Baroness Hayter of Kentish Town
Main Page: Baroness Hayter of Kentish Town (Labour - Life peer)Consumer Rights Bill
Baroness Hayter of Kentish Town Excerpts
Baroness Drake (Lab)
My Lords, in moving Amendment 63AB I shall also speak to Amendment 63AC. The Government seek to ensure that markets function well by increasing the range of measures available to enforcers under the civil law enforcement regime, which is an initiative to be welcomed. Of course, good business needs safeguards as to how these powers will be used, and Schedule 7 sets out the conditions that enforcement bodies have to meet. However, if those safeguards are so extensive that they act as a deterrent to private enforcement bodies to use the enhanced enforcement measures, much of the value of the new powers will be lost.
Subsections (9) and (10) of proposed new Section 219C, which my amendment would delete, in Schedule 7, set a requirement that a private enforcement body, taking enforcement action, must act consistently with any advice or guidance that the relevant trading standards primary authority has given. Of course private enforcers should consult public enforcement bodies and take into account their views—that is not disputed—but in practice the unintended consequences of proposed new subsections (9) and (10) could mean that a private enforcer would be prevented or deterred from taking civil action that is inconsistent with advice that had been received by the defendant company from its primary authority. This greatly increases the risks involved in taking civil action, particularly on exposure to costs, and makes it much less likely that private enforcers will use the enhanced consumer measures.
If the defendant can satisfy the court that the private enforcer is acting inconsistently with primary authority guidance, the enforcer will automatically lose the action and be liable to pay the defendant’s legal costs. It will be simply irrelevant that the action would otherwise be correct as a matter of law and/or have considerable merit. This exposure to costs in these circumstances will act as a deterrent. No doubt the Government will argue that private enforcers can mitigate that risk by consulting the primary authority in advance of any action. However, that is easier said than done. For example, the primary authority may not have accurate records of all the advice and guidance that it has provided. It may be formal advice, written, oral, or the records may not be reliable. This may be particularly true in respect of any so-called informal assistance or oral advice. When the primary authority has changed, when a company switches authorities or when a company merges or is acquired, the relevant records may be confusing, imprecise or not readily identify all relevant guidance. The private enforcer may proceed in good faith on the basis that there is no advice, but if then later during proceedings information about advice comes to light, the case may be thrown out, whatever its merits, and costs awarded.
The claim may not align precisely with the scope of the subject matter covered by the advice from the primary authority. That may lead to legal arguments as to whether the private enforcer’s case is inconsistent with the authority’s guidance or whether it is elaborating on that guidance, thereby making its action permissible under Schedule 7. Win or lose, the private enforcer’s costs will go up. The court may give a very broad interpretation to the advice that a defendant company receives from the primary authority. This may be particularly so if the records of the authority are imprecise or inadequate. In such a situation, the private enforcer would lose the action and be exposed to costs, even if its arguments on consumer detriment had considerable merit. If a private enforcer seeks to identify such potential inconsistencies in pre-action discussions, the uncertainties created by the proposed safeguard as drafted may still deter it and inhibit effective consumer protection, which these extended civil powers were intended to provide.
If private enforcers are prevented or deterred from taking action that is seen as inconsistent with the advice given to a defendant company by its primary authority, this places a huge burden on that authority to get its advice, and the record of its advice, right. Why? Because it creates what I term a double lock: locking private enforcers out of taking action against the company but locking them into the advice already given. Yet the primary authority may not fully appreciate the implications of a company’s commercial practice over time, and it may not be apparent how a trading standards official could have reasonably reached the view that informed the guidance given to a company. Given that companies can take comfort from and rely heavily on assurances received from trading standards, and given the absolute protection afforded companies by the proposed safeguard, they would have a very strong incentive to argue for the broadest application of any primary authority guidance in their favour, so ensuring that the primary authority advice acts as a deterrent to the private enforcers actually using their civil powers. In her reply, could the Minister explain a little more about how the trading standards bodies will operate in the new civil enforcement regime, particularly given my understanding that the primary authority will be largely focused on criminal activity?
