Regulations detailed in the guidelines ensure unfair conditions in contracts will not be binding and the rest of the contract will only remain in force if the unfair term is not an essential part of the dealing, Out-Law magazine, produced by Pinsent Masons, has revealed.

Under the system, the OFT is required to investigate unfair terms and has the power to take action against businesses if there is a danger of harm to consumers.

According to the regulations, an unfair contract term is a ‘significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer’.

Companies are not allowed to ask customers to sign exclusions which diminish their legal rights or provide guarantees which are narrower than the consumer’s official rights, Out-Law has reported.

The guidelines state: ‘In practice consumers often do not read, and rarely understand fully, any but the shortest and simplest contracts.’

Legislation affecting businesses which offer credit to consumers is due to come into force on October 1st.

Under the new rules, all firms governed by the OFT which provide such services will have to provide more information about their accounts to consumers, including an annual sum.