The Deputy Chairman of Committees (Baroness McIntosh of Hudnall) (Lab)
Good afternoon, my Lords. I remind the Committee that, in the event of a Division or Divisions in the Chamber, the Committee will adjourn for 10 minutes from the sound of the Division Bell.
Clause 48: Contracts covered by this Chapter
Amendment 45
Baroness Neville-Rolfe
Baroness Neville-Rolfe
“(5A) The power in subsection (5) includes power to provide that a provision of this Chapter does not apply in relation to a service of a description specified in the order in the circumstances so specified.”
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe)
My Lords, this amendment clarifies that, when the power in subsection (5) of Clause 48 is used, the statutory instrument made under it can provide that an exclusion only applies to a service in the circumstances specified in the order. The amendment therefore enables a more precise or limited exercise of the power where this would be more appropriate. I beg to move.
Baroness Hayter of Kentish Town (Lab)
My Lords, I thank the Minister for introducing the amendment. Perhaps I could just take a brief moment to wish my noble friend Lady King a happy birthday today—it is always very nice to spend it in this way.
Our only query, picking up on the Minister’s use of the word “clarifies”, is whether the amendment clarifies the existing law or whether it extends it to enable the Government to cherry-pick, if you like, the provisions in this Bill so that they would not affect a particular service. As the Minister will understand, the Legal Services Consumer Panel and the Financial Services Consumer Panel are slightly worried that the power provides the possibility to carve out some legal services from being covered by the Bill, especially as—although I am sure that it was unrelated to this—the Minister’s helpful explanatory letter cited the equivalent power to exclude arbitrators from the scope of legal services legislation. Given that worry by consumer representatives about whether this might be aimed at particular consumer areas, if it is possible for the Minister to expand on what sort of circumstances she has in mind that this power might be needed for, that might allay people’s concerns.
Baroness Neville-Rolfe
My Lords, perhaps I can explain the general intention and then see whether we can clarify the point that has been raised about legal services. Our intention is that this power will not be used regularly. It is designed to accommodate certain services where it would not be appropriate to apply all or some of the provisions of Chapter 4. While the power is designed to be rarely used, we want it to be able to be used when it is needed. We are therefore proposing this amendment. The amendment clarifies that the statutory instrument can provide that an exclusion only applies to a service in the circumstances specified in the order. It therefore enables a more precise or limited exercise of the power where this would be more appropriate.
We plan to consider each case on its merits and the decision will be on a case-by-case basis. For example, we would want to consider the costs and benefits to both businesses and consumers. Let me reassure you also that any use of the power would be subject to parliamentary scrutiny, as an order made under it will be subject to the affirmative resolution procedure. Because this is an enabling power, it is difficult for me to comment on specific areas, but our broad intentions are as I have outlined.
Baroness Hayter of Kentish Town
My Lords, I think that probably goes even further, if I have understood the Minister correctly, as it makes more specific what might be excluded. My guess would be that this would be reassuring to the groups that have contacted me and, in that case, we will be happy to support the amendment.
“( ) In assessing whether the service has been performed with reasonable care and skill, any claim made by the trader as to the outcome the service will achieve must be taken into consideration.”
The Deputy Chairman of Committees
Let me just clarify that the noble Baroness is moving Amendment 46A. She said “Amendment 48A”.
Baroness Hayter of Kentish Town
I was just checking that the Chair is awake. I rise to move Amendment 46A in my name and that of my noble friend, Lord Stevenson. We have given him the day off today, so I fear that you are going to hear rather a lot of my voice.
Amendment 46A is, of course, of central importance to users of services, as it would ensure that they have access to the remedies laid out in the Bill, should a service fail to deliver on the promised or anticipated outcome. The amendment would bring the regime for services into line with that for goods and digital content. That is important for the clarity of the Bill, but it would also ensure that the Bill lives up to what customers expect, which is that a service should do what it is supposed to do, rather than being measured simply on whether the service provider used “reasonable care and skill”.
The amendment would also do what the BIS Select Committee in another place recommended, which is that the Bill should apply an outcomes-based standard to how we measure services. Thus, whether a service has been satisfactorily delivered should be measured against what it was meant to do, not the attributes of the provider.
We might note that the Solicitors Regulation Authority has moved to outcomes-based regulation. It places the emphasis not simply on compliance with rules, but on achieving the required outcome for clients. Many of the excuses given for the Bill not adopting this outcomes-based standard have cited lawyers, but they are the very people who have accepted that standard. Given that we have these very welcome statutory remedies in the Bill for substandard services, we fear that they will not properly protect consumers if they only test whether the trader exercised reasonable care and skill, with no consideration of the outcome.
Let us take the example of a householder getting their windows cleaned. Were the windows cleaned properly? No, but the company said it used reasonable care and skill, so the customer may have no remedy for the late arrival of the window-cleaner, one window overlooked or a few smears left on the door. They would have no chance of a price reduction, or even a rewash, as the firm used skilled window-cleaners who said that they took reasonable care.
With many services, particularly those provided by the professions, it would be difficult, if not impossible, for a client to prove that the service had not been performed with reasonable care and skill, even when it is very obvious that the result is unsatisfactory. Furthermore, I understand that there is no general definition of “reasonable care and skill”, so we will have to await case law in due course to set out what will be taken into consideration when judging whether a service has met the required standard. It will be hard for the consumer to know, therefore, whether they have the right to a remedy if they are not satisfied with a job. By contrast, a professional trader or service provider is far more likely to know, and therefore be able to advise in advance, what outcome can be anticipated. It is, after all, the outcome that matters to the customer.
The organisation Which? told us that the majority of complaints it sees are about services, particularly about broadband, mobile phones and energy. Its research showed that consumers do not feel well protected when they are buying services and they are not confident that they will be treated fairly. Indeed, one-third of the consumers who failed to complain even when unsatisfied did not bother to do so because they simply did not believe that anything would be done. They have no knowledge of how a satisfactory service is to be measured at the moment, nor would they under the Bill.
Amendment 46A would also address the problem that, without it, the Bill sets two different standards for goods and services—that goods must be “of satisfactory quality” whereas services need be delivered only with “reasonable care and skill”. Perhaps we can revert to a discussion that we had earlier in Committee of the sort of transactions in which both those elements are involved. For example, our kitchen is purchased as a good, but its installation is a service. Surely, it would be to the advantage of both the consumer and the trader if the definition of what is satisfactory was the same for both. Also earlier in Committee we discussed botched plumbing and the problems of divvying up the elements of the contract. That would be made even worse if different standards applied to the different parts of the final service. So, just as we may not know whether the flooding of the kitchen has been caused by a faulty sink or by poor installation, it will be even harder if the test on the reasonable outcome, if there was a leak, is different for the two elements of goods and service.
In another place, the Government claimed that Clause 50 requires traders to comply with any information that they have given before the contract started and that, therefore, the concept of outcome is embedded in the legislation. However, that contract may well not specify outcomes in the terms of, “Well, we’ll install a bath and taps such that water flows into the bath rather than down the side of the bath and on to the floor”. No consumer is going to check whether the pre-work contract specifies such expectations, which they rather take for granted. They may read very carefully, for example, whether the old bath is to be taken away, but they will hardly check that the plumbing and the electrics will work and that the place will be left clean and tidy afterwards. Yet these are reasonable expectations to have of a service.
Amendment 46A places the consumer’s experience of the service—that is, its outcome—as a part of the definition of satisfaction rather than its simply being a matter of the provider’s claim to have used skill and care. I beg to move.
Baroness Drake (Lab)
My Lords, I support Amendment 46A, which covers a matter that I raised in Second Reading. The Government’s reasoning in strengthening consumer law through this Bill is that empowered consumers will make markets work more effectively and drive economic growth. However, I fear that the failure in this Bill to align the statutory rights of the consumer as between the sale of goods and the sale of services will weaken the protection of the consumer and result in less efficient markets in the provision of services.
As we know, goods supplied must be “of satisfactory quality” whereas services have to meet only a requirement of being provided with “reasonable care and skill”. In effect, the standard for services is based on fault rather than on satisfactory quality, as my noble friend Lady Hayter said, which is an outcome measure. It may prove more difficult for consumers to prove that a service has not been provided with reasonable care and skill because the focus is on the way in which the service was carried out rather than the quality of the end product. So there will still be many circumstances in which the consumer has not received what they paid for but will not be entitled to a remedy because the trader has exercised “reasonable care and skill”, because that measure focuses on compliance rather than on outcomes. That is a two-tiered standard of approach to consumer protection, and this amendment goes some way towards trying to address that problem.
In certain sectors and markets, the asymmetry of knowledge and understanding between trader and consumer is extensive—we know that. It should be remembered that the scale number of complaints come from consumers in sectors such as energy, broadband, mobile phones and—a sector close to my heart—financial services. Furthermore, the challenge of inertia and consumer behavioural bias, with which we are all familiar, can be used quite systematically by some service providers to deliver a poorer service or sustain profitable inefficiencies. That strengthens the need for consumer protection. However, I feel that in this Bill there is a lost opportunity by constraining to “reasonable care and skill” the statutory standard in respect of the provision of services.
Baroness Neville-Rolfe
My Lords, this is the first time that I have taken to the Floor during discussions on the services chapter of the Bill. Before I respond to the points and examples that the noble Baronesses, Lady Hayter and Lady Drake, have made, I shall set the scene just a little.
Services are a vital part of our economy, and we all use many services ourselves as consumers. This chapter therefore clarifies and enhances consumer rights and remedies when contracting with traders for the provision of services. In particular, for the first time, we are setting out in statute what remedies consumers are entitled to request if traders breach their statutory rights. To respond to the noble Baroness, Lady Drake, this is an important change as it will give traders and consumers more confidence and certainty when contracting with each other. These provisions are a necessary and important addition to the consumer law framework; I do not think that we disagree on that.
Which? has told us that,
“consumers have long been under-protected by the consumer protection rules applicable to service contracts”.
Indeed, I am glad to mention Which? as I remember talking to people there, about 15 years ago, on the need to shift the focus of their work to services as much as goods because of the change in what was of concern to consumers. Of course, it is now very well informed and helpful on services.
I look forward to debating the whole chapter with your Lordships, as there are a number of amendments, but perhaps I may turn to Amendment 46A. I agree with your Lordships that, where a consumer purchases a service because the trader says that it will have a certain outcome, it is disappointing and frustrating for the consumer if that does not materialise. I believe that we have addressed this issue to an appropriate extent in the Bill. Where a trader makes a claim about a service and the consumer decides to purchase that service based on that claim, Clause 50—which we will come to—gives that consumer a right that the service must comply with that claim. That could include information about the outcome of the service, if the consumer took it into account when deciding to buy that service. If the service does not comply with the information, the consumer has statutory remedies available.
Given this protection, we do not consider it appropriate or necessary to alter the standard of performing a service with “reasonable care and skill” under Clause 49. The noble Baroness, Lady Hayter, was concerned that we needed to wait for case law on this standard, but I reassure her that the test of reasonable care and skill is already well established in law. By referring to reasonable care and skill, the text has flexibility to apply to the range of services which it covers. The level of care and skill required in a given case will depend on the circumstances. This is important. In many cases, a service will not be performed with reasonable care and skill if it does not fit with information that the trader has given about the outcome.
Consider, for example, a painter who claims to be able to steam-proof your bathroom walls and whom you engage, as you want to maintain your bathroom decor. If the bathroom is not steam-proof at the end, the painter may have failed to exercise reasonable care and skill in selecting appropriate materials and applying them. But, as was seen in the other place, not every claim about an outcome will be relevant to the care and skill that it is reasonable for a trader to exercise. For example, a personal training service might claim to help you run a marathon in eight weeks’ time, but whether that is successful will depend on your will-power and efforts, as well as on the service itself. Nor will every claim about an outcome be taken into account by a consumer.
The noble Baronesses, Lady Hayter and Lady Drake, asked why our treatment of services was not the same as that for goods. As part of the consultations that we did, the Government asked for comments on additional proposals to move the services regime closer to the regime for goods, through introducing an outcomes-based satisfactory quality standard for certain services to property. Comments received on this issue revealed a wide range of views and brought out the complexities of making such a change. We have since sought further evidence on what the impact of such a change would be. Our analysis of what evidence we could find is that there appears to be no high, unambiguous net benefit for consumers, while there would be obvious costs for businesses.
