Baroness Jolly
Main Page: Baroness Jolly (Liberal Democrat - Life peer)Consumer Rights Bill
Baroness Jolly Excerpts
Lord Stevenson of Balmacara (Lab)
My Lords, I am sure that I saw the noble Lord, Lord Clement-Jones, only a few moments ago, asking questions in the Chamber, so his conflicting engagement is extremely irritating because we were looking forward to his contribution here. Of course, we now have his parasitic packaging analogue who is gradually inhabiting all of his previous positions on matters to do with this, and we should not complain, because he once again has managed to introduce a very complicated and not very easy to grasp topic with exemplary clarity, and I thank him for that.
We on this side support the amendment in the name of the noble Lord, Lord Clement-Jones; indeed, we signed up to it for very much the same reasons as those just explained by the noble Lord. It is a huge gap in the telecoms area that there is no simple and easy switching regime: such a regime would be the foundation of ensuring a competitive market that would drive down prices, while at the same time empowering consumers. Who could be against that?
The problem we have at the moment is completely the reverse, because in the mobile industry—but also in broadband and pay TV—there are very complicated switching processes. These are huge disincentives to consumers to changing provider and this can lead to very real consumer harm in the form of either double bills—which have been well reported in recent days—or a loss of service when providers are switched, because of the difficulty of making all the ends join up.
We think that the gaining provider-led system across the communications sector will make a huge difference. It puts the customer in charge of the process; it prevents competitors in the market using different and complicated switching processes—which, as the noble Lord said, creates hassle and confusion; and it will make it much more competitive.
At the heart of the issue is an irony that does not happen in many other sectors, such as banking. If you force customers who wish to switch to contact their original supplier, you often get problems and disincentives built in, because it is not in the best interests of the supplier who is losing the customer to ensure that that egress is smooth and uncontested. That inevitably means that consumers get a raw deal, possibly do not get good price comparisons and have a lot more hassle than they otherwise would. I am happy to support the amendment.
Baroness Jolly (LD)
My Lords, a requirement for the switching of communications providers to be receiving provider-led—RPL—is part of the EU Connected Continent package. The European Parliament’s First Reading version would amend the universal services directive to require RPL switching. I assure noble Lords that the UK is engaging actively in those discussions to ensure the best outcomes for UK consumers.
The Government have considerable sympathy for RPL switching in the UK. In the Connectivity, Content and Consumers paper published last year, we emphasised that we want that across the board. I am very pleased to say that, as my noble friend said, RPL switching already operates for fixed-line voice and broadband services delivered over the BT Openreach network, although it does not yet operate for mobile services or for pay TV.
Ofcom has the power to mandate RPL switching for all communications services. In July 2014, it called for inputs from stakeholders on consumer switching. Ofcom announced that it is considering mandating RPL switching for mobile services and bundles of services, including pay TV and services over the Kcom network. The Ofcom work is essential to ensure that we get any new rules right first time, so I welcome my noble friend’s interest in consumer switching but, given the good work done so far, Ofcom’s ongoing consultation and the response to it to be published before the end of the year, I ask him to withdraw his amendment.
Lord Stoneham of Droxford
My Lords, I am encouraged by the news of Ofcom’s consultation nearing completion. I should point out that Ofcom has been trying to do that since 2007. There is a danger that Ofcom and the Government are hiding behind each other. However, I accept what my noble friend said, I am grateful for the support that I have received, and I am happy at this stage to withdraw my amendment.
Baroness King of Bow (Lab)
My Lords, the Government clearly believe that default-on internet filtering is the best approach to protect children. Common sense tells us that they are right but, as the noble Baroness, Lady Howe, pointed out in her powerful speech, if they are right on this point then they are wrong to take a non-statutory approach. Such an approach leaves possibly 1 million children unprotected and, as the noble Lord, Lord Alton, said, it boils down to the question, “Do the 10% matter or not?”. Do those children matter or not?
The background context to this is well rehearsed: the digital age gives our children more opportunities than they have ever had before, but on occasion it also puts them at grave risk. The NSPCC says that 24% of nine to 16 year-olds in the UK saw sexual images in 2012-13 online or offline. Some 80% of those were worried by what they saw. A recent survey by the Asda Mumdex found that 82% of mums in this country want the Government to tackle child protection online. On top of that, Ofcom reports that over half of parents with children at home do not use parental controls, and I am sure that we are convinced that in the other half of those households the kids would be able to get around those controls in any case.
On a related issue, the blacklisting of child abuse terms by Google and Microsoft was indeed a step in the right direction, but the Government must ensure that police are resourced to deal with child abuse imagery. This cannot be only a voluntary approach when child safety is at risk. It is not only about child safety today; it is about adult behaviour tomorrow. We do not want a generation brought up to think that violent pornography is the norm. That is why we on these Benches support this amendment to require all internet service providers to provide default-on internet filters. Those filters should use British Board of Film Classification standards to define age-inappropriate material. This was the substance of Labour’s Opposition Day debate last summer in the other place.
