Baroness Neville-Rolfe
Main Page: Baroness Neville-Rolfe (Conservative - Life peer)Consumer Rights Bill
Baroness Neville-Rolfe Excerpts(9 years, 6 months ago)
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“(5A) The power in subsection (5) includes power to provide that a provision of this Chapter does not apply in relation to a service of a description specified in the order in the circumstances so specified.”
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe)
My Lords, this amendment clarifies that, when the power in subsection (5) of Clause 48 is used, the statutory instrument made under it can provide that an exclusion only applies to a service in the circumstances specified in the order. The amendment therefore enables a more precise or limited exercise of the power where this would be more appropriate. I beg to move.
Baroness Hayter of Kentish Town (Lab)
My Lords, I thank the Minister for introducing the amendment. Perhaps I could just take a brief moment to wish my noble friend Lady King a happy birthday today—it is always very nice to spend it in this way.
Our only query, picking up on the Minister’s use of the word “clarifies”, is whether the amendment clarifies the existing law or whether it extends it to enable the Government to cherry-pick, if you like, the provisions in this Bill so that they would not affect a particular service. As the Minister will understand, the Legal Services Consumer Panel and the Financial Services Consumer Panel are slightly worried that the power provides the possibility to carve out some legal services from being covered by the Bill, especially as—although I am sure that it was unrelated to this—the Minister’s helpful explanatory letter cited the equivalent power to exclude arbitrators from the scope of legal services legislation. Given that worry by consumer representatives about whether this might be aimed at particular consumer areas, if it is possible for the Minister to expand on what sort of circumstances she has in mind that this power might be needed for, that might allay people’s concerns.
Baroness Neville-Rolfe
My Lords, perhaps I can explain the general intention and then see whether we can clarify the point that has been raised about legal services. Our intention is that this power will not be used regularly. It is designed to accommodate certain services where it would not be appropriate to apply all or some of the provisions of Chapter 4. While the power is designed to be rarely used, we want it to be able to be used when it is needed. We are therefore proposing this amendment. The amendment clarifies that the statutory instrument can provide that an exclusion only applies to a service in the circumstances specified in the order. It therefore enables a more precise or limited exercise of the power where this would be more appropriate.
We plan to consider each case on its merits and the decision will be on a case-by-case basis. For example, we would want to consider the costs and benefits to both businesses and consumers. Let me reassure you also that any use of the power would be subject to parliamentary scrutiny, as an order made under it will be subject to the affirmative resolution procedure. Because this is an enabling power, it is difficult for me to comment on specific areas, but our broad intentions are as I have outlined.
Baroness Hayter of Kentish Town
My Lords, I think that probably goes even further, if I have understood the Minister correctly, as it makes more specific what might be excluded. My guess would be that this would be reassuring to the groups that have contacted me and, in that case, we will be happy to support the amendment.
Baroness Neville-Rolfe
My Lords, this is the first time that I have taken to the Floor during discussions on the services chapter of the Bill. Before I respond to the points and examples that the noble Baronesses, Lady Hayter and Lady Drake, have made, I shall set the scene just a little.
Services are a vital part of our economy, and we all use many services ourselves as consumers. This chapter therefore clarifies and enhances consumer rights and remedies when contracting with traders for the provision of services. In particular, for the first time, we are setting out in statute what remedies consumers are entitled to request if traders breach their statutory rights. To respond to the noble Baroness, Lady Drake, this is an important change as it will give traders and consumers more confidence and certainty when contracting with each other. These provisions are a necessary and important addition to the consumer law framework; I do not think that we disagree on that.
Which? has told us that,
“consumers have long been under-protected by the consumer protection rules applicable to service contracts”.
Indeed, I am glad to mention Which? as I remember talking to people there, about 15 years ago, on the need to shift the focus of their work to services as much as goods because of the change in what was of concern to consumers. Of course, it is now very well informed and helpful on services.
I look forward to debating the whole chapter with your Lordships, as there are a number of amendments, but perhaps I may turn to Amendment 46A. I agree with your Lordships that, where a consumer purchases a service because the trader says that it will have a certain outcome, it is disappointing and frustrating for the consumer if that does not materialise. I believe that we have addressed this issue to an appropriate extent in the Bill. Where a trader makes a claim about a service and the consumer decides to purchase that service based on that claim, Clause 50—which we will come to—gives that consumer a right that the service must comply with that claim. That could include information about the outcome of the service, if the consumer took it into account when deciding to buy that service. If the service does not comply with the information, the consumer has statutory remedies available.
Given this protection, we do not consider it appropriate or necessary to alter the standard of performing a service with “reasonable care and skill” under Clause 49. The noble Baroness, Lady Hayter, was concerned that we needed to wait for case law on this standard, but I reassure her that the test of reasonable care and skill is already well established in law. By referring to reasonable care and skill, the text has flexibility to apply to the range of services which it covers. The level of care and skill required in a given case will depend on the circumstances. This is important. In many cases, a service will not be performed with reasonable care and skill if it does not fit with information that the trader has given about the outcome.
Consider, for example, a painter who claims to be able to steam-proof your bathroom walls and whom you engage, as you want to maintain your bathroom decor. If the bathroom is not steam-proof at the end, the painter may have failed to exercise reasonable care and skill in selecting appropriate materials and applying them. But, as was seen in the other place, not every claim about an outcome will be relevant to the care and skill that it is reasonable for a trader to exercise. For example, a personal training service might claim to help you run a marathon in eight weeks’ time, but whether that is successful will depend on your will-power and efforts, as well as on the service itself. Nor will every claim about an outcome be taken into account by a consumer.
The noble Baronesses, Lady Hayter and Lady Drake, asked why our treatment of services was not the same as that for goods. As part of the consultations that we did, the Government asked for comments on additional proposals to move the services regime closer to the regime for goods, through introducing an outcomes-based satisfactory quality standard for certain services to property. Comments received on this issue revealed a wide range of views and brought out the complexities of making such a change. We have since sought further evidence on what the impact of such a change would be. Our analysis of what evidence we could find is that there appears to be no high, unambiguous net benefit for consumers, while there would be obvious costs for businesses.
