Payment Services Contract Termination – legislative changes ahead for Payment Service Providers

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On 14 March 2024, the UK Government published a Policy Note outlining its intention to impose new requirements on UK payment service providers where they terminate contracts with customers. The reforms are addressed to all payment service providers and are aimed at ensuring increased protection for consumers and other users of payment services. They are being introduced in the aftermath of recent high-profile incidents of ‘de-banking’ where termination of bank accounts or payment services were motivated by a customer’s personal or political beliefs.

The reforms seek to reinforce the pre-existing prohibition that customers’ payment services should not be terminated on grounds relating to their lawful freedom of expression.

The new requirements will apply to provider-initiated terminations of framework contracts concluded for an indefinite period and entered on or after the day the statutory instrument comes into force. The key reforms are in respect of:

  • Notice periods (increased from the current 2 months to 90 days to ensure customers can raise a Financial Ombudsman Service complaint and find a suitable alternative supplier).
  • Detailed and specific explanations (to be provided so that the customer understands why the service is being terminated).
  • Prohibition against avoidance of the reforms (through the use of agreement clauses which provide for the discharge of contracts by agreement) unless specific circumstances apply.
  • Exceptions to the requirements (where there are specific circumstances that may disapply some or all the requirements to ensure providers can meet other requirements and duties, mainly in relation to the prevention of money laundering and financial crime or where there are regulatory obligations to terminate).
  • Corresponding changes in Payment Accounts Regulations 2015 (specifically in relation to the refusal of applications and termination of basic bank accounts, to ensure that users of this payment service have an equivalent level of protection).

The intention is for the draft legislation to be put before Parliament this summer and to commence as soon as possible once it has been given the green light.

If you want to know more about the upcoming changes and how these could affect your regulatory obligations as a payment service provider, get in touch with our Financial Services team for more information.