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UK consumer protection regulator identifies unfair cloud services terms

Sue McLean, Morrison & Foerster | June 3, 2016
Some cloud contracts may violate UK consumer protection law

On 27 May 2016, the Competition and Markets Authority (CMA) published the findings of a review into the consumer cloud storage sector.

The CMA identified that, although nearly nine in ten consumers had not experienced any problems with cloud storage services, some providers were using contract terms and practices that may breach UK consumer protection law.

The CMA's review involved evaluating cloud storage terms against UK consumer protection law, in particular, the Consumer Rights Act 2015 (CRA) which regulates the use of unfair terms in consumer contracts. The CRA 'blacklists' certain terms that are considered automatically unenforceable. Other terms are subject to a 'fairness test'. Any unfair terms will not be legally binding and may lead to enforcement action and claims in the courts.

Alongside its report, the CMA published an open letter to cloud service providers suggesting that they review their terms and conditions for fairness. They also published a checklist of key issues, as summarised below.

Although the CMA's views are not binding (ultimately, only a court can decide whether a particular term or practice is unfair), cloud providers should consider the guidance carefully. Other sectors should also take note of the report's findings. Many of the concerns raised by the CMA are not specific to cloud storage terms - the kinds of 'unfair' terms that CMA identifies are often found in many other digital services, website and app terms.

Pre-Contractual Information

Providers must make available to consumers upfront all mandatory pre-contractual information (such as service description, identity of the provider and the price) in a clear and comprehensible manner.

Automatic Renewal

Providers must be clear about how and when a contract will renew and what options consumers have to cancel. In particular, providers must:

allow consumers to opt-out of automatic renewal at any time;

notify consumers about renewal a reasonable time before it occurs, and before payment is taken, so consumers have a choice as to whether to renew;

ensure that a notice of renewal includes details of any changes to the price or service; and

allow consumers to exercise their statutory cancellation rights.

Unilateral Variation

Providers will often want wide discretion to make changes to their terms. However, any unilateral variation is likely to be unfair unless there are compelling reasons, e.g. to ensure security and operability of the service or to meet legal requirements. The guidance makes clear that providers should:

only be able to make changes to the terms or the service for valid reasons that are clearly set out in the contract;

ensure that consumers receive adequate notice of changes; and

ensure that consumers who do not wish to accept changes can cancel, obtain a refund for any services not yet provided and retrieve their data.

 

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