Insights Contracting with Consumers – A Quick Guide to Unfair Contract Terms

Business to consumer contracts are highly regulated. Contracts must be presented in the correct way, at the correct time, and must not contain any blacklisted, grey-listed, or otherwise unfair terms. Unfair contract terms are not legally binding on consumers and businesses that use them are vulnerable to regulatory investigation and enforcement action, potentially substantial fines, civil and/or criminal liability, and the reputational damage that so often follows.

Is the term “blacklisted” by law?

Blacklisted terms include those that exclude or restrict liability for death or personal injury resulting from negligence, and terms seeking to exclude or restrict consumers’ statutory rights and any associated remedies. Blacklisted terms are never enforceable against a consumer.

Is the term included in the “grey list”?

Terms included in Schedule 2 of the Consumer Rights Act are unlikely to be fair (and therefore are likely unenforceable).

Does it pass the “fairness test”?

Does the term create a significant imbalance, contrary to the requirements of good faith, to the detriment of consumers? If yes, it will fail the “fairness test”.

Is the term transparent?

I.e. is it in plain and intelligible language, and is it sufficiently prominent? Failing the transparency test alone, independently of the fairness test, does not make a term unenforceable against a consumer. But if a term is unclear or ambiguous, it will always be given the meaning that is most favourable to the consumer.

Excluding/limiting liability

Businesses must not prevent or restrict consumers from seeking any form of redress that would otherwise be available to them by law. Contract terms that attempt to do this are specifically blacklisted by law. Businesses must also avoid terms which exclude or limit their own liability to consumers when the business itself is at fault and should be transparent about the circumstances in which they will be liable to consumers.

Variation clauses

Terms that entitle businesses to make unilateral contractual changes without a valid, stated reason are specifically grey-listed. This doesn’t mean that so-called “variation clauses” are completely off the table, provided that businesses:

  1. are clear about how, when, and why the contract may change;
  2. give the consumer reasonable notice of any contract changes (particularly any changes which are to the consumer’s detriment); and
  3. offer consumers the opportunity – without penalty – to exit the contract if they’re not happy with the amended terms.

Automatic renewals

Business should make clear to consumers at the outset (i.e. at the point of sale) how and when their contract will be renewed and should send a reminder to the consumer a reasonable time before the contract is due to be renewed. The reminder should include clear information about the terms of the proposed contract renewal and the steps (which should not be prohibitive) that customers need to take to exit the contract – without penalty or cancellation fee – if they want to.

Using unfair contract terms to make a point

Many businesses deliberately use contractual terms which they know are unfair because they feel that these terms ‘send a message’ to the consumer, or they’re relying on the consumer not knowing their rights. This practice is to be strenuously avoided. Not only do unfair contract terms risk attracting the unwanted attention of the regulators, but the practice may fall foul of the law prohibiting misleading commercial practices, breach of which carries criminal sanctions.

If you’d like to discuss any of these points in more detail, please do get in touch with our team.