The noble Baroness, Lady Hayter, was also concerned that a consumer could have difficulty in challenging a skilled trader—for example, a window-cleaner. The standard in the Bill is that the trader should use “reasonable care and skill” in carrying out the work. If windows are cleaned but the trader leaves some mess or misses a window then, although skilled, that trader may not have used reasonable care.
The noble Baroness, Lady Drake, spoke about financial services and cited the distinguished economist John Kay. However, we have a great deal of other protections in financial regulations. Having studied this carefully, I believe that financial matters are, on the whole, best dealt with in financial regulations. With your Lordships’ permission, we will be debating the issue on later amendments.
I hope that I have reassured your Lordships that Clause 50 means that claims by the trader about the service, which can include the outcome, have to be complied with if the trader took them into account. I therefore ask that the amendment be withdrawn.
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness, Lady Hayter, for her knowledge and for her experience of the Financial Services Consumer Panel, albeit that that was from some time ago. Since then, of course, many, many changes have been made to the financial regulatory regimes following the financial crisis, which occurred after many years of the Labour Government.
Having said that, I appreciate the concerns that lie behind the amendment. I think we are all agreed that consumers—and, for that matter, society as a whole—need a better deal from our banks. The question is how we achieve that, and I can see why some would think that this amendment would help. However, the Government do not consider that it would make a real difference for consumers or add very much to what the Government are already doing. I shall explain why and begin with what this Government have done to strengthen bank regulation and the protection of customers.
First, we replaced the flawed system of financial regulation. The Financial Services Act 2012 put in place two new, properly focused financial regulators: the Prudential Regulation Authority, which is a subsidiary of the Bank of England, and the Financial Conduct Authority. These reforms mean that the PRA can concentrate on ensuring that our banks are prudently and competently managed, reducing the risk of serious financial failure. That may not seem to be of immediate relevance to consumers; none the less, it goes right to the heart of part of this amendment. The PRA seeks to ensure that banks are properly managed and soundly run, so the PRA also contributes to ensuring that the bank’s core services—taking deposits, withdrawing money, making payments or providing overdrafts—to consumers are provided with “reasonable care and skill”. In a sense, therefore, the work of the PRA and its detailed rules already cover the same ground as the amendment.
Of course, this Government are bringing in ring-fencing to ensure that core banking services—in particular, the taking of deposits from individuals and small businesses—are undertaken in a separate legal entity, insulated from wholesale and investment banking activities. This will support continuity of provision of vital services and help to make UK banks sufficiently resilient to withstand excessive financial shocks—surely a vital part of caring for the consumers of core banking services. Therefore, it is not clear to me what imposing the duty of “reasonable care and skill” would add to requiring banks to comply with the ring-fencing and the many other regulatory requirements.
I turn to the FCA and the protection of consumers more directly. The Government’s reforms mean that the FCA can concentrate on ensuring that all financial services businesses conduct themselves properly in their dealings both with ordinary retail customers and in wholesale financial markets. This wide remit is shaped by the FCA’s statutory objectives and delivered through the FCA’s rules. These rules include the 11 FCA principles for businesses. These are high-level requirements which already cover the ground set out in the amendment.
If I may, I shall take the time to run through four of the principles. Principle 2 is:
“A firm must conduct its business with due skill, care and diligence”.
Principle 6 states:
“A firm must pay due regard to the interests of its customers and treat them fairly”.
Principle 8 is:
“A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client”.
I know that the noble Baronesses, Lady Drake and Lady Hayter, rightly feel particularly strongly about this conflict of interest issue. Principle 9 states:
“A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment”.
As many noble Lords will know, there are a very large number of detailed rules to which banks and other financial services firms are subject, each one of which is, in one way or another, an articulation of a duty of care to consumers or to society as a whole. It seems to me that there is a real question about what the amendment would add to these existing duties.
However, I will comment on the amendment in detail. Its first limb seeks to impose a fiduciary duty to provide core services with reasonable care and skill. The term “fiduciary duty” typically describes the kind that a fiduciary owes to a beneficiary, such as a duty of confidentiality, a duty to avoid conflicts of interest and a duty not to profit from his or her position. These are the duties that a director owes to a company, an agent owes to a principal or a trustee owes to a beneficiary. There will be cases in financial services where such a duty will be appropriate and, in those cases, it—or similar duties—tends already to be imposed either as a matter of general law, as obligations under the Financial Services and Markets Act, FiSMA, or in the FCA or PRA rules.
Such a duty would not necessarily be appropriate for the provision of core services, which are subject to a contract between the bank and the customer. Of course, regulatory rules made under FiSMA are there to ensure the fair treatment of customers and the proper conduct of business more generally. I am also not sure whether a duty to perform services with care and skill could be described as a fiduciary duty, but it would already be part of the contractual obligations and will be reflected, where appropriate, in the obligations imposed under FiSMA or in the regulators’ rules. The Government consider, therefore, that in view of the extensive sector-specific legislation in this area and the general position under contract law, imposing the fiduciary duty suggested in the amendment would not give the consumer any additional remedies.
Turning to the wider duty of care proposed in the amendment’s second limb, I suggest that it is far from clear what this could add to the existing obligations or regulatory requirements to which the ring-fenced body is now subject. There are, for example, obligations under FiSMA and the regulators’ rules, some of which are obligations to the bank’s own customers. For example, principle 6 of the FCA’s principles for businesses states:
“A firm must pay due regard to the interests of its customers and treat them fairly”.
Other obligations are in effect obligations to consumers of financial services more generally or to society as a whole. For example, principle 2 of the principles for businesses states:
“A firm must conduct its business with due skill, care and diligence”.
The noble Baroness, Lady Hayter, suggested that the Government were relying on case law to ensure a duty of care. That is not the case. Key obligations are in explicit law: that is, the FCA rules to which I have referred, such as the principles for businesses.
I am grateful to the noble Earl, Lord Lytton, for his early intervention and look forward to discussing his amendment. He asked about banks passing the duty of care back to surveyors. Banks and other financial services firms are subject to rules made by the FCA, as I have emphasised at great length. They cannot avoid those requirements by saying, “It’s the surveyor’s fault”, but surveyors may of course owe appropriate duties to their customers as well.