We recognise that the online world shifts daily, but one thing is for sure: young people today spend more and more time online. Ironically, though, as the noble Baroness, Lady Howe, and one of the other speakers pointed out, the protection that they receive online is less than the protection that they receive offline in the real world. While it would be quite hard for a 12 year-old, say, to buy a pornographic DVD from a shop, it would be relatively easy for that same 12 year-old to buy or download it online, and that is what the average 12 year-old would prefer to do these days. Why are we helping them to damage themselves?
We seem to have a protection regime that is a bit of a nonsense. It has been set up by digital dinosaurs such as ourselves and it provides digital natives—our children—with less protection online than offline. The result is clear. Unfortunately, the Government have been too slow to tackle internet child safety. Their rhetoric, however, particularly that of the Prime Minister, has been off the scale in its attempts to pacify parents. I cannot help but quote the PM’s words that we heard earlier from the noble Baroness, Lady Howe; he said that it was about “protecting childhood itself”. He went on to say:
“That is what is at stake, and I will do whatever it takes to keep our children safe”.
No, he will not. He will not even make default internet filtering a statutory duty. Come on; that is what it takes. It is not asking the earth. As we have heard, in this country everything under the sun can be a statutory duty, but not, it seems, the critical issue of online protection for our children.
Moreover, the protection that the Government have sought to put in place via the ISPs makes digital natives laugh out loud. A 12 year-old trying to access pornography on their parents’ computer will be delighted to find that they do not have to verify that they are over 18 before secretly accessing adult content. This is because the self-regulatory approach championed by the Government has not forced ISPs to introduce proper age verification for those wishing to disable default filters. I should add that there are many areas where I agree with the self-regulatory approach; it is just that online protection for children is not one of them. The risks are too great and the dangers too apparent.
I admit that I remain baffled by the Government’s approach on this issue. I trust that they will not be baffled if and when they lose a vote on this amendment on Report. I thank the noble Baroness, Lady Howe, for tabling this important amendment and I look forward to supporting her on Report.
Baroness Jolly
My Lords, I reassure the noble Baroness, Lady Howe, that the Government remain committed to improving the safety of children online and have a strong track record of working with the internet industry to drive progress. I thank her for her continued interest in this area. I am aware that this amendment is drawn from a Private Member’s Bill and that similar provisions were debated earlier this year as part of the Children and Families Bill. Speaking as a parent and grandparent, this issue is close to my heart. I know that many noble Lords will feel similarly and I am pleased to update the Committee on recent progress in this area.
The Prime Minister’s speech in July last year set out a series of measures, to which he asked the industry to commit, to help parents to limit their children’s access to age-inappropriate and potentially harmful material. We have seen excellent progress in all these. As the noble Baroness said, the four major ISPs, which cover almost 90% of the UK’s broadband market—BT, Sky, TalkTalk and Virgin Media—have delivered on their commitment to provide parents with the ability to easily filter content. They all now present new customers with an unavoidable choice about whether to use free, family-friendly network-level filters. Existing companies are making good headway with the rollout of these provisions. Smaller providers are also stepping up: for example, KC launched a free parental control service for its broadband customers last month. This has been a huge and complex undertaking, but it has seen results.
The noble Baroness might be interested in public wi-fi providers. The six major providers, covering more than 90% of the market, now provide family-friendly public wi-fi wherever children are likely to be. This summer, the Registered Digital Institute launched the Friendly WiFi logo, giving parents the assurance that a particular business, retailer or public space is filtering out inappropriate material.
Three of the UK’s four major mobile network operators already automatically provide adult content filters for pay-as-you-go and contract customers, with the remaining provider, Three, committed to doing so by July 2015. This means that the great majority of mobile customers are already covered by default-on filters. The Government have also been working with mobile virtual network operators to ensure that they are doing the same. These measures could not have been achieved as quickly through legislation, given the pace of change in this complex environment.
I thank the noble Baroness for setting out the reasons why she feels that further action is needed. The Government are of course open to considering different options and it would be appropriate if we had a meeting between now and Report.
Lord Alton of Liverpool
The Minister will recall that I asked her specifically how many people are not currently covered by this legislation. How many families and children do the 10% represent?
Baroness Jolly
I have many answers here to the noble Lord’s questions. It is vital to understand the full implications of any actions that we take and whether they are likely to be effective. I am sure that the noble Baroness will agree that it is vital that we encourage parents to talk about these important issues with their children. Parents told us that they do not always feel aware of the risks that their children face when online. This is why, in May, the four major ISPs launched Internet Matters, a multimillion-pound campaign aimed at helping parents to understand filters and a range of issues related to online safety.