The noble Baroness, Lady Hayter, was also concerned that a consumer could have difficulty in challenging a skilled trader—for example, a window-cleaner. The standard in the Bill is that the trader should use “reasonable care and skill” in carrying out the work. If windows are cleaned but the trader leaves some mess or misses a window then, although skilled, that trader may not have used reasonable care.
The noble Baroness, Lady Drake, spoke about financial services and cited the distinguished economist John Kay. However, we have a great deal of other protections in financial regulations. Having studied this carefully, I believe that financial matters are, on the whole, best dealt with in financial regulations. With your Lordships’ permission, we will be debating the issue on later amendments.
I hope that I have reassured your Lordships that Clause 50 means that claims by the trader about the service, which can include the outcome, have to be complied with if the trader took them into account. I therefore ask that the amendment be withdrawn.
Baroness Hayter of Kentish Town
My Lords, I thank the noble Baroness. She said that today was her first time speaking on this matter, so perhaps I may report that, in an earlier meeting, an extremely senior lawyer asked me whether lawyers are going to be classed as traders, because that is what they are called in the Bill. He was very surprised when I said that, yes, I think that they probably will be in this regard. Perhaps the Minister could clarify whether that is the case.
I thank my noble friend Lady Drake, who, as usual, makes the case much better than I could. It is in the financial sector where issues such as conflict of interest or lack of transparency, which would not be covered by skill and care, could affect the outcome that would not be included in any measure under the Bill. I am disappointed that the Minister reiterated what her colleague said in the other place: that Clause 50 provides that “any information given” would cover this. As I suggested, we are talking about other assumptions that may not have been written into the contract. The issue of whether the windows are clean is, it seems to me, an important measure.
We did not ask to move to a completely outcomes-based measure, but we asked simply that it should be taken into account in how we measure skill and care. We feel strongly about this, and it is one issue to be brought back, but for the moment I beg leave to withdraw the amendment.
“( ) In every contract to supply a service, traders who are ring-fenced bodies providing financial services as defined under section 142A of the Financial Services and Markets Act 2000 (ring-fenced body) shall be subject to—
(a) a fiduciary duty towards its consumers in the operation of core services to provide these with reasonable care and skill as well as in the management of any individual contract to provide services; and(b) a duty of care towards consumers across the financial services sector.”
Baroness Hayter of Kentish Town
My Lords, in moving the amendment in the names of my noble friend Lord Stevenson and myself—I do not think that I have to declare this as an interest, as it was rather a long time ago—I should say that I cannot help but bring to this debate my experience on the Financial Services Consumer Panel, where I am afraid we witnessed countless examples of financial providers acting completely without the fiduciary duty towards their customers, despite what the law said at the time. What subsequently became evident during the crash—which, I remind the Government, was not caused by the Labour Government and was not started in the United Kingdom, but was caused by the banks—was that they had also failed to exercise any duty of care towards consumers across the sector that the industry was supposed to serve.
I shall cite only a couple of examples; my noble friend Lady Drake may have others to offer. The ones that I was involved with at the time were interest-only mortgages, self-cert mortgages, high loan-to-value mortgages and high loan-to-income mortgages. I am not talking here of the mass mis-selling of PPI or endowment mortgages; this was about selling products to people without putting their interests first—indeed, probably in the full knowledge that, should circumstances change, those people would have no way of repaying their loans. More than that, as the number of those reckless loans added up to a torrent, once unleashed, that hurt not just the individual borrower but a far wider group of consumers whose house prices fell and future loans dried up or repayment terms became unsustainable.
The Earl of Lytton (CB)
My Lords, I had not intended to intervene and before doing so I ought to explain that, as a latecomer to the issues in this Bill, I have various interests to declare, not least in this instance that I am a chartered surveyor and, by dint of my professional activities, a registered valuer.
I pick up the point made by the noble Baroness, Lady Hayter, in connection with negative equity, for example, and I think of the circumstances that arose when the wheels, if I can term it thus, came off the banking situation and mortgage lending in 2008. That resulted in the mortgage lenders—I will not say to a man, but certainly in large numbers—pointing the finger at valuer members of my profession. I should make it clear that the mortgage lenders select whom they will have on their panel of valuers, they set out the form in which the report is to be made, they determine the fee and the timescale over which the report will be produced and, in the past, they have not been averse to leaning on members of my profession if they think that not enough money is being lent or the volume is not enough, because they are looking retrospectively at what are provable data from concluded evidence in the market.
It is my experience that mortgage lenders and banks generally are very adroit at passing the buck back to members of my profession. I do not set out to defend property valuers from whatever mistakes they might make. However, I counsel caution because there are some very big players who are very in tune with passing back to some other sector what would otherwise be their duty of care to the consumer. I will be developing aspects of this when we get to my amendments.
I wonder how one can ring-fence out the question of what we might call the contractor or the service provider and their subcontractor arrangements in those circumstances. I do not have a solution to this issue. Professional bodies, such as the Royal Institution of Chartered Surveyors, are there for the purposes of providing education, continuing professional development and ensuring the ethical conduct of their members. The RICS is not a consumer protection organisation as such, nor does it have the ability to scrutinise and quality control the hundreds of thousands of different reports and valuations that are being produced by its members. This is a matter of concern because of the net result that occurs.
The Royal Institution of Chartered Surveyors introduced a valuer registration scheme—and I am a registered valuer—in response to the very large number of claims that have been made against valuer members of the RICS following 2008. Quite a number of people who were previously in that field have left it. As a result, the cost of getting regulated purpose valuations has fallen to fewer people and costs have gone up. That has reduced competition and increased costs. I am not sure that that is in anybody’s long-term interest—certainly not if, as we now perceive, the market might be subject to a revitalisation. We need this volume: we need those willing persons to come forward and do this valuation work.
So I counsel caution. As I said before, I do not have a solution, but I hope that perhaps the Minister will be able to throw some light on that.
Baroness Drake
My Lords, I support Amendment 46B. I have spoken frequently on the issue of fiduciary duty and the strengthening of the duty of care in the financial services sector, and I suspect there are some other pieces of legislation and changes taking place where I may deliver the same emotive plea. I feel that Governments—I stress “Governments”—consistently fail to address the systemic challenge that exists in the financial services market.
I was looking up some old debates, reminding myself how I can iterate at great length about my concerns on standards of duty in the financial services sector. I turned to the speech that the noble Lord, Lord Turner, made when we debated the Pensions Bill that came through the House earlier this year. At that time he had just ceased to be chair of the FSA. I knew from the past that he had had reasonably strong views about the efficiencies or inefficiencies of the financial market. When I reread it yesterday, I remembered the power of his remarks when he referred to,
“the fundamental inefficiency of the market … It is a system absolutely shot through with market failure where the process of trying to provide in a competitive fashion simply does not work well”.—[Official Report, 15/1/14; col. GC160.]
That is why the argument for strengthening the duty of care and fiduciary duty in the financial services sector is so compelling. There have been so many recent reports on different sections of the financial services sector which have identified parts of the market that could not be expected to self-remedy and there is an urgent need to strengthen the position of the consumer and to intrude.
I welcome the strengthenings in the Bill, but there is still an avoidance of strengthening the duty, particularly in the financial services sector, towards the consumer. Parts of the sector are characterised by systemic conflicts of interest. We have complexities that are debated endlessly in both Houses. We have asymmetry of knowledge and understanding and inertia and behavioural bias in the customer. Those all combine to build inefficiencies in the financial services market that are profitable to the provider but detrimental to the consumer. Regulatory reliance on compliance with rules, rather than placing responsibility on the financial service provider to act in the consumer’s interests, consistently fails to deliver not only for the consumer but for the economy as a whole. The financial sector is such a large part of that economy. If that sector has market inefficiencies, that is a pretty large chunk of the economy as a whole.
I frequently say to myself, “How many reports on failure in the financial services market do the Government have to receive before they do not just write another set of rules?” They have a game changer in terms of the rules of the game. How many considered views, such as those from the Kay review or the Law Commission, do they need before the Government accept that a strengthened duty of care is needed in this sector? My noble friend Lady Hayter said, shortly before we came into the Moses Room, “I hope you have lots of examples, Jeannie”. I thought, “If I go down that road, I could entertain the Committee for about four hours”.
Let me headline some of them. There are excessive foreign exchange charges when investing in assets overseas. There are heavy exit charges from financial contracts, which will be a big issue given the new freedom for pensions when people trot along to say, “Can I have my cash please?”, and get slapped down. The Government have identified that as a problem, but it is still there. There are hidden investment charges. Not all investment products are pensions; plenty are not and they will not all be covered by the new quality standards in the pensions Bill. A lot of transfers will take place; transfer charges are unlikely to be covered by the pensions Bill, but we know that that is one of the high-charging areas. Everyone knows that income drawdown charges are high. I have no idea how the Government are going to control income drawdown products to make them fair to the consumer in the new freedom regime. There is the mis-selling of PPI, harsh mortgage contracts and the miserable, mean activity of interest swap arrangements sold to small businesses to protect them against interest rate rises, when those policies became so burdensome that it threatened their survival. The list is endless.
I thought that I would illustrate the point with a pensions example, which is a personal one. My daughter is a lawyer, so you would expect her to be reasonably cerebrally functioning—if I can be generous to the profession. She changed her job from one employer to another. She had a DC pot and I suggested that she should get organised to transfer her DC pot from her previous to her new employer. Her way of dealing with that was to put all the paperwork on my desk and say, “You sort it out, Mum, and I’ll sign”. As all mothers do, I sat down with the paperwork. The pension scheme she was leaving was provided by a leading, reputable financial company, as was the one she was going to. Both were blue-chip companies. I read all the paperwork of the one she was leaving and of the one she was going to. Not a single piece of paper set out the charges for any part of the investment, any part of the administration or any part of the transfer charges. Tucked away was an invite to apply at a certain point if you wanted the detail of those charges. That was just one example where the market is just not working.
I do not suppose that in the Committee today I have the slightest chance of persuading the Government that they at some point need to change the rules of the game to place a greater duty of care on the financial services sector, but otherwise we will go on receiving endless reports of market failures and inefficiencies. We have a big juggernaut coming down the line with pension freedoms. When people take their cash, they will not necessarily be trotting off to the regulated products covered by the FCA; they will also be operating in the unregulated part of the market. I put the case again that there is really a need to strengthen the duty of care in the sector so that the consumer can truly be protected.
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness, Lady Hayter, for her knowledge and for her experience of the Financial Services Consumer Panel, albeit that that was from some time ago. Since then, of course, many, many changes have been made to the financial regulatory regimes following the financial crisis, which occurred after many years of the Labour Government.
Having said that, I appreciate the concerns that lie behind the amendment. I think we are all agreed that consumers—and, for that matter, society as a whole—need a better deal from our banks. The question is how we achieve that, and I can see why some would think that this amendment would help. However, the Government do not consider that it would make a real difference for consumers or add very much to what the Government are already doing. I shall explain why and begin with what this Government have done to strengthen bank regulation and the protection of customers.
First, we replaced the flawed system of financial regulation. The Financial Services Act 2012 put in place two new, properly focused financial regulators: the Prudential Regulation Authority, which is a subsidiary of the Bank of England, and the Financial Conduct Authority. These reforms mean that the PRA can concentrate on ensuring that our banks are prudently and competently managed, reducing the risk of serious financial failure. That may not seem to be of immediate relevance to consumers; none the less, it goes right to the heart of part of this amendment. The PRA seeks to ensure that banks are properly managed and soundly run, so the PRA also contributes to ensuring that the bank’s core services—taking deposits, withdrawing money, making payments or providing overdrafts—to consumers are provided with “reasonable care and skill”. In a sense, therefore, the work of the PRA and its detailed rules already cover the same ground as the amendment.
Of course, this Government are bringing in ring-fencing to ensure that core banking services—in particular, the taking of deposits from individuals and small businesses—are undertaken in a separate legal entity, insulated from wholesale and investment banking activities. This will support continuity of provision of vital services and help to make UK banks sufficiently resilient to withstand excessive financial shocks—surely a vital part of caring for the consumers of core banking services. Therefore, it is not clear to me what imposing the duty of “reasonable care and skill” would add to requiring banks to comply with the ring-fencing and the many other regulatory requirements.
