The End Of Unilateral Change In Contracts For Payment Services? No! [Updated]

This is the final post about some awkward PSD2 issues that were recently referred to the European Court of Justice. The initial post sets out the facts and the four issues referred to the ECJ. The second post addresses the Avocate General's opinion that the contactless feature of a credit or debit card is a separate payment instrument in its own right. The third examines the AG's view that making contactless payments with a debit or credit payment card means the cardholder is using the card "anonymously". The fourth explores whether a card issuer can agree with the cardholder that it is not technically feasible to block the card or prevent further use of the payment instrument if it is lost, stolen etc., even when it is possible to block it.

This post examines the view of the AG (and the Austrian court) that a payment service provider can only rely on the regulation allowing automatic changes to its contracts for "non-essential changes", citing German court rulings that such acceptance "cannot extend to substantial contractual changes."

 

[Update, Spoiler alert 17.11.20: the ECJ did not agree (see end of this post).

Why is this important?

This is a huge issue for the payments industry, because it is very expensive in time and resources to re-issue contracts to large numbers of customers, many of whom will simply not bother to open and/or reply without significant prompting. Enabling changes to be made on notice, with a right to terminate if the changes aren't accepted, means that customers can choose to ignore the correspondence yet continue to receive the payment services. Preventing it means services will cease unless customers open, read and say they accept.

These practicalities are recognised in the recitals to PSD2:

(57) In practice, framework contracts and the payment transactions covered by them are far more common and economically significant than single payment transactions. If there is a payment account or a specific payment instrument, a framework contract is required.

(60) The way in which the required information is to be given by the payment service provider to the payment service user should take into account the needs of the latter as well as practical technical aspects and cost-efficiency depending on the situation with regard to the agreement in the respective payment service contract.

(63) In order to ensure a high level of consumer protection, Member States should, in the interests of the consumer, be able to maintain or introduce restrictions or prohibitions on unilateral changes in the conditions of a framework contract, for instance if there is no justified reason for such a change.

This last recital is important, because national contract laws do generally offer consumers protection from the abuse of unilateral change arrangements, as discussed below. The point here is whether PSD2 allows such arrangements to be agreed for all changes to payment services contracts, or just "non-essential changes." 

What does PSD2 allow?

The relevant provisions of PSD2 are as follows:

‘framework contract’ means a payment service contract which governs the future execution of individual and successive payment transactions and which may contain the obligation and conditions for setting up a payment account;

Article 51 Prior general information

1. Member States shall require that, in good time before the payment service user is bound by any framework contract or offer, the payment service provider provide the payment service user on paper or on another durable medium with the information and conditions specified in Article 52...

2. If the framework contract has been concluded at the request of the payment service user using a means of distance communication which does not enable the payment service provider to comply with paragraph 1, the payment service provider shall fulfil its obligations under that paragraph immediately after conclusion of the framework contract.

3. The obligations under paragraph 1 may also be discharged by providing a copy of the draft framework contract including the information and conditions specified in Article 52.

Article 52 Information and conditions

Member States shall ensure that the following information and conditions are provided to the payment service user:...6. on changes to, and termination of, the framework contract:

(a) if agreed, information that the payment service user will be deemed to have accepted changes in the conditions in accordance with Article 54, unless the payment service user notifies the payment service provider before the date of their proposed date of entry into force that they are not accepted;... 

(c) the right of the payment service user to terminate the framework contract and any agreements relating to termination in accordance with Article 54(1) ...

Article 54 Changes in conditions of the framework contract

1. Any changes in the framework contract or in the information and conditions specified in Article 52 shall be proposed by the payment service provider in the same way as provided for in Article 51(1) and no later than 2 months before their proposed date of application. The payment service user can either accept or reject the changes before the date of their proposed date of entry into force.

Where applicable in accordance with point (6)(a) of Article 52, the payment service provider shall inform the payment service user that it is to be deemed to have accepted those changes if it does not notify the payment service provider before the proposed date of their entry into force that they are not accepted. The payment service provider shall also inform the payment service user that, in the event that the payment service user rejects those changes, the payment service user has the right to terminate the framework contract free of charge and with effect at any time until the date when the changes would have applied.

2. Changes in the interest or exchange rates may be applied immediately and without notice, provided that such a right is agreed upon in the framework contract and that the changes in the interest or exchange rates are based on the reference interest or exchange rates agreed on in accordance with point (3)(b) and (c) of Article 52...