I believe that the safeguards in proposed new Section 219C(9) and (10) are unnecessary. Under the Enterprise Act 2002, private enforcers are already required to consult the Competition and Markets Authority before taking enforcement action, to ensure that their proposed action is neither duplicative nor detrimental to action being taken by others. Furthermore, if the Regulators’ Code is applicable to private enforcement bodies, as is intended under the Bill, any enforcement policy that a private enforcer develops under the code will include a requirement for it to consult other enforcement bodies—most notably the relevant primary authority—prior to taking enforcement action. This amendment would not prevent a private enforcer’s action from failing if the court is persuaded that it is inconsistent with previous advice from trading standards, but it would remove an automatic ruling against the private enforcer on such grounds and the exposure to consequential costs.
As drafted, proposed new subsections (9) and (10) pose a real risk that private enforcement bodies will be deterred from using the extended range of civil measures available to them because of the level of exposure to the risk of costs that the drafting of the schedule on safeguards gives rise to. My amendments on private enforcers, and that of the noble Lord, Lord Best, on public enforcers, raise real issues as to whether these civil enforcement powers are usable, or will indeed be used in practice, because of the way in which they will operate. Given the long lead-in to these civil enforcement powers being implemented, it would be helpful if the Minister, in her reply, could elaborate on the timetable for extending these powers to both public and private enforcers.
Amendment 63AB is a probing amendment to try to clarify how appropriately the Regulators’ Code will be applied to private enforcement bodies. Schedule 7 would make any use of the enhanced consumer measures by a private enforcer a relevant regulatory activity covered by the code. I understand that any regulator or enforcer needs to have an enforcement policy governing its enforcement activities, and that policy must adhere to the principles of the code. However, I am also aware that under the Legislative and Regulatory Reform Act 2006, the duties on any person exercising a relevant function are pretty extensive.
The code was introduced to govern the relationship between business and full-time regulators. It will now apply to private enforcers such as Which?—for whom the majority of its activity is not of a regulated nature, but rather involves campaigning, researching, and all the other things that we are all aware that it does. The issue here is that there is a rationale for the application of the code as regards the exercise of a private enforcer’s statutory functions, but it would not be at all desirable if the application of that code was then extended to enable the wider activities of the private enforcer to be challenged. To use Which? again as an example, if it were to name a poor-performing company in its magazine research, how could the Government give reassurances that this Bill will not allow the code to be used to challenge the publication of the findings of such research?
The language of the code is not always appropriate for private enforcers, and some duties are not limited to regulatory activity—for example, the general duty to support economic growth. I cannot believe that the Government are arguing that one can give a private consumer campaigning body a general duty to support economic growth. If one did, how would one interpret it? If a private enforcer took action against a company, the consequence of which was to reduce the company’s business, would it have failed in its duty or would it have supported economic growth because it had contributed to securing more functional markets? It would be helpful if the Minister could give assurances on how the code will apply in practice to private enforcement bodies.
Baroness Hayter of Kentish Town (Lab)
My Lords, Amendment 63B in this group is in the name of the noble Lord, Lord Best, and of myself, and I will speak mostly to that amendment.
Amendment 63B is key to the implementation of many of the powers that we much welcome in the Bill. The problem is that without this amendment, trading standards will think twice—or three or four times—before using the Government’s suggested route of taking civil rather than criminal action following infringements. At present, where criminal action is taken—which of course does not allow for redress for consumers—trading standards does not risk having to pay defence costs. However, should it use the new civil enforcement measures, which we welcome, it would then risk expensive legal costs, which will automatically make local authorities very risk averse. Indeed, a large case could cost as much as £250,000, which is a massive chunk of the annual budget of many local authorities’ trading standards services.
Trading standards, of course, have always had the option of injunctions, but that only puts an end to whatever sharp practice was going on—it neither penalises the trader nor compensates the customer. We therefore support the advances in the Bill, because they take that further. However, without this amendment, we fear that the risk of cost—as it would be a civil action—will undermine the new, enhanced measures in the Bill. If the Government prefer these to the criminal route, which is what we understand, they will have to reduce the disincentive which this threat of civil costs poses.
We realise that it is possible to apply to the courts for a protective costs order to limit the exposure if the case has been brought forward by a trading standards officer in the public interest. However, that is a pretty rarefied procedure, and it is much more likely that, in those circumstances, the case will be taken through the criminal courts—of course at considerable expense to the taxpayer—or else it may not be pursued at all.
