The regulator is consulting (30-page / 490 KB PDF) on the draft guidance - the first it has issued following the introduction of the Consumer Rights Act 2015 (CRA) and several rulings on the topic by the Court of Justice of the EU (CJEU).
The draft guidance outlines factors for financial institutions to consider when seeking to draft variation terms, and also considers a number of reasons for contract variation that the FCA has observed firms commonly include when drafting variation terms allowing them to alter their consumer contracts.
This latest consultation follows the FCA’s withdrawal of unfair contract terms material from its website in March 2015 and May 2016. The regulator said the new guidance reflected current legislation and case law.
The guidance focuses on unilateral variation terms in particular. The FCA said this was because these are some of the most complex terms to assess for fairness due to both legislation and case law.
Financial services expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com, said the new guidance and the accompanying consultation would be helpful to financial services firms.
"As technology changes, providers are increasingly having to ensure that their customer-facing systems are up-to-date and robust," Ashby said. "This is leading to an increase in the migration of customers to new systems, either within organisations or as part of business consolidation deals.”
"These customer transfers can often lead to changes to customer terms and conditions being needed to align with the capability of the new systems and firms will no doubt value some more specific guidance that helps in assessing fairness to their customers. Whilst the new guidance does not introduce major changes in interpretation, it gives useful focus to financial services contracts compared to the more generic guidance of the Competition & Markets Authority (CMA),” Ashby said.
According to the draft guidance, financial services firms should take into account a number of areas when drafting and reviewing variation terms, including the validity of the reason for using the variation term, its transparency, provision for notice in the variation term, and provision for the freedom to exit the contract should a consumer not wish to accept the variation.
The FCA said it was not planning to conduct a systemic review assessing the fairness of variation terms in contracts entered into prior to any eventual final guidance being issued. The regulator said day-to-day case work had not thrown up any suggestion that variation terms had been causing widespread consumer harm.
In July 2017 the London General Insurance Company made the first undertaking for an unfair contract term since the CRA came into force, after the FCA found it was unfair to customers and capable of two different meanings.
The FCA said it had engaged with the CMA as well as trade associations and some financial services firms in relation to its unfair contract terms material. The CMA is the leading enforcer of unfair terms legislation under the CRA, but a memorandum of understanding with the FCA provides that the FCA has the power to consider the fairness of terms in consumer contracts issued by those companies it regulates.