FSA orders change to contract that allowed fee changes

There are rules governing contracts between businesses and consumers which aim to protect consumers from un-negotiated contract terms which they must accept in order to acquire goods or use services. The FSA is one of the bodies which can take action on breaches of those rules, the Unfair Terms in Consumer Contracts (UTCC) Regulations.

It found that Jarvis Investment Management Plc was using a contract for some of its accounts which broke the Regulations in its view.

The FSA said that it had problems with clause 12.1 of the contract, which said: "Details of the rates of Account Charges are available on request and may be amended at our sole discretion from time to time".

"We were concerned with the fairness of clause 12.1 because it gave the firm sole discretion to vary the rates of its account charges without requiring the firm to give valid reasons for making such variations," said the FSA. "In our view, the term caused a ‘significant imbalance in the parties’ rights and obligations under the contract, to the detriment of the consumer’ and so was unfair under Regulation 5(1)."

The FSA said that the UTCC Regulations outlined when firms might be allowed to alter contracts, but said that Jarvis had not fulfilled the conditions in the law.

The Regulations say: "[financial services firms can alter] the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately".

"However, this did not lead us to conclude the term was fair because the contract did not oblige the firm to notify consumers of the variation and consumers were not free to leave the contract if they did not accept the variation," said the FSA.

The regulator also had concerns about another part of the contract. "Similarly, we were concerned with the fairness of clause 25 because it gave the firm complete discretion to vary its terms and conditions without requiring the firm to give valid reasons for making such variations," it said. 

The FSA has ordered Jarvis to change its contracts to reflect its concerns, which it has done.