Baroness Neville-Rolfe
Main Page: Baroness Neville-Rolfe (Conservative - Life peer)Consumer Rights Bill
Baroness Neville-Rolfe Excerpts
Baroness King of Bow (Lab)
My Lords, Amendment 63C calls on the Government to review how the new powers for collective legal redress are functioning and whether these powers should be expanded to other consumer protection law. It asks the Secretary of State to set out how many private actions have taken place, what redress consumers received and the scope and potential effect of expanding private action powers to cover other areas of consumer protection law.
We welcome the Government’s move to provide new powers for collective legal redress. We do not agree with the scaremongering we have heard on this issue but we are concerned that we get things right. I should stress that the amendment does not call for collective legal redress to be expanded beyond competition law; it simply asks for this issue to be reviewed in the light of the evidence and the efficacy or otherwise of the new powers. This modest request will help identify whether the legislation works as intended. The intention is to make it easier for groups of consumers who have been subject to unfair and anti-competitive practices to put forward a collective claim. The review would also consider the level of redress achieved through joint action, which is often too low to motivate consumers to challenge unfair practices.
Amendment 74A is a probing amendment which seeks to improve scrutiny. At the moment we are being asked to pass into law CMA-approved voluntary redress schemes. These are no doubt a good idea in theory but, in practice, we have no detail in the Bill about how these schemes will work. However, we know that BIS has written a scoping paper which states that a specially constituted board will work out how the CMA alternative dispute resolution procedure will work and how complaints will be handled.
The Minister will no doubt be aware of the concerns raised by Which?, which is looking for answers, as are we all, to some key questions. For example: how will the board be resourced; who will pay for the board; and how will the board assess evidence? Is the board a gatekeeper or an adviser? What will happen if board members disagree? Will the board’s recommendations be determined by a majority vote or unanimity? Will the infringer get to vote on its own proposals? The answers to these questions will determine whether CMA-approved voluntary redress schemes are a success or a failure.
It is entirely reasonable for Parliament to review the SI that will answer these questions and many others. I beg to move.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, with this amendment we turn our attention to Schedule 8 to the Bill and focus on competition law. Schedule 8 provides easier access to redress to businesses and to consumers for breaches of competition law. We believe that effective competition is good for the consumer and this part of the Bill reforms the regime for private actions to give businesses and consumers redress where they have been harmed by anti-competitive practices. I am sure that we will discuss this further when we reach the amendments tabled by the noble Lord, Lord Hodgson.
This amendment would require the Government to report to Parliament on the number of private action cases taken, the level of redress paid to consumers and the impact of expanding these provisions to all areas of consumer protection law after a year. The Competition Appeal Tribunal already publishes as a public record an annual review containing details of cases taken forward in the previous 12 months and a summary of the judgments made with the case names. These judgments contain details of any redress awarded. The last annual report, for the year ending 31 March 2014, was published in June 2014. The report revealed that there were no collective actions on behalf of consumers, and this is one of the reasons we are legislating.
The last part of the amendment—which the noble Baroness, Lady King, spoke about in some detail—seeks, by gathering information, to encourage redress for consumers for breaches of consumer law in the future. However, the substantive underlying issue here is whether to provide consumers with the right to come together and fund their own collective actions for breaches of consumer law as opposed to competition law. Ed Mayo’s report for the Opposition highlights the obvious downsides that can be experienced with this proposal: consumers sometimes receive little or no benefit; consumers are sometimes then bound to a low settlement; and legal fees mean that lawyers can benefit as much as consumers. This would be a significant expansion in consumer law, might not benefit consumers and could be a significant burden on business. I am sure that they would think so, and, as Ed Mayo has said, the lawyers could be the main beneficiaries.
As a result, the Government do not consider collective actions for breaches of consumer law to be appropriate and have instead adopted enhanced consumer measures. Perhaps I may pick up a point from the preceding debate. The enhanced consumer measures come into operation with the Bill on 1 October 2015.
Under the Bill’s enhanced consumer measures, not only will more consumers get more redress, but traders who have broken the law could also or instead have to put in place other innovative measures. They might have to advertise their breach and what they have done to put it right on their website or in the press, or they might have to change their internal processes to ensure that there is no repeat of the breach. These can be good remedies and a more appropriate approach for something like petrol stations where pumps are providing inaccurate readings. Indeed, once the measures have bedded in, we expect additional redress of £12 million per year for consumers.
On Amendment 74A, paragraph 12 of Schedule 8 introduces a new power for the Competition and Markets Authority to be able to approve a voluntary redress scheme offered by business, and proposes the affirmative rather than the negative resolution procedure for the reasons that the noble Baroness explained. Having looked at this we are happy that the key features of this power, including CMA enforcement and costs, are set out in the Bill. The remaining regulations that will govern the CMA power concern procedural and technical matters.
