8.4 Consumer Rights and Unfair Contract Terms

Consumer Rights and Unfair Contract Terms

The Consumer Rights Act 2015 (CRA 2015) is the principal UK statute on consumer contract terms and unfair trading. Part 2 of the Act (sections 61 to 77) consolidates the law on unfair terms in consumer contracts and consumer notices, replacing the Unfair Terms in Consumer Contracts Regulations 1999. The Act applies to business-to-consumer contracts; it does not apply to business-to-business contracts.

The Fairness Test — Section 62

Section 62 of the CRA 2015 sets the fairness test. A term in a consumer contract or consumer notice is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the rights and obligations of the parties to the detriment of the consumer. An unfair term is not binding on the consumer, although the consumer may choose to rely on it.

What 'Good Faith' Means

Good faith in this context is a substantive standard — fairness, openness, and a lack of exploitation. The court looks at:

• The strength of the bargaining position of the parties
• Whether the consumer had an opportunity to give informed consent to the term
• Whether the term was individually negotiated or imposed
• Whether the term or its effect is transparent to the consumer

The Transparency Requirement — Section 64

Section 64 introduces a transparency requirement. A written term is transparent only if it is expressed in plain, intelligible language and is legible. A term is prominent if it is brought to the consumer's attention in such a way that the average consumer, who is reasonable, observant and circumspect, would be aware of it.

The Core Exemption

The fairness test does not apply to terms that specify the main subject matter of the contract or the appropriateness of the price payable — unless those terms are not transparent or not prominent. This is the 'core exemption'. A term buried in small print, even if it concerns price or subject matter, can be assessed for fairness if it is not transparent.

Ambiguous Terms

Where a term is unclear or ambiguous, the court will construe it in the way most favourable to the consumer. This is the contra proferentem rule, applied specifically to consumer contracts by the CRA 2015.

The Grey List — Schedule 2

Schedule 2 to the CRA 2015 contains an indicative and non-exhaustive list of terms that may be regarded as unfair — the 'grey list'. These terms are not automatically unfair, but a court must take the list into account when applying the fairness test. Examples from the grey list include:

The Consumer Protection from Unfair Trading Regulations 2008 (CPRs)

The Consumer Protection from Unfair Trading Regulations 2008 (CPRs) prohibit unfair commercial practices toward consumers. They are enforced by the FCA for financial services, by Trading Standards for non-financial businesses, and by the CMA for systemic issues.

Banned Practices

The CPRs prohibit:

• Misleading actions — giving false information or deceiving the consumer, including misleading omissions
• Misleading omissions — leaving out material information the consumer needs to make an informed decision
• Aggressive commercial practices — harassment, coercion or undue influence
• A list of 31 specific banned practices in Schedule 1, including falsely claiming a product will be available only for a very short time to elicit an immediate decision (false urgency)

The CPRs are a critical compliance obligation for firms giving financial promotions and product information. A breach of the CPRs may also be a breach of FCA Principle 7 (Communications with clients) and Principle 12 (Consumer Duty).

The FCA's and FOS's Approach

The FCA and the Financial Ombudsman Service (FOS) apply the CRA 2015 and the CPRs alongside the FCA Handbook when assessing financial services contracts.

FCA Role

The FCA supervises contract terms through its unfair contract terms work, reviewing consumer contracts for compliance with the CRA 2015 and the Handbook. The FCA may require firms to amend or remove terms that fail the fairness test, and can use its rule-making and enforcement powers to address systemic use of unfair terms. A firm using unfair terms breaches Principle 6 (Customers' interests) and, where the term causes foreseeable harm, Principle 12 (Consumer Duty).

FOS Role

The FOS can consider whether a term in a consumer contract is fair under the CRA 2015 when adjudicating complaints. Where the FOS finds a term unfair, it can require the firm to remedy the customer's position, up to the FOS award limit of £455,000 for complaints referred on or after 1 April 2026 about acts or omissions on or after 1 April 2019. The FOS can also take account of the CPRs and the Handbook.

Examples of Unfair Terms in Financial Services Contracts

Common examples of terms that may be unfair in financial services contracts include:

• A savings account term allowing the bank to vary the interest rate at any time without notice or justification
• A credit card term permitting the issuer to increase the credit limit without the customer's request or consent
• A loan term imposing a disproportionately high early repayment charge relative to the firm's loss
• A mortgage term giving the lender a broad unilateral right to change charges while the borrower has no equivalent right
• A pension term allowing the provider to retain charges after a transfer without disclosure at the point of sale

Each of these would be assessed against the fairness test in s.62, the transparency requirement in s.64, and the grey list examples in Schedule 2. Where a firm is in any doubt about a term, the prudent approach is to draft in plain language, present prominently, ensure balanced rights, and seek legal review.