The first point to note is that it is mandatory to enable payment service provicers and customers to agree a unilateral change process: "Member States shall ensure... if agreed... in accordance with Article 54... Any changes...specified in Article 52 shall be proposed...".

Secondly, there is no distinction made for the type of changes to the framework contract that can be covered by the unilateral change process, except to say that changes in interest or exchange rates based on agreed reference may be applied immediately and without notice, if that is also agreed.

Consumer Protection

This is not to say that consumers are not protected against the abuse of a unilateral change arrangement - it's just that those protections are not stated in PSD2 as conditions attaching to its use. 

The need for the unilateral change arrangement to be "agreed" provides the necessary hook for local law "restrictions or prohibitions" of the kind contemplated by recital 63, namely "in the interests of the consumer... for instance if there is no justified reason for such a change." 

But I would submit such restrictions or prohibitions cannot distinguish between types of change, even if, for example, they require a "justified reason" for every type of change.

Under English law, for example, independently of the unilateral change arrangements in the Payment Services Regulations 2017, the parties to a contract can agree that one party has the right to unilaterally vary it, but some constraints apply to how that right is exercised. For instance:

• any clause in a business-to-business contract that is subject to the Unfair Contract Terms Act 1977 (UCTA) which allows a party to perform in a way that is substantially different to what was reasonably expected will be void unless it passes the test of reasonableness; 
• various terms giving traders the unilateral right to change the terms of a contract, the characteristics of the products supplied or the price payable under the contract are grey-listed in the Consumer Rights Act 2015 under suspicion of being unfair, with an exception for financial services contracts (particularly those for an indefinite duration) that reflects the type of mechanism specified in PSD2 (paragraphs 21-23 of Schedule 2); 
• the courts may imply a term that such a right must not be exercised capriciously, arbitrarily or for an improper purpose (Nash v Paragon Finance), except in the case of a decision whether to exercise an absolute contract right (The Product Star (2)).

In Ireland, the unilateral change arrangement in PSD2 is included in the European Union (Payment Services) Regulations 2018. In addition, the European Communities (Unfair Terms in Consumer Contracts) Regulations, 1995 allows terms under which a seller or supplier reserves the right to alter unilaterally the conditions of a contract of indeterminate duration, provided that he is required to inform the consumer with reasonable notice and that the consumer is free to dissolve the contract.

In the case at hand, my view is that the unilateral change clause is not of itself unfair or unreasonable etc., but the clauses that wrongly claim the bank is unable to prove a payment was authorised or is technically unable to block contactless use might be impeached (whether under UCTA, or on grounds of mistake etc as explained in previous posts). 

What is a non-essential change?

At any rate, even if the relevant provisions in PSD2 were to support the restriction of unilateral change arrangements to "non-essential changes" (which they do not, as explained above) that would beg the question what a "non-essential change" might be and, if it is non-essential, why the service provider would bother with the change at all. 

The risk of uncertainty on this point is that service providers will err on the side of caution, thereby increasing cost and inconvenience to consumers with the risk that their payment services will cease for lack of agreement to contract changes that consumers view as mundane, possibly without them having any ready alternative.

Indeed, an essential change (to comply with a change in the law, improved security etc) might be very much in the consumer's interest, particularly where necessary to efficiently ensure the continued use of the service, while minimising the associated cost and inefficiency (as per recital 60). It would seem harsh and disproportionate to deprive them of that benefit for merely failing to read their correspondence and signify acceptance that could otherwise have been rightly taken for granted (with the right to terminate if not).

Post Script 17.11.20

Great news! The ECJ has held that the unilateral change mechanism in PSD2 (Directive 2015/2366) can be used for both consumer/micro-enterprise customers and larger corporate customers (subject to the corporate opt-out) and there is no limit to the type of contractual changes that can be made using the unilateral change mechanism under PSD2. However, where the customer is a consumer the changes themselves can be assessed for unfairness under the Unfair Terms in Consumer Contracts Directive 1993 (Directive 93/13):

Consequently, the answer to the first question is that Article 52(6)(a) of Directive 2015/2366, read in conjunction with Article 54(1) thereof, must be interpreted to the effect that it governs the information and conditions to be provided by a payment service provider wishing to agree, with a user of its services, on tacit consent with regard to changes, in accordance with the detailed rules laid down in those provisions, of the framework contract that they have concluded, but does not lay down restrictions regarding the status of the user or the type of contractual terms that may be the subject of such tacit consent, without prejudice, however, where the user is a consumer, to a possible review of the unfairness of those terms in the light of the provisions of Directive 93/13.