Life is too short to spend it reading terms and conditions but everything we sign up for now comes with hundreds of them. My home insurance policy runs to 45 pages and my budget airline conditions contain 9,000 words.
How often have you clicked your mouse without wading through the small print? Contracts full of legalese do not match modern life, so we need a new way of agreeing the terms of retail transactions.
The FSA has tacitly acknowledged that customers do not read the T&Cs of financial products. In the past, the regulator relied upon transparency. If the firm produced all the paperwork and the customer signed it, they were bound by the contract but too many unfair outcomes resulted.
FSA chairman Lord Turner put it like this. “We have focused on transparency of communications – clear explanation of product terms, clarity of pricing information – and that will remain a priority. But there is a wealth of evidence that it is insufficient.”
Chief executive Hector Sants told last year’s annual BBA conference: “Experience has shown that in practice consumers pay scant attention to the material provided to them at the point of sale and in many cases lack the technical skills to evaluate the information.”
The FSA’s solution to this so far has been to say that, despite what the contract says, it will consider whether the product was “suitable” for the purchaser. As Sants went on to say in his speech: “The FCA is likely to make more suitability judgements and run the risk of being accused of reducing personal freedom.”
For consumers, the underlying cause of problems is that when we buy a product or service, we are attracted by the advertising and marketing. We probably make our decision to buy at that point. We have made a number of assumptions about what we are buying, whether it is insurance, computer software or a mobile phone, and these basic assumptions are about the service we expect or the performance of the product we are buying. If we generally do not read the small print but are relying on what a reasonable person would assume they are getting, then maybe that is the starting point the law should take if there is a dispute. The unfair terms in consumer contract regulations go some way towards this, saying terms are not binding if they are unfair. Effectively, unfair clauses are struck out by the courts.
But perhaps there is now an argument for saying that some terms and conditions can be unfair simply because of their length and complexity and that they should all be struck out, to be replaced by what a reasonable person would assume were the conditions that attached to that product?
As a start, let’s require all T&Cs to cover just one side of A4 in 12pt. Much shorter terms and conditions should encourage a few more people to read them. Even if they do not the threat of replacing all the terms with reasonable ones might discourage some firms from hiding nasty surprises in the small print.
John Howard is a former chairman of the FSA’s consumer panel and a special adviser to Huntswood