I turn to the FCA and the protection of consumers more directly. The Government’s reforms mean that the FCA can concentrate on ensuring that all financial services businesses conduct themselves properly in their dealings both with ordinary retail customers and in wholesale financial markets. This wide remit is shaped by the FCA’s statutory objectives and delivered through the FCA’s rules. These rules include the 11 FCA principles for businesses. These are high-level requirements which already cover the ground set out in the amendment.
If I may, I shall take the time to run through four of the principles. Principle 2 is:
“A firm must conduct its business with due skill, care and diligence”.
Principle 6 states:
“A firm must pay due regard to the interests of its customers and treat them fairly”.
Principle 8 is:
“A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client”.
I know that the noble Baronesses, Lady Drake and Lady Hayter, rightly feel particularly strongly about this conflict of interest issue. Principle 9 states:
“A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment”.
As many noble Lords will know, there are a very large number of detailed rules to which banks and other financial services firms are subject, each one of which is, in one way or another, an articulation of a duty of care to consumers or to society as a whole. It seems to me that there is a real question about what the amendment would add to these existing duties.
However, I will comment on the amendment in detail. Its first limb seeks to impose a fiduciary duty to provide core services with reasonable care and skill. The term “fiduciary duty” typically describes the kind that a fiduciary owes to a beneficiary, such as a duty of confidentiality, a duty to avoid conflicts of interest and a duty not to profit from his or her position. These are the duties that a director owes to a company, an agent owes to a principal or a trustee owes to a beneficiary. There will be cases in financial services where such a duty will be appropriate and, in those cases, it—or similar duties—tends already to be imposed either as a matter of general law, as obligations under the Financial Services and Markets Act, FiSMA, or in the FCA or PRA rules.
Such a duty would not necessarily be appropriate for the provision of core services, which are subject to a contract between the bank and the customer. Of course, regulatory rules made under FiSMA are there to ensure the fair treatment of customers and the proper conduct of business more generally. I am also not sure whether a duty to perform services with care and skill could be described as a fiduciary duty, but it would already be part of the contractual obligations and will be reflected, where appropriate, in the obligations imposed under FiSMA or in the regulators’ rules. The Government consider, therefore, that in view of the extensive sector-specific legislation in this area and the general position under contract law, imposing the fiduciary duty suggested in the amendment would not give the consumer any additional remedies.
Turning to the wider duty of care proposed in the amendment’s second limb, I suggest that it is far from clear what this could add to the existing obligations or regulatory requirements to which the ring-fenced body is now subject. There are, for example, obligations under FiSMA and the regulators’ rules, some of which are obligations to the bank’s own customers. For example, principle 6 of the FCA’s principles for businesses states:
“A firm must pay due regard to the interests of its customers and treat them fairly”.
Other obligations are in effect obligations to consumers of financial services more generally or to society as a whole. For example, principle 2 of the principles for businesses states:
“A firm must conduct its business with due skill, care and diligence”.
The noble Baroness, Lady Hayter, suggested that the Government were relying on case law to ensure a duty of care. That is not the case. Key obligations are in explicit law: that is, the FCA rules to which I have referred, such as the principles for businesses.
I am grateful to the noble Earl, Lord Lytton, for his early intervention and look forward to discussing his amendment. He asked about banks passing the duty of care back to surveyors. Banks and other financial services firms are subject to rules made by the FCA, as I have emphasised at great length. They cannot avoid those requirements by saying, “It’s the surveyor’s fault”, but surveyors may of course owe appropriate duties to their customers as well.
Perhaps I could mention redress. Regulatory rules give effect in a precise, meaningful way to the duties that banks and other financial services firms owe to their customers and to society as a whole. However, that leaves the question of redress. Surely, it might be argued, the amendment would help consumers to get redress in appropriate cases, either by taking action in the courts or by making use of the Financial Ombudsman Service. I am afraid that that does not seem to be the case. As we have seen, the duties proposed in the amendment would overlap with existing duties under the principles for businesses and cannot be as detailed as the regulators’ other rules, which can be used to bring a complaint to the bank or to the ombudsman. In any case, we have existing machinery to deliver redress for consumers. For example, in 2013-14 the Financial Ombudsman Service resolved more than 500,000 complaints in total, resulting in compensation for consumers in 58% of cases. If there are problems of financial regulation, the financial regulatory framework is a much better place to resolve these problems.
I should perhaps add, in view of what the noble Baronesses, Lady Drake and Lady Hayter, have said about people knowing their rights, that the opportunity will be taken to improve communication when the Bill takes effect. The FCA will be preparing guidance for traders on its site and Citizens Advice will host information for consumers. I noted the point raised by the noble Baroness, Lady Drake, about information on pension transfer. Her daughter is very fortunate to have such a well informed parent to assist her—
Baroness Neville-Rolfe
However, if I may, I shall think about that one, as it probably goes a little bit beyond today’s discussion.
In conclusion, the Government firmly believe that it is better to impose specific, focused requirements on banks and other financial services firms through the regulatory system. Customers and regulators can more effectively hold the bank to account when they do not comply. I hope, therefore, that the noble Baroness, Lady Hayter, will agree to withdraw this amendment.
Baroness Hayter of Kentish Town
My Lords, I thank the Minister for that. I hope that it convinced her; I fear that it did not convince me. It is some time since I was on the Financial Services Consumer Panel, but I am still in close touch with the panel and I will be quoting it later on its disappointment with the Bill.
However, I want to take a moment to talk about the really interesting question that the noble Earl, Lord Lytton, raised. It was interesting in itself but so was the contrast with the Royal Institution of Chartered Surveyors, which is a chartered institute and has a code of conduct or ethics—I cannot now remember what it is called—which does include putting the customer first. In a sense, that is all we are trying to do for the financial industry, which could learn a thing or two from the surveyors.
I thank my noble friend Lady Drake for her intervention, particularly the examples she gave. She usefully reiterated the reason why consumers in this industry need particular help: the complexities and the asymmetries of knowledge on these long-term products. She also warned that if we do not introduce somewhere in law that you must put your client’s interest first—and I do not think that something that is in an FCA rule is actually law, but I could be wrong about that—then we will carry on with a compliance, keeping-to-the-rules regime, which is of help to no one and continues to produce poor outcomes. As my noble friend warned us, there may be more to come, with pension unlocking.
The most important thing I have to say to the Minister is that treating customers fairly, which was in FiSMA and is now in the Act that my noble friend Lady Drake and I cut our teeth on in the House four years ago, is not the same as putting customers first. That is the extra push that we want. Although the Minister mentioned the duty of care on business in general, businesses have duties to shareholders and everyone else, which is why the client often comes a bit far down the pecking order.
If the Minister is right that no additional remedies would come from our amendment, then I see no harm in including it. She has not said what harm this would do. However, I fear that on this, just as the Government voted against a code of conduct for the financial industry when we were doing that Bill, they are again going to turn their back on consumers in this vital area.
Baroness Neville-Rolfe
Before the noble Baroness, Lady Hayter, sits down, perhaps I could clarify her point about FCA rules not being law. Our advice is that they are law, and that is why the principles say, “A firm must”.
Baroness Hayter of Kentish Town
That is interesting, and I will try to find out how many court cases have been taken as a result. However, for the moment I beg leave to withdraw the amendment.
The Earl of Lytton
The Earl of Lytton
My Lords, I shall speak also to Amendments 48 and 49, which are in the same group. I wish to address the issues of consumers and contractors or providers with specific reference to the area I know best, which is property services. I am a provider of such services; I am a small business. Not only do I provide services myself but I also provide a certain amount of service in trying to sort out the wreckage of consumers’ arrangements with others, because I deal with a certain amount of dispute-related cases.
I know what it is like to be misled as a consumer. I also know what it is like to be taken advantage of as a provider. I had that very much in mind, echoing the point that the noble Baroness, Lady Hayter, made a short while ago about professional standards. I am old-fashioned. I was brought up to understand that the hallmark of a professional meant that one put the interests of one’s client before one’s own interest. That did not necessarily equate with putting what the client thought their interests were before all else; that is, of course, a different metric. Consumers come in all shapes and sizes, as I know from a long time in the property business. They can be old and cunning, or young, wealthy and spoiled, or just greedy and opportunistic, as well as entirely honourable and decent. Over 90% of consumers are wholly honest in their approach—as are, I am certain, over 90% of service providers. In my view, there is more honest misunderstanding than deliberate malpractice, but I acknowledge that there are some that are consistent cheats—even some very large suppliers. I am not going to name any that I have come across.
We need not to lose sight of the objective of facilitating honest trade and reducing bureaucracy, but we need to be careful about assuming a level of competence among consumers that is often lacking in practice. The principle of protecting the weaker party by legal means does not equate with protecting the consumer at all costs, regardless of circumstances. Some consumers are not only clueless but unaware of their own ignorance in insisting that certain things be done in certain ways—or, to put it more crudely, insisting on a particular price above all costs. Ultimately, it is not for Parliament to protect people, whether consumers or providers, from their own incompetence or stupidity. I will get on to that when I get to the detail of my amendments, with a suggestion as to how it might be addressed.
We must not give rights without insisting on parallel duties, because we all have duties as providers and as consumers. One of the most frequently forgotten about is disclosing material facts relating to the transaction that is in contemplation. The Minister referred to the painter of the bathroom. I would like to refer to the failure of the consumer to maintain a functioning extractor fan. I frequently have to visit modern buildings with high levels of insulation due to problems with condensation, which is mostly to do with the lifestyle of the occupant as opposed to the inherent nature of the building. I say that with some knowledge of members of my own family failing to understand that principle. The Minister will then understand where I am coming from. There are some quite serious issues here that have real-world effects: mouldy clothes, bad living conditions or whatever it may be.
My amendments came to me originally from the Construction Industry Council. I have a professional involvement with that body but I am not a member of it. I want to address the issues in Amendments 47 and 48 because the principle behind them is that not all consumers act fairly towards traders. Some consumers are not rational and can be vindictive. They can believe that they must be right beyond peradventure, regardless of the facts of the case. The council pointed out the case of Walter Lilly & Co Ltd v Mackay from 2012, which was heard in the Technology and Construction Court.
There is a language issue, which the Minister touched on earlier, as I understood her, that consumers may well not understand the jargon or technicality of what is being said by a supplier or some specialist. We all have jargon but one thing that is often misunderstood is the effect of health and safety in carrying out contracts of works. It can escalate costs because of the need, for instance, for scaffolding to replace a gutter or something of that sort. Consumers do not necessarily understand that, so when there is a provision for plant and machinery at cost, they do not necessarily twig that some significant items may be involved.
It seems from the terms of the Bill that the consumer appears to be able to rely on his own fairly subjective memory of what was said, regardless of whether it is near or far from the truth. I worry about that. When one thinks of the studies on the accuracy of witness recall of the facts in the wider judicial system, one can see that there is a real problem. That is not limited to consumers; it may be an affliction of the small business as provider of the service. The CIC pointed out to me that the remedies introduced in the Housing Grants, Construction and Regeneration Act—rights to receive payment and bring disputes to adjudication—are not available to traders if dealing with a residential occupier. Maybe we ought to look at that.
I would hate these things to end up in the courts because I am a believer that there is only one profession that gets rich by that process and that it leads to a lasting impoverishment of others. Most particularly at risk is the hapless consumer himself. He sees no other way and is encouraged or goaded to go to court. It would be my objective to keep people out of the courts if at all possible.
The logical consequence of not having the words that I suggested incorporated into the Bill will be reams and reams of terms and conditions of engagement which, in all probability, whether they are written in large or small print, nobody will read. We will be back where we were before without an adequate remedy other than pursuing these things very expensively. That is why I wish, by Amendments 47 and 48, to insert the test of “reasonably”. The courts have some experience of unpicking the term “reasonable”. I am against their having to determine such matters at all because very often it is not cost-effective to deal with them in that way.
Amendment 49 is slightly different. The Bill refers to the representations, if I can loosely term them as such, made at the same time. A contractor goes along to pitch for a job with a consumer. He makes various representations, or is deemed to do so, but it may in a sense be a discussion around the issue, trying to refine what the consumer wants and what services will be provided. The contractor goes away and sets it down in writing. It would appear that subsequently setting something down in writing that is different from what was said on site at the first meeting would not exonerate the contractor from having to abide by what he had first said. So I am afraid that we get back to the unedifying spectacle of, “He said this”, “No he didn’t”, which a court is unable to unpick in practice.