Education is key in all this and we are doing more to educate children. Since the start of the school year in September, the new computing curriculum has included information for five to 16 year-olds—key stages 1 to 5—about how to stay safe online. Some schools are also promoting child safety at special events for parents. As the noble Lord said, children are often savvier than their parents. Ofcom is monitoring progress in this area. Its latest report, published in October, showed that nine in 10 parents mediate their child’s access to the internet in some way, with most parents using a combination of approaches.
Lord Alton of Liverpool
I was just about to ask the noble Baroness that very thing. If she would be good enough to write to Members of the Committee telling us exactly how many families and how many children the Government estimate will not be covered by these arrangements, that would help to inform the debate before we get to Report.
Baroness Jolly
That is a fair point. However, the noble Lord is suggesting that more than 10% of ISPs are opposing child protection, but the four major ISPs cover pretty much 90%. We have also heard that KCOM, which is quite a large player in this market as well, now offers child protection. We are working on it; we are picking off all these ISPs one by one. Perhaps the noble Baroness could let us know which provider sees it as a badge on honour not to do this; that would be useful. However, it certainly is not the case at all that 10% are against this. That is not a fair statement. For the moment, I ask the noble Baroness to withdraw her amendment. We would be more than happy to sit down and talk with her to see where we could meet.
Baroness Howe of Idlicote
My Lords, I thank all noble Lords who participated in the debate, particularly the Minister for her reply. I acknowledged in my speech the progress that has been made, which the Minister not surprisingly emphasised. I do not deny that there has been progress; I was simply trying to highlight the ongoing shortcomings as a means of addressing those shortcomings that still remain. The fact that our online safety provisions might be better than those in some other countries—or even most of the countries in the world—does not and should not release us from an obligation to address the ongoing shortcomings, especially if there is a means for doing so. I heard what the Minister said about the new regulations that pertain to video on demand.
I turn now to the commitment made earlier in the year: I welcomed it then and I welcome it now. Unless, however, the plan has changed, this is a commitment to require age verification on websites based in the UK that are live-streaming R18 material. That is welcome, but it is a quite different proposition from what I advanced in my amendment, which addresses all adult content regardless of whether it is live-streamed video on demand or, crucially, whether it pertains to websites based in this country. The Government’s plan pertains to R18-rated material and depends on whether the websites in question are based in this country or in any other country in the world. This final point is hugely important, since the vast majority of R18 material is live-streamed from websites based outside the UK.
I was slightly surprised that the Minister mentioned Tesco, where there was a little failure on a previous occasion, which I mentioned in March, the last time I spoke of this. I am certain that it will have learnt a bit of a lesson from having had a complaint made about it. Nevertheless, I suspect that it and Starbucks have other things to attend to and perhaps are not paying as much attention as they should to this important matter.
I am sure that other noble Lords who are interested would be delighted to have a meeting on the subject with the Minister before Report, to try to pinpoint what more action could be undertaken. I fear that, in the mean time, I must beg leave to withdraw the amendment, but I think that I shall be back again later.
Baroness Wilcox
I will just add a word at this stage. I am very interested to hear what the Minister says about what the noble Lord, Lord Kennedy, has described, with the money all going into a fund somewhere else and people not getting their hands on it. I winced slightly, because I thought, “The Minister is listening to somebody talking about ring-fencing here”. I wondered how she was going to respond to ring-fencing money like this; I am not quite sure. The Financial Conduct Authority, as I understand it, is this big, new strong regulator that the Government brought have in, so I wondered if the Minister was going to tell us the result of the consultation paper they put out fairly recently. I have not heard too much about that since.
Baroness Jolly
I am grateful to the noble Lord, Lord Kennedy, for raising the issue of payday lenders’ advertisements targeted at people engaged in gambling. The noble Lord, Lord Stevenson, asked how he knew about these things. The answer could be that he had inadvertently fallen into the debate on the gambling Bill, where this sort of thing was raised. We can therefore tell the noble Baroness that there was nothing untoward going on.
As I have outlined previously in this Committee, the Government are fundamentally reforming regulation of the payday market through the Financial Conduct Authority’s new, more robust regulatory system. In January, the FCA will introduce a cap on the cost of payday loans, to protect consumers from unfair costs. The Government are determined to tackle abuse in the payday market wherever it occurs, including in the marketing of these loans. We strongly agree with the noble Lord that it is unacceptable for payday lenders to deliberately target vulnerable consumers with their advertising material. However, it is clear that a robust set of measures is already in place to protect the vulnerable from such practices.
