Companies whose small print changes the basis of consumer deals will face investigation by consumer regulator the Office of Fair Trading (OFT), it has said. According to the OFT, one in five consumers had experienced a contract problem in the last year.
The OFT has set out the criteria it will use to judge whether or not consumer contracts are unfair and should be investigated by it. The crucial factor determining the fairness of contracts will be the consumer's understanding of what the contract means.
If the small print of terms and conditions alters the contract from what a consumer would understand it to mean from other claims made by a company, that is likely to be harmful and could be unlawful, the OFT said in a paper on unfair contracts (116-page/1MB PDF).
"Our approach to identifying the potential for harm from a particular contract, before considering whether there is any breach of law, is to assess whether a contract term changes the deal from what consumers understand it to be," said the OFT's paper.
"One way in which a contract term can change the deal is where there are surprises buried in the small print," it said. "Our research found that for 80 per cent of those who had experienced a problem with a consumer contract, the problem came as a surprise."
The OFT said that it had investigated what makes a contract unfair and harmful to consumers, rather than specifically what makes it break the law. It said, though, that if a contract was unfair then it could use the Unfair Terms in Consumer Contracts Regulations (UTCCRs) and the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) to take action against companies.
Consumers are facing problems with contracts. The OFT said that 70 per cent of its enforcement work on behalf of consumers relate to the terms and conditions contained in contracts.
It said that common features of contracts that it takes action against are those that have less scope than would be expected; those that contain unexpected charges; those that contain unexpected risks; and those that prevent consumers from taking their business elsewhere.
It said that such terms were not always unlawful, and that their legality will depend on the context.
The OFT's study also discovered that consumers pay little attention to the contents of small print, but that consumers should be protected in some, but not all, cases.
"On the one hand, we all know that people don't read the small print of contracts," said Heather Clayton, senior director of the OFT's consumer group. "On the other, small print is a necessary fact of life and consumer law isn't there to protect the careless or the over-hasty. This report reconciles the need for small print with the real life behaviour of consumers and sets out the OFT's expectation that consumers should be free to focus on the main elements of the deal, confident that there will be no unwelcome surprises in the small print."
The report also found that contracts could be unfair even when they did not hide terms or clauses.
"Even where terms are not buried in small print, consumers can have trouble assessing them," said the study. "For example consumers have trouble evaluating fees which are contingent in occurrence or amount, and sometimes those that are deferred, particularly when the decision is made under time pressure. They also place less weight on information if it is introduced late in the sales process."
"By exploiting such biases firms can, as it were, hide potentially unfair terms in plain view," it said.
The OFT said that businesses should use the paper to assess their own contracts to see if they comply with the law and with the OFT's definitions of fairness.
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