Perhaps I could mention redress. Regulatory rules give effect in a precise, meaningful way to the duties that banks and other financial services firms owe to their customers and to society as a whole. However, that leaves the question of redress. Surely, it might be argued, the amendment would help consumers to get redress in appropriate cases, either by taking action in the courts or by making use of the Financial Ombudsman Service. I am afraid that that does not seem to be the case. As we have seen, the duties proposed in the amendment would overlap with existing duties under the principles for businesses and cannot be as detailed as the regulators’ other rules, which can be used to bring a complaint to the bank or to the ombudsman. In any case, we have existing machinery to deliver redress for consumers. For example, in 2013-14 the Financial Ombudsman Service resolved more than 500,000 complaints in total, resulting in compensation for consumers in 58% of cases. If there are problems of financial regulation, the financial regulatory framework is a much better place to resolve these problems.
I should perhaps add, in view of what the noble Baronesses, Lady Drake and Lady Hayter, have said about people knowing their rights, that the opportunity will be taken to improve communication when the Bill takes effect. The FCA will be preparing guidance for traders on its site and Citizens Advice will host information for consumers. I noted the point raised by the noble Baroness, Lady Drake, about information on pension transfer. Her daughter is very fortunate to have such a well informed parent to assist her—
Baroness Neville-Rolfe
However, if I may, I shall think about that one, as it probably goes a little bit beyond today’s discussion.
In conclusion, the Government firmly believe that it is better to impose specific, focused requirements on banks and other financial services firms through the regulatory system. Customers and regulators can more effectively hold the bank to account when they do not comply. I hope, therefore, that the noble Baroness, Lady Hayter, will agree to withdraw this amendment.
Baroness Hayter of Kentish Town
My Lords, I thank the Minister for that. I hope that it convinced her; I fear that it did not convince me. It is some time since I was on the Financial Services Consumer Panel, but I am still in close touch with the panel and I will be quoting it later on its disappointment with the Bill.
However, I want to take a moment to talk about the really interesting question that the noble Earl, Lord Lytton, raised. It was interesting in itself but so was the contrast with the Royal Institution of Chartered Surveyors, which is a chartered institute and has a code of conduct or ethics—I cannot now remember what it is called—which does include putting the customer first. In a sense, that is all we are trying to do for the financial industry, which could learn a thing or two from the surveyors.
I thank my noble friend Lady Drake for her intervention, particularly the examples she gave. She usefully reiterated the reason why consumers in this industry need particular help: the complexities and the asymmetries of knowledge on these long-term products. She also warned that if we do not introduce somewhere in law that you must put your client’s interest first—and I do not think that something that is in an FCA rule is actually law, but I could be wrong about that—then we will carry on with a compliance, keeping-to-the-rules regime, which is of help to no one and continues to produce poor outcomes. As my noble friend warned us, there may be more to come, with pension unlocking.
The most important thing I have to say to the Minister is that treating customers fairly, which was in FiSMA and is now in the Act that my noble friend Lady Drake and I cut our teeth on in the House four years ago, is not the same as putting customers first. That is the extra push that we want. Although the Minister mentioned the duty of care on business in general, businesses have duties to shareholders and everyone else, which is why the client often comes a bit far down the pecking order.
If the Minister is right that no additional remedies would come from our amendment, then I see no harm in including it. She has not said what harm this would do. However, I fear that on this, just as the Government voted against a code of conduct for the financial industry when we were doing that Bill, they are again going to turn their back on consumers in this vital area.
Baroness Neville-Rolfe
Before the noble Baroness, Lady Hayter, sits down, perhaps I could clarify her point about FCA rules not being law. Our advice is that they are law, and that is why the principles say, “A firm must”.
Baroness Neville-Rolfe
My Lords, first, I thank the noble Earl for his thoughtful and very clear contribution to the debate. I share his sympathy for the untimely death of Sir Sydney Chapman. I also agree that the vast majority of consumers and service providers are honest but, regrettably, there are some on both sides who would not meet that description.
Perhaps I may look at the three amendments by taking a step back. Clause 50 is the result of careful consideration, as I said. We have thought and listened hard, consulting on it and publishing it in the draft Bill. We have sought to achieve the delicate balance between giving consumers the right to have what they pay for and not overburdening traders. To do that, we have given consumers a clear statutory right: the right that information that they are given and which they take into account is complied with.
Crucially, there are three safeguards for traders. It may help if I set them out. First, this right does not cover every bit of information given to a consumer by a trader. It is limited to information that the consumer took into account when making a purchase or making a decision about it—for example, if a consumer contracted for a service specifically because the trader said it would be done in a certain way. Secondly, it would be for the consumer to prove that they took the information into account if seeking to enforce this right against the trader. Thirdly, we are allowing traders to qualify information given. The trader can qualify information as long as, where they do so after the occasion when it was first given, the consumer is happy with the new information. For example, if a salesperson gives information over the phone in good faith but later, as more details of the consumer’s circumstances emerge, they need to change it, then they can do so as long as the consumer agrees.
We think that those safeguards are enough to address concerns that noble Lords have mentioned. For example, we have heard concerns that sales advisers will have to speak strictly to a script. That will not be the case, because of the safeguards that I have just outlined. We are not restricting the trader’s ability to discuss options with the consumer or making them stick to jargon, in the words of the noble Earl. We are saying that when a trader gives information which the consumer may take into account in deciding whether to make a purchase or make a decision about it, the trader needs to comply with that information.
On spurious claims, we do not think that there is an assumption that consumers remember information. I know from my experience that you cannot assume that consumers remember information; one sometimes forgets things. That is not what the clause states. Clause 50 provides that where a trader has given information that the consumer has relied on, the trader must comply with that information. The consumer will need to prove that the information was given and that they relied on it. Those safeguards—that the burden of proof is on the consumer and that the consumer must have relied on the information—in my view protect traders from unreasonable claims. Unfortunately, some consumers will, as the noble Earl said, act unreasonably. They are not the vast majority. Most consumers of services simply want the service to be provided to the required standard, with access to redress if things go wrong. That is what this chapter provides.