We have heard about the FCA, but payday loan adverts are also subject to the Advertising Standards Authority’s strict content rules. Those apply to broadcast, as well as online, advertising. The ASA enforces the rules set out by the UK code of broadcast advertising. The BCAP code requires that all adverts are socially responsible and that vulnerable people are protected from harm. The social responsibility requirement prohibits lenders from deliberately targeting vulnerable people such as problem gamblers. The ASA has powers to impose scheduling restrictions if it deems it necessary. It also has powers to ban adverts which do not meet its rules, and has a strong track record of doing so: since May 2014, the ASA has banned 12 payday loan adverts. Just today, the ASA banned a payday advert because it encouraged consumers to take out loans to fund frivolous spending. The FCA has introduced tough new rules for payday adverts, including the introduction of mandatory risk warnings and the requirement to signpost to free debt advice. The FCA also has power to ban misleading adverts that breach its rules.
To conclude, there is in place a tough package of measures to ensure that vulnerable consumers are protected from inappropriate advertising and communications from payday lenders. I hope that that gives the noble Lord some comfort. To pick up on a point made by the noble Baroness, Lady Wilcox, the consultation paper on the cap will be published next week, before Report. I hope that the noble Lord now feels able to withdraw his amendment.
Lord Kennedy of Southwark
I first raised the issue of payday lending in 2010, soon after I entered the House, in a Question to the noble Baroness, Lady Wilcox. I remember that when I left the Chamber after that, a Conservative Peer said to me, “That is outrageous. No one ever charged me 4,000% for a loan. How dare you say that in the House? It is wrong”. He had a right go at me. I said, “I’m sorry”. I then sent him the link to the advert, and he came back to apologise. He has since become a good friend. He was shocked that anyone would charge that sort of money. That is how I felt about gambling websites. I could not believe that you can play a lot on those sites and have a sign saying that the money is there. The problem is that the advert may not be misleading; it may just give the name of the company and say that it gives payday loans. That is a matter of fact.
We say that we are trying to protect problem gamblers. How do you know that the person on the computer is a problem gambler? You are sitting there getting desperate, losing money and needing more, and the offer is in front of you. The Government are not going far enough on this. There is a big issue here, which we should look at. Of course I will withdraw the amendment today, but I will probably bring it or a similar amendment back at Report.
On ring-fencing, these companies are being fined a tiny amount—£10 million or £11 million. Hundreds of millions of pounds are going to the Consolidated Fund. I hope that no Minister will be too worried about the amount I am talking about when I get to see them. With that, I beg leave to withdraw the amendment.
Lord Stevenson of Balmacara
My Lords, I declare my interest as the retiring chair of StepChange, a debt charity which is the UK’s leading independent debt advice and solutions service. StepChange offers free-to-client debt management plans, and the charity estimates that it is administering over a quarter of the total number of DMPs that are currently in place.
We know that people who face unmanageable debt often delay, sometimes for as long as a year, before seeking help. By that stage, they are often so desperate for help that they will enter into a plan with the first provider they happen upon, whether it is telephone or web-based, or whether they have just read about it in the newspapers. In a previous debate, attention was drawn to the volume of marketing calls or texts offering fee-charging debt management services. Of course, there is also the scourge of daytime advertising of such products on television and radio.
In its 2010 review of the debt management plan sector, the OFT concluded that commercial debt management companies,
“are not giving the advice or offering the solution that is in the best interests of the consumer but instead that which is most profitable to them”.
That is quite a serious accusation but, compared with what charities such as StepChange offer all its clients, which is the best independent advice with the client at the centre of the discussion, it is fair to point out that in many cases commercial debt management firms simply do not have the expertise to help resolve people’s debt situations in their best interests even if they want to do so. For instance, out of the hundreds of debt management firms that exist, the Insolvency Service lists only four as able to set up a debt relief order—one of the key tools to help debtors on lower incomes. In contrast, StepChange spends about £2 million a year on DROs for its clients.
The October 2014 report on this sector produced by the newly formed Competition and Markets Authority says:
“We consider that there is … a case for the FCA to conduct a more broadly-based review of the activities of lead generators”,
including,
“the role of fee-charging brokers ... possibly timed to take place during the authorisation process ... that is now getting underway”.
It is estimated that there were about 600,000 DMPs at the start of 2012. Of these, about 350,000 were with commercial fee-chargers. In 2010, the OFT estimated that debt management firms were making some £250 million profit from these plans—from clients who were, by definition, already over-indebted. It must be obvious to all concerned that, if fees are charged by commercial debt management companies to people who are suffering from unmanageable debt problems, the consequence will be that the extra costs taken will divert funds away from the creditor to the fee-charging DMP provider, and that will ensure that the time taken to repay the debt is extended. That cannot be good for consumers. It cannot be good for the creditors, who will wait longer and get less, and it is not good for the economy because it is a drag on GDP and will slow the recovery.
