On 23 May 2019, the FCA published a Notice of Undertaking against the debt management firm, stating that it was concerned that:
- two of the terms in the firm’s standard form contracts had the potential to give the firm discretion to charge consumers unspecified amounts should a consumer cancel the contract, which could lead to unexpected high costs. The terms stated that if consumers chose to cancel their debt management plan the firm “reserve[d] the right to charge [the consumer] an amount which is sufficient to cover any losses and costs suffered”; and
- a third term stated consumers may end the contract by providing one month’s notice, but when read together with the other two cancellation terms it was not clear if the contract could be cancelled immediately or if one month’s notice was required. The FCA was concerned this could cause confusion to consumers.
As a result of the FCA’s concerns, the firm has given an undertaking under the Consumer Rights Act 2015 and the Unfair Terms in Consumer Contracts Regulations 1999. The firm has:
- agreed that the two cancellation terms had the potential to be considered unfair and so has amended those terms to state that the maximum fee consumers will be charged on cancellation will not exceed the initial set-up fee plus one month’s service fee, less any amount already paid;
- agreed that the third term setting out a notice period had the potential to be unclear and so has deleted the term and amended the two cancellation charge terms to make clear that consumers must provide one month’s notice, if they wish to end the contract outside of the 14-day cooling-off period;
- agreed to write to all its existing customers to provide them with the new contract terms;
- agreed not to rely on the original contract wording in respect of existing customers;
- carried out a review of former customers who cancelled their agreements with the firm and paid redress, where appropriate; and
- fully cooperated with the FCA.
This is the second Notice of Undertaking published in the last month about unfair contract terms – see here for details of the other recent Undertaking. The Undertakings follow the Final Guidance published by the FCA in December 2018 (Fairness of variation terms in financial services consumer contracts under the Consumer Rights Act 2015), which also included general guidance on fairness of contractual terms. Firms should be on notice that their contractual terms, particularly those surrounding cancellation and termination (and variation), could easily come under FCA scrutiny.