The CIC’s briefing note to me referred to an example in which a builder or engineer recommends a particular type of foundation based on the information that he had at the time. It is then found, when they get on site, that some different situation applies; perhaps the ground conditions are not as the initial geotechnical investigation identified. After all, we are in many cases talking about a process, not a bolt of lightning that hits in a moment of time and fixes everything. This is an ongoing transactional process, particularly in the building world. The CIC—and I agree with it—feels that it would be unreasonable for a customer to be able to hold a contractor to the original statement if the contractor set out to clarify that within a short period thereafter. That is why I seek to insert the words,
“or as soon as possible thereafter”.
That is the logic behind it.
I said that I would touch on where I might depart from the CIC’s script, perhaps as a sort of final postscript. The noble Baroness, Lady Hayter, may also see some merit in this. Ultimately, I have suggested a sticking plaster here, but what is really required is a reliable, timely, locally based, informed, mandatory, affordable and authoritative adjudication system of some sort. If you have that in place, you remove most of the chancers from the equation and get back to some form of even-handed thing that does not grow over months and years like little Johnny’s porridge in the mouth, resulting in a complete system failure, whereby access to some sort of resolution is denied for so long that, even if you did get something in your favour, it would be functionally worthless.
We have a model—and I claim some credit for having brought such a thing in—although it would not be perfectly applied pari passu to this particular instance. In 1996, your Lordships passed the Party Wall etc. Act and I had the privilege of taking it through all its stages in this House. In passing, I pay tribute to Sir Sydney Chapman, who took it through all its stages in the other place. He has just died, and I express my appreciation in his memory, and to his family, for the work that was done. I believe that that model could be made better use of so that there was no risk of huge fees being run up, and that sort of thing. We need to get away from having to deal with these things through the courts. If we are not going to have an ombudsman, there needs to be something else in place to deal with it—and there are ways of dealing with it.
Having explained at length, first, where I am coming from, secondly, the meaning of the specifics of the amendments and, thirdly, a suggestion of how things might be dealt with in future, I beg to move.
Baroness Neville-Rolfe
My Lords, first, I thank the noble Earl for his thoughtful and very clear contribution to the debate. I share his sympathy for the untimely death of Sir Sydney Chapman. I also agree that the vast majority of consumers and service providers are honest but, regrettably, there are some on both sides who would not meet that description.
Perhaps I may look at the three amendments by taking a step back. Clause 50 is the result of careful consideration, as I said. We have thought and listened hard, consulting on it and publishing it in the draft Bill. We have sought to achieve the delicate balance between giving consumers the right to have what they pay for and not overburdening traders. To do that, we have given consumers a clear statutory right: the right that information that they are given and which they take into account is complied with.
Crucially, there are three safeguards for traders. It may help if I set them out. First, this right does not cover every bit of information given to a consumer by a trader. It is limited to information that the consumer took into account when making a purchase or making a decision about it—for example, if a consumer contracted for a service specifically because the trader said it would be done in a certain way. Secondly, it would be for the consumer to prove that they took the information into account if seeking to enforce this right against the trader. Thirdly, we are allowing traders to qualify information given. The trader can qualify information as long as, where they do so after the occasion when it was first given, the consumer is happy with the new information. For example, if a salesperson gives information over the phone in good faith but later, as more details of the consumer’s circumstances emerge, they need to change it, then they can do so as long as the consumer agrees.
We think that those safeguards are enough to address concerns that noble Lords have mentioned. For example, we have heard concerns that sales advisers will have to speak strictly to a script. That will not be the case, because of the safeguards that I have just outlined. We are not restricting the trader’s ability to discuss options with the consumer or making them stick to jargon, in the words of the noble Earl. We are saying that when a trader gives information which the consumer may take into account in deciding whether to make a purchase or make a decision about it, the trader needs to comply with that information.
On spurious claims, we do not think that there is an assumption that consumers remember information. I know from my experience that you cannot assume that consumers remember information; one sometimes forgets things. That is not what the clause states. Clause 50 provides that where a trader has given information that the consumer has relied on, the trader must comply with that information. The consumer will need to prove that the information was given and that they relied on it. Those safeguards—that the burden of proof is on the consumer and that the consumer must have relied on the information—in my view protect traders from unreasonable claims. Unfortunately, some consumers will, as the noble Earl said, act unreasonably. They are not the vast majority. Most consumers of services simply want the service to be provided to the required standard, with access to redress if things go wrong. That is what this chapter provides.
Turning to Amendments 47 and 48, the safeguards that I have explained achieve a balance between traders and consumers. Adding a reasonableness test to the clause would, in our view, cause confusion and uncertainty. There are some places in legislation where reasonableness is an appropriate test. However, I fear that it would add complexity here, which would not benefit consumers or traders. When we consulted in 2012, the vast majority of respondents thought that the existing law on services was too complex.
That brings me to Amendment 49. As I explained a moment ago, we are allowing traders to make changes to information given. While subsection 2(a) allows the trader to qualify information on the occasion when he gives it, subsection 2(b) allows the trader to make changes at a later date if the consumer agrees to those changes. That achieves clarity for both parties, so we think it is an appropriate balance.
The noble Earl, Lord Lytton, also mentioned adjudication. We have already talked a lot about alternative dispute resolution in the debates on the Bill. ADR will be available in all sectors covered by the EU directive from next year. While I sympathise with much of what my noble friend has said, given the safeguards I have outlined, I ask that the amendment be withdrawn.
The Earl of Lytton
My Lords, I thank the Minister for that explanation. I will go away and think about it. The words about what the consumer takes into account when making a decision are pivotal. I would simply leave a question in the air: objectively, how would anyone know, other than the consumer himself? How would one test that? This is not the time to pursue this, even if we were not in Grand Committee. I will ponder what the Minister said and I may return to this at a later stage. I may well write to her with some more focused issues between now and the next stage, although I cannot guarantee that, for all sorts of reasons. That said, I beg leave to withdraw the amendment.
The Deputy Chairman of Committees (Baroness Gibson of Market Rasen) (Lab)
Amendment 48A will be moved by the noble Baroness, Lady Hayter of Kentish Town.
Amendment 48A
Baroness King of Bow
“( ) Prior to the provision of the service or agreeing the contract, whichever happens first, the trader will explicitly provide the consumer with relevant details of their statutory rights under sections 51, 52, 55 and 56 of this Act.”
Baroness King of Bow (Lab)
I am very happy to be mistaken for my noble friend, not least because she has about 15 years more experience than me on this subject—well, maybe four. I beg to move Amendment 48A in the name of my noble friends Lady Hayter and Lord Stevenson. This group of amendments seeks to improve consumers’ awareness of their rights under the law. Amendment 48A relates to consumer rights regarding services. It stipulates that these rights should be made clear at the point of sale. Amendment 50E requires the trader to ensure that the consumer is aware of their rights when they initiate a complaints procedure. Amendment 51, in the name of the noble Baroness, Lady Oppenheim-Barnes, requires the suppliers of goods and services to tell consumers what their rights are in plain English. That is something we support.
Martin Lewis, from moneysavingexpert.com—I am sure you are all familiar with that organisation, as it is the UK’s biggest money and consumer website—spoke to the Public Bill Committee in the Commons and singled out what was, in his view, the one aim for the Bill above all others. He said:
“The most important thing I would like to say to you is that you need … to give people something very simple, which you could teach children in schools … that says, ‘These are your rights when dealing with a company.’ At the moment I am not quite sure you are there. You are nearer, but I am not quite sure you are there”.—[Official Report, Commons, Consumer Rights Bill Committee, 11/2/14; col. 56.]
These amendments would help to deliver the “most important thing” that Mr Lewis talked about. His warning was stark: if we do not make things simple and clear, we effectively disempower consumers and undermine their rights. He essentially said that we can give people all the rights in the world but if they are not empowered to use them, because the process is too complicated or the language too complex, then in practice we are not really giving them any rights at all. Naturally, putting things in plain English is an important prerequisite for this. That is what Amendment 51 would require, which is why we give it our support.
Amendments 48A and 50E are about letting people know what their rights are to start with. Amendment 48A relates to services. As we heard earlier from my noble friend Lady Drake, people have different rights when it comes to services. They are often far more hazy and confused about those rights than they are about their rights relating to goods. I wonder why the Government feel unable to strengthen the legislation in the way that these amendments suggest, which would sharpen the information given to consumers at the point of sale. Amendment 50E would ensure that consumers also have consistent information at the point of complaint and that their statutory rights were explained and articulated, instead of being a never-explained mantra that every consumer hears and virtually no consumer understands—except perhaps for those dealing with this Bill.
In summary, the amendments would help the Bill to fulfil its objective of giving consumers clear rights in regard to services—rights that were simple to understand and in plain English, and given at the point of sale and at the point of complaint.
Baroness Jolly (LD)
My Lords, as was said when we discussed point-of-sale information for goods last Monday, the Government believe that it is really important that consumers should feel confident about exercising their statutory rights and that businesses should know and fulfil their statutory responsibilities. That is why, a year ago, we set up an implementation group for the Bill. This is helping us to decide how to increase consumer and business knowledge about consumer rights. The group has consumer, business and enforcer representatives working with us on a co-ordinated approach to content, channels and timing of guidance, advice and publicity for the Bill.
As part of their work, members of the implementation group have been developing a high-level summary of consumers’ rights when they buy goods, services and digital content. The summary will also signpost consumers to the Citizens Advice helpline and website—both sources of more detailed guidance on specific issues. We are in the process of testing this model with businesses and on consumers. The response from business has been positive, provided that use of the wording is on a voluntary basis.
Turning to Amendments 48A, 50E and 51, for the reasons explained when we discussed Amendments 9, 13 and 25 last week, we do not believe that requiring this information to be given to all consumers before they purchase or receive any goods or services, or after they purchase services, would achieve the best outcome for them or for businesses. First, we do not think there is any evidence to support the argument that the point of sale is the best place to inform consumers of their rights or that it is an important part of the purchasing decision. Consumers are more likely to focus on their rights when they need to enforce them. Secondly, it is difficult to see that consumers would see the benefit of being reminded that services must be delivered with reasonable care and skill whenever they visited the hairdressers or the carwash. Are we really suggesting that a local window-cleaner should provide his customers with a written notice setting out their relevant statutory rights? That seems pretty burdensome for both the trader and the consumer.
Baroness King of Bow
I thank the Minister for her reply. The whole purpose of our amendment is to ensure that customers feel confident about exercising their statutory rights, which is what the noble Baroness was saying. I am not clear that in the terms of the amendment, as drafted, the information has to be given in writing. Given that, I admit to being slightly perplexed why the Minister feels it would be so onerous or burdensome. She talked about the flexible approach that she seeks to employ. Our concern is that “flexible” can mean not providing consumers with information about their statutory rights. We do not think that the right way forward is not to give consumers these rights upfront, at the point of sale. In line with tradition at this stage, I beg leave to withdraw the amendment.
Baroness King of Bow
“(1A) The trader is required to provide full details of the total cost of the service prior to sale including any additional service fees or charges that could be incurred by the buyer in purchasing the service.
(1B) The information set out in subsection (1A) should be portrayed prior to sale and the explicit consent to purchase the service at this price sought prior to sale.”
Baroness King of Bow
My Lords, Amendment 48B would ensure that full costs are provided to consumers before the sale takes place, and that these include any non-negotiable charges and fees. Amendment 50G, which is also in this group, would stop traders charging people to complain by removing charges for helplines and complaint facilities.
The issue is a real scourge for all consumers, and it has probably happened to all of us here. We see adverts offering cheap broadband deals, or we try to book cinema tickets or decide to go to a concert. We look at the headline figure, which lures us in, and decide that it is a sum that we are willing to pay. On that basis, we spend our time—it is important to remember that time is money—going through the process of purchase. As we all know, this is increasingly done online.
I had something of a new experience the other day—I never usually buy Christmas presents earlier than Christmas Eve—when I received an e-mail from a trader advertising a concert that I knew my mother would just love. It was for Paul Simon. Do we not all love Paul Simon? Would everyone in this Room not want to go and listen to Paul Simon? I thought, “My goodness, it is only September, but I might be lured into buying my mum her Christmas present”. The headline figures advertised for the seats I wanted were between £60 and £100. I ummed and aahed, because that is a lot of money, but as my noble friend says, my mum is a nice lady. I had a L'Oréal moment—“Because she’s worth it”—and, obviously, I had to get her two tickets. She lives in France, so I had to check easyJet flight availability, and I spent ages on price comparison websites to check whether there were cheaper tickets available, then I went back to the original website to see what the tickets would be, what the visibility was and so on.