In this Committee we have discussed the role of the FCA and other sectors of the credit market, and have raised similar concerns in other Bills, not least the one that originally set up the FCA. Although I think highly of the FCA and respect the intentions of senior staff I have come across, it is becoming clear that there is a fundamental problem with the way it is established. Although its paperwork states and its staff will assert that the consumer is at the centre of its thinking, in practice the FCA has a different objective, which it takes as a surrogate for consumer welfare but which is not correct. It ensures that, across the financial services sector, markets are functioning well.
This means that we get perverse results. Almost irrespective of the consumer detriment or harm, the FCA appears to be content if a smaller number of well capitalised firms are trading, such that they are making reasonable profits—which I suppose means reasonable in relation to the capital employed. That is why cleaning up the payday loan market will not in fact eliminate payday lenders or other high cost credit operators, and why its tougher, more proactive regulation of the debt management market—while long overdue and very welcome—will not remove the problem of commercial DMP providers. If, for example, the FCA determines that the DMP market is functioning well, the FCA will be happy—even though the existence of fees will make it much harder for clients to repay their debts, and it will take them longer to do so.
A good example of this is the cap the FCA has introduced on charges in the DMP sector. We think fees should be abolished altogether on the ground that all clients’ money should be utilised to repay their debts. However, the cap has been set at a relatively high level: firms can charge a maximum of 50% of a customer’s repayments, although that must decrease once set-up costs have been recovered. Thereafter, however, monthly management charges—as distinct from set-up fees—can be charged at a flat percentage of customer repayments. Most of our clients pay about £200 to £250 per month into their DMP. If 50% of the early payments, and let us say 10% of the rest, go to a commercial operator, you can see how the impact will work out. This is absurd. It means that a client of a profit-seeking debt management company with £20,000 of debts will typically pay hundreds of pounds in set-up fees and thousands of pounds in monthly management fees over the term of the plan—money they cannot afford, which should be being paid to their creditors. Compared with a free debt management plan, this will extend the time it takes to pay down debts by as much as several months, and sometimes more than a year. There is substantial consumer detriment here in this market, and it is hard to believe that such a high level of charges is consistent with promoting good consumer outcomes. Our amendments would ban upfront fees for credit brokerage, and clean up DMPs.
Finally, I will touch on one other issue. As a result of FCA regulation, commercial debt management companies are starting to exit the market, and under the amendment, this would accelerate. There will be some transitional problems; for example, when a fee-charging debt management company closed its doors earlier this year, StepChange Debt Charity was on hand to pick up the pieces—and that was good. It was able to support over 400 people, but it is important to note that in so doing, the charity found that more than half of those people had been sold a debt management plan which was not suitable for their circumstances. As the FCA authorisation process starts to clear out the worst operators in this market, it will be up to charities such as StepChange, working with the regulator, to pick up the pieces and help rebuild people’s lives. That will be a significant amount of work. I have written to the FCA to suggest that a plan needs to be put together with the creditors, StepChange and others in the charitable sector to ensure that clients whose DMPs fold under them can be offered a free DMP or other appropriate debt solution. I hope that the FCA will take up that offer to engage. I beg to move.
Baroness Jolly
My Lords, I thank the noble Lord for raising such an interesting and critical point on this aspect of consumer credit, and I acknowledge the excellent work of StepChange. The Government have fundamentally reformed regulation of the consumer credit market. Consumer credit regulation transferred from the Office of Fair Trading to the Financial Conduct Authority—FCA—on 1 April 2014. The Government have ensured that the Financial Conduct Authority has robust powers to protect consumers. It has a broad enforcement tool-kit to punish breaches of its rules, there is no limit on the fines it can levy and, crucially, it can force firms to provide redress to consumers. The FCA also has flexible rule-making powers to take further action if it is deemed necessary to protect consumers.
Turning to Amendment 105K on the issue of credit brokers, it is clear that there is a real risk in this market of consumer detriment being caused by unscrupulous brokers. FCA rules already require credit brokers to disclose their status and any fees payable before the consumer enters into a brokerage contract. The FCA has made clear that disclosure must also cover the consumer’s right to a refund if no credit agreement is entered into within six months following an introduction. The FCA requires credit brokers to comply with the high-level principle of “treating customers fairly”. However, the Government share the noble Lord’s concern about the continued bad practice in this sector. The Government and the FCA are currently jointly considering what further action is needed to protect consumers, and will provide an update in the coming weeks.
