"Don't expect customers to read contracts" warns financial watchdog

A financial watchdog has warned organisations not to reject customer complaints about unfair contracts after acknowledging that consumers were unlikely to have read the terms and conditions.

But the Financial Services Authority also pointed out that even asking customers to tick a checkbox asserting that they had read and understood the terms of the contract was in breach of the Unfair Terms in Consumer Contracts Regulations.

"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," the regulator said in recently published guidance.

It continued: "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."

The problem was that firms could use such declarations to claim that customers were given the opportunity to read a contract even if they did not actually do so, while arguing that they had thus fulfilled their obligations. "This may not be true. Therefore, the use of a declaration in this way is unfair," the FSA said.

As a result of this discrepancy, if consumers complained about the particular terms of a contract, companies were under an obligation to investigate the complaint and decide whether or not they were unfair. If they discovered to be, organisaitons should then "take appropriate action to deal with any detriment suffered by the consumer".

However, it was perfectly fair for firms to ask customers to declare 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," the watchdog said. "Because the consumers know this information, we may well regard it as acceptable for consumers to sign declarations in respect of it."

But customers should nonetheless be provided with an opportunity to read contracts, understand them and ask questions about any aspects of them about which they are unsure, the FSA added. The Office of Fair Trading has also issued similar guidance.

Based on the guidance, Struan Robertson, a technology lawyer with Pinsent Masons, who writes for the firm’s Outlaw.com website, advised online retailers to use a checkbox with a brief statement such as 'I accept the terms and conditions' positioned above a confirmation button, with the words 'terms and conditions' acting as a link.

"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," he said.

Such mechanisms included highlighting any unusual terms and providing a bullet point summary of three or four key terms to make reading them less onerous.