Consumer Rights Bill

Andy McDonald Excerpts

Monday 16th June 2014 Commons Chamber

When I challenged estate agents at Douglas Allen in Walthamstow about their behaviour, they admitted openly that they expected buyers to factor the introductory fee into their offers. Sellers do not benefit from the fee that is being offered. They do not gain the benefit of the additional sum that the buyers are paying for their asset—not the estate agent’s asset—but the estate agent does. That the sellers are paying for the privilege of the marketing of their houses in that way only compounds the scam that is affecting too many people in our country.

[Andy McDonald (Middlesbrough) (Lab)]

Is not the ability to charge two parties to a potential transaction nothing less than a direct conflict of interests? It should not be possible to owe a duty to a buyer and a seller in equal measure. An agent has one client, and it must remain that way.

[Stella Creasy]

My hon. Friend is entirely right. Let me give an example of the way in which this conflict of interests operates in practice. The example was given to us by a young first-time buyer who, because of her restricted ability to buy a property in the area where she wanted to live, accepted that she would have to take part in a “sale by tender” arrangement, and that she would have to pay an introductory fee of 2.5% of the sale price of the property. She made an offer of £258,000 for a house that was well within the guide price, and therefore committed herself to paying about £6,000 in fees to the estate agent. Her offer was accepted as the highest offer in the sealed-bid process. She then contacted us to say that her offer had not been accepted by the seller, and the agent was putting pressure on her to up her offer to £262,000. If she did not do so, the property would be put back on the market for another “sale by tender” exercise, because the seller wanted more. That was despite the fact that she was the one who had committed herself to paying the fee that the estate agent wanted to charge.

Some Members may think that that is an indication of the overheated London housing market, and the fact that house prices in my constituency have risen by 30% reflects that overheating. However, we are hearing about examples of double charging throughout the country. In the north-west, for instance, a gentleman who tried to buy a house for £45,000 was told that, as well as finding the £45,000 and the fee for the conveyancing, he would have to find £2,880 in order to pay the introductory fee to the estate agent. In the south-west, an estate agent wanted an introductory fee of nearly £6,000 plus VAT from someone who wanted to buy a house for £296,000. I must stress that the sellers of the properties, who do not benefit from the additional £6,000, are also paying a fee for the service.

The Minister had admitted that double charging is a potentially worrying emerging trend which seems to be on the increase, but at every stage in the Bill when we have sought to outlaw this conflict of interests, the Government have voted against our attempts, although the property ombudsman has agreed that the new approach to selling properties

“can also potentially disadvantage the seller. He”—

or she—

“will no doubt have to agree to accept only prospective buyers that follow the agent’s agreement with those prospective buyers and if a prospective buyer declines to submit to paying the fee, he”—

or she—

“will be out of the picture and the seller will have lost an opportunity to sell his house.”

That is what the property ombudsman has told us about the practice.

--- Later in debate ---

We believe it is important that consumers are able to access independent advice in dealing with issues around legal insurance and whether there is an inadvertent conflict of interests. We therefore believe consumers should have the right to get independent advice before being sold such policies, so they know the consequences for their legal cover if they take out a policy. We also believe it should be an unfair contract term to sell a consumer a contract for a service that limits their access to independent advice.

[Andy McDonald]

Does my hon. Friend share my concern that the Ministry of Defence has approved a particular policy under the banner of PAX that prescribes a single point of reference for legal advice and does not give members of our armed forces freedom of choice in that respect? Is it not reprehensible that we are in that situation?

[Stella Creasy]

My hon. Friend has just illustrated why I believe him to be the expert on this issue. I hope that he will contribute to the debate to explain why this concern about independent advice is so important. He is right about upholding the need for independent advice.

I am conscious that other Members wish to speak in this debate, so let me say a little about net neutrality, and our amendment to amendment 19. I recognise that this is a new and evolving debate. Our discussions have ranged from the Victorian bill of sale to the contemporary net neutrality, both of which reflect this stress over conflicts of interest. For those Members of this House who have not yet had the chance to watch the viral videos about net neutrality, let me explain the concern. Net neutrality is the principle that internet service providers and Governments should treat all data on the internet equally. They should not discriminate or charge by user, content, site, platform, or application. In layman’s terms that means that, whether we are looking at iPlayer, Sky on the Go or Netflix, there would be equal access to services. There would be no speed differential in accessing them.

