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Not worth the paper it’s written on?

If you have ever complained to a company that responded ‘We’re right and you’re wrong - it’s all in the small print”, then these companies will now have to think again. The Financial Services Authority (FSA) recently declared that companies should not reject customer complaints just because they ticked a box saying they had read and understood an unfair contract.

In all likelihood you have never read or even glanced through any of the written contracts you agreed to online, let alone in the real world. Yet if there is ever a dispute, the companies you contract with generally fall back on terms you know nothing about in a contract you have never seen. How fair is this? Well clearly it is not. Why would you be held to something you have never even seen?

So in the interests of fairness, the FSA has stated its position that:

"A declaration requiring consumers to agree that they have read and understood a contract is, in our view, unfair. This is because the statement may not be true and may not reflect what has actually happened."

Not only this, they state that companies should not even ask consumers to assert that they had read and understood a contract or a set of terms and conditions because they are not likely to have done so. Even if a company has asked a consumer to confirm that, they should not rely on that assertion to ignore complaints about unfair contract terms.

The FSA said that the practice of including a checkbox for consumers to confirm that they have read and understood terms and conditions is a breach of the Unfair Terms in Consumer Contracts Regulations.

"Firms should provide consumers with an opportunity to read a contract, understand it and ask questions about any aspects of the contract that they are unsure of," said guidance published by the FSA. "Consumers may not have either read or understood the contract and so are not in a position to declare that they have in fact done so. In this instance, the declaration is effectively meaningless and does not reflect the circumstances in which the particular consumer signs their contract," it said.

"The law requires consumers to be given an opportunity to examine all the terms in a contract. A declaration of this nature could be used by a firm to claim that it gave customers an opportunity to read a contract when it did not actually do so. The firm could argue that because a consumer has signed to say that they have read and understood a contract, this means the firm has fulfilled its obligation to allow the consumer to examine all the terms. This may not in fact be true. Therefore the use of a declaration in this way is unfair," the FSA stated.

The FSA ruled in a case last year that a firm it regulated had acted unfairly when using a term that asked customers to confirm that they had 'read and understood' an agreement. That company, "The On-Line Partnership", changed its term to read:

"This is our standard client agreement upon which we intend to rely. For your own benefit and protection you should read these terms carefully before signing them. If you do not understand any point please ask for further information"

The FSA said that, like The On-Line Partnership's new term, agreements should warn customers that they should consult with a company about anything in an agreement that they do not understand.

"It is preferable for ‘have read and understood declarations’ instead to give a clear warning to consumers that they should read and understand terms before signing them and that consumers should ask questions if they do not understand any terms," said the FSA guidance.

Consumer regulator the Office of Fair Trading (OFT) publishes guidance on the Unfair Terms in Consumer Contracts Regulations which also makes it clear that asking consumers to declare they have read and understood an agreement is unfair.

"Declarations that the consumer has read and/or understood the agreement give rise to special concerns. The Regulations implement an EU Directive saying that terms must be clear and intelligible and that consumers must have a proper opportunity to read all of them," said the guidance. "Including a declaration of this kind effectively requires consumers to say these conditions have been met, whether they have or not. This tends to defeat the purpose of the Directive, and as such is open to serious objection."

"In practice consumers often do not read, and rarely understand fully, any but the shortest and simplest contracts. It might be better if they tried to do so, but that does not justify requiring them to say they have done so whether they have or not," said the OFT guidance. "The purpose of declarations of this kind is clearly to bind consumers to wording regardless of whether they have any real awareness of it. Such statements are thus open to the same objections as provisions binding consumers to terms they have not seen at all."

Even when a company has included such a term in an agreement it should not then rely on that as the basis of a refusal to deal with a customer complaint, the FSA said.

"A consumer may, for example, complain about a particular contract term, claiming that it is unfair. The firm should then investigate the consumer’s complaint and decide whether or not the term is unfair, and if so take appropriate action to deal with any detriment suffered by the consumer," said the guidance.

"The firm should not argue that, since the consumer has signed a declaration to say that they have read and understood the contract, they are therefore not now entitled to complain about the fairness of a term in the contract or how it is applied," the FSA stated.

The FSA said that it is perfectly fair for companies to ask consumer to declare some things, but only things that are within the direct experience of the consumer.

"Consumers are in the best position to know personal information such as their age, gender or address. They are also best placed to know facts such as whether or not they have had any insurance claims refused before, or whether they have any pre-existing medical conditions," said the FSA guidance. "Because the consumers know this information, we may well regard it as acceptable for consumers to sign declarations in respect of it."

Mark Andrew LL.B (Hons.), a partner in e-sue, said the views of the FSA and the OFT merely reflect the best practices that some websites have followed for several years, but less scrupulous firms clearly need re-educating.

"Our advice to most online retailers is to use a checkbox with a brief statement like: "'I accept the terms and conditions", positioned above a confirmation button, with the words 'terms and conditions' serving as a link," said Andrew. "You can't make people read your terms, and everyone knows that they're generally ignored, but you can and should maximise the chances that they know what they're signing up to, and you can do that by other means."

"You should bring to the customer's attention any terms that are unusual or likely to come as a surprise before they hit that confirmation button," he said. "A bullet-point summary of three or four key terms can be a good way to do this in an online transaction without harming the user experience, though what's appropriate will vary according to what you're selling. When you're selling financial products, it's usually necessary to go further than that."

The FSA Guidance
The On-Line Partnership Ruling
The OFT Guidance




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