FCA’s supervisory decision on EPayPro UK Limited: A lesson in fairness and transparency

by Isabel Lu, Associate, Addleshaw Goddard

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What is this article about?

The UK Financial Conduct Authority’s action against EPayPro UK Limited regarding a new compliance fee, emphasising regulatory concerns about transparency and fairness

Why is this important?

It highlights the FCA’s dedication to enforcing consumer rights in financial services, focusing on transparent and fair fee practices.

What’s next?

The FCA will monitor EPayPro’s compliance with its directives and may use insights from this case to strengthen regulation of payment services and consumer protections

On 4th January 2024, the UK Financial Conduct Authority (FCA) issued a first supervisory notice to EPayPro UK Limited (EPayPro), an authorised payment institution, outlining concerns over a 100 EUR monthly compliance fee (“Compliance Fee”).

This decision offers valuable lessons for other firms on the importance of fairness and transparency, particularly in relation to the introduction of new fees. Notably, the FCA exercised its own initiative powers, pursuant to regulations 12(1)(d) of the Payment Services Regulations 2017 (PSRs), to vary EPayPro’s permission status and impose a number of requirements outlined below to protect consumers’ interests.

Understanding the FCA’s Decision             

The FCA’s decision was driven by the firm’s introduction of a Compliance Fee, which was deducted from customer accounts following a unilateral change to its terms and conditions. The FCA found that EPayPro may have breached the Payment Services Regulations 2017 (PSRs) and the Consumer Rights Act 2015 (CRA 2015) on the basis that:

  • Customers were only provided seven days’ notice of the introduction of the Compliance Fee by a notice of variation of the terms and conditions via its website and, therefore, may not have complied with PSRs, which requires two-month notice under Regulation 50 of the PSRs;
  • EPayPro relied on a variation term, which would likely be unfair under the CRA as it lacks sufficient transparency because it does not set out the reasons why the terms may be varied pursuant to the CRA; and,
  • The compliance Fee was likely to be considered unfair as it was disproportionally high.

As a result, the FCA has imposed the following obligations:

  • EPayPro to cease charging its clients a Compliance Fee, as well as refrain from deducting this fee from its safeguarding account; and,
  • EPayPro was prohibited from introducing any new fee charges that aim or result in the reduction of client funds without obtaining prior written consent from the FCA.

Decoding the FCA’s Decision

Interestingly, the language in the undertaking mirrors that used in previous undertakings obtained by the FCA regarding unfair contractual terms. The decision provides important lessons to the payment industry, stating that they must comply with consumer protection legislation. The FCA is unafraid to use its powers in this space to tackle unfair practices that have the potential to harm consumers.

This decision also follows the EU case judgment in Denizbank AG v Verein für Konzumenteninformation (Case C-287/19) in November 2020. In this case, the European Court of Justice (CJEU) considered whether a payment service provider could unilaterally modify the terms of their framework contract based on presumed tacit (or passive) consent as specified in the change provision of their framework contract. The CJEU established that while Articles 52(6)(a) and 54(1) of PSD2 do not restrict the type of terms that can be changed by tacit consent, these terms must nonetheless be considered in light of the Unfair Terms in Consumer Contract Directive (93/13/EEC), particularly when the payment service users are consumers.

Key Takeaways – the importance of fairness and transparency

The action by the FCA acts as a stark reminder to payment service firms to keep their consumer protection regulatory and legislative requirements in mind at all times. Some key takeaways are:

  1. When drafting variation terms, firms should carefully consider what, if any, changes might be necessary during the contract’s duration and the reason for those changes. It is then important for transparency purposes that each reason why the terms may be varied is explained as clearly as possible.
  2. Firms should mitigate risk by regularly reviewing their terms and conditions to ensure compliance with PSRs, CRA, related guidance, and new Consumer Duty rules.
  3. The FCA action here should also be considered by firms in light of their Consumer Duty obligations. For firms contemplating the introduction of new charges or fees, it is imperative that they assess whether such fees are not only “reasonable” in comparison to costs but also that the product or service continues to offer fair value to the consumer.
  4. The FCA has bolstered its resources to ensure that Consumer Duty is embedded effectively within firms. It has also indicated that the provision of payment services is a key focus area. The FCA may use its powers to obtain undertakings to help it meet its consumer protection aims.

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