Turning to Amendment 105M on the issue of debt management companies, the Government are concerned about the potential for detriment to occur to vulnerable consumers using debt management plans. Our focus is on comprehensively reforming regulation of this sector, as part of our wider reform of consumer credit regulation. Consumers participating in debt management plans are far better protected under the new FCA regime. The FCA has introduced a range of binding rules designed to protect consumers; it has made it clear that fees should not undermine the customer’s ability to make significant payments to the creditors throughout the duration of the debt management plan.
The FCA is thoroughly assessing every debt management firm’s fitness to trade as part of the authorisation process—a process that is already under way. Firms that do not put their customers’ interests first and comply with the FCA’s threshold conditions will not be authorised. The FCA is also undertaking an in-depth thematic review of the debt management sector. The Government therefore firmly believe that the new FCA regime will deliver—and is already delivering—a cleaned-up debt management market that is able to meet consumers’ needs in supporting them to deal with their debts.
The noble Lord suggested that the FCA review lead generators for debt-management providers. The FCA is undertaking this in-depth review of the sector, including looking at how use of these lead generators may be affecting consumers, so that is all part of the mix. I would be very grateful if the noble Lord would consider withdrawing the amendment.
Lord Stevenson of Balmacara
I thank the Minister for her very considerate response. It is a very complicated area, one that is in much flux, but I do not think that that should just be taken as a given, because the pressures, the pain and the anxiety that all this causes to vulnerable consumers—and also to ordinary people who are not necessarily too vulnerable in the conventional sense—are very substantial. We must always think of them as well as of the broader points that have been made in response to the amendments.
My central point, which, with respect, I think the Minister did not mention, is our increasing concern about the difference between saying that consumers’ interests are at the heart of the operation—which I absolutely accept is like a piece of rock built right through the FCA; you cannot have a conversation without it saying how much it puts consumers at the centre of it—and the reality that the measures that it uses in its day-to-day work are about market efficiency and fairness. I am not saying that that is wrong: I am just saying that I am not entirely sure that this is a one-to-one fit. Establishing a market involving payday lenders that is efficient and fair, may not remove the detriment that the remaining payers will be caused. I do not think that there is an easy answer to that; it is just something that we all should bear in mind when we think about how we regulate these matters.
Baroness Hayter of Kentish Town
My Lords, this House has done much important work in tackling high cost and exploitative credit, thanks largely to the most reverend Primate the Archbishop of Canterbury and my noble friends Lord Mitchell, Lord Stevenson and Lord Kennedy of Southwark.
Amendment 105L concerns a new, unregulated and somewhat exploitative form of loan that has sprung up in the high street—along with other high-cost credit, mostly in low-income or deprived areas. It is known as rent to own: one well known example being BrightHouse. It works by having consumers rent products, which can be from household essentials, such as washing machines and beds, to games consoles, with the rent being eventually used to pay for the product. However, because it is deemed to be rent, there are none of the safeguards that would cover a loan to buy the product—for example, hire purchase or a straight bank loan. There are no checks on the ability to repay. There are no rights over the property. There are no safeguards against the property being repossessed because, until the final payment is made, it is only being rented, not owned by the people in the house. So, although the consumer is theoretically renting the product—in their minds, they are of course in the process of buying it—any failure to meet a payment can lead to it being immediately repossessed. There is evidence that such stores show little forbearance over mispayment and are unwilling to accept a breathing space or to negotiate payments where personal circumstances change. That is despite the fact that the consumer may have already paid well over the true value of the goods—sometimes, several times over.
There also appears to be a degree of heavy-handedness when it comes to repossession, with customers rarely informed of their rights and, in some cases, intimidated. There is no protection for the consumer, who is legally neither the owner of the product nor a borrower of a loan, so none of the normal protections associated with hire purchase apply. Protections apart, let us look at the prices. They far exceed the normal purchase price, even including any interest from a bank, which, if one were buying it with a bank loan, would then be added on to the price. The products include a washing machine. If you bought a washing machine from BrightHouse, a not unrepresentative example would leave you paying £1,404 for the machine, which could be bought somewhere else for £535.70—by monthly instalments in both cases, so I am comparing like with like. That means you are paying almost three times the price. However, if you get the games console rather than the washing machine, you end up paying more than three times the initial price. Buying an Xbox console bundle—I admit that I do not know what that is but I am assured that people buy them—elsewhere would cost you about £400. At BrightHouse it is £1,500 over a 130-week period. The APRs are between 60% and 90%. These are not my calculations; they are from BrightHouse’s own catalogue, where buying an HP Platinum Pavilion touch screen laptop would cost you £1,560, paying an APR of 94.7%. So adding up these so-called rents amounts to far more than the full list price, even adding on the interest if you bought it with a bank loan.