Finally, after about an hour I decided that, yes, it is really expensive, but it is a once-in-a-lifetime chance for my mum and I will also have got her Christmas present sorted out in September, which would also be a once-in-a-lifetime experience for me. I pressed the purchase button and was utterly gobsmacked when the price that popped up for these two tickets was £60 greater than the price quoted all the way through. I was enraged; I realised I had been conned. I had expected what we all expect—maybe a £1.50 booking charge, but £60 is just ridiculous. I realised that all the price comparison checking I had done over the previous hour was meaningless because this website gave you the full price, the real price, only when the sale was being transacted—in other words, once you are entering credit card details. I am terribly ashamed to say that I bought the tickets, though it was clearly a complete con.
The point is that this amendment, and this group, is about giving consumers transparent data so that they can make an informed choice. It is about ensuring that traders give the total cost of a service, including all the non-negotiable charges and fees that they add on at the end. If this does not happen, it is simply not cricket—it is not fair. The same goes for Amendment 50G, which seems like a basic point of fairness. Consumers should not be charged exorbitant helpline fees or forced to pay for costly 0800 numbers and others, just so that they can complain. It seems like common sense and basic fairness to make these changes. I beg to move.
The Earl of Lytton
My Lords, I have considerable sympathy with the amendment, but I am not sure that I would advocate it in this form. I am very familiar with the cost of something being “from £X” and you find you have to order three dozen of whatever it is in order to get the £X. That has always been a bone of contention for me. Where I depart from the noble Baroness is when it comes to an area of my own expertise, which I shall use as an example.
In party-wall cases, where people want to undertake certain work to their building, they have to serve a notice on the adjoining owner, and if the adjoining owner does not agree, then the parties have to appoint surveyors to deal with the matter for them. That takes the two neighbours out of the frame, which is part of how the thing is designed to work. The person proposing the work is obliged under the legislation to meet the reasonable costs of the adjoining owner, which may include their professional fees. When a surveyor is faced with this situation, as I frequently am, it may be a building owner but it is normally an adjoining owner who rings up and says, “I have been served with a notice by our neighbour and I think I need a surveyor”. Assuming that it is a case which needs a surveyor and that they are not best advised to agree to the thing and let their neighbour get on with it, there is then the question of how to structure the fee that is dealt with.
There is a European directive on the provision of services. I forget its precise name, but I am sure that the Minister will know about it—I will find out if necessary and write to her. One of the things in it refers to the cost of the service provided or the manner of calculating it shall be set out—I do not know whether I am quoting that verbatim but it is something along those lines—along with all the other things, including the identity of the trader, the time taken to deliver the service and that sort of thing. The difficulty is that, until one gets on site, one does not necessarily know what one is faced with. You may take on a job and then find that the person promoting the work has a fly-by-night builder but has no engineer on site, yet they are doing things involving some quite serious construction that affects, for instance, party walls or adjacent excavation in an urban environment. You may conclude that they are not doing it safely. They may also have as their surveyor someone who is not that experienced and does not know what is supposed to be done. Then you end up having to hold the hand of the other person’s surveyor.
All this can run up costs which one did not anticipate at first, so providing full details of the total cost of the service in that instance would be nigh-on impossible. However, providing the mechanism for calculating it is perfectly reasonable. It so happens that, under party-wall legislation, the building owner carrying out the works is obliged to refund only the reasonable costs of the adjoining owner. There is that fall-back and it is obviously up to the surveyor to justify the reasonableness of whatever it may be—the hourly charge, the amount of travel, the frequency of visits and everything else. However, the total costs in such circumstances would be extremely difficult to pin down.
That might also happen in any other construction-related job where there are a number of variables and where, typically, you will have provisional sums in a building contract to cover certain things. Those might be based on a prime cost or just a spot figure, but they are subject to a demonstration of the amount of man-hours and materials that have gone into the job at the end of the day. Sometimes I get called in, as do colleagues, to try to deal with situations where the amount claimed is unreasonable because a contractor has an add-only calculator or the consumer is on a fixed budget and cannot agree to anything that exceeds it, and so on.
The idea is to get to having provisions that deal with the real world of things. I know that the noble Baroness, Lady King, has rightly pointed to a situation where you buy a product, such as the tickets to the theatre or whatever it is. Inevitably, services do not necessarily quite fall into that category. Yes, you can get a fixed price for doing your bathroom floor—I am sorry to go on about bathrooms but your Lordships get the drift—but other things are not capable of being drilled down to that degree of finesse. I would advise a bit of caution and flexibility in the overall approach.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I have some sympathy with the noble Baroness. Who wants to upset their mother? My mother-in-law is 95 tomorrow; I am taking her to see “War Horse” and I have paid the surplus on the tickets, so I understand the point. I am particularly interested in Amendment 50G because you might be left on these phones for a long time while trying to enforce your rights. That is an interesting matter for the Minister. There may be existing legislation to deal with that issue but it is worth following through.
I am much more concerned about Amendment 48B, the lead amendment, because its wording seems to run exceptionally widely. Thinking about how this might work, to take another example, you may buy a service as part of a package of services and not wish to buy all that package at once. An alarm for your house might be a plain alarm but you might have sensors or lights outside. You might or might not have it connected to a central station. It might be wireless or with a cable. You buy the basic system and later decide to upgrade it. You have the same service, but I am not clear what the requirement would be for a supplier of such equipment to fulfil any additional services fees or charges that could be incurred by the buyer. The buyer could incur quite a lot of charges if they chose to make changes along the way. Would they then be able to use this measure as a basis for defaulting on or changing the contract?
I found the wording potentially rather alarmingly wide. What the Government have in Clause 50(1) as it stands deals with the issues which I think are in the back of the noble Baroness’s mind. Proposed new subsection (1B) in Amendment 48B contains the word “portrayed”. If the information is to be portrayed for an internet purchase, which is the example that the noble Baroness gave, that is going to be quite difficult.
Although I have sympathy with Amendment 50G, I think that Amendment 48B is probably redundant, and the Minister may well say that Amendment 50G is covered by another piece of legislation.
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness, Lady King of Bow, and the noble Earl, Lord Lytton. I appreciate the fact that he intervened with such practical comments, with more stories about bathrooms and a plea for caution and flexibility. My noble friend Lord Hodgson also warned us that some of the wording in the amendment may be a bit too wide—a sentiment with which I concur.
First, I turn to Amendment 48B. We discussed this issue in some detail when we talked about Amendment 8 relating to goods, and I apologise if I repeat the points made then. However, I welcome this opportunity to reassure the Committee in relation to services contracts and to respond to the points made by the noble Earl.
Under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, traders are required to make the consumer fully aware of the total costs of a service. For the noble Earl’s information, they implement the consumer rights directive, which I think is the title that he was seeking when he raised this point. These regulations came into force quite recently—on 13 June 2014—and they require traders to give, or make available to, the consumer information about costs before the consumer enters into a contract. In addition, the information must be clear and comprehensible. I therefore believe that these regulations already cover a large part of the amendment. Traders are required to provide information, and they are required to make that available to the consumer before the contract is agreed—that is, prior to the sale.
The noble Earl was also concerned that prices can be unclear—for example, if they are expressed as “from £2” rather than being £2. He suggested that some flexibility was needed in services. I am pleased to reassure him that the regulations I have referred to—this good directive from the EU—have taken us a step forward. If the total price for the service cannot reasonably be calculated in advance, the trader must notify the consumer of the manner in which the price will be calculated.
The amendment also talks about the consumer giving “explicit consent to purchase” at the price given. The Bill deals with consumer contracts but it does not set out the form that a contract should take. Contracts can be implicit or explicit. In many cases, a consumer will give their express consent, such as in signing a contract for a contactor to paint their living room—on this occasion it is a living room, not a bathroom. However, in other cases the contract is implied. For example, a consumer walks into a hairdresser—somewhere I go a lot, obviously—asks the price and, on hearing it, sits down in the hairdresser’s chair.
It is not our intention in the Bill to define how a contract should be made. I can, however, reassure noble Lords that the 2013 regulations require the consumer’s express consent for any changes. For example, if the price for painting the living room were to change, the consumer would need to give their express consent.
I can also reassure noble Lords that the 2013 regulations protect consumers from hidden charges. Under those regulations, the consumer must give their active or express consent for any optional additional payments. For example, pre-ticked boxes for payments which the consumer must untick are no longer permitted for services within scope of those regulations. I think that that helps to deal with the concert example—and we probably have cross-party agreement on Paul Simon and his beautiful music. I also take the opportunity to point out the excellent work that Which? has done to improve transparency of ticket prices. I hope that the noble Baroness’s future experiences will be a bit better.
In discussing Amendment 50G, I will, with apologies, refer again to the famous Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013—that is too long a title. But I have some good news. For services within scope, these regulations prohibit the trader from requiring the consumer to pay above the basic rate when consumers contact them by telephone about a problem with a services contract. This requirement represents an important and significant move towards fair treatment of consumers who want to contact a trader. It was agreed by all member states at EU level as a fair right for consumers, while not placing excessive burdens on business. In the same way that a consumer may need to pay the travel fare or parking to visit a shop to sort out a problem, it seems reasonable to expect that they may have to pay the basic phone rate to contact the trader. What the trader should not do is to derive benefit, or use numbers which actively dissuade contact.
Amendment 50G would give rise to unintended consequences. To require that businesses who offer a phone number must offer a freephone number might result in traders withdrawing telephone-based customer support to the detriment of consumers. Many people would rather speak to someone than, for example, have to use an online chat room or e-mail their complaint. But I can reassure the Committee that, even though not all services are within scope of the consumer contracts regulations, the sector regulators have taken action. For example, current Financial Conduct Authority rules require every authorised firm to have a free channel for making a complaint. While some firms provide a freephone number, this channel could also be by post or online. Early this year, the Financial Conduct Authority issued a consultation paper proposing that charges for consumer help, and complaint, lines were capped at the cost of a basic rate call.
I hope that these developments will help to reassure the Committee, and I therefore ask the noble Baroness to withdraw her amendment.
Baroness King of Bow
My Lords, it has been an interesting discussion that has taken in some clear old favourites, with bathrooms and even party walls mentioned by the noble Earl, Lord Lytton. The problem is that, without the safeguards proposed in these amendments, to the average consumer—and I include myself well and truly in that description—goods and services are not as described. Consumers will not have transparency and will not be able to make an informed choice. In many cases, we are talking about products with a finite cost. I absolutely recognise that services are different from goods; in fact, that was the point that I made in my previous intervention.
I thought that the noble Lord, Lord Hodgson, made some good points about alarm systems as well as the wording of the amendment, and I hear the concerns about the wording being too wide. However, it seems strange to me that the non-negotiable fees that are added to ticket prices are not actually the price for the service; they are another element being added. I recognise that the wording may be a problem, but then let us change the wording. That is something that the excellent Bill team would have no problem doing. Without something to address the gaps, I feel that the Bill is inadequate at present. I would at the very least hope that the Bill would stop the additional non-negotiable fees and charges.
The noble Baroness drew our attention to the 2013 legislation about additional payments and charges, which she believes already covers a large part of the concern addressed by Amendment 48B. Although I welcome the legislation, my problem is that in this case, something is clearly not working. The same goes for Amendment 50G. Of course I agree with the Minister that it is reasonable for people to pay a basic rate, and we would not want to have those unintended consequences, but if that is already covered by legislation, why is it not working in practice? Why, when I booked those tickets in the past few weeks, was I charged £60 on top of the price as advertised and why can we not do something more concrete to crack down on what is a scamming exercise? All right, I suppose that legally it is not a scam, but it absolutely feels like it. Given that the opportunities of a Consumer Rights Bill are few and far between, it would be wonderful if the Minister and her team could review how we can ensure that the practical effect is that consumers do not continue to be ripped off.
However, of course, I beg leave to withdraw the amendment.