Turning to Amendments 47 and 48, the safeguards that I have explained achieve a balance between traders and consumers. Adding a reasonableness test to the clause would, in our view, cause confusion and uncertainty. There are some places in legislation where reasonableness is an appropriate test. However, I fear that it would add complexity here, which would not benefit consumers or traders. When we consulted in 2012, the vast majority of respondents thought that the existing law on services was too complex.
That brings me to Amendment 49. As I explained a moment ago, we are allowing traders to make changes to information given. While subsection 2(a) allows the trader to qualify information on the occasion when he gives it, subsection 2(b) allows the trader to make changes at a later date if the consumer agrees to those changes. That achieves clarity for both parties, so we think it is an appropriate balance.
The noble Earl, Lord Lytton, also mentioned adjudication. We have already talked a lot about alternative dispute resolution in the debates on the Bill. ADR will be available in all sectors covered by the EU directive from next year. While I sympathise with much of what my noble friend has said, given the safeguards I have outlined, I ask that the amendment be withdrawn.
The Earl of Lytton
My Lords, I thank the Minister for that explanation. I will go away and think about it. The words about what the consumer takes into account when making a decision are pivotal. I would simply leave a question in the air: objectively, how would anyone know, other than the consumer himself? How would one test that? This is not the time to pursue this, even if we were not in Grand Committee. I will ponder what the Minister said and I may return to this at a later stage. I may well write to her with some more focused issues between now and the next stage, although I cannot guarantee that, for all sorts of reasons. That said, I beg leave to withdraw the amendment.
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness, Lady King of Bow, and the noble Earl, Lord Lytton. I appreciate the fact that he intervened with such practical comments, with more stories about bathrooms and a plea for caution and flexibility. My noble friend Lord Hodgson also warned us that some of the wording in the amendment may be a bit too wide—a sentiment with which I concur.
First, I turn to Amendment 48B. We discussed this issue in some detail when we talked about Amendment 8 relating to goods, and I apologise if I repeat the points made then. However, I welcome this opportunity to reassure the Committee in relation to services contracts and to respond to the points made by the noble Earl.
Under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, traders are required to make the consumer fully aware of the total costs of a service. For the noble Earl’s information, they implement the consumer rights directive, which I think is the title that he was seeking when he raised this point. These regulations came into force quite recently—on 13 June 2014—and they require traders to give, or make available to, the consumer information about costs before the consumer enters into a contract. In addition, the information must be clear and comprehensible. I therefore believe that these regulations already cover a large part of the amendment. Traders are required to provide information, and they are required to make that available to the consumer before the contract is agreed—that is, prior to the sale.
The noble Earl was also concerned that prices can be unclear—for example, if they are expressed as “from £2” rather than being £2. He suggested that some flexibility was needed in services. I am pleased to reassure him that the regulations I have referred to—this good directive from the EU—have taken us a step forward. If the total price for the service cannot reasonably be calculated in advance, the trader must notify the consumer of the manner in which the price will be calculated.
The amendment also talks about the consumer giving “explicit consent to purchase” at the price given. The Bill deals with consumer contracts but it does not set out the form that a contract should take. Contracts can be implicit or explicit. In many cases, a consumer will give their express consent, such as in signing a contract for a contactor to paint their living room—on this occasion it is a living room, not a bathroom. However, in other cases the contract is implied. For example, a consumer walks into a hairdresser—somewhere I go a lot, obviously—asks the price and, on hearing it, sits down in the hairdresser’s chair.
It is not our intention in the Bill to define how a contract should be made. I can, however, reassure noble Lords that the 2013 regulations require the consumer’s express consent for any changes. For example, if the price for painting the living room were to change, the consumer would need to give their express consent.
I can also reassure noble Lords that the 2013 regulations protect consumers from hidden charges. Under those regulations, the consumer must give their active or express consent for any optional additional payments. For example, pre-ticked boxes for payments which the consumer must untick are no longer permitted for services within scope of those regulations. I think that that helps to deal with the concert example—and we probably have cross-party agreement on Paul Simon and his beautiful music. I also take the opportunity to point out the excellent work that Which? has done to improve transparency of ticket prices. I hope that the noble Baroness’s future experiences will be a bit better.
In discussing Amendment 50G, I will, with apologies, refer again to the famous Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013—that is too long a title. But I have some good news. For services within scope, these regulations prohibit the trader from requiring the consumer to pay above the basic rate when consumers contact them by telephone about a problem with a services contract. This requirement represents an important and significant move towards fair treatment of consumers who want to contact a trader. It was agreed by all member states at EU level as a fair right for consumers, while not placing excessive burdens on business. In the same way that a consumer may need to pay the travel fare or parking to visit a shop to sort out a problem, it seems reasonable to expect that they may have to pay the basic phone rate to contact the trader. What the trader should not do is to derive benefit, or use numbers which actively dissuade contact.
Amendment 50G would give rise to unintended consequences. To require that businesses who offer a phone number must offer a freephone number might result in traders withdrawing telephone-based customer support to the detriment of consumers. Many people would rather speak to someone than, for example, have to use an online chat room or e-mail their complaint. But I can reassure the Committee that, even though not all services are within scope of the consumer contracts regulations, the sector regulators have taken action. For example, current Financial Conduct Authority rules require every authorised firm to have a free channel for making a complaint. While some firms provide a freephone number, this channel could also be by post or online. Early this year, the Financial Conduct Authority issued a consultation paper proposing that charges for consumer help, and complaint, lines were capped at the cost of a basic rate call.
I hope that these developments will help to reassure the Committee, and I therefore ask the noble Baroness to withdraw her amendment.
Baroness King of Bow
My Lords, it has been an interesting discussion that has taken in some clear old favourites, with bathrooms and even party walls mentioned by the noble Earl, Lord Lytton. The problem is that, without the safeguards proposed in these amendments, to the average consumer—and I include myself well and truly in that description—goods and services are not as described. Consumers will not have transparency and will not be able to make an informed choice. In many cases, we are talking about products with a finite cost. I absolutely recognise that services are different from goods; in fact, that was the point that I made in my previous intervention.
