We are likely to uphold a complaint where a financial business does not bring these exclusions and warranties to the consumer’s attention when they take out the policy. In the cases we see, we usually decide that it is not enough simply to remind the consumer to read the policy – and cancel it within the “cooling off period” if it does not meet their requirements.

In deciding whether a policy was mis-sold, we ask the financial business for clear evidence that the exclusion or warranty was drawn to the consumer’s attention before they committed to buying it.

When we look at banking disputes involving contracts, we take into account the firm’s duties under the Banking Codes. We consider relevant statutes, such as the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contract Regulations 1999. We also consider the Financial Services Authority’s Statement of Practice, Fairness of Terms in Consumer Contracts (published in May 2005). This gives firms an indication of how they can avoid using terms that could be regarded as unfair. It is particularly relevant when we look at terms to do with interest rate variation.

In addition, and very importantly, we are required to decide what is ‘fair and reasonable’ in a given case. This may mean deviating from the ordinary or strict legal position where that is necessary to ensure a fair outcome.

Among the more common issues we come across are the following.

unusual or onerous terms

There is a legal rule that a term which is particularly unusual or onerous – and would not be generally known to the customer – is only binding on the customer if the firm has brought it fairly and reasonably to their attention before the contract is made.

We often need to consider this rule in the context of early repayment charges on mortgages. But it also applies to any unusual or onerous contract terms, including those in business banking contracts.

unfair contract terms

Sometimes the law simply provides that a contract term is unfair.

Examples are terms that
unreasonably try to exclude or limit a firm’s liability for breach of contract; or
unfairly tilt the balance of a consumer contract too far in the firm’s favour.

real consent

Customers will not be bound by a contract if they did not freely agree to enter into it and the firm was on notice of this.

Examples include situations where
the customer lacks the mental capacity to understand the nature of the contract and the firm knows that; or
the firm knows that a customer is being pressured or unfairly influenced into agreeing to be responsible for another person’s debts.

terms that do not form part of the contract

To be enforceable under the contract, a term must first be properly incorporated into it. We sometimes find that firms try to add terms after the contract has been finalised, or to infer terms that could not reasonably be inferred from what the contract says. It may be that, with hindsight, a firm wishes it had included a particular term. But unless that term was properly incorporated into the contract we will not apply it.