The FCA will consult on guidance for the types of variations written and drafted in consumer contracts in financial services under the 2015 Consumer Rights Act.

The FCA said where it considers a variation term in a contract to be unfair or lacking in transparency, it may take action to prevent the firm from relying on that term.

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The FCA said it would not conduct a “proactive systemic review” assessing the fairness of variation terms in contracts entered into prior to any eventual final guidance being issued.

The regulator wrote: “Our day-to-day unfair terms casework has considered variation terms from a variety of products and does not suggest that variation terms have generally been used in a manner likely to cause widespread harm to consumers.

“Where unfair terms come to the FCA’s attention, and it considers that firms have been relying upon such terms to the detriment of customers, the FCA will challenge firms accordingly.”

Fairness and transparency are not new requirements under the CRA. Before it came into force, firms were required to draft fair and transparent terms in consumer contracts under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) and the preceding Unfair Terms in Consumer Contracts Regulations 1994 (the 1994 Regulations).

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The draft guidance provides references to the relevant provisions in the UTCCRs, and sets out its application to contracts entered into under the 1994 Regulations. It is relevant to all consumer contracts issued by firms following the entry into force of the UTCCRs.

The areas of consultation to produce draft guidance include:

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

In April, the FCA published an update on its review on motor finance. The full review is due in September this year.