I thought that the noble Lord, Lord Hodgson, made some good points about alarm systems as well as the wording of the amendment, and I hear the concerns about the wording being too wide. However, it seems strange to me that the non-negotiable fees that are added to ticket prices are not actually the price for the service; they are another element being added. I recognise that the wording may be a problem, but then let us change the wording. That is something that the excellent Bill team would have no problem doing. Without something to address the gaps, I feel that the Bill is inadequate at present. I would at the very least hope that the Bill would stop the additional non-negotiable fees and charges.
The noble Baroness drew our attention to the 2013 legislation about additional payments and charges, which she believes already covers a large part of the concern addressed by Amendment 48B. Although I welcome the legislation, my problem is that in this case, something is clearly not working. The same goes for Amendment 50G. Of course I agree with the Minister that it is reasonable for people to pay a basic rate, and we would not want to have those unintended consequences, but if that is already covered by legislation, why is it not working in practice? Why, when I booked those tickets in the past few weeks, was I charged £60 on top of the price as advertised and why can we not do something more concrete to crack down on what is a scamming exercise? All right, I suppose that legally it is not a scam, but it absolutely feels like it. Given that the opportunities of a Consumer Rights Bill are few and far between, it would be wonderful if the Minister and her team could review how we can ensure that the practical effect is that consumers do not continue to be ripped off.
However, of course, I beg leave to withdraw the amendment.
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness for her comments. We have heard a lot today about the importance of making information clear for consumers. I was glad that she felt comforted by the comment on objectives that the Minister—I imagine that it was Jenny Willott MP—was able to make in another place when the Bill was debated. There is already legislation in force that protects consumers from being misled. I have mentioned in our discussion of earlier clauses the Consumer Protection from Unfair Trading Regulations 2008 and the recent amendment to these from October this year which allows consumers a private right to redress for misleading actions.
Other rules, in the 2013 consumer contracts regulations, which I have also mentioned, introduced by this Government, mean that traders must give consumers certain key information before they enter a contract and that it must be given in a clear and comprehensible manner. I emphasise the word “comprehensible”.
The noble Baroness, Lady Hayter, rightly expressed concern about problems with small print. We are committed to protecting consumers from finding surprises in a contract’s small print. Part 2 of the Bill goes into that in some detail and we will hopefully reach that next week.
The Government are keen to help consumers to know what they are buying and get what they pay for. However, I have some concerns about the amendment. Clause 50 already gives consumers a right that traders comply with information given which the consumer takes into account. It allows the trader to qualify information but on the same occasion as the original information is given. The consumer must expressly agree to any later changes that the trader proposes. I think we are getting used to this process.
My concern with the amendment relates to certainty and practicalities. How can a trader ensure that he gives two pieces of information with equal prominence? Many contracts are agreed orally. In such cases, the trader cannot be sure that he has given two pieces of information with equal prominence, since he cannot say two things at the same time. Of course, there may be more than two pieces of information which are relevant, thereby exacerbating the problem. How would a consumer know whether the trader’s explanation during a conversation about a service had been sufficiently prominent to qualify a general point?
To give another example, let us consider a painter whom you have asked to paint your famous bathroom. Before he has measured all of the walls, he tells you that it will cost £100 to paint the room. He then measures and analyses the walls, confirms that the price will be £110 and writes that price down for you on a piece of paper. Do the parties need to consider which is more prominent—the written note or the initial oral comment—or are they equally prominent? I do not know which would be more prominent, and I do not think that most traders or consumers would know. I do not see that this extra test particularly helps the consumer.
I fully agree with the principle that consumers should be given key information in a clear and transparent manner. We have a suite of legislation in place and will have more when this Bill is enacted. Clause 50 provides appropriate protection by requiring a qualification to be given on the same occasion as the information it would qualify. I believe that that is sufficient, given the risks of causing uncertainty by going further.
I should perhaps add that Part 2 of the Bill implements Law Commission recommendations to protect consumers from surprises in the small print. Price terms must be prominent to avoid assessment in court for fairness, and that is new in this Bill.
In these circumstances, I ask the noble Baroness to withdraw the amendment.
Baroness Hayter of Kentish Town
I thank the Minister for that. If she were worried only about the application of the amendment to information given orally, then of course we could just put “where written, they should have equal prominence”. That could be a solution if that were the only issue that the Government had with this. The “hidden in plain sight” issue is quite important. Sometimes these things are known to the trader but are carefully put where they are not as obvious to the purchaser.
We will look at the wording and will think about whether, when something is known to the trader, we can find a form of words to ensure that it is all put in writing. However, for the moment, I beg leave to withdraw the amendment.
Baroness Hayter of Kentish Town
My Lords, Amendment 49A is about mid-term changes to a contract. Therefore, this is not about things that were known at the beginning; it concerns the situation where a contract changes.
The intention behind the amendment is to deal with the situation where it is no good telling someone to shop around and find an alternative contract when some part of the original agreement, such as the interest rate, changes and either that person would incur a large financial penalty for doing so—the equivalent of an exit fee—or at that moment there are no other financial products around equivalent to the original one. There may be no such alternatives—perhaps because there is a mortgage famine, although there was not when the mortgage was taken out. The person’s employment status may have changed and therefore they cannot negotiate the same deal. They may have a few more children and so their outgoings are higher and, again, they cannot negotiate the same mortgage as they had to begin with. Alternatively, they could simply have retired and therefore find it very hard to negotiate a new mortgage. Also, annuity rates change a lot because circumstances may have changed.
Amendment 49A would not make the original terms of the deal necessarily unfair. It is not saying that it cannot be possible to change a contract, but it would seek to put the consumer back in the position where they would have been had the contract as made with and understood by the consumer been honoured. The amendment does not cover interest rate increases where those were part of the deal; it is where a provider seeks to change a part of the contract and where that leaves the client worse off because they cannot exit without a penalty. There is a contrast with the example of our house, which we keep going back to; if a cleaner says that they can no longer clean the house at the agreed price, you end the contract and find another cleaning firm. You can go elsewhere to get your house tidy, but that is not the case for financial products, where the exit fees, or changes in annuity rates, can mean a real loss from having to withdraw from the contract or where there is no other product available at that time, perhaps because of something in the market or one’s own circumstances.
