Terms and Conditions Apply

“Nobody reads terms and conditions… do they?”

We are all guilty of clicking on a button saying we have read and agree to terms and conditions online, without giving them even a cursory glance. This is what lead to the famous April Fools prank in 2010 by the online computer game seller Gamestation, who inserted a clause in their Terms and Conditions saying that anyone who bought goods from them and did not click on a link embedded within them agreed “to grant Us a non-transferrable option to claim, now and forever more, your immortal soul.” (see here for more details). As far as I am aware, Gamestation never sought to enforce the clause, but the point was well made when 7,500 customers clicked to agree to the Ts&Cs.

Notwithstanding customers’ clear reluctance to actually read Terms and Conditions, the Financial Conduct Authority (FCA) and His Majesty’s Treasury (HMT) are strongly of the view that they are of real importance, particularly given the ability of firms to rely on them when in dispute with customers.

The new Principle 12, which came into effect on 31 July with the Consumer Duty, says “Firms must act to deliver good outcomes for retail customers” and the FCA’s explanation at PRIN 2A.5.3R in the Handbook makes it clear that firms “must support retail customer understanding so that its communications:

• meet the information needs of retail customers;
• are likely to be understood by retail customers; and
• equip retail customers to make decisions that are effective, timely and properly informed”

In a payments context, the Payment Services Regulations 2017 (PSRs) require that a framework contract is, in common with all information regarding the service, provided in “easily understandable language in a clear and comprehensible form”. All of this is in addition to general consumer protection legislation.

Readers may have noted that the FCA recently published a Notice of Undertaking from Wirex Limited, an authorised E-Money Institution. The FCA required Wirex to make changes to their e-money contract and to give an undertaking under the Consumer Rights Act 2015, in relation to three terms which purported to exclude the firm’s liability as a result of account suspension, to limit compensation available to consumers and one which excluded commitments implied by law. The FCA made the point in its notice that customers are unlikely to understand what this means.

While the FCA used existing consumer law to enforce the changes, it is very clearly in line with the Consumer Duty focus that we are seeing from it and is quite likely to presage a more general focus on misleading or unclear terms in consumer contracts in the Payments and E-money sector. In addition to this, on 2 October HM Treasury announced that, following its investigation into the “debanking for political views” allegations by Nigel Farage:

“The notice period for payment service framework contract terminations is to increase from two months to 90 days, and banks will be required to give customers clear and tailored explanations for why they had closed an account – unless in limited cases such as where this would be unlawful.”

While this references banks, the two-month period for termination of a payment services framework contract is set out in Regulation 51 of the PSRs and applies to all Payment Service Providers, not just banks.

So in conclusion then, all of this leads me to say that Payment and E-money Institutions would be well advised to start reviewing their Terms and Conditions, before the regulator forces them to do so.