Which? has strongly supported Amendment 63B, as has the Trading Standards Institute. I know that Which? wrote to the Minister in August—I think that it was to the Minister in this House but it could have been to the Minister in the other place—saying that the Bill should be amended to limit significantly the risk that enforcers taking action under Part 8 of the Enterprise Act 2002 would be liable for the defendant’s legal costs in the event that the action was unsuccessful. It is felt by them and by us that they should be liable only where the enforcer has acted unreasonably. Therefore, Which? feels that this amendment will be key to ensuring that the enhanced consumer measures are used in the way that the Bill intends. It is particularly important for trading standards, which will have to get a lot of sign-off from many committees before it takes civil action, and those requirements will be much higher with that risk of paying the defendant company’s costs, which has not been before it when it has taken criminal action.
Baroness Jolly (LD)
My Lords, our debate on enhanced consumer measures has been really interesting. As noble Lords have said, the measures are limited to public enforcers only. The Government have included a power in the Bill to enable private enforcers such as Which?—which at the moment is the only private enforcer—to use the measures subject to certain safeguards. These safeguards are extremely important and it is two of them that the first two of these amendments seek to remove.
Amendment 63AB would remove the requirement for the Government to ensure that the private enforcer is subject to the Regulators’ Code. The code ensures targeted, transparent enforcement that is based on risk. It encourages regulators to carry out their activities in a way that supports business to comply and grow.
On Amendment 63AC, the primary authority scheme delivers assured advice to businesses, thereby delivering better regulation. Amendment 63AC would remove the requirement for the private enforcer to act consistently with advice or guidance given by a primary authority to a business. This safeguard ensures that we do not end up in a situation where a business is subject to the measures even though it has been advised by its primary authority that it is compliant with consumer law.
The Government’s Better Regulation Delivery Office administers both the Regulators’ Code and the primary authority scheme. The noble Baroness, Lady Hayter, asked what would happen if a private enforcer disagreed with advice issued by a primary authority but wished to enforce anyway. The scheme has been in operation since 2009 and the process has never been used. Disputes have been resolved informally through negotiation. But if a private enforcer wished to take enforcement action that was inconsistent with primary authority advice, they should discuss that with the primary authority. It will be a matter for the consultation as to whether a formal dispute resolution process would be suitable as a last resort measure in the event that a private enforcer disagreed with advice from a primary authority.
The Better Regulation Delivery Office has already opened a dialogue with Which? on these matters to reassure it that these safeguards will not prevent it from using the new measures. It has agreed to provide written reassurance to Which? that adherence to the Regulators’ Code will not impact on its non-statutory functions. In addition, it has agreed to provide practical support to Which? to enable it to access primary authority advice.
The noble Baroness, Lady Drake, asked when the use of the measures would be reviewed. The Government will review the use of the measures three to five years after they come into force. If we are presented with evidence that the measures are not being used or that consumers are not receiving redress, we will look at whether it is necessary to extend the use of the measures. In addition—to answer the query about advice received from the primary authority—before the power in the Bill is used, there will have to be a consultation. It will be during this consultation that the Government can ensure that there is a robust mechanism in place to enable the private enforcer to access primary authority advice.
Turning to the amendment in the name of the noble Lord, Lord Best, we want to encourage enforcers to take action where appropriate, but we do not believe that it is right to alter the costs rules in the way that is proposed in the amendment. As we have already heard in Committee, it is a fundamental principle of civil litigation that one side is generally at risk of having to pay the other side’s costs if they lose. This deters unmeritorious, weak and poorly prepared cases, and ensures that the winning party is not unfairly affected by the case.
Amendment 63B breaches that principle, shifting costs on to businesses even when they have been found to have done nothing wrong. Those legal costs can be significant. In some circumstances they could be thousands of pounds—enough to put a small firm out of business. The risk of not being able to recover its own costs could lead to a business choosing not to fight a case, even if it honestly believed that it had acted within the law.
Finally, it is important to note that the risk of adverse costs being awarded against an enforcer actually exists now. This has not stopped trading standards from using civil enforcement around 180 times every year. With these explanations, I hope the noble Baroness feels able to withdraw her amendment.
Baroness Hayter of Kentish Town
Perhaps I may ask the Minister a question on one bit of that—two now. I think she will accept that 180 is a very small number. She seemed to think that there was a risk to companies that are eventually found to have done nothing wrong, if they face civil action. But surely she must accept that they face that with criminal action. There can still be criminal action and they will face all of that and they will have to pay their own and the other side’s costs. Perhaps the Minister could explain why it is a greater problem for a company to have to face a trading standards officer taking civil action than to face the same trading standards officer taking criminal action.