I should comment on the point that the noble Baroness raised about how the board will be set up, how cases will be assessed and so on. There are a range of views, as she hints, on how the CMA power will work. As Which? is aware, the Government are engaging with a range of stakeholders to answer these questions. As I have already said, the key parts of the power are in the Bill, including the CMA considering the level of redress on offer.
The approach taken here is similar to that which we have taken in other parts of Schedule 8, which is to create a framework that allows the relevant bodies to make assessments on a case-by-case basis. In the Government’s response to the private actions consultation, we highlighted what components might be included in the regulations. They included: the role of an independent panel, which can consider in detail the contents of the scheme and then make a recommendation to the CMA; how consumers would be notified of the existence of the scheme; and a complaints scheme to resolve disputes with possible claimants. The regulations will be procedural and technical in nature and the Government consider that the negative procedure is suitable. We will of course consult.
The noble Baroness, Lady King, also asked about the number of private actions. Between 2005 and 2008, there were 41 competition cases. Between 2000 and 2005, there were only 43 out-of-court settlements. I hope that that answer gives the noble Baroness the figures that she needs, but I am sure that she will tell me if she wants information on some other aspect. In the circumstances, I ask her to withdraw the amendment.
Baroness King of Bow
I thank the Minister for her reply. Obviously, we all agree that effective competition is good for the consumer. We would like the Government to report on this to Parliament, because, if the legislation works, there will be collective redress whereas, as the Minister pointed out, that has been lacking until now. Given that we hope that the legislation will work, we believe that the details of how it works are worthy of Parliament’s attention.
As I mentioned, Amendment 74A is a probing amendment. It is simply about Parliament being able to scrutinise the proposals in any detail. Will the Minister let us know when the key questions that she outlined regarding the board and the mechanism for the scheme will be answered? Perhaps she could write to us on that unless she has the timetable to hand. What will happen if the level of redress is too low? This seems to be an issue that could effectively undermine all the legislation. I would appreciate a response on those two aspects. In the mean time—
Baroness Neville-Rolfe
Before the noble Baroness withdraws the amendment, I think that my noble friend Lady Jolly has already offered to write and will make sure that the letter also covers the question of timing, if that would be helpful.
Baroness King of Bow
I thank the Minister for those remarks. I beg leave to withdraw the amendment.
Baroness Neville-Rolfe
My Lords, I am delighted to welcome my noble friend Lady Noakes to the Committee and commend the clarity with which she took us through the amendments of the noble Lord, Lord Hodgson. I am sorry that he is not here because he sat patiently through many hours of our proceedings last week. I especially enjoyed my noble friend’s refreshing emphasis on growth and wealth creation. It was also good to hear from the noble Viscount, Lord Eccles, who rightly emphasised the importance of this part of the Bill, and from my noble friend Lord Hunt of Wirral, who urged caution and warned us, honestly and graphically, about the role of the lawyers in some climes in this sort of area, which we are seeking to avoid.
An effective competition regime is built on public enforcement and the ability for consumers and businesses to take private actions and claim redress. The current collective actions regime is opt-in, which requires consumers to opt in to a court action. A key feature of the revised regime is the introduction of an opt-out regime, where consumers are automatically part of a court action unless they opt out. This change is being made as there has been only one collective action case in more than 10 years, so we feel that the current law is not working.
My noble friend’s amendments would remove opt-out collective actions. Of course, a collective action is not a new concept; a regime has existed since 2002. Under this regime, consumers have to sign up to an action before it commences in the Competition Appeal Tribunal. As I said, since the regime was created in 2002, there has been only one collective action case, and that had only 130 claimants—less than 0.1% of those eligible. Furthermore, SMEs are not permitted to use the existing regime to bring claims; for example, if a dominant manufacturer were to withhold supplies to drive up prices.
The Government have always been clear that an opt-out collective actions regime would require stringent safeguards to prevent vexatious claims and the US-style class actions that have been described this afternoon. I would also highlight the different legal culture and practice in the US, where significant financial incentives to bring claims, such as treble damages and damages-based agreements, are the order of the day and have led to a large number of claims. We have learnt from that experience and introduced three key safeguards, as the noble Viscount, Lord Eccles, explained.