Baroness Hayter of Kentish Town
The amendment stands in my name and that of my noble friend Lord Stevenson of Balmacara. It seeks to ensure that any binding qualifications to contracts are given equal prominence with other promises made before they become binding on the person signing up. In effect, it is an amendment about small print, about charges that people may incur but which traders may not specify prominently as being part of the cost. In one sense, it is the future-proofing of the issues which my noble friend Lady King just raised, because we are mostly talking about future charges rather than those paid on a one-off fee. Because of those future charges, we want total charges to be displayed prominently prior to the purchase, so that people know exactly what they are paying for and do not later have any nasty surprises.
The amendment states that charges should be given equal prominence. People need to know what they may find hitting them in a year’s time, on the annual renewal. Sometimes, so much information is given to the consumer that it may be there in theory but it is hidden in plain sight. In other words, it may well say that there is a renewal price, but it is in with three or four other paragraphs—but it is binding on the consumer. They need to be given prominence, up with the actual price, rather than hidden in plain sight. That is an issue about which the Financial Services Consumer Panel and others are concerned—that a substantially increased fee that the consumer could not have predicted is suddenly applied at a later date. This is very much in the area of financially complicated services. There may be things which are very obvious to the provider, but may not seem obvious or relevant at the time of the purchase. There may be the possibility of having to pay for change of address: you would not think when you are signing up to something that that meant anything—you had not meant to move house at that point, or you did not think it would apply to you, but you could suddenly be hit by an additional charge later.
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness for her comments. We have heard a lot today about the importance of making information clear for consumers. I was glad that she felt comforted by the comment on objectives that the Minister—I imagine that it was Jenny Willott MP—was able to make in another place when the Bill was debated. There is already legislation in force that protects consumers from being misled. I have mentioned in our discussion of earlier clauses the Consumer Protection from Unfair Trading Regulations 2008 and the recent amendment to these from October this year which allows consumers a private right to redress for misleading actions.
Other rules, in the 2013 consumer contracts regulations, which I have also mentioned, introduced by this Government, mean that traders must give consumers certain key information before they enter a contract and that it must be given in a clear and comprehensible manner. I emphasise the word “comprehensible”.
The noble Baroness, Lady Hayter, rightly expressed concern about problems with small print. We are committed to protecting consumers from finding surprises in a contract’s small print. Part 2 of the Bill goes into that in some detail and we will hopefully reach that next week.
The Government are keen to help consumers to know what they are buying and get what they pay for. However, I have some concerns about the amendment. Clause 50 already gives consumers a right that traders comply with information given which the consumer takes into account. It allows the trader to qualify information but on the same occasion as the original information is given. The consumer must expressly agree to any later changes that the trader proposes. I think we are getting used to this process.
My concern with the amendment relates to certainty and practicalities. How can a trader ensure that he gives two pieces of information with equal prominence? Many contracts are agreed orally. In such cases, the trader cannot be sure that he has given two pieces of information with equal prominence, since he cannot say two things at the same time. Of course, there may be more than two pieces of information which are relevant, thereby exacerbating the problem. How would a consumer know whether the trader’s explanation during a conversation about a service had been sufficiently prominent to qualify a general point?
To give another example, let us consider a painter whom you have asked to paint your famous bathroom. Before he has measured all of the walls, he tells you that it will cost £100 to paint the room. He then measures and analyses the walls, confirms that the price will be £110 and writes that price down for you on a piece of paper. Do the parties need to consider which is more prominent—the written note or the initial oral comment—or are they equally prominent? I do not know which would be more prominent, and I do not think that most traders or consumers would know. I do not see that this extra test particularly helps the consumer.
I fully agree with the principle that consumers should be given key information in a clear and transparent manner. We have a suite of legislation in place and will have more when this Bill is enacted. Clause 50 provides appropriate protection by requiring a qualification to be given on the same occasion as the information it would qualify. I believe that that is sufficient, given the risks of causing uncertainty by going further.
I should perhaps add that Part 2 of the Bill implements Law Commission recommendations to protect consumers from surprises in the small print. Price terms must be prominent to avoid assessment in court for fairness, and that is new in this Bill.
In these circumstances, I ask the noble Baroness to withdraw the amendment.
Baroness Hayter of Kentish Town
I thank the Minister for that. If she were worried only about the application of the amendment to information given orally, then of course we could just put “where written, they should have equal prominence”. That could be a solution if that were the only issue that the Government had with this. The “hidden in plain sight” issue is quite important. Sometimes these things are known to the trader but are carefully put where they are not as obvious to the purchaser.
We will look at the wording and will think about whether, when something is known to the trader, we can find a form of words to ensure that it is all put in writing. However, for the moment, I beg leave to withdraw the amendment.
“( ) Where the trader seeks to change any of the information set out in subsection (3) after a contract has been entered into by a consumer, the trader must—
(a) ensure that if the consumer does not wish to agree to the changes sought, the consumer is able to terminate the contract without incurring financial detriment; or(b) offer the consumer an alternative contract with a comparable financial outcome for the consumer of the existing contract.”
Baroness Hayter of Kentish Town
My Lords, Amendment 49A is about mid-term changes to a contract. Therefore, this is not about things that were known at the beginning; it concerns the situation where a contract changes.
The intention behind the amendment is to deal with the situation where it is no good telling someone to shop around and find an alternative contract when some part of the original agreement, such as the interest rate, changes and either that person would incur a large financial penalty for doing so—the equivalent of an exit fee—or at that moment there are no other financial products around equivalent to the original one. There may be no such alternatives—perhaps because there is a mortgage famine, although there was not when the mortgage was taken out. The person’s employment status may have changed and therefore they cannot negotiate the same deal. They may have a few more children and so their outgoings are higher and, again, they cannot negotiate the same mortgage as they had to begin with. Alternatively, they could simply have retired and therefore find it very hard to negotiate a new mortgage. Also, annuity rates change a lot because circumstances may have changed.
Amendment 49A would not make the original terms of the deal necessarily unfair. It is not saying that it cannot be possible to change a contract, but it would seek to put the consumer back in the position where they would have been had the contract as made with and understood by the consumer been honoured. The amendment does not cover interest rate increases where those were part of the deal; it is where a provider seeks to change a part of the contract and where that leaves the client worse off because they cannot exit without a penalty. There is a contrast with the example of our house, which we keep going back to; if a cleaner says that they can no longer clean the house at the agreed price, you end the contract and find another cleaning firm. You can go elsewhere to get your house tidy, but that is not the case for financial products, where the exit fees, or changes in annuity rates, can mean a real loss from having to withdraw from the contract or where there is no other product available at that time, perhaps because of something in the market or one’s own circumstances.
Mortgage prisoners are the best example of the detriment that we seek to avoid. I am sure that everyone in the Committee will recall the Bank of Ireland example in March 2013, when the bank invoked a small part in its contract, citing exceptional circumstances, putting up the interest rates of more than 10,000 customers who had tracker mortgages that were supposedly going to be linked to the Bank of England base rate. That had gone up by 0.5% but the Bank of Ireland’s tracker rate went up by 4.49%. The issue is that consumers were essentially locked in to those payments at the time, because there were no competitive rates around where they could have taken their mortgage.
Amendment 49A is to ensure that, when the terms vary from those that have been mutually agreed, and when the consumer cannot leave the contract without a penalty, they must be protected by the provider. It is obviously vital for home buyers, whom we know that the Government are rightly keen to tempt back into the market at the moment, but it is also important for confidence in the financial industry, which, as I said, has some way to go before it reacquires our affection. I beg to move.
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness for her comments. Clause 50(4) protects a consumer from detrimental changes to their contract. The noble Baroness talked about midterm changes—a phrase that I rather liked; it is rather American in flavour. When I was a director of a building company, we used to call them variations. The subsection makes it clear that, when key information about the trader or service is amended, the consumer must agree to that change for the change to be effective. That already provides a significant level of consumer protection. The noble Baroness posited what happens if the consumer does not agree to a change proposed by a trader. The answer in part lies in subsection (4). If the consumer does not agree to a change to the information set out in subsection (3), the original agreement stands. The trader must uphold its side of the bargain without the change. For example, if the trader increases the price but the consumer does not agree, the trader must charge the consumer the original, lower, price and bear the costs of doing so. The law on unfair contract terms also protects consumers from changes made to a contract after it has been agreed. There is already existing protection, and we are strengthening that in this Bill. I look forward to discussing the issue next week because there are a number of relevant amendments.
Baroness Hayter of Kentish Town
I thank the Minister for her explanation. We are not really talking about buildings and builders. That is easy; you can go somewhere else. However, I do not think that she answered the question about mortgage prisoners. We are talking about people who cannot exit because they still have to have a mortgage and cannot get one somewhere else, as there are none available at the time. I think we remember that period when mortgages were virtually unavailable.
Can the Minister write to me to set out how, given all she said about how it should not happen like this, it was possible for the Bank of Ireland to change the rate when people could not exit because they could not go somewhere else? If everything which she said is in place should have protected consumers, why on earth did it not at the time? This has all happened since we have had the safeguards that she set out, so I am slightly at a loss about how we ended up with people in that situation. It was there in the contract but although it said “under exceptional circumstances”, it could be for any other reason. It could be anything: perhaps they might decide that they want to pay high bonuses to their owners. The problem is among those who cannot walk out from that contract. If there is nothing available at the time, because of either the market or their own situation, why did the protections which the Minister says are there not cover the Bank of Ireland? Perhaps she could look at that and write to us, because there is clearly a problem which does not seem to be satisfied by the existing law. That is why we would like some change.
Baroness Neville-Rolfe
On the Bank of Ireland matter, that is an issue for the FCA and it is not really for me to comment in detail. I have seen Martin Wheatley’s letter of May 2013 to the chair of the Treasury Committee, in which he stated that the FCA,
“did not identify concerns with the relevant terms which led us to believe that they might be unfair”.
However, it is a perfectly reasonable request that I should write to the noble Baroness and set it out in a little more detail, or arrange for the FCA to write to her.
Baroness Hayter of Kentish Town
That would be helpful. Clearly, what that letter said was, “Shucks, it wasn’t unfair—pay up”. That was not quite the answer I was hoping that the Minister would give us. However, it is the one we have been given at the moment and I look forward to seeing that detail. It seems that there is clearly some detriment which we need to look at but, for the moment, I beg leave to withdraw this amendment.
The Deputy Chairman of Committees
I call Amendment 49B, in the name of the noble Baroness, Lady Hayter of Kentish Town.
Amendment 49B
Baroness Hayter of Kentish Town
Before the Deputy Chairman arrived, I warned the Committee that it was going to hear an awful lot of my voice today. I have apologised to the rest but maybe I could extend that apology.
Amendment 49B, which is also in the name of my noble friend Lord Stevenson, would ensure that consumers pay only,
“a reasonable price for the service, and no more”,
where the contract does not expressly fix a price,
“for all elements of the service”,
and where consumers subsequently find themselves facing “ongoing costs and charges”. The original clause covers situations such as those where you engage a plumber at short notice, without agreeing a price. It is intended to stop him charging £10,000, or whatever, for a 10-minute job. Our amendment would broaden the idea of a reasonable price to include later prices, when you are already tied into the contract.
I am not going to go to see Paul Simon—I forget what else is happening—but my noble friend Lord Stevenson, who is not in his place, has just flown by Ryanair, which gives me the example I want to give. Ryanair charges customers £20 for each boarding pass printed at the airport. However, if a particular customer, who will be nameless, buys a ticket—often several tickets—he believes that he has accounted for everything. He has paid for the extra luggage and for rapid boarding—I do not know what else one can pay for—then he goes off to have his holiday. He arrives at his holiday accommodation and discovers that there is no access to a printer in the hotel, so he cannot print the return boarding pass to be able to come back home. We think that the boarding card is an intrinsic part of the service and the contract—you cannot get on the flight without one—yet Ryanair exploits the position. Customers must have it and are charged what we would say is an unreasonable fee: it is about £20, so £100 for a family of five. I do not know how many children my noble friend, who went through this, has. He may have many children: it may have been £1,000. However, this is a cost that would not have been anticipated for 30 seconds’ work and a few pieces of paper. It is part of the contract, yet suddenly one has to pay it.
A longer-term issue is where consumers buy financial products and do not have clarity on what they are being charged for the longer-term administration. Sometimes their pension or annuity provider is eating up most of their savings. It is essential that the consumer should know about future costs and be able to decide whether it is a fair price. They need to know what they are paying for, not so much for Ryanair, but especially for services where customers will be for a very long time.
