The Role of Consumer Contracts, Advice and Disclosure

Great discussion at a CSFI event this morning, focusing on the difference between financial advice and guidance, and touching on the FCA's very encouraging plans to support a far better consumer experience and more innovation generally. A key theme in the discussion centred on the role of consumer contracts in the supply of financial services, and it was clear there needs to be more discussion on the tension between regulation, contracts and product information. 

Of course, the starting point was that lengthy consumer contracts are 'silly' - a point made by John Kay last year and discussed on the SCL blog. But it's important to recognise that contracts act as a layer between law and regulation and the information a consumer sees when buying and using a financial service. They represent a service provider's public statement of how it interprets the law and regulation to apply to its service. That statement is critical not only for consumers themselves, but also for the courts and many stakeholders on whom consumers rely to protect them (indeed governments have even deputised global service providers as private sheriffs, relying on violations of their terms of service to 'shut down' Wikileaks, for example). In addition, financial instruments - loans, bonds, shares - that are agreed or traded in the course of using most financial services are themselves simply sets of terms and conditions.

The reason consumers are confronted by such terms and conditions is that the courts have insisted that consumers must be given an opportunity to read and agree them if they are to govern the customer relationship. It is this interactive process of offer and acceptance that produces an enforceable "contract" (along with some form of 'consideration'). Unless and until Parliament changes the basis for establishing contract law in the UK, we're stuck with that approach. 

Yet this morning it was suggested that a consumer should not even need to the opportunity to read and agree terms and conditions in order to benefit from them. Revolutionary stuff, unless you live on the continent, where a lot more of what we see as contractual terms are embedded in civil codes. This of course removes a lot of commercial flexibility, and means the market moves at the speed of law and regulation... which would undermine the FCA's object of promoting innovation.

Of course, the financial services sector is arriving late to the debate about how to enable consumers to properly agree and understand the substance of a contract without necessarily drilling into the fine print unless they so wish. The intellectual property community came up with the Creative Commons licensing model in 2001 and, more recently, the World Economic Forum has been trying to foster a similar approach to the use of personal data.

But the critical issue in every case is whether the simplified summaries that consumers see and agree actually reflect the terms and conditions on which a firm says it is doing business; whether those terms and conditions are consistent with applicable law and regulation; and, finally, whether the firm's business processes and computers actually operate on the same basis. Here we run into the tension between Big Data and the growing array of technology that puts you in control of Your Data - data about you, or which you generate in the course of your activities.

This is certainly not an area where the FCA can go it alone, and it's great to see their representatives (not to mention someone from the Treasury) participating in open debates such as the one this morning. 

Lawyers Who Code

My name is Simon and I can't code. 

There. I've said it. Despite working with and around computers since 1990, I can't really tell one what to do - at least not in any language it will respond to. 

But as internet and mobile technology becomes ever more accessible, it's becoming clear that computer programming is something I should learn. After all, it's really about writing rules and I write contracts all the time. Since writing the article on Linked Data for the SCL in March, it's also occured to me that more and more legal contracts should be capable of being acted upon by machines without any human intervention. Indeed, as a colleague on the SCL Media Board pointed out today, Creative Commons licences have a machine-readable layer, as well as legal code and human readable layers - which is also something we discussed in the WEF's tiger team on Rethinking Personal Data in June last year.

So I've decided to get a Raspberry Pi and give it a whirl. No doubt I'll struggle to find the time, and maybe the kids will learn faster than me, but so it goes with the guitar and piano. Hopefully it will be as much fun.

In the meantime, I'd love to hear from any lawyers (or others) who've learned to code, how they're getting on with it and any top tips on how to go about it.

An EU Contract Law? Too Tough To Digest

A hat-tip to Mayer Brown for the heads-up on the latest in the saga of a proposed European Contract Law. We have until 1 July to send feedback on 189 individual articles included in a 'feasibility study'. The Commission will then consider that feedback, together with the results of an earlier consultation.

As I have posted previously in another place, I'm not terribly supportive of a new European Contract Law. It doesn't fix any real problem, and it won't catalyse a single, cross-border market - notwithstanding the rationale advanced by the European Commission. The example used is:

"An Irish consumer buys an MP3 player online from a French retailer. In this case, Irish contract law would apply if the French retailer has designed his website for Irish consumers."

This is a strange scenario, littered with odd assumptions. Besides, there are notable instances of successful cross-border retailing in the EU that rely on the law of a single Member State as the law of the contract. And choice of law is the least of the barriers to setting up such an operation, as the European Commission itself discovered in the context of the reform of laws related to consumer rights and consumer credit. In particular, a May 2007 study by Civic Consulting revealed that:

“the main [non-regulatory] barriers hindering selling of consumer credit products in other EU Member States are different language and culture; consumers’ preference for national lenders; credit risk for lenders – no access to creditworthiness information; problems related to tax, employment practices etc.; difficulties to penetrate local market; different consumer demand in different Member States; lack of consumer confidence in a brand; differing stages of development of consumer credit; and lack of adequate marketing strategies.”

Furthermore, the law should follow, not lead commerce (though I realise that is a common law, rather than a civil law view). Otherwise, it acts as a hurdle to innovation and market development, and only those who are 'good at regulation' (incumbent players) will cope.

A pan-European contract law also conflicts with the principle already enshrined in various financial and other regulatory frameworks that, in general, the law in a corporation's home Member State should govern that corporation's cross-border EU activities. In fact, given the preponderance of any EU-based cross-border retailer's trade is with the citizens of its home state (with the exception of retailers based in Luxembourg) this proposal would seem to envisage retailers either imposing European Contract Law on their local customers, or creating separate set of terms for cross-border customers. I don't see how either is helpful, other than to generate work for the likes of... well, me.

But I'm not in the business of creating more hurdles for cross-border trade. So, while I will of course personally attempt to digest yet another European dog's breakfast, I propose to focus my drafting energies on an exclusion clause that will mean my clients and their customers won't have to.

Apply within ;-)