I will summarise the safeguards very briefly. The first is a requirement for the CAT to certify that the representative is suitable to bring the claim. Secondly, the Bill prohibits businesses paying too much redress by prohibiting exemplary damages. As the noble Baroness, Lady Hayter, explained, they would have to pay back only the overcharge to the consumer, not multiple damages. Thirdly, law firms are prohibited from taking a percentage of the damages as a success fee—so-called damages-based agreements. Further requirements that have to be met before a representative can be approved will be set out in the CAT rules. These will include a representative’s ability to pay costs, whether there is a conflict of interest with the underlying claimants, and whether a representative would adequately act in the interests of the underlying claimants.
To assist in understanding, the Government published draft CAT rules on collective actions in March, and they are available in the House Library. I have a copy if anyone would like one. In the draft rules, the CAT would have to scrutinise the nature and function of the representative body. This would include whether or not the body is suitable to be a representative body, including whether the body had a pecuniary interest; for example, whether an underlying claimant wishing to act as a representative had a conflict of interest because they had a financial interest in the outcome of the case.
Viscount Eccles
I have read the draft rules; I brought them with me. I do not think it is all that easy, if you have a pecuniary interest, to define whether or not it is a conflict. If it has been entered into freely as an agreement that in certain circumstances the people being represented will pay fees of a certain size and they have signed up to that, that is not a conflict of interest.
I emphasise that I do not think that the draft rules anywhere near meet the undertakings given by the Government in their response to the consultation and in respect of the advice received from the House of Commons Select Committee.
Perhaps I may just say that I made no reference to the United States in what I said; none at all. I think that the situation is completely non-comparable, so I agree entirely with the noble Baroness, Lady Hayter, about that. However, I do not think that the safeguard regime is anything like adequate in the Bill as it is drafted.
Baroness Neville-Rolfe
I thank my noble friend for his clarification. He is right to say that the draft rules were constructed by a specialist working group. They will be subject to full public consultation in order to ensure that they strike the right balance, and that will obviously be undertaken well before these provisions come into effect on 1 October next year. Perhaps I may also say at this point that I have talked to the CBI and corresponded with the Law Society, with which I am extremely happy to have a meeting, as I think my noble friend suggested, so that we can go through some of the points that I am making in more detail.
A key safeguard in the Bill is that the CAT must certify that a representative is suitable to bring a collective action. This means, as has been said, a law firm, a claims management firm or a special purpose vehicle. These will not automatically be able to bring a claim, and the draft CAT rules provide for even more scrutiny of a proposed representative. It is appropriate for these requirements to be in the CAT rules so that they can be modified more easily or be made even more stringent if that is necessary. This will ensure an effective regime which promotes the interests of consumers. The Government also believe that the CAT, a specialist competition court which I know from my own experience, has a strong track record in dealing with consumer detriment in competition law, and is well placed to scrutinise each and every body that seeks to act as a representative. I do not share my noble friend’s concern, given my knowledge of the court and its specialist nature.
Baroness Noakes
Perhaps I may intervene on my noble friend on that one point. As I understand it, the CAT does not normally carry out this function, so as I have said, while I have the greatest respect for the work of the CAT and what it does in relation to competition law, I do not think that it has experience of establishing whether or not particular claimants for the action are representative. We are going into uncharted territory here, and that is why it is so important to get this absolutely right.
Baroness Neville-Rolfe
I thank my noble friend. She is absolutely right to say that we need to get this right. We will reflect further on the point, and of course we do have a fair amount of time to ensure that the right mix of expertise is in place. However, the Government have decided, I think for the right reasons, that the CAT is the place to house this function. The rules and regulations surrounding that are clearly important and will be, as I have just said, subject to public consultation.
The point has been made that it would be better to put all the eligibility requirements into the primary legislation, but of course no two cases will be the same. We are concerned that companies might seek out loopholes to avoid the restrictions, and therefore it feels appropriate for the CAT to have the discretion to consider each representative on a case-by-case basis. But, again, we can discuss this further.
These amendments would also prohibit the use of third-party litigation in collective action cases. It is appropriate for the CAT to scrutinise any funding arrangements that exist in a case to ensure that the claimant has sufficient funds to meet the defendant’s costs.
My noble friend Lady Noakes talked about the approach of the European Union to this subject. I believe that it has issued a recommendation for opt-in in collective redress. The recommendation suggested the adoption of an opt-in regime, but it accepted that for reasons of sound administration of justice, member states might want to introduce a different regime. Following our consultation and the evidence that we gathered, the Government believe that the present opt-in regime is—as I have said a number of times—not delivering effective redress. We therefore propose in the Bill to introduce an opt-out regime with safeguards.
