knowledge 12 August 2021 |

Consumer Rights Bill and Financial Services – Will you be Ready?

This briefing considers the likely impact of the Consumer Rights Bill (assuming it takes the form contemplated by the General Scheme – here) on financial services in Ireland.  For an overview of the General Scheme, including a detailed discussion of the proposed new Irish statutory regulation of digital content and digital services, please see our earlier briefing here.

Status and Timing

As at the date of writing, only the General Scheme of the Bill is available.  While we do still await publication of the Bill itself, the detailed General Scheme provides an excellent insight into what it is likely to include.  Once published, the Bill will need to be enacted speedily if the State is to meet the Omnibus Directive’s¹ transposition deadline of 28 November 2021.   The Omnibus Directive requires the enacted legislation to take effect in Ireland from 28 May 2022.  Consequently, businesses may be afforded only a narrow window between the date of enactment and the coming into force of the legislation to make any relevant changes to documentation and processes.

What is the Impact on Financial Services?

The first point to note is that the Bill applies to contracts with a “consumer” (being a natural person acting for purposes wholly or mainly outside their trade, business, craft or profession) concluded after the coming into effect of the legislation (anticipated to be 28 May 2022).

While the Bill applies to a broad range of consumer contracts generally, it has a much narrower application to “financial services” with many of its Parts specifically excluding them from scope.  A “financial service” is defined as “…any service of a kind normally provided in the ordinary course of carrying on a banking business, an insurance business or a business of providing credit, personal pensions, an investment service or a payment service”. 

For in-scope financial services provided to consumers, the following are likely to be the principal implications of the Bill once enacted:

1. Exclusion/Restriction of Liability:  a contract for a supply of services will no longer be permitted to exclude or restrict the service-provider’s liability in relation to a list of specified provisions of the Bill (eg supply of service; conformity of service with contract; reasonable price for service).²  A breach of this provision would constitute an offence.  Consequently, financial services providers should review their consumer-facing contracts to identify if they contain any affected clauses and, if so, make appropriate amendments.

2. Unfair Terms:  significantly, the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 (the “Regulations”) are being repealed and replaced by the provisions set out in Part 7 of the Bill.  While not mandated by the Omnibus Directive itself (which made limited changes to the Unfair Contract Terms Directive³ (“UCT Directive”) transposed by the Regulations), the provisions of Part 7 represent significant change from those set out in the Regulations.  Some of the more noteworthy changes are:

• Black list:  A new “black list” of standard contractual terms and conditions that are always unfair.  This includes items such as:  seeking to transfer the onus of proof to the consumer where it should rest with the provider by law; requiring a consumer who is party to arbitration to pay his/her own costs; conferring exclusive jurisdiction on the courts where the trader is domiciled, unless that is also where the consumer is domiciled.  Head 110 of the General Scheme sets out the complete list.

• Grey list:  The existing “grey list” of potentially unfair contractual terms is retained and expanded.  Importantly, the Bill also presumes such terms to be unfair, whereas the existing Regulations simply state they “may be regarded” as unfair. 

• CJEU jurisprudence:  Helpfully, the substance of a number of decisions of the Court of Justice of the European Union on the UCT Directive are translated into legislative provisions.  For example:  a contract is not automatically excluded from the scope of the legislation because the consumer did not pay a price under the contract; the meaning of a contract must be “transparent” (as defined) to the consumer; the court has a duty to consider, even where not pleaded by the consumer, the fairness of the  terms of an in-scope contract. 

• Exclusions:  the number of items excluded from possibility of assessment for unfairness has been narrowed, in particular by (i) extending the assessment to terms individually negotiated and (ii) narrowing the exemption for core contract terms.

3. Offences / Fines:  as is typical in such legislation, the Bill makes breach of a number of its provisions an offence, with the potential for the imposition of fines or imprisonment on conviction.  In addition, however, where an offence under specified parts of the Bill (including Part 7 regarding unfair terms) constitutes an intra-union or relevant widespread infringement, then further fines can be imposed of up to 4% of relevant turnover.  For example, a financial services provider that concludes a consumer contract including a term on the “black list” mentioned above, or that continues to use a term held by the court to be unfair (following an application for such a declaration by an “authorised body” such as the Central Bank of Ireland), both commits an offence and is liable to the turnover-based fine.

4. Consumer Protection Act 2007:  The Bill also makes a series of amendments to the Consumer Protection Act 2007, which could apply to the provision of products (which can include financial services) within the scope of that Act.  Possibly the most relevant of these is the extension of the turnover fines regime mentioned above to certain breaches of the Act.

Comment

Financial service providers that deal with consumers generally have robust documentation and processes in place to ensure compliance with the many different requirements of consumer and financial services legislation.  As part of that ongoing compliance work, it will be important to review the Consumer Rights Bill in detail once published to determine what amendments will be necessary to compliance frameworks.  Given the likely tight time-lines and the potentially extensive scale of the review required, especially where there are multiple consumer-facing products, early engagement with the General Scheme and, in particular, the issues discussed above would be prudent.