In America, some broadband and internet providers have been exploring the idea of charging companies different rates for providing their services. That means that they could offer access to some websites at a faster rate than others, and therefore change the way in which consumers access them. The fear is that that would create a two-tier internet, because it will limit the number of sites that consumers can access with ease, and the number of companies that can access and operate services equally. In particular, if large companies were to use their financial muscle, or their internet provision, to restrict access to their competitors or to new entrants to the market, it could limit creativity and innovation in the provision of services. An internet without net neutrality moves huge market power to those who are the gatekeepers to our online services. It is little wonder that 100 companies, including Google, Facebook, Twitter and Amazon, have expressed concern about this issue. Indeed, “father of the internet” Tim Berners-Lee, who was rather unfairly described as a web developer recently, has argued that there is a real concern. He says:

“Unless we have an open, neutral internet we can rely on without worrying about what’s happening at the back door, we can’t have open government, good democracy, good healthcare, connected communities and diversity of culture. It’s not naive to think we can have that, but it is naive to think we can just sit back and get it.”

We welcome the amendment that has been tabled by the hon. Member for Shipley (Philip Davies), but we are concerned that the way in which it has been drafted may inadvertently imply that those sites that are providing pay-per-view services, such as Netflix, would be required also to provide access to some of their competitors, and I am sure that that was not what he intended. We have tabled a clarifying amendment to make it clear that we are talking about those services that provide access to the internet, rather than content.

It would be useful to hear from the Minister about what discussions she has had with her colleagues on the issue of net neutrality and about what action she is taking to ensure that consumers’ interests in the operation of net architecture are being upheld so that we do not have the concerns and challenges experienced by America. In particular, does she feel that existing protocols are strong enough to protect the interests of consumers and avoid competition issues between content providers, and has she done an assessment of the impact on consumers in the UK of a possible two-tier internet?

We have here some very different but interlinked issues around conflicts of interest, freedom of markets and consumer interest, and an effective piece of consumer rights legislation should provide consumers with the tools with which they can mount a challenge to any of them. We hope the Minister will accept our amendments in the spirit in which they are intended, which is about applying clarity in what is meant to the list of unfair contract terms that would give consumers the right to challenge issues in court. I therefore hope that the House will support them accordingly.

--- Later in debate ---

[Jenny Willott]

May I add my congratulations to you, Madam Deputy Speaker? You will get bored with it soon, but at the moment I am sure it is probably still quite a novel surprise.

I share the concerns of the hon. Member for Walthamstow (Stella Creasy) about the practice of double charging by estate agents. That issue has been raised in the House a number of times and in Committee. Under existing legislation—in particular consumer protection regulations and the unfair contract terms law—as well as their own industry codes, estate agents must already make fees and charges clear for consumers. I believe that there are risks in rushing into further legislative measures and applying them prematurely, which is why a better way of addressing the issue is through estate agent redress schemes.

As the hon. Member for Walthamstow mentioned, on 7 May I met the property ombudsman and ombudsman services: property, to draw their attention to my concerns on this issue, and those raised by hon. Members in Committee and the House. Both redress schemes have agreed to monitor any complaints they receive, and more is being done. The property ombudsman has committed to producing new guidance that will put in place strict controls on the practice of charging the buyer a fee, or charges being placed on both buyer and seller, and the potential for conflicts of interest. That guidance will ensure that agents recognise their obligations under the ombudsman’s code of practice for transparency, disclosure and avoidance of conflicts of interest. If the guidance is not complied with, agents will be in breach of that code.

Estate agents must belong to an ombudsman service, and ombudsmen have strong powers to tackle bad behaviour by estate agents. For example, they can give a financial award to the complainant or enforce obligations on the estate agent. As a last resort, estate agents can be struck off a redress scheme. Because it is a requirement on estate agents to belong to a redress scheme, if they have been struck off, they are effectively out of business and cannot continue to operate. If they continue to operate under those circumstances, it is a criminal offence.

[Andy McDonald]

Does the Minister accept that instead of codes of practice and all that paraphernalia going round the houses, it is fundamentally a breach of the fiduciary duty that an estate agent owes to one client if they are in discussions with another and charging a fee for the same transaction? The interests are not united; they are completely and utterly divergent. Would it not be better to say simply, “You cannot charge two contracting parties a fee for the same service”?

[Jenny Willott]

As I said, I met both ombudsmen in May and discussed the best way forward. As a result, they are looking at the conflict of interest, which I think is key to this issue, and at how guidance can be tightened so that the responsibility estate agents have to the buyer and seller is made clear.