Baroness Jolly
My Lords, on the number of cases per year, those which I quoted were actually civil cases, but there are around 1,800 criminal cases each year. Criminal costs are taken out of central funds, and it is civil costs that the loser pays.
Baroness Hayter of Kentish Town
My Lords, on the first question, the Minister has made my point: there are far more criminal cases than civil cases. However, they still have to pay their own costs. If they are defending a case in the criminal court, the company has to pay its own costs whether the case is a civil or a criminal one. As she quite rightly said, these costs can be high.
Baroness Jolly
I have been advised that the criminal system and the civil system are significantly different. Probably the easiest thing to do would be to write to noble Lords who have taken part in this debate.
Lord Hunt of Wirral (Con)
My Lords, I start by declaring my interest as a partner for some time in the global commercial law firm DAC Beachcroft LLP. I welcome the important amendments in the name of my noble friend Lord Hodgson of Astley Abbotts, which were spoken to so eloquently by my noble friend Lady Noakes. I also follow my noble friend Lord Eccles in saying that we have to be very careful indeed about how we proceed with this particular aspect of the legislation.
I welcome in particular Amendment 66, which to my mind has the effect of making sure that it is the consumer’s rights that are being advanced and that we are not simply creating a fresh breeding ground for claims management companies. We have to heed the lessons learnt in the United States, where actions are brought for consumer remedies in the name of consumers who know little or nothing of them. However, as I understand it, not even the United States has rules permitting such actions to be brought by someone who does not have some sort of direct interest. I strongly believe that we should be very cautious indeed with that concept. The current systems of funding litigation are riddled with risks of conflicting interests, between, on the one hand, those seeking compensation and, on the other hand, those promoting litigation. In this latter group I would include claims farmers who want their cut, and litigation funders who essentially see litigation as an investment opportunity—a way of generating a return on their capital. That return comes out of the damages otherwise payable to the claimants.
I cannot see any reason why people in this category of backers should be able to stand as representative claimant. It flies in the face of common sense. Even if we are to be told that these problems will be ironed out in regulations or draft rules, I for one would expect to see such prohibition controlled by Parliament on the face of the statute. Likewise, lawyers who stand to gain from running cases should not be allowed to represent the claimant group and then act for themselves—if nothing else to avoid the maxim that a lawyer who acts for himself often has a fool for a client. I do not want to go too far down that road, except to stress that the risks of allowing lawyers to be the representative claimant are obvious.
That is graphically illustrated by a current piece of legislation. Thousands of Nigerians are suing Shell over an oil spill in the Niger delta and have found themselves embroiled in a dispute in the High Court as to which firm of solicitors is representing them. Without going into too much detail, I refer my noble friend the Minister to that case. Action is being taken by one law firm, Leigh Day, against CW Law Solicitors, based in London. It warns us about the dangers of going down this road. If I am allowed to add another example: Leigh Day is now facing legal action in the Kenyan courts over claims that a number of the torture victims it represented were fictitious. I do not begin to know on whose side justice lies, but it is a fact that the Law Society of Kenya is taking that firm to court. That demonstrates the dangers of allowing this sort of legislation to take hold.
I hope that my noble friend will be able to give us a lot of reassuring words either now, before we conclude this debate, or in a subsequent meeting. I strongly support the case put forward by my noble friend Lady Noakes.
Baroness Hayter of Kentish Town
My Lords, this has been an interesting part of the Bill. The heart would be taken out of the Bill were we to listen to the very eloquent pleas made. When it was still a draft Bill I was visited by someone who flew all the way from America on behalf of the US Chamber Institute for Legal Reform who told us that we Brits did not know how to do our own law and should listen to them. I think they have been back a second time since then.
I will say only a couple of things. I have also had a response from the CBI which, again, cleverly managed to get a letter in the Times today. I would point to what I have seen as a draft response to the letter in the Times, which I hope will be published tomorrow, and which makes a couple of pertinent points. Before coming to that, I have to ask whether the CBI really wants businesses that have been proved guilty of running a cartel. All this kicks in once they have been proved of running a cartel or some other equally anti-competitive business and concerns whether they are able to keep the fruits of their crime. That is what those people who do not want an opt-out have to consider. We will otherwise continue with the case that the people who have been affected by the cartel do not get any compensation.
