On 17 May 2018, the FCA published Guidance Consultation 18/2: Fairness of variation terms in financial services consumer contracts under the Consumer Rights Act 2015 (GC18/2).

Following the removal of some unfair contract terms material from the FCA website in March 2015, the regulator received some views from trade associations and firms about how the fairness of variation terms under unfair contract terms law should be interpreted. The purpose of guidance in GC18/2 when finalised is to set out clearly the regulator’s view on the appropriate way to assess the fairness of variation terms, not just for the trade associations and firms that have been in contact with it, but for the industry and consumers as a whole.

The FCA acknowledges the benefit of fair unilateral variation terms to firms and consumers. However, it believes that appropriate drafting is required as variation terms, if they are unfair, risk causing consumer harm through unfair use.

The draft guidance outlines a number of non-exhaustive areas the FCA believes firms should have regard to when drafting and reviewing variation terms. These include and are not limited to the following:

  • the validity of the reason(s) for varying a term;
  • the transparency of the variation term;
  • provision for notice in the variation term; and
  • provision for freedom to exit the contract should a consumer not wish to accept the variation.

Unilateral variation terms appear in the indicatively unfair list of terms in Part 1 of Schedule 2 to the Consumer Rights Act 2015 (CRA), commonly known as the ‘grey list’. The unfairness is only indicative as it is possible to have a fair unilateral variation term in a contract if it is drafted appropriately, taking into account the factors listed in GC18/2. There are some qualifications to the grey list for financial services contracts at paragraphs 22 and 23 of Part 2 of Schedule 2 to the CRA. It has been suggested that, if a variation term falls within one of these qualifications, it should be considered fair. In the draft guidance at Annex 2, the FCA makes clear that variation terms cannot be carved out from the fairness test under the CRA simply because they may fall under a qualification to the grey list. Each term should be assessed for fairness on a case-by-case basis.

The FCA is not consulting on guidance on other aspects of the law regarding unfair contract terms. It may, however, consider doing so in due course. Firms can refer to the Competition and Markets Authority guidance of July 2015 for a discussion on the fairness of other types of terms.

The FCA does not propose to conduct a proactive systemic review assessing the fairness of variation terms in contracts entered into prior to any eventual final guidance being issued.

The deadline for comments on GC18/2 is 7 September 2018.