Payment account contract termination and freedom of expression

On July 21, 2023, the HM Treasury published a policy paper in relation to its review of The Payment Services Regulations 2017 which was accompanied by a corresponding Call for Evidence (please see EventID 19263 in this context for more information). In this policy paper, the Treasury briefly outlines the responses it has received to those parts of its Call for Evidence that relate to payment account terminations by financial institutions. All other issues addressed in the Call for Evidence will be commented on in an official HM Treasury response paper. The Treasury further discusses its stance on the issue and the way forward in this matter, including proposed policy alignments as discussed below.
#### Background
In its review the Treasury sought comments on whether or not the current notification period and requirements pertaining to account terminations are adequate, particularly in view of the fact that many customers have seen their accounts terminated without any „obvious“ reason.
#### Comments
There was a wide range of opinions on whether or not any changes are needed in this context. While there was a broad agreement on the need for fair notice and open communication in account termination cases, there were differing views on the level of autonomy payment providers should have in termination actions. Specifically, consumer groups and advocacy organizations found that greater transparency and appeal mechanisms are needed to protect consumers from unlawful or unjustified account terminations. On the other hand, financial services firms tended to favor the current regulatory framework and saw no need to adjust account notification periods or disclosure obligations in this context.
#### HM Treasury proposed policy adjustments
Having reviewed the feedback, the HM Treasury finds that changes to the current regulatory framework are desirable to better protect consumers. In that way, it picks up on the motions of consumer advocates and proposes to adjust the 2017 regulations as follows:
(1) Transparency in Account Termination Reasons: The HM Treasury aims to improve transparency for users whose payment account contracts are terminated. The proposed regulation will therefore state that payment account providers must provide a clear and tailored explanation for contract terminations, unless doing so would be unlawful.
(2) Notice Period for Contract Termination: Payment account providers will be required to give at least 90 days notice before terminating a contract, except in cases of serious and uncorrected breaches (e.g., non-payment) or other significant occurrences. The Treasury emphasizes that clauses in user agreements that attempt to allow termination for reasons like brand protection cannot be used to bypass this notice requirement. However, shorter termination notice periods may be allowed in specific cases, such as compliance with the law or termination in accordance with general principles of contract law.
(3) Scope and Application: The proposed changes are expected to apply to contracts entered into after the changes take effect. The exact scope of application is still being considered and not yet final.
In its summary, the Treasury also notes that it is aware that some financial institutions have used regulations on Politically Exposed Persons (PEPs) in a disproportionate manner and have initiated account terminations or refused payment services altogether based on PEP status or views. Such behavior is unacceptable. PEP status and views shall NOT be the sole purpose for such action. De-risking measures such as this one need to be avoided in all circumstances, although FIs still need to perform adequate (enhanced) due diligence.
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The Government intends to implement the above noted changes through secondary legislation using its powers granted by the Financial Services and Markets Act 2023.