More than that, companies would have to pay back only what they gained by that breach of law, unlike in America, where damages can be three times the compensation owed to consumers. Not only are we not America—because, luckily, we are not America—but this provision does not even have the same basis as the American situation. Our Competition Appeal Tribunal, in which I perhaps have a little more confidence—
The Deputy Chairman of Committees
My Lords, I hate to interrupt the noble Baroness in full flow, but I suspect that she might be going on for a few minutes longer, and therefore I must tell your Lordships that there is a Division in the Chamber and that we will not resume until 4.55 pm prompt.
Baroness Hayter of Kentish Town
My Lords, I think the point that I was making was partly that we did not live in America and partly that the claims about the opt-out provisions in the Bill leading to American-type action are derived from a misapprehension of the safeguards that have been built into this regime. In the States, law firms and litigation funders find collective actions particularly attractive because of factors over there which are not the same in our civil justice system. The ability of lawyers to claim contingency fees—a proportion of the damages pot before damages are distributed to consumers—is an obvious draw over there but not over here. As a result of an amendment introduced in the other place, any legal fees will be taken from the damages pot only after consumer claims have been satisfied.
Furthermore, law firms will be instructed by representatives that the tribunal has found to be properly placed to act on the consumers’ behalf. That filter is already in the hands of the Competition Appeal Tribunal. I therefore, perhaps, have a little more faith than the noble Baroness, Lady Noakes. The Competition Appeal Tribunal will have the final say on whether a case can progress, and claims can only be brought by individuals who have been directly affected or by genuinely representative associations, and not by law firms or companies with a vested interest. This means that only the strongest cases will proceed and that there is no financial incentive to bring speculative cases.
Although the CBI has indeed given evidence to us and to others, the Federation of Small Businesses welcomes the fact that, as a trade association, it will be able to use this procedure. In many cases, small businesses will be more affected by competition cases and the ability to bring an action than individual consumers. Many countries—including Canada, Australia, Spain, Poland, Portugal and Norway—have implemented similar systems of opt-out without the dangers that we see in America.
It is important to reiterate that these cases will arise only where a company has been found guilty of breaking competition law, and so good businesses will have nothing to fear from these proposals. However, they are good for consumers, particularly small companies that may be affected by a big company exploiting its monopolistic position. In our view, these measures are good for the economy, and a competitive economy is to the benefit of all. I trust the noble Baroness will not accept these amendments on behalf of the Government.
“Prohibition of fees in contracts for services: letting of residential accommodation
(1) The provisions in this section apply to a contract for a trader to supply a service in connection with the letting of residential premises.
(2) Subject to the provisions of this section, any person who demands or accepts payment of any sum of money from a person (“P”) for services in connection with a contract for the letting of residential premises shall be guilty of an offence.
(3) For the purposes of subsection (2), P is any person—
(a) who seeks to enter a contract to let residential accommodation, or(b) who has a tenancy of, or other right or permission to occupy, residential premises.(4) For the purposes of subsection (2)—
“letting” shall include any service provided in connection with the advertisement or marketing of residential accommodation or with the grant or renewal of a tenancy;
“services” shall—
(a) include, and are not limited to—(a) the registration of persons seeking accommodation,(b) the selection of prospective occupiers, and(c) any work associated with the production or completion of written agreements or other relevant documents,(b) not include credit checks of persons seeking accommodation.(5) Where a person unlawfully demands or accepts payment under this section in the course of his employment, the employer or principal of that person shall also be guilty of an offence.
(6) A person shall not be guilty of an offence under this section by reason of his demanding or accepting payment of rent or a tenancy deposit within the meaning of section 212(8) of the Housing Act 2004 (tenancy deposit schemes).
(7) A person shall not be guilty of an offence under this section by reason of his demanding or accepting a holding deposit.
(8) A “holding deposit” for the purposes of subsection (7) is—
(a) a sum of money demanded of or accepted from a person, in good faith for the purpose of giving priority to that person in relation to the letting of a specific property, which is to be credited towards the tenancy deposit or rent upon the grant of the tenancy of that property, and(b) not greater than two weeks rent for the accommodation in question.(9) Costs incurred by persons seeking accommodation for the undertaking of credit checks shall be reimbursed upon the signing of a tenancy agreement.
(10) In this section, any reference to the grant or renewal of a tenancy shall include the grant or renewal or continuance of a lease or licence of, or other right or permission to occupy, residential premises.
(11) In this section “rent” shall include any occupation charge under a licence.”
