent the continued use of the particular contract term, but would also be likely to prevent the use or continued use of similar terms, or terms having the same effect, used or recommended by other firms concluding contracts with consumers.

4. (4)

   In an urgent case, the FSA may seek a temporary injunction, to prevent the continued use of the term until the fairness of the term could be fully considered by the court. An urgent case is one in which the FSA considers that the actual or potential detriment is so serious that urgent action is necessary. In deciding whether to apply for a temporary injunction, the FSA may take into account a number of factors, including one or more of the factors set out in (3). In such an urgent case, the FSA may seek a temporary injunction without consulting with the firm in the manner described in (1).

5. (5)

   When the FSA considers that a case requires enforcement action under the Unfair Terms Regulations, it will take the enforcement action itself if the firm is a firm or an appointed representative.

6. (6)

   Where the firm is not a firm or an appointed representative (see ENF 20.1.4 G(3)), the FSA will pass the case to the Office of Fair Trading, with a recommendation that it take the enforcement action. The Office of Fair Trading may then decide whether or not to take enforcement action.