If I read it correctly, the Minister in the Commons agreed with this basic point, but felt that it would be covered by the Consumer Contract Regulations. However, as we have recently heard, they do not seem to have done the job. They make it clear that traders must disclose all costs, which the Government seem to think means unavoidable future costs that the trader could reasonably foresee before the consumer enters the contract. However, as one of the aims of the Bill is to provide consumers and traders with greater clarity on their rights and obligations—preferably all in one place—I urge the Minister to take the opportunity to make those rights clearer by accepting this very small amendment. I beg to move.
Baroness Drake
My Lords, I support Amendment 49B. Information and transparency, although not sufficient, are essential ingredients for empowering consumers. Providing good-quality, transparent and clear information to consumers enables them to make good choices and therefore make markets more efficient. This is particularly so, as my noble friend Lady Hayter has pointed out, with services contracts that do not expressly fix a price, where there are many elements to the service provided and where the contract is ongoing over an extended period with ongoing charges being incurred.
The consumer needs the necessary information to enable them to assess whether they are being charged a fair or reasonable price for a particular service, particularly given the issue of ongoing fees and charges. We all know that consumers can suffer from information overload and behavioural bias. Differences of knowledge and understanding between the consumer and trader can be commonplace. This gives rise to particular though not exclusive requirements—that clear information should be provided for all elements of the service contract and over time for ongoing costs and charges and that the prices for all those elements must be reasonable. This amendment would lock in all elements of the service provided into the reasonable price requirement.
Baroness Neville-Rolfe
My Lords, I am afraid that you have also heard a lot of my voice. I was hoping for some Divisions to give us a rest. Perhaps the Committee would allow me first to discuss Clause 51 in general and then talk about the amendment. The right in this clause is a backstop for consumers and traders. It is an important provision but, in many cases, will not be engaged. This is because, in most cases, a contract will set out the price for the service. In many cases, the trader will do this out of good will or best practice. However, there is also a legal requirement for many traders to give this information.
For contracts covered by our old friend the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, traders must provide information about the price before the consumer is bound by the contract. If the price cannot be calculated in advance then, where the regulations apply, the trader has to provide information on how the price is to be calculated. The information requirements under these regulations may also cover delivery charges and other costs, and traders are prevented from charging any costs additional to the payment for the trader’s main obligation unless the consumer expressly agrees to that additional payment.
For services outside the scope of the regulations, other regimes apply—for example, the comprehensive system of regulation overseen by the FCA. There is a very clear principle there that all communications must be “fair, clear and not misleading”. The noble Baroness, Lady Drake, raised the question of longer-run, ongoing fees and charges. Certainly I have found that with my ISAs, which I have now had to stop, the providers have got much better in recent years at saying what the charges and costs are. Maybe that is the effect of some of these regulations.
There will also be a very small number of other cases—where the service is outside the scope of these regulations and they are not covered by other requirements—where the trader does not provide information about the price. Clause 51 protects consumers and traders in that small number of cases, in that the consumer will have to pay the trader,
“a reasonable price … and no more”.
This clause is about protecting those consumers.
Amendment 49B was debated at great length in the other place. The point was made that the information listed in this amendment is needed for the consumer to assess what is a reasonable price. I agree with that. The consumer should have this information, and possibly more, to assess what they are buying. However, this clause is a backstop for the very few cases where the price or the method of calculating it has not been agreed in advance.
The noble Baronesses, Lady Hayter and Lady Drake, talked about extra costs being added after the event. I have a graphic vision of the noble Lord, Lord Stevenson, landing safely, I hope, after his Ryanair flight. I would just add to the debate that the Advertising Standards Authority takes action on misleading prices. Firms must advertise the full price, including compulsory costs. There may be a case to be made here, although the business model of some airlines is to have low core prices, from which we benefit, and then to charge add-ons, which the very organised can avoid. However, the consumer must have agreed to the additional payment before entering into the contract. If not, the regulations are clear that the consumer does not have to pay. If the consumer does pay, the money may be reimbursed.
To conclude, our view is that there is already legislation in place to ensure that consumers have clear and accurate price information and that Clause 51 does what we are seeking to achieve. In the light of those explanations, I ask the noble Baroness to withdraw the amendment.
Baroness Crawley (Lab)
To go back to the Minister’s point about the fairness and the reasonableness that have to be met, given my noble friend’s example of our noble friend and his famous holiday, would it be fair on him as a consumer to have to prioritise the availability of a printer when he looks to having a holiday? Surely the priorities will be pleasure, climate and the type of hotel or holiday accommodation, and not necessarily there being a printer so that he can print out his boarding pass. That is not fair on him as a consumer.
Baroness Neville-Rolfe
I thank the noble Baroness, Lady Crawley, for her intervention and for bringing the whole issue to life to an even greater extent. While I am waiting for a bit of advice, I would say that there are different business models. I used to go abroad on business and I got quite frustrated when I could not print out my boarding pass. Some airlines allow you just to show the boarding pass on your phone or your iPad. That has obviously been a great step forward.
On fairness, airlines are a competitive industry. If consumers do not like the deal that the airlines are giving then, to some extent, we vote with our feet. I have explained the frustration that I have had and how I dealt with it. It is not obvious to me how you could resolve this under the general heading of fairness. There are advantages and disadvantages to the way that services are supplied, and this is perhaps something for us to contemplate.
Lord Harris of Haringey (Lab)
My Lords, I hesitate to intervene. This may be the first time that I have intervened on the Bill, for a variety of reasons. I should declare my interest as chair of the National Trading Standards Board. I am now confused. I thought that I understood what this debate was about, but the Minister has raised the interesting topic of how people can understand what they are entering into. She has talked of the fact that different companies have different business models. That is all very well and good, but it is surely incumbent on them to ensure that those business models are transparent to people who might enter into a contract with them.
As we seem to be hung up about airlines and booking airline tickets, there is a particular issue about price comparison sites. That applies not just to airlines but to other services. The price comparison site will try to identify the headline figure for the cost of a particular service. That is where suppliers who operate a business model which adds in a series of extra charges further down the line can score. People say, “I will go for the cheapest”—the one which seems to be the cheapest—and then discover that they are being hit for all sorts of extra charges. I would be grateful if the Minister could tell us how she feels that the Bill addresses that problem.
Baroness Neville-Rolfe
I am grateful to the noble Lord, Lord Harris, for his intervention. It is great to have the trading standards voice joining in our debate, because we have referred to that several times already in Committee. I reiterate my point that the consumer must have agreed to the additional payment before entering into a contract. If the contract is not clear that the consumer has to pay but he or she pays, they can seek reimbursement. That is a basic principle. Of course, the law has been much strengthened by the contract regulations that we have been discussing. They require certain information for transparency, and making online sales requires information about extra costs to be given in advance. Obviously, I cannot comment on particular circumstances, but one would have to ask how the situation on boarding passes is described in the terms and conditions of that airline.
Lord Harris of Haringey
My Lords, my question was: how do the Government anticipate that the regulations that they are introducing, whether amended or not, will deal with the issues about price comparison sites and the headline price? It was because these are hidden costs, which are not automatically picked up.
Baroness Neville-Rolfe
I had not appreciated that the noble Lord wanted to talk in particular about price comparison sites. That is something I would like to discuss with him in a bit more detail. I will write to him and to other noble Lords.
Baroness Hayter of Kentish Town
I think these are hidden in plain sight. It probably did say, “If you go on holiday and you don’t print it then you are going to be hit by it”. Our disappointment is that the Minister is saying, “Don’t worry, the regulations are already there”. The evidence—from buying tickets, looking on price comparison websites, printing off boarding passes, or, even now, buying annuities, pensions and all that—is that the regulations are not working. This is the opportunity to strengthen them. I hope that the Government are not going to continue to tell us not to worry and that the regulations and law are already there when this is clearly failing to solve the problem.
The ASA is not mandatory. It is not a government agency or a legal enforcer. It is a voluntary organisation funded by advertisers, if I remember correctly, so it relies on the industry. I am pretty certain, because I take a lot of complaints to the ASA—I have a wonderful new one that I am giving it this week—that one does not get any redress, which is a great disincentive for people to complain to it. Although it either fines or tells people off for breaching its rules, consumers do not get any redress.
The Committee will be clear from our different responses, whether from the perspective of the National Trading Standards Board or from the financial sector—I thank my noble friends Lady Drake, Lord Harris of Haringey and Lady Crawley for their interventions—that we are uneasy that consumers are unable to be sufficiently protected by the regulations, which the Government assure us are there. The Minister said that this was comprehensively overseen by the FCA, but people are still having problems. There is quite a difference between us being told that it is quite adequate and our evidence.
Baroness Neville-Rolfe
One area that my noble friend Lady Jolly touched on today, and which we have discussed before, is the implementation of this new and important Bill and its parallel provisions. Clearly we can debate further and clarify whether we have exactly the right provisions; that is entirely appropriate for this House to do. However, her point is also about how we implement and enforce some of the good regulations that have come in during the past couple of years—some of them EU-based—and the new provisions that we are creating in this process.
Baroness Hayter of Kentish Town
That is helpful. I know that one of the Ministers said that the implementation group would look at the regulations as well as the Bill. I welcome that, but perhaps she should also talk to the FCA to see whether it could be part of that. I thank the Minister, and for the moment I beg leave to withdraw the amendment.
“( ) A supplier must provide on request a written statement of account free of charge no more frequently than once per quarter.”
Lord Hodgson of Astley Abbotts
My Lords, Amendment 50 is a very broad, sweeping but probing amendment. It is designed to tease out the Government’s thinking on the position of those consumers who are increasingly being pressured to give up paper bills in favour of a paperless, usually direct debit system of charging. That is one of the two issues most frequently raised regarding consumer protection. Simply put, some people want to be told in advance what the cost of the service is to them. They want to be able to pay in the way that is most convenient to them, including by cheque, and they do not wish to be charged extra for using any aspect of that facility that they do not see as an optional extra.
To give a practical example, I have a bill from BT, which is headed, “How we worked out your bill”. After explaining that there is a charge of £48 for the service, it also explains that you get your phone line at a special rate. It gives a refund of £2 a month, which it says is shown on the bill—it is not shown, but never mind about that. Eventually it comes down to a £56 charge, and it then says “a payment processing fee”. That is the fee charged by BTPS, whoever it may be, for processing your payment. If you are in any doubt as to where you are being steered, on the right-hand side of the bill, in small type, it states, “To avoid future payment processing fees you can set up a direct debit at www.bt.com or call 0800 443311”. That fee is now £6 of £56, which must be doing quite a lot of good for BT’s profit margin.
It goes much wider than just individuals. In my work in the charity sector, one of the most common means—
Lord Hodgson of Astley Abbotts
My Lords, before getting back to the issue of paper bills, I hope that I will not be out of order in congratulating the noble Baroness who is taking the Chair of our Committee for the first time this afternoon. I did not want to risk it until I checked with her in the Division Lobby.
I was explaining the importance of people being able to get a paper record of what they are being asked to pay, and not being charged extra for that or for how they make a payment. I pointed out that in the case I had in my hand, BT was charging £6 for postage and payment and indicating strongly that, of course, there was an easy way to avoid that by paying by direct debit. I am not clear how the £6 is arrived at, or why it should not ask for £10, £20 or £30. I am not clear who will protect me when it does that but we can tease that out during the debate. Perhaps one of the regulators would step in, and if so, I should be interested to hear how. That is my first point. The cost of having a paper bill delivered can be 10% of the amount charged, as in this case.
The practical example that I was about to give when the Division Bell went was about charities. Charities use a very simple procedural device to minimise fraud, which is to have two signatories on a cheque. It is very easy for smaller charities. It is pretty effective and costs nothing but, of course, it does not, and cannot work on the direct debit system. Indeed, when the Government, or the industry, decided not to proceed with the phasing out of cheques for two or three years, that was one of those issues that we raised strongly to ensure that the position of these smaller groups was protected.
In passing, the other great complaint that I cannot see how to tackle is the fact that people are infuriated by their inability to talk to a real, live person, and have to go through a veritable steeplechase of Qs and As, and buttons to be pressed. People can lose the will to live. I mention that only because we are discussing the Consumer Rights Bill. Clearly, the easiest way to deprive consumers of their rights is to establish a CRM system that discourages people from complaining except in the most extreme cases. I know that people say the market will work to sort this out, but I have not seen much evidence of that yet.