Baroness Hayter of Kentish Town
My Lords, it is good to rise today to move this amendment in what is National Consumer Week—as I am sure your Lordships know. I shall speak also to the other amendments in the group, which between them would help tenants and landlords in their relationships with the intermediaries who often bring the two parties together and often continue as the conduit for money and other services between them.
The amendments address four different issues, so I trust that the Committee will bear with me as I try to romp through them. First, Amendment 81B would ban letting agents from taking “finder’s fees” from tenants, which is a rather rotten new practice that has grown up. Letting agents are chosen by and work for landlords who are seeking tenants. The client is therefore the landlord, to whom by contract and, I think, by law, obligations and duties are owed. The letting agency is paid by the landlord to find a tenant, although he can then carry out other services for the landlord such as obtaining and securing the deposit, handing over keys, collecting rent and so forth. These tasks are done on behalf of the landlord, who pays for the service.
However, we are now seeing in parts of London, especially where young people are desperate to find somewhere to live, prospective tenants being charged by the letting agent to show them a flat. As Alex Hilton, director of Generation Rent, said in welcoming our amendment to end what he calls “the abusive practice” of charging fees to tenants, a ban is long overdue. He stated:
“Tenants are being milked by gluttonous agents taking advantage of a housing market that’s failing to provide enough homes”.
Scotland has led on this, with all letting agents’ charges to tenants other than rent and a refundable deposit being illegal since 2012. The practice that has grown up exploits the potential tenant, but it also means that letting agents are being paid twice for the same bit of work. Furthermore, when we are keen to encourage landlords to enter this market and to provide more accommodation, and where tenants effectively have a fixed amount of money to spend on their housing, this practice is leeching out of such available money a chunk which is neither going to the landlord nor being kept by the tenant, but is going off for a non-housing use. This is bad for tenants, as they have less to spend on rent, and it is bad for landlords, as there is less rental money around. Furthermore, it is bad business where one person has a duty of care to both sides of a contract. Whose interests, we may ask, are they representing? Traditionally, it has been clear that it is those of the landlord, but once they take money from a potential tenant, for whom then are they working? There is no written contractual relationship between the potential tenant and the agent, but I wonder whether there is not one by dint of the payment of money. The conflict of interest is obvious: it is non-professional and will lead to bad practice.
We have no problems with letting agents charging tenants for an individual service for the particular tenant; for example, obtaining the credit reference needed in order for the landlord to accept them. However, that is wholly different from showing flats only to those willing to pay the letting agent—I almost said “to bribe” the letting agent. That should be outlawed, along with letting agents charging two parties for the same bit of work.
Baroness Hayter of Kentish Town
My Lords, Amendment 81D would require letting agents to have appropriate client money protection in place, which in itself would mean that they would need to have established client account audits and proper procedures. About £2.7 billion is held by letting agents at any one time, so this would be a rather important consumer protection.
Finally, Amendment 81C would extend the existing consumer protection measures for estate agents to letting agents. Most importantly, it would empower the CMA to close letting or managing agents that have acted improperly. It would therefore stop the present, rather stupid situation in which an estate agent banned today can set up as a letting agent tomorrow. This was something that the CLG Select Committee recommended. It wanted letting and managing agents to be subject to the same regulation as estate agents, and that is what this amendment would do.
I know that Ministers have suggested that there is in effect a sort of back-door banning at the moment, in that now that every letting agent must be a member of a redress scheme and if a poorly performing letting agent was turned down by all three recognised schemes, that would effectively debar the letting agent from operating. However, this misses two important facts. One is that the three redress schemes, though they will co-operate by not taking on an agent debarred by another of the three, can only act on complaints brought to them by landlords or tenants. As we know, many people dissatisfied with the service never complain. So these redress schemes only see the tip of the iceberg, as both the two established ones acknowledge. The third one is really yet to get going. So the intelligence for their veto on a business is pretty minimal. They do not have access to information from the police, trading standards or insolvency practitioners, so they are working on a tiny aspect of the whole scene.
There is a second problem. The state is effectively contracting out this enforcement to three private companies with no requirement that they abide by the regulator’s code, are properly qualified for this role or have ever been authorised to be front-line enforcers. They have been authorised by the CLG simply as adjudicators, not as law enforcement officers. Yet without this amendment they are the only organisations able to stop a rogue letting agent from trading. I beg to move.
Lord Palmer of Childs Hill (LD)
My Lords, I will talk to Amendment 81D and in doing so I declare an interest as a director of the Property Redress Scheme Advisory Council. I support what the noble Baroness, Lady Hayter, said, and want to add briefly to her detailed comments.