My noble friend raised many understandable concerns. We have thought carefully about this. The Bill already contains restrictions on the financing of claims as it prohibits damages-based agreements and does not provide for a claimant to be able to recover any uplift in a conditional fee agreement. Therefore there is a need for claimants to have the option of accessing third-party funding so as to allow those who do not have a large reserve of funds or those who cannot persuade a law firm to act pro bono to be able to bring a collective action case in order to ensure redress for consumers.
Blocking access to such funding would result in a collective actions regime that is less effective. This would bar many organisations, including reputable consumer organisations such as Which?, from bringing cases as Parliament hoped in 2002. Restricting finance could also create a regime which was only accessible to large businesses. This would weaken private enforcement in competition law, which is of course not the Government’s wish or intention.
To return to the point made by my noble friend Lady Noakes on the CAT, its staff obviously includes High Court judges, who are used to dealing with a range of representatives and complex case management. However, I take the points she made and look forward perhaps to discussing those with the Law Society or with any others who wish to be involved in a meeting between now and Report.
I hope that my noble friend is reassured that we are aware of the concerns around introducing an opt-out regime. I look forward to further discussions, but I also ask that my noble friend withdraw the amendment.
Baroness Noakes
My Lords, I thank all noble Lords who have taken part in this brief debate on these very important provisions in the Bill. I am thankful in particular for the support that I received from my noble friends Lord Eccles and Lord Hunt on the amendments that I moved.
I say in passing that I find it curious that having an opt-in provision which resulted in only one action should be grounds for more legislation. It seems to me that there is very little consumer demand for that, although there may well be demand from representative bodies. I worry about whether we get the right balance in the law when we make law for representative bodies rather than ultimate consumers.
The issue comes down to what should be in the Bill. I understand what the Minister is saying about needing to have flexibility in due course and to leave discretion. My noble friend Lord Hodgson’s amendments did not change that; they merely proscribed certain categories of people from being authorised as representatives. It would still leave discretion with the tribunal, but would say, “In these circumstances you cannot do it”—so if you are a law firm involved in it, you cannot do it—rather than leave it to the discretion of the tribunal to work its way through whatever rules exist at the time. The draft rules, as my noble friend Lord Eccles said, are not very clear on that. They have rules about conflict of interest, but they are not absolutely clear what they are directing themselves at. They may well end up with precisely the right answers, but, equally, they could build their own precedence system which will end up with the wrong answer. That is the concern: that unless we are quite clear about prohibiting what we have observed elsewhere and do not wish to come here, we may end up with what we do not want.
However, I will not take up more of the Committee’s time today. Obviously, I need to revert to my noble friend Lord Hodgson of Astley Abbotts, who will certainly be looking forward to reading Hansard when he returns from abroad. I thank the Minister in particular for agreeing to a meeting with the Law Society and others who might be interested. There are genuine concerns about the nature of the provisions that are being introduced under Schedule 8, and we owe it to all to get those right. With that, I beg leave to withdraw the amendment.
Baroness King of Bow
My Lords, I support this group of amendments. I am pleased to follow the noble Lord, Lord Phillips of Sudbury, who I once spent a night with in a metal freight container in the jungle in the Congo. That, however, is most definitely another story.
I return to consumer rights in the UK. As we have seen, Amendment 70 allows money not claimed in opt-out collective proceedings to be paid to charity, and permits any money remaining after that to go to pro bono lawyers. That is also the substance of several of the amendments tabled by the noble Lords, Lord Pannick and Lord Phillips, which, as we have heard, would allow lawyers who have worked for free in successful cases on behalf of consumers to get paid.
I realise that politicians like to put lawyers into that select group of social pariahs that includes politicians, second-hand car dealers, bankers and estate agents. However, when lawyers are ready to shoulder all the risk on behalf of consumers facing anti-competitive practices and they succeed and increase consumer protection for all of us, the least they should expect is payment—where that is supported by some of the damages raised.
Therefore, we support these amendments, which will, we hope, increase the resources available for legal charities distributed by the Access to Justice Foundation. This in turn will enhance access to justice across the piece, and we support the principle of tribunals being able to direct payments towards lawyers providing pro bono services on behalf of consumers.
Baroness Neville-Rolfe
My Lords, I am grateful to my noble friend Lord Phillips for his support for this part of the Bill and for taking us so carefully through his various amendments. This is an unusual grouping in that it includes government amendments which meet some of the views expressed by noble Lords during the passage of the Bill.
In addressing my noble friend’s amendments, I emphasise that the Government recognise the important work undertaken by the Access to Justice Foundation. We are not against the Access to Justice Foundation receiving unclaimed damages for its good work. Indeed, pro bono costs are already awarded to the foundation in the Court of Appeal and the Supreme Court. Accordingly, the Bill makes provision for the CAT to award unclaimed damages to the Access to Justice Foundation.