Returning to Amendment 50, it was previously grouped with Amendment 53 in the name of my noble friend Lady Oppenheim-Barnes, which is a much better-focused amendment than mine. She has used a scalpel where I have used a butcher’s cleaver. I look forward to hearing her comments on that amendment when we get to it at the next sitting of the Committee. I say that her amendment is superior to mine. It is in all but one sense: it is focused on utilities and does not mention banks. One of the most frequently required paper statements is that for a bank account. You often need one from a bank account because of money laundering and other purposes, and banks are beginning to charge for this. In particular, online banks are trying to find ways of charging for it. I hope that when my noble friend has a chance to read the record of these proceedings, before we meet again, she will think how she might wrap up the banks into her otherwise exceptionally well drafted amendment—
Lord Hodgson of Astley Abbotts
Amendment 53, which we shall discuss at the next meeting of the Committee, is a much better focused amendment and I look forward to hearing the Minister’s reply to it. I hope that my noble friend can see a way to include the banks in it as well as the utilities, but for tonight, with this amendment and, I imagine, the amendment that the noble Baroness, Lady Hayter, is going to speak to—an amendment to this amendment—we at least have the chance to have a preliminary canter over the ground and see how the Government’s thinking is developing in what is a very important area and a very significant concern for a large number of our citizens, particularly those of the greyer variation. I beg to move.
Amendment 50ZA (to Amendment 50)
Baroness Hayter of Kentish Town
I have never heard the noble Lord, Lord Hodgson, describe himself as a butcher before, but he talked about coming in with a cleaver. I thank him for tabling Amendment 50 and for the way he moved it. I was delighted to give it my complete support. My amendment is simply to ensure that what he has asked for is available at least once a quarter, as there will be many instances where, particularly with phone bills—I cannot remember who I phoned last week, never mind three months ago—it would be very difficult to divvy up a bill like that if it was only once a quarter.
As the noble Lord said, this is a forerunner, in a way, of the debate on Monday on Amendment 53. He spoke about the banks. If we include regulated industries, of course, that might well cover banks. In a way, they are almost like a utility at the moment, so I am sure that a form of words will develop. The principle, as he said, is clear: it is bad enough paying a bill, but to be charged to get your bill is adding insult to injury. For me, the principle is clear that the sending of an invoice and, indeed, the paying of that invoice, is part and parcel of the contract, not something completely separate for which we should be charged.
We know that consumers are pretty insulted when a provider tries to decide for them how they will receive a bill. Eight out of 10 adults do not like it when companies take away their right to choose how they receive communication and four out of 10 worry that they might miss a payment if they do not get a paper statement and that their financial records would be incomplete without paper statements. Like all of us, the public do not understand why they should have to pay a fee for a bill, rather than it being included in the basic cost of a service.
Some people are particularly affected by this. Rather like those people who do not have a computer when they go on holiday, as we spoke about on the last amendment, some people do not have a computer at home. Such people, and there are a lot of them, cannot print off something to keep for their records, even if they can see it on their iPad. Another affected group is people who share accommodation and therefore share bills. They still like a bill that they can look at and maybe take a copy of, so they can know how to split it. There are also people whose carers or families help them in the payment of bills. Again, a paper bill that you can discuss is important for that, and for knowing who is dealing with which one. Those who are struggling to make ends meet very often have to juggle which bill they are going to pay next in order to avoid being cut off, or something like that. It is much easier, for many of us, to do that with a piece of paper.
Bills also fulfil other purposes. If you want to get a parking permit in London you have to have a utility bill in your own name and to your own address. That is difficult enough for those of us who have more than one name. If you cannot even get a paper copy, it makes it very difficult. There are other purposes for which you have to show a bill addressed to your home, including, I think, opening a bank account.
The other group of people for whom I think that it is particularly important to have a paper bill are probably the Members of your Lordships’ House. Having declared my interest as someone who still does my paperwork and my payment of bills in that way, I move my amendment and give my wholehearted support to the main amendment.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I support Amendment 50. I have an elderly father who is 91 and who has recently been extremely ill. While looking through his paperwork, I found a number of bills that needed paying. We discussed this and I said, “Why don’t you set up a direct debit?”. He definitely did not want to do that. He felt that he would lose control of what was going on in his life and his finances. He liked the security of filling out a cheque and sending it in the post, with a copy of the bill or the counterfoil on the bottom of it. He felt that that was the way that he could make sure that his money stretched, that he had money at the end of the month and was able to pay all his bills. He is not a man who did not want to enter the technological age. He bought a computer—much to my utter amazement—because Lidl had them on special offer. He loves Lidl. He joined a course to teach him how to use to the computer, and my husband and son went over to help him to set the computer up and get to grips with it. However, he did not use it often enough to be able to use the skills that he had been taught in his computer classes, so he was never going to be able to pay all his bills from the internet. My father is not on his own. Lots of people want the security of a paper bill and of being able to pay by cheque or a direct debit—because my father has direct debits for some things, such as council tax. They want that security, and I think that they ought to be able to have that.
Lord Harris of Haringey
My Lords, Members of the Committee have highlighted a number of categories of people for whom this is a necessity. We should also be clear why it remains a necessity for virtually every citizen. That is a consequence of the approach of both the current Government and their predecessor in not enabling the citizens of this country to have a readily available means of identity proof and assurance. Had proposals gone forward on identity cards, it would no longer be necessary to prove your identity by turning up with a paper copy of a utility bill, which is one of the two elements that you nearly always have to have to demonstrate and prove who you are. I think that the failure of successive Governments to provide a proper system of identity assurance is lamentable, but that is for a separate debate.
We are left in a position where most citizens need to be able to produce a hard copy of a paper bill for a utility or similar service; otherwise, they cannot prove their identity to their banks, to apply for certain documents and for all sorts of other purposes. Under those circumstances, the Government need to look favourably on this group of amendments.
Baroness Neville-Rolfe
My Lords, I am grateful to my noble friend Lord Hodgson for his amendment and for bringing up an issue that matters for the grey haired and the vulnerable. It is a very House of Lords issue, I have to say, so we must try to get to the right conclusion for the population at large.
For some, there is something comforting and reassuring about holding a bill or a statement. As others have hinted, it can engender a feeling of greater control over your finances. Equally, not everyone can manage with quarterly bills, which are mentioned in my noble friend’s amendment. We must not forget those who need to budget carefully when considering these issues—those who struggle to make ends meet.
There are a couple of elements in the amendment, as well as others for the debate that we will probably have on Monday on a similar issue: first, whether there should be a requirement for quarterly bills and, secondly, whether the customer should be able to choose the way in which they receive bills and statements. I turn to the frequency of bills first. It is common in most service supply contracts to receive a minimum of four quarterly statements of account, which reflects the historical habit of four quarterly payments. Other arrangements have grown up more suited for the circumstances of today—a mortgage customer may need only an annual statement, while for current accounts or credit cards a monthly statement would, in my view, be essential. For these, the benefits of moving to a system of quarterly statements upon request are not immediately obvious and could have the unintended consequence of increasing costs or restricting flexibility in the frequency of information.
The appropriate arrangements are set out at the time of the original contract, and I agree that these details should be clear and transparent at the time of purchase or engagement so that the customer knows how his or her bills and statements are to be provided. This is what the current law requires. So what is the case for change? The amendment requires that, notwithstanding the original terms of the contract, a customer can request at least four statements a year in written form, at any time of their choice, which could introduce a randomness into the billing process that would add to the administrative costs and could have undesirable side effects. That is probably not my noble friend’s intention.
Paper bills have never been free. Historically, there was just one way to pay and the fee for processing them was always included, obscured in the administrative costs of the utility and the charge spread across the customer base. However, of late, charges have been more transparent—partly due to advances in consumer law—and have been linked to specific costs and customer categories. Now cheaper to administer payment methods are available and utilities are seeking to incentivise their use by separating out costs and allocating them accordingly. The uncertainty that this amendment would introduce would be of disadvantage to online customers, for whom statements are readily available and can be printed if necessary. Many hard-pressed households welcome the opportunity to save money that paperless bills offer. Paying monthly by direct debit can also enable people to budget more effectively, rather than being faced with quarterly or lump sum bills. For them, the proposed statutory requirement set out in these amendments adds little but extra costs.
I agree, looking at the bill format, that the choice to have paper bills should be generally available, but when we consider the utility providers we can see that the choice is widely available. It is true that not all tariffs offer this option, but customers can and do choose to receive paper bills from their suppliers. So what is the objection? The issue lies with differential pricing, to which my noble friend Lord Hodgson referred—and on this I am afraid I must disagree. It is reasonable for a supplier to take the cost of processing bills into consideration when setting the price of its tariffs. Such decisions go to the heart of running a business and encouraging efficiency in the economy. It is undoubtedly more expensive for a business to print out and post bills to its customers than it is to deliver them electronically online.
It is not for the Government to dictate that certain costs cannot be accounted for and that the consequent burden instead should be placed on all the customers. It is surely reasonable for a business to incentivise its customers to use the cheaper processing mechanism by sharing the savings with customers. This amendment would outlaw that and almost certainly drive up the charges to online customers and perhaps to customers more widely. What does that do to our efforts to encourage more people online within the economy?
The noble Baroness, Lady Hayter, rightly mentioned how useful paper bills were as proof of identity. But, of course, that is not a primary function of utility bills. Other more reliable forms of identity are available to many people, such as passports and driving licences. Going forward, the Government Digital Service is leading work on the development of the ID assurance programme, which will enable people to prove their identity and access government services in a digital world. Bills can always be printed out from an account if they are needed. I thank the noble Lord, Lord Harris, for his comments on ID cards but that may be a debate for another day.
Lord Harris of Haringey
It is not entirely a debate for another day. I understand the arguments but the Minister is saying that to drive down costs is an unnecessary burden on the businesses concerned. If the requirement is for citizens to be able to prove who they are—and in most instances that is the case—they need as a second form of back-up a utility bill that gives their address. That is a problem that needs to be met. Are the Government arguing that that is not a fair cost on either the utilities, the companies concerned, or on the generality of consumers? As the Government are requiring that information and have created a situation in which we all need to prove our identity, the logic of the Minister’s argument is that the Government ought to be paying the utilities to provide us all with paper bills.
Baroness Neville-Rolfe
I note what the noble Lord said. That is fair but difficult logic. His points are well made. Perhaps we can come back to that question on another occasion, but I did emphasise that work is in hand on the ID assurance programme, which is very important if we are going to have a digital economy. We say that we are leading in Europe, so we should be doing this sort of thing as well.
What is being done to help people and businesses go online? A lot of work is going on across the public, private and voluntary sectors to help people and organisations get online, but digital exclusion is a huge issue. The digital inclusion strategy was published alongside the digital inclusion charter in April. It sets out 10 actions that government and partners from the public, private and voluntary sectors will take to reduce digital exclusion. There is quite a lot of good practice for the vulnerable and disabled that we may end up discussing in a little more detail.
Before I conclude, I return to the first point made by my noble friend Lord Hodgson concerning his experience of getting copies of BT bills. That is an experience I entirely empathise with, having had exactly the same issue when trying to prepare my expenses in the old days. The only thought I can add is that, like all sector regulators, Ofcom requires any charges to be cost-reflective. If a customer feels that a charge is excessive—I am not sure whether that was what my noble friend was saying—they can complain to Ofcom. Ofcom does listen to complaints. I believe it receives an average of only five complaints a month about paper bills, so not a huge amount of writing to Ofcom seems to be going on. That is obviously another avenue of public debate.
Lord Hodgson of Astley Abbotts
I am pleased, surprised and grateful to the Minister for telling me that I do get information about the costs of different billing in advance. I am sure that I do and that it is somewhere in the fine print, but it has not always struck me. I am also grateful for the reassurance that Ofcom will keep an eye on additional charges being made, which is the important thing. I suspect that only four people write because only four people know that Ofcom has a particular interest in this part of the Bill. Never mind—it is a step in the right direction. I am grateful to the Minister for all the information and I beg leave to withdraw the amendment.
Baroness Neville-Rolfe
My Lords, this may be a convenient moment for the Committee to adjourn.