Mortgage prisoners are the best example of the detriment that we seek to avoid. I am sure that everyone in the Committee will recall the Bank of Ireland example in March 2013, when the bank invoked a small part in its contract, citing exceptional circumstances, putting up the interest rates of more than 10,000 customers who had tracker mortgages that were supposedly going to be linked to the Bank of England base rate. That had gone up by 0.5% but the Bank of Ireland’s tracker rate went up by 4.49%. The issue is that consumers were essentially locked in to those payments at the time, because there were no competitive rates around where they could have taken their mortgage.
Amendment 49A is to ensure that, when the terms vary from those that have been mutually agreed, and when the consumer cannot leave the contract without a penalty, they must be protected by the provider. It is obviously vital for home buyers, whom we know that the Government are rightly keen to tempt back into the market at the moment, but it is also important for confidence in the financial industry, which, as I said, has some way to go before it reacquires our affection. I beg to move.
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness for her comments. Clause 50(4) protects a consumer from detrimental changes to their contract. The noble Baroness talked about midterm changes—a phrase that I rather liked; it is rather American in flavour. When I was a director of a building company, we used to call them variations. The subsection makes it clear that, when key information about the trader or service is amended, the consumer must agree to that change for the change to be effective. That already provides a significant level of consumer protection. The noble Baroness posited what happens if the consumer does not agree to a change proposed by a trader. The answer in part lies in subsection (4). If the consumer does not agree to a change to the information set out in subsection (3), the original agreement stands. The trader must uphold its side of the bargain without the change. For example, if the trader increases the price but the consumer does not agree, the trader must charge the consumer the original, lower, price and bear the costs of doing so. The law on unfair contract terms also protects consumers from changes made to a contract after it has been agreed. There is already existing protection, and we are strengthening that in this Bill. I look forward to discussing the issue next week because there are a number of relevant amendments.
Baroness Hayter of Kentish Town
I thank the Minister for her explanation. We are not really talking about buildings and builders. That is easy; you can go somewhere else. However, I do not think that she answered the question about mortgage prisoners. We are talking about people who cannot exit because they still have to have a mortgage and cannot get one somewhere else, as there are none available at the time. I think we remember that period when mortgages were virtually unavailable.
Can the Minister write to me to set out how, given all she said about how it should not happen like this, it was possible for the Bank of Ireland to change the rate when people could not exit because they could not go somewhere else? If everything which she said is in place should have protected consumers, why on earth did it not at the time? This has all happened since we have had the safeguards that she set out, so I am slightly at a loss about how we ended up with people in that situation. It was there in the contract but although it said “under exceptional circumstances”, it could be for any other reason. It could be anything: perhaps they might decide that they want to pay high bonuses to their owners. The problem is among those who cannot walk out from that contract. If there is nothing available at the time, because of either the market or their own situation, why did the protections which the Minister says are there not cover the Bank of Ireland? Perhaps she could look at that and write to us, because there is clearly a problem which does not seem to be satisfied by the existing law. That is why we would like some change.
Baroness Neville-Rolfe
On the Bank of Ireland matter, that is an issue for the FCA and it is not really for me to comment in detail. I have seen Martin Wheatley’s letter of May 2013 to the chair of the Treasury Committee, in which he stated that the FCA,
“did not identify concerns with the relevant terms which led us to believe that they might be unfair”.
However, it is a perfectly reasonable request that I should write to the noble Baroness and set it out in a little more detail, or arrange for the FCA to write to her.
Baroness Hayter of Kentish Town
That would be helpful. Clearly, what that letter said was, “Shucks, it wasn’t unfair—pay up”. That was not quite the answer I was hoping that the Minister would give us. However, it is the one we have been given at the moment and I look forward to seeing that detail. It seems that there is clearly some detriment which we need to look at but, for the moment, I beg leave to withdraw this amendment.
Baroness Neville-Rolfe
My Lords, I am afraid that you have also heard a lot of my voice. I was hoping for some Divisions to give us a rest. Perhaps the Committee would allow me first to discuss Clause 51 in general and then talk about the amendment. The right in this clause is a backstop for consumers and traders. It is an important provision but, in many cases, will not be engaged. This is because, in most cases, a contract will set out the price for the service. In many cases, the trader will do this out of good will or best practice. However, there is also a legal requirement for many traders to give this information.
For contracts covered by our old friend the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, traders must provide information about the price before the consumer is bound by the contract. If the price cannot be calculated in advance then, where the regulations apply, the trader has to provide information on how the price is to be calculated. The information requirements under these regulations may also cover delivery charges and other costs, and traders are prevented from charging any costs additional to the payment for the trader’s main obligation unless the consumer expressly agrees to that additional payment.
For services outside the scope of the regulations, other regimes apply—for example, the comprehensive system of regulation overseen by the FCA. There is a very clear principle there that all communications must be “fair, clear and not misleading”. The noble Baroness, Lady Drake, raised the question of longer-run, ongoing fees and charges. Certainly I have found that with my ISAs, which I have now had to stop, the providers have got much better in recent years at saying what the charges and costs are. Maybe that is the effect of some of these regulations.
There will also be a very small number of other cases—where the service is outside the scope of these regulations and they are not covered by other requirements—where the trader does not provide information about the price. Clause 51 protects consumers and traders in that small number of cases, in that the consumer will have to pay the trader,
“a reasonable price … and no more”.
This clause is about protecting those consumers.
Amendment 49B was debated at great length in the other place. The point was made that the information listed in this amendment is needed for the consumer to assess what is a reasonable price. I agree with that. The consumer should have this information, and possibly more, to assess what they are buying. However, this clause is a backstop for the very few cases where the price or the method of calculating it has not been agreed in advance.
The noble Baronesses, Lady Hayter and Lady Drake, talked about extra costs being added after the event. I have a graphic vision of the noble Lord, Lord Stevenson, landing safely, I hope, after his Ryanair flight. I would just add to the debate that the Advertising Standards Authority takes action on misleading prices. Firms must advertise the full price, including compulsory costs. There may be a case to be made here, although the business model of some airlines is to have low core prices, from which we benefit, and then to charge add-ons, which the very organised can avoid. However, the consumer must have agreed to the additional payment before entering into the contract. If not, the regulations are clear that the consumer does not have to pay. If the consumer does pay, the money may be reimbursed.
