Consumer New - CMA campaign on unfair contract terms

Following an investigation into business attitudes towards unfair terms in consumer contracts, the CMA has published new practical guidance to assist compliance.

The background

The Consumer Rights Act (CRA) came into force on 1 October 2015. Considered to be a major part of the Government’s reform of UK consumer law, the Act attempted to draw together, update and simplify a number of key consumer-facing pieces of legislation, including the rules on unfair contract terms. As the then Consumer Affairs Minister Jo Swinson said: “For too long consumers and businesses have struggled to understand the complicated rules that apply when buying goods and services. That is why the Consumer Rights Act is so important in setting out clear and updated consumer rights for goods, services and, for the first time, digital content."

During the summer, the Competition and Markets Authority (CMA) carried out an investigation into businesses' behaviour regarding unfair contract terms with consumers in light of the CRA. The investigation involved surveying 1,250 businesses in the UK operating in consumer facing sectors. Some of the key learnings from the investigation were:

• over half of the businesses surveyed stated that they did not know the rules on unfair contract terms well (36% confessed to not having a strong grasp on the rules and 18% owned up to not having ever heard of them)
• only 15% of the businesses surveyed confirmed that they were familiar with the CRA
• 20% of the businesses surveyed admitted that they did not communicate any terms to their customers, potentially because those businesses did not have any formal terms and conditions in place, and
• the average time between businesses carrying out a review of their contract terms is typically between four and five years.

New guidance

Given the lack of understanding by UK businesses as to what amounts to unfair terms in their consumer contracts, the CMA launched a new campaign on 24 October 2016 to tackle the issues highlighted in their investigation. This has resulted in a number of new tools being issued by the CMA, including animated videos, simple practical guides and an online quiz to educate businesses.

Why is it important?

Combined with the new Pricing Practices Guide (released early December by the Chartered Trading Standards Institute), we seem to be entering a new period of enhanced regulatory focus on consumer protection. The CMA seems particularly keen on drawing attention to businesses who adopt a less rigorous approach, as seen by the publicity surrounding its recent investigation into online reviews and endorsements. It's all part of the CMA's attempts to redress imbalances between the rights and responsibilities of traders and their customers and increase transparency of the law in this area.

Any practical tips?

The recommendations focus on practical application, in particular using ordinary language, avoiding ambiguity and taking particular care to ensure terms are fair when they could potentially work against a consumer. One of the CMA's new guides is "Top Tips when writing your contract terms", so a useful place to start for assessing what the CMA considers to be important.

Above all, the CMA's investigation has highlighted the need for ongoing review of terms and conditions with a view to refreshing them to keep up with both regulatory change and the regulators' current views on what constitutes compliance. Leaving long gaps between reviews is clearly not a practice to be encouraged.