In light of this cautionary tale leading to Barclays being compelled to change their Fixed Rate Savings Bond terms and conditions, marketers should be conscious of drafting fair promotion rules and variation clauses in their privacy policies. Zoe Hare tells us more.
Who: Financial Services Authority and Barclays Bank PLC
When: 16 March 2009
Law stated as at: 16 April 2009
Barclays Bank PLC (“Barclays”) have been required to give an undertaking to the FSA not to use certain contract terms which the FSA considers to be unfair to consumers.
As the FSA is a qualifying body under the Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCRs”), it has the power to challenge companies which are using terms considered to be unfair. The UTCCRs render business to consumer contract terms unenforceable if they are held to be “unfair.” They also give qualifying bodies such as the FSA and the Office of Fair Trading the right to take action against traders using such terms requiring them to cease their further use.
The FSA challenged the fairness of two clauses relating to the variation of the contract in Barclays Fixed Rate Savings Bond terms and conditions.
First unfair term
The FSA’s first concern related to Barclay’s ability to vary the terms of the contract for, inter alia, “any other good reason”. It argued that this gave too much discretion to Barclays to unilaterally vary the contract. The FSA argued that this was contrary to their Statement of Good Practice on Fairness of Terms in Consumer Contracts and unfair on the consumer.
The FSA expects any reason for variation to be clearly and unambiguously defined. This was not the case here as it leaves the term open-ended. Barclays had not given an exhaustive list of valid reasons for variation of the contract.
By way of remedy, Barclays have agreed to remove the reference to “or any other good reason” from their terms and conditions. This will take effect for all terms and conditions issued after April 2006.
Second unfair term
The FSA challenged the fairness of the inclusion of the word “normally” in two clauses. Firstly, the terms and conditions provided that “changes [to the contract] will normally be caused by” a list of reasons. Secondly, the terms stated “[w]e will normally give you at least 30 days’ advance notice of any changes which are to your disadvantage”.
The FSA argued that that the use of the word “normally” in the first clause introduces ambiguity about the valid reasons for varying the contract. Although the terms set out what appears to be an exhaustive list, the use of “normally” suggests that there may be other reasons upon which Barclays relies in order to vary the contract. The FSA also argued that the term is unfair as it does not enable the consumer to dissolve the contract or the varied terms.
The FSA contested that “normally” in the context of the second term introduces uncertainty about the notice period for variations of contracts. It suggests that 20 days’ advance notice may not always be given and thus this may prejudice the rights of the consumer.
As with the FSA’s first challenge, Barclays has cooperated with the FSA in order to remove any unfairness to consumers. Barclays has agreed to remove the word “normally” from the terms and conditions and to give the consumers at least 30 days’ advance notice of any changes which are to their detriment. However, the removal of “normally” will not take effect until the terms are next reprinted. In the meantime, Barclays has agreed, with immediate effect, not to rely on the word.
Why this matters:
This is the second case of this type since February 2009. The FSA previously sought an undertaking from Jarvis Investment Management PLC concerning variation clauses in terms of business.
Not only do these cases illustrate that the FSA is looking to protect consumers from unfair contract terms, but they also demonstrate the importance of careful drafting. Variation clauses should be carefully drafted in order to ensure they are compliant with the FSA’s Statement of Good Practice and the UTCCRs.
Also, the publication of the undertakings on the FSA’s website and the OFT Consumer Regulation website acts as a warning to other companies.
In relation to Barclays’ undertaking, the FSA stated “[w]hile this undertaking reflects our concerns with the terms in the contracts specified, it may provide a useful steer as to our views on the fairness of terms in consumer contracts for financial products and services with similar characteristics and, in relation to some terms, generally.”
A final point to note is that other official pronouncements have made it plain that the use of “unfair” B2C contract terms may of itself give rise to the commission of a criminal offence under the Consumer Protection From Unfair Trading Regulations 2008.
So more than enough here, then, to justify that small print audit!