To conclude, our view is that there is already legislation in place to ensure that consumers have clear and accurate price information and that Clause 51 does what we are seeking to achieve. In the light of those explanations, I ask the noble Baroness to withdraw the amendment.
Baroness Crawley (Lab)
To go back to the Minister’s point about the fairness and the reasonableness that have to be met, given my noble friend’s example of our noble friend and his famous holiday, would it be fair on him as a consumer to have to prioritise the availability of a printer when he looks to having a holiday? Surely the priorities will be pleasure, climate and the type of hotel or holiday accommodation, and not necessarily there being a printer so that he can print out his boarding pass. That is not fair on him as a consumer.
Baroness Neville-Rolfe
I thank the noble Baroness, Lady Crawley, for her intervention and for bringing the whole issue to life to an even greater extent. While I am waiting for a bit of advice, I would say that there are different business models. I used to go abroad on business and I got quite frustrated when I could not print out my boarding pass. Some airlines allow you just to show the boarding pass on your phone or your iPad. That has obviously been a great step forward.
On fairness, airlines are a competitive industry. If consumers do not like the deal that the airlines are giving then, to some extent, we vote with our feet. I have explained the frustration that I have had and how I dealt with it. It is not obvious to me how you could resolve this under the general heading of fairness. There are advantages and disadvantages to the way that services are supplied, and this is perhaps something for us to contemplate.
Lord Harris of Haringey (Lab)
My Lords, I hesitate to intervene. This may be the first time that I have intervened on the Bill, for a variety of reasons. I should declare my interest as chair of the National Trading Standards Board. I am now confused. I thought that I understood what this debate was about, but the Minister has raised the interesting topic of how people can understand what they are entering into. She has talked of the fact that different companies have different business models. That is all very well and good, but it is surely incumbent on them to ensure that those business models are transparent to people who might enter into a contract with them.
As we seem to be hung up about airlines and booking airline tickets, there is a particular issue about price comparison sites. That applies not just to airlines but to other services. The price comparison site will try to identify the headline figure for the cost of a particular service. That is where suppliers who operate a business model which adds in a series of extra charges further down the line can score. People say, “I will go for the cheapest”—the one which seems to be the cheapest—and then discover that they are being hit for all sorts of extra charges. I would be grateful if the Minister could tell us how she feels that the Bill addresses that problem.
Baroness Neville-Rolfe
I am grateful to the noble Lord, Lord Harris, for his intervention. It is great to have the trading standards voice joining in our debate, because we have referred to that several times already in Committee. I reiterate my point that the consumer must have agreed to the additional payment before entering into a contract. If the contract is not clear that the consumer has to pay but he or she pays, they can seek reimbursement. That is a basic principle. Of course, the law has been much strengthened by the contract regulations that we have been discussing. They require certain information for transparency, and making online sales requires information about extra costs to be given in advance. Obviously, I cannot comment on particular circumstances, but one would have to ask how the situation on boarding passes is described in the terms and conditions of that airline.
Lord Harris of Haringey
My Lords, my question was: how do the Government anticipate that the regulations that they are introducing, whether amended or not, will deal with the issues about price comparison sites and the headline price? It was because these are hidden costs, which are not automatically picked up.
Baroness Neville-Rolfe
I had not appreciated that the noble Lord wanted to talk in particular about price comparison sites. That is something I would like to discuss with him in a bit more detail. I will write to him and to other noble Lords.
Baroness Hayter of Kentish Town
I think these are hidden in plain sight. It probably did say, “If you go on holiday and you don’t print it then you are going to be hit by it”. Our disappointment is that the Minister is saying, “Don’t worry, the regulations are already there”. The evidence—from buying tickets, looking on price comparison websites, printing off boarding passes, or, even now, buying annuities, pensions and all that—is that the regulations are not working. This is the opportunity to strengthen them. I hope that the Government are not going to continue to tell us not to worry and that the regulations and law are already there when this is clearly failing to solve the problem.
The ASA is not mandatory. It is not a government agency or a legal enforcer. It is a voluntary organisation funded by advertisers, if I remember correctly, so it relies on the industry. I am pretty certain, because I take a lot of complaints to the ASA—I have a wonderful new one that I am giving it this week—that one does not get any redress, which is a great disincentive for people to complain to it. Although it either fines or tells people off for breaching its rules, consumers do not get any redress.
The Committee will be clear from our different responses, whether from the perspective of the National Trading Standards Board or from the financial sector—I thank my noble friends Lady Drake, Lord Harris of Haringey and Lady Crawley for their interventions—that we are uneasy that consumers are unable to be sufficiently protected by the regulations, which the Government assure us are there. The Minister said that this was comprehensively overseen by the FCA, but people are still having problems. There is quite a difference between us being told that it is quite adequate and our evidence.
Baroness Neville-Rolfe
One area that my noble friend Lady Jolly touched on today, and which we have discussed before, is the implementation of this new and important Bill and its parallel provisions. Clearly we can debate further and clarify whether we have exactly the right provisions; that is entirely appropriate for this House to do. However, her point is also about how we implement and enforce some of the good regulations that have come in during the past couple of years—some of them EU-based—and the new provisions that we are creating in this process.
Baroness Hayter of Kentish Town
That is helpful. I know that one of the Ministers said that the implementation group would look at the regulations as well as the Bill. I welcome that, but perhaps she should also talk to the FCA to see whether it could be part of that. I thank the Minister, and for the moment I beg leave to withdraw the amendment.
Lord Harris of Haringey
My Lords, Members of the Committee have highlighted a number of categories of people for whom this is a necessity. We should also be clear why it remains a necessity for virtually every citizen. That is a consequence of the approach of both the current Government and their predecessor in not enabling the citizens of this country to have a readily available means of identity proof and assurance. Had proposals gone forward on identity cards, it would no longer be necessary to prove your identity by turning up with a paper copy of a utility bill, which is one of the two elements that you nearly always have to have to demonstrate and prove who you are. I think that the failure of successive Governments to provide a proper system of identity assurance is lamentable, but that is for a separate debate.