Furthermore, the company—I mention this one because it is the only one that I have found time to go and visit—often stocks absolutely top-of-the-range products, despite its shops being in deprived areas and its business model being aimed at those who want to pay weekly. On top of that, BrightHouse adds in compulsory and expensive insurance, even though the goods still belong to the company as they are being rented, so insurance is probably not needed. Then, just to add insult to injury, the marketing of the goods uses every trick of behavioural economics to tempt in the buyer, highlighting the price per week rather than the total cost or the length of repayment. The laptop that I just mentioned costs £15 per week but the catalogue does not tell you how many weeks you will need to pay off the price of £1,560. As we discussed in Committee last week, this is “drip pricing”, where the first number you see—in this case, the weekly amount—gives little indication of the full price. We know from research that consumers tend to overvalue a benefit that they will receive now, which in this case is a small weekly payment and immediate possession, while underestimating the impact of deferred costs.
Amendment 105L would require such a company to include information about the price of the good; an indication of the price the customer might pay elsewhere; the cost of the credit agreement, which should be in money terms, not percentage terms; and clarity about possible repossession, including any allowance for a breathing space or renegotiation of payment. It would ban making insurance compulsory, as I am sure the insurance itself adds more in cost than it does in value, and you have to pay the interest on it because it is part of the weekly charge. The amendment would also require the lender to check on the consumer’s ability to pay the full price.
This is not an attack on any weekly payments system, which can help those on lower incomes with their household budgeting. However, the business model used by companies like BrightHouse is so stacked against the customer that it is little short of exploitation. I therefore hope that the Government will accept this measured approach, which does not ban this form of credit but introduces greater transparency alongside adequate safeguards. I beg to move.
Baroness Jolly
My Lords, I hope that I shall be able to shed some light on this. Again, we share the noble Baroness’s concern about the risk of consumer detriment in the hire purchase credit market. The rules for the consumer credit market, put in place by the FCA from 1 April this year, were made with the stated aims of, first, ensuring that firms lend only to borrowers who can afford it; secondly, increasing borrowers’ awareness of the costs and the risks of borrowing unaffordably; and, thirdly, ensuring that consumers have access to support if they have financial difficulties.
The noble Baroness suggests that some organisations show little forbearance and are heavy-handed. The FCA specifically requires firms to adhere to debt collection rules, including in treating customers in default or arrears difficulties with forbearance and due consideration; provide pre-contractual explanations and information in line with European requirements, including the total amount payable; assess creditworthiness and affordability, including the potential to impact adversely on the consumer’s financial situation and their ability to make repayments as they fall due; and, where firms sell insurance products, do so in line with the FCA’s requirements around assessing consumers’ eligibility to claim on a product, and the high-level principle of “treating customers fairly”.
The Government believe that the tough and decisive action being taken by the FCA, following its detailed rule-making process, will ensure that consumers are far better protected under the new regime. The Government also recognise the importance of affordable credit, which is why they are supporting the credit union movement, including through investing £38 million through the expansion project. Given the new regime, I wonder whether the noble Baroness would feel her way to withdrawing the amendment.
Baroness Hayter of Kentish Town
I think that the Minister has completely misunderstood. This is not about a loan—this is about credit, not debt. The proposal is completely outwith that regime because it is not a loan. It does not come under the FCA, it is rent. These people are renting the television—if they rent it for three years, they will then be given it and own it. It is not covered by the affordability test, by forbearance or by anything that she is talking about.
Baroness Jolly
I apologise for the misunderstanding. I think that we will probably need to have a conversation fairly urgently.
Baroness Hayter of Kentish Town
That will be helpful. It is called “rent to buy”. You rent the item and own it only at the end, when it is given to you. You are renting it, and there is absolutely no hire purchase agreement or anything like that. In the light of that, and assuming that it will be possible to discuss this to clarify the issue, I beg leave to withdraw this amendment.
Lord Stevenson of Balmacara
My Lords, we should all pay tribute to the amazingly long and trenchant campaign that has been waged by the noble Baroness. I have sat through most of her attempts during the past three or four years to get movement on this. Her arguments grow with every year and add new dimensions. Often, as she has done today, she offers a lifeline to the Government if they want to take it. It is always sad that they do not seem to be able to see the points that she is making or act on them. It occurred to me when she was speaking that it is a big pity that the Bill is arranged as it is. She ought really to appear at Halloween as an eerie ghost rattling her chains and saying, “Remember the financial transactions blocking”. Ministers would all shake and shiver in their shoes and be unable to respond without fear and trembling. I realise that that might apply to us if we are so lucky as to win the next election; she may come back to harass my noble friend or even me if we are in a similar position, so perhaps I shall wipe that away.
This is serious stuff. I recall being given the hope by the Minister in charge of the gambling Bill, when we were pursuing similar lines, that such a measure would be the right approach. The noble Baroness is absolutely right to bring it back at this stage; that is entirely in line with what was said then and the advice that was given.