The noble Baroness spoke about the £2.7 billion estimated to be held in clients’ funds. I might add that this was calculated by the industry as the amount that letting agents will be holding in tenants’ deposits and one month’s rent. That was how it was calculated; it seems a fairly sensible estimate. So, there is £2.7 billion in clients’ funds, some of which is at risk. There are already clients’ money protection schemes run by some of the organisations described by the noble Baroness. However, if the letting agent is not covered for client money protection both the landlords and the tenants stand to lose their money. If it is not one of the estate agents or one of these big organisation schemes, which are not compulsory other than for the members of that organisation, these tenants and landlords—it is both—would lose their money. The amendment is designed to protect both parties in the event that an agent goes bust or misappropriates the clients’ funds, as it covers any losses through the actions of the letting agent.
The consumer protection offered by this amendment would be financed by the industry itself and would not need the financial backing that the Government currently provide—I am not sure that the noble Baroness mentioned that point but I thought I should highlight it. At the moment it is a voluntary protection, and it works for a lot of the industry. There are forces in play which could protect the moneys owed to the landlord or tenant if something goes wrong with the letting agent. However, there are many letting agents which are not a part of such an organisation. There are two voluntary schemes that I know of, one of which was mentioned by the noble Baroness. All this amendment seeks to do is to protect the very people who are most at risk: a landlord or tenant using a letting agent which is not part of a larger organisation. This would turn a voluntary scheme into a compulsory scheme overseen in the way the noble Baroness described. If we ever got to a vote on this, I would support it.
Baroness Neville-Rolfe
I thank my noble friend for his intervention, and perhaps I may return to the mandatory client money protection proposals.
Mandating insurance cover for money received or held by letting agencies in the course of business would introduce additional costs for the agencies, and these could simply be passed on to landlords and thus to tenants in the form of higher rents. I am sure that I do not need to remind the Committee that tenants’ deposits, which are an important aspect, are already protected as a result of separate legislation. I know this from a problem one of my children had, and I was able to offer him advice thanks to the debates we have had in this Room. That is a crucial element of tenant protection which is already in place, so we are not talking about deposits here, but other aspects. This amendment seeks to protect other funds but, I fear, at a potentially higher cost to tenants.
I can reassure noble Lords that the Government already encourage agents to join client money protection schemes via the Safe Agent kitemark, which denotes that the participating agent is a member of a client money protection scheme. Our How to Rent guide encourages landlords and tenants to choose agents with client money protection. Ensuring that tenants know their rights and landlords their responsibilities will empower consumers to make the right choices and, if things go wrong, to find appropriate redress. Yet further regulation could deter letting agents and make it difficult to encourage landlords to invest in properties. This investment is much needed to expand the overall supply of housing and help meet the country’s urgent housing needs. I am sure that that is an objective we all share. However, we have had an interesting debate and I will reflect on the detailed points that have been made by my noble friend Lord Palmer of Childs Hill, the noble Lord, Lord Harris, and the noble Baroness, Lady Hayter.
Turning to Amendment 105R, I share the concerns raised about the practice of “double charging” by estate agents. In the lettings sector I can understand that an agent is providing a service to both parties and therefore may in some cases charge both. I can see that there are some justifications in other consumer markets. However, in the case of estate agents, I share the concerns of noble Lords. Estate agents have to be transparent in their dealings. Under the existing legislation that this amendment would affect—the Consumer Protection from Unfair Trading Regulations 2008—as well as their own self-regulatory industry codes, estate agents must already make fees and charges clear for both buyers and sellers. This means that fees and charges must be transparent. While I have serious concerns about the practice, I believe there is a danger that if we were to rush into further legislative measures, we could impose unjustified new burdens and risk damaging this important industry.
We believe—and I think that we have said this elsewhere—that a better way of addressing the rise of double charging is through estate agent redress schemes. My predecessor, my noble friend Lord Younger of Leckie, and my colleague Jenny Willott met with the Property Ombudsman and Ombudsman Services: Property earlier this year to draw their attention to issues around double charging and sale by tender. They told us that while they had not yet received complaints about double charging, they shared our view that this was not a practice that should be encouraged. As a result, the Property Ombudsman committed to addressing the matter with the industry to ensure that its code of practice is properly adhered to and high standards of behaviour are followed. I can today confirm for the Committee that positive discussions with the industry have taken place and updated guidance is being finalised. The aim is to have updated guidance ready to come into effect early in December.