We are left in a position where most citizens need to be able to produce a hard copy of a paper bill for a utility or similar service; otherwise, they cannot prove their identity to their banks, to apply for certain documents and for all sorts of other purposes. Under those circumstances, the Government need to look favourably on this group of amendments.
Baroness Neville-Rolfe
My Lords, I am grateful to my noble friend Lord Hodgson for his amendment and for bringing up an issue that matters for the grey haired and the vulnerable. It is a very House of Lords issue, I have to say, so we must try to get to the right conclusion for the population at large.
For some, there is something comforting and reassuring about holding a bill or a statement. As others have hinted, it can engender a feeling of greater control over your finances. Equally, not everyone can manage with quarterly bills, which are mentioned in my noble friend’s amendment. We must not forget those who need to budget carefully when considering these issues—those who struggle to make ends meet.
There are a couple of elements in the amendment, as well as others for the debate that we will probably have on Monday on a similar issue: first, whether there should be a requirement for quarterly bills and, secondly, whether the customer should be able to choose the way in which they receive bills and statements. I turn to the frequency of bills first. It is common in most service supply contracts to receive a minimum of four quarterly statements of account, which reflects the historical habit of four quarterly payments. Other arrangements have grown up more suited for the circumstances of today—a mortgage customer may need only an annual statement, while for current accounts or credit cards a monthly statement would, in my view, be essential. For these, the benefits of moving to a system of quarterly statements upon request are not immediately obvious and could have the unintended consequence of increasing costs or restricting flexibility in the frequency of information.
The appropriate arrangements are set out at the time of the original contract, and I agree that these details should be clear and transparent at the time of purchase or engagement so that the customer knows how his or her bills and statements are to be provided. This is what the current law requires. So what is the case for change? The amendment requires that, notwithstanding the original terms of the contract, a customer can request at least four statements a year in written form, at any time of their choice, which could introduce a randomness into the billing process that would add to the administrative costs and could have undesirable side effects. That is probably not my noble friend’s intention.
Paper bills have never been free. Historically, there was just one way to pay and the fee for processing them was always included, obscured in the administrative costs of the utility and the charge spread across the customer base. However, of late, charges have been more transparent—partly due to advances in consumer law—and have been linked to specific costs and customer categories. Now cheaper to administer payment methods are available and utilities are seeking to incentivise their use by separating out costs and allocating them accordingly. The uncertainty that this amendment would introduce would be of disadvantage to online customers, for whom statements are readily available and can be printed if necessary. Many hard-pressed households welcome the opportunity to save money that paperless bills offer. Paying monthly by direct debit can also enable people to budget more effectively, rather than being faced with quarterly or lump sum bills. For them, the proposed statutory requirement set out in these amendments adds little but extra costs.
I agree, looking at the bill format, that the choice to have paper bills should be generally available, but when we consider the utility providers we can see that the choice is widely available. It is true that not all tariffs offer this option, but customers can and do choose to receive paper bills from their suppliers. So what is the objection? The issue lies with differential pricing, to which my noble friend Lord Hodgson referred—and on this I am afraid I must disagree. It is reasonable for a supplier to take the cost of processing bills into consideration when setting the price of its tariffs. Such decisions go to the heart of running a business and encouraging efficiency in the economy. It is undoubtedly more expensive for a business to print out and post bills to its customers than it is to deliver them electronically online.
It is not for the Government to dictate that certain costs cannot be accounted for and that the consequent burden instead should be placed on all the customers. It is surely reasonable for a business to incentivise its customers to use the cheaper processing mechanism by sharing the savings with customers. This amendment would outlaw that and almost certainly drive up the charges to online customers and perhaps to customers more widely. What does that do to our efforts to encourage more people online within the economy?
The noble Baroness, Lady Hayter, rightly mentioned how useful paper bills were as proof of identity. But, of course, that is not a primary function of utility bills. Other more reliable forms of identity are available to many people, such as passports and driving licences. Going forward, the Government Digital Service is leading work on the development of the ID assurance programme, which will enable people to prove their identity and access government services in a digital world. Bills can always be printed out from an account if they are needed. I thank the noble Lord, Lord Harris, for his comments on ID cards but that may be a debate for another day.
Lord Harris of Haringey
It is not entirely a debate for another day. I understand the arguments but the Minister is saying that to drive down costs is an unnecessary burden on the businesses concerned. If the requirement is for citizens to be able to prove who they are—and in most instances that is the case—they need as a second form of back-up a utility bill that gives their address. That is a problem that needs to be met. Are the Government arguing that that is not a fair cost on either the utilities, the companies concerned, or on the generality of consumers? As the Government are requiring that information and have created a situation in which we all need to prove our identity, the logic of the Minister’s argument is that the Government ought to be paying the utilities to provide us all with paper bills.
Baroness Neville-Rolfe
I note what the noble Lord said. That is fair but difficult logic. His points are well made. Perhaps we can come back to that question on another occasion, but I did emphasise that work is in hand on the ID assurance programme, which is very important if we are going to have a digital economy. We say that we are leading in Europe, so we should be doing this sort of thing as well.
What is being done to help people and businesses go online? A lot of work is going on across the public, private and voluntary sectors to help people and organisations get online, but digital exclusion is a huge issue. The digital inclusion strategy was published alongside the digital inclusion charter in April. It sets out 10 actions that government and partners from the public, private and voluntary sectors will take to reduce digital exclusion. There is quite a lot of good practice for the vulnerable and disabled that we may end up discussing in a little more detail.
Before I conclude, I return to the first point made by my noble friend Lord Hodgson concerning his experience of getting copies of BT bills. That is an experience I entirely empathise with, having had exactly the same issue when trying to prepare my expenses in the old days. The only thought I can add is that, like all sector regulators, Ofcom requires any charges to be cost-reflective. If a customer feels that a charge is excessive—I am not sure whether that was what my noble friend was saying—they can complain to Ofcom. Ofcom does listen to complaints. I believe it receives an average of only five complaints a month about paper bills, so not a huge amount of writing to Ofcom seems to be going on. That is obviously another avenue of public debate.
Baroness Neville-Rolfe
My Lords, this may be a convenient moment for the Committee to adjourn.