The gambling Bill was a small, modest measure which was not expected to take up much time in the House or to carry much weight. It was deliberately sold to us as a measure that would be of great advantage to all concerned if it could slip through quickly because it was dealing with the particular issue of bringing back onshore the gambling bodies that had moved offshore. They were offering offshore opportunities for people to gamble; if they were onshore, they would be subject to the regulatory process.
Of course, we were happy to support that, but we were also able to make it a bit better by adding a few things during the process. It was clear in that process that the Bill was largely doing an awful thing that occasionally occurs in government: willing the ends of policy but not the means. The end of the policy is that we do not want people who are not regulated and not operating according to the rules within this country still to reach out to gamblers in United Kingdom. To achieve that, obviously there must be some mechanism by which we can pursue them. That is either by blocking their internet activities—these people operate in small foreign territories without fear of being pursued, so that is completely fanciful—or by ensuring that the financial arrangements, which are the lifeblood of their operation, can be blocked.
It is a matter of some irony that only yesterday we were discussing—in this very Room but on a different Bill—those who have had their intellectual property traduced by other companies in the internet world, otherwise known as copyright theft. We were investigating the best way of ensuring that those who owned intellectual property and had it stolen could seek remedies through the courts to make sure that the abuse was stopped and damages paid. It turned out that there were two pieces of statute that were possible to use. One was brought in long before the internet was as widely used as it is now—the Copyright, Design and Patents Act 1988 —and the other was the not yet fully implemented Digital Economy Act 2011, of great memory. This had specific clauses for regulations to be brought forward to allow the courts to block internet sites that were abusing copyright.
I would argue, on the basis of that experience, that this is something that is coming. Here we have a situation where, we are told, more than 40 blocks of this type were made last year. The Minister who responded to the debate was very proud of the fact that the Government had a mechanism in place to deal with internet abuse of the type specified in relation to copyright. This could be read across to those engaged in illegal or unregulated activity relating to gambling in the UK. Why is it not possible to use the experience that has been gained through this process to answer the questions of the noble Baroness, Lady Howe, about how to make sure that we are able to provide the means of delivery for the desirable policy aims included within the gambling Bill?
Baroness Jolly
I thank the noble Baroness for the amendment. We have met before on this issue, and her involvement and advice on this matter has helped us to make progress, which I am going on to explain. This amendment relates to the enforcement of the Gambling (Licensing and Advertising) Act 2014, which also has consumer protection as its primary focus. The issue of enforcement was extensively debated during the passage of the Act. I wholeheartedly agree that effective enforcement is essential to deliver the consumer protection aims of the 2014 Act.
Earlier this year I announced in the House that the Gambling Commission had reached agreement with major payment systems organisations—MasterCard, Visa and PayPal—to work together to block financial transactions with unlicensed operators. It is worth teasing some of this out for noble Lords, because MasterCard, Visa and PayPal cover the vast majority of relevant financial transactions. The noble Baroness mentioned the others but, although they might not appear in the list, the other payment service providers also use Visa and MasterCard. The branding might not be there but, behind the system, the actual infrastructure will be Visa or MasterCard. Reputable and legally compliant payment service providers are unlikely to have any greater interest in facilitating unlawful activity than the major providers have.
The noble Baroness raised a point about organisations being legally obligated in common law not to process transactions of any illegal provider. The terms and conditions of Visa, MasterCard and PayPal require that all transactions must be legal in all applicable jurisdictions. I hope that that has clarified that issue.
Since then, the Act has come into force, but only a few days ago on 1 November. I am able to confirm that the arrangements for disrupting illegal financial transactions are now in place. We believe that these arrangements offer the best solution and will disrupt revenue to unlicensed operators selling into the British market. They enable the Gambling Commission to take swift action against illegal operators; outside of a rigid legislative framework, these arrangements can adapt to tackle the very latest developments as technology changes.
The Government believe that working in partnership with those organisations towards a common goal of tackling illegal activity is the most appropriate way to proceed. No payment system organisation wants or can afford to be associated with illegal activity. I am sorry if the noble Baroness does not remember that from the previous Bill but it was certainly something that I was aware of; I am almost certain it was mentioned in Committee or in the Chamber on Report. However, we are not complacent on this issue and it is right that it is kept under scrutiny. The Gambling Commission will provide in its annual report to Parliament, which will be tabled each July, an assessment of the effectiveness of these arrangements in enforcing the 2014 Act. That will enable the Government to ensure that the Gambling Commission continues to have all the enforcement tools that it needs.
I thank the noble Baroness for her extensive input on this important issue, but, given the action taken and my reassurances, I ask her to withdraw her amendment.