This guidance will ensure that agents recognise their obligations under the Property Ombudsman Code of Practice in respect of transparency, disclosure and avoidance of conflicts of interest. If the guidance is not complied with, agents will be in breach of that code. Breach of the code could result in removal from the redress scheme. This would effectively prevent them from operating as an estate agent, as membership of one of the redress schemes is a legal requirement for estate agencies.
Given this ongoing work, I do not believe that it is currently necessary to legislate against double charging by estate agents. However, I reassure the Committee that action is being taken to protect consumers from the worrying and emerging trend of double charging, and we will monitor developments. In the circumstances, I ask the noble Baroness to withdraw her amendment.
Baroness Hayter of Kentish Town
My Lords, I regret that answer, particularly on client money protection. The only case made against the amendment seems to be that it would cost the industry money. It is not clear which industry—the only industry that it would cost money is bad letting agents, because good letting agents do it. Landlords support compulsory client money protection, tenants’ groups support it, estate agents support it, the British Property Federation supports it; and I have not read out—because I was trying to save time earlier—a submission from SAFEagent, to which the Minister referred. It stated that it supported the amendment and that it was excellent to see so many organisations supporting what it has been campaigning for over several years; that is, protection of consumer money through a requirement for all letting agents to be part of a client money protection scheme. Therefore, even those who used to support the Minister’s case are now saying, “No, this needs to be written in law”.
I think that the Minister also said that the amendment would in some way discourage landlords from entering the market, but it is exactly the fear of letting agents walking off with their rent that may discourage them. The amendment is the security that a landlord needs, particularly if they are raising money to enter the market. Anyone who has tried to raise money to put into property knows that a bank will ask, “What is the security of your income?”. If you can say, “Well, I know it’s secure because it’ll be coming through a letting agent and that money has been secured by law and an insurance service”, you are more likely to get a bank loan to be able to become a landlord and a slightly cheaper rate of interest for it. This amendment is therefore good for the housing market and I hope that, before we come to Report—because it is an amendment that we will re-table—the Minister will think about this.
On banning letting agents from charging tenants fees other than for security checks, the Minister’s figures on Scotland and what has happened since it banned fees to agents are very different from those that I have seen. Two independent reports were done, one by Rettie & Co, the property specialists, and one by BDRC Continental, which is another independent specialist, looking at the impact of clarification of letting agent fees in Scotland. On the impact of the 2012 change in Scotland, they state:
“Any negative side-effects … have been minimal for letting agencies, landlords and renters, and the sector remains healthy … landlords in Scotland were no more likely to have increased rents since 2012 than landlords elsewhere in the UK … Renters in Scotland were no more likely to report a recent increase in their rent than those in other comparable parts of the UK … Less than one in five … letting agency managers said they had increased fees to landlords”.
They went on to say that 70% of landlords had not noticed any increase. Our figures from Scotland are therefore clearly rather different, and those were from independent reports.
One of the arguments advanced is that transparency of fees is very good for driving competition, but, in the case of estate agents, the people who pick agents are the sellers of houses and, in the case of letting agents, they are the landlords. In both cases, the buyer of the property cannot shop around for an estate agent, nor can a tenant shop around for a letting agent. They have to go to the one who is handling the property they need. Transparency does nothing to drive the market. If our amendments are refused, two lots of people will be affected: buyers who are being charged by somebody who is already charging the vendor; and tenants who are being charged by the landlord. Neither of those groups is in any position to argue about the fees because they are not the people going to the agencies.
I hope that the Government will look at this again. We are clearly going to bring it back. The client money protection is widely supported. As for taking fees from both sides, the Minister herself said that she has serious concerns. I hope that she does something to deal with this issue.
Baroness Neville-Rolfe
As I have said, I will reflect on the points that have been raised this afternoon, particularly on Amendment 81D. On the point about Scotland, there is not a lot to be achieved by having a war of facts, but my facts came from the Office for National Statistics, and showed what they showed. I do not think that I can leave the debate without saying that there is value to transparency in this sector. I honestly believe that having transparent fees helps the consumer and competition. The truth is that often houses are listed with more than one agency.
Baroness Hayter of Kentish Town
They are, because there is an agreement for a half-charge but the buyers still cannot choose between them. Having made the case and having forewarned the Government that we will return to it on Report, I beg leave to withdraw the amendment.