However, we are trying to ensure that unclaimed funds are allocated in the most appropriate way and that certain contingencies are provided for. The Government want consumers to obtain redress for breaches of competition law, which, as my noble friend explained, is all that is at issue here. These cases may be costly. Accordingly, the Government consider that representative bodies which successfully represent consumers should have the opportunity of having some or all of their costs paid out of unclaimed damages so as to ensure that they bring actions on behalf of consumers. Therefore, the Bill grants the CAT discretion to award some or all of the unclaimed damages to the representative so that it may recoup some of its costs—on a case-by-case basis, obviously—and, at the same time, the CAT may also award unclaimed damages to the Access to Justice Foundation.
Similarly, with regard to Amendments 76 and 79, the Government wish to encourage consumers to seek redress for breaches of competition law. Consumers will require someone to represent them. Accordingly, the Government wish to encourage representatives—including, of course, those who act on a pro bono basis—and therefore the Bill provides that the CAT may sometimes award costs to a representative who acted on such a basis. The Government believe that if the opportunity for unclaimed damages to go to representatives who act on a pro bono basis is restricted, there could be negative consequences for the consumer. However, given this debate, I will look in Hansard at the detail that has been fully set out, and reflect on our discussions. I hope that my noble friend and the noble Baroness opposite will do the same.
I am moving five government amendments. Briefly, Amendment 71 commits that the body to receive unclaimed damages is a charity. We have accepted the Delegated Powers and Regulatory Reform Committee’s recommendation and so the exercising power will be amended to be affirmative. Our third amendment allows underlying claimants to incur costs if they make an application to have the representative removed and lose the application. This has two benefits: first, it aligns the costs with the wider “loser pays” principle that exists in domestic law; and, secondly, it should deter vexatious applications. The final amendment is minor and technical and follows an earlier government amendment.
I ask the noble Lord to withdraw Amendments 70, 76 and 79 and beg to move government Amendments 71, 73, 75, 77 and 78.
Lord Phillips of Sudbury
My Lords, I thank the noble Baroness, Lady Neville-Rolfe, for what she has said. I will willingly—indeed, avidly—take up her suggestion that we have a word about my three amendments outside this place because I do not think they in any way impinge upon the agreed objective of this part of the Bill of making access to justice better. I may be able to persuade her that there are matters that the Government should back and, on that basis, I am happy to withdraw the amendment.
(za) “charity” means a body, or the trustees of a trust, established for charitable purposes only;”
“(ba) after sub-paragraph (2) insert—“(2A) Rules under sub-paragraph (1)(h) may provide for costs or expenses to be awarded to or against a person on whose behalf a claim is made or continued in proceedings under section 47B of the 1998 Act in respect of an application in the proceedings made by that person (where that application is not made by the representative in the proceedings on that person’s behalf).”;”
ScheduleDuty of letting agents to publicise fees: financial penaltiesNotice of intent1 (1) Before imposing a financial penalty on a letting agent for a breach of a duty imposed by or under section 81, a local weights and measures authority must serve a notice on the agent of its proposal to do so (a “notice of intent”).
(2) The notice of intent must be served before the end of the period of 6 months beginning with the first day on which the authority has sufficient evidence of the agent’s breach, subject to sub-paragraph (3).
(3) If the agent is in breach of the duty on that day, and the breach continues beyond the end of that day, the notice of intent may be served—
(a) at any time when the breach is continuing, or(b) within the period of 6 months beginning with the last day on which the breach occurs.(4) The notice of intent must set out—
(a) the amount of the proposed financial penalty,(b) the reasons for proposing to impose the penalty, and(c) information about the right to make representations under paragraph 2.Right to make representations2 The letting agent may, within the period of 28 days beginning with the day after that on which the notice of intent was sent, make written representations to the local weights and measures authority about the proposal to impose a financial penalty on the agent.
Final notice3 (1) After the end of the period mentioned in paragraph 2 the local weights and measures authority must—
(a) decide whether to impose a financial penalty on the letting agent, and(b) if it decides to do so, decide the amount of the penalty.(2) If the authority decides to impose a financial penalty on the agent, it must serve a notice on the agent (a “final notice”) imposing that penalty.
(3) The final notice must require the penalty to be paid within the period of 28 days beginning with the day after that on which the notice was sent.
(4) The final notice must set out—
(a) the amount of the financial penalty,(b) the reasons for imposing the penalty,(c) information about how to pay the penalty,(d) the period for payment of the penalty,(e) information about rights of appeal, and(f) the consequences of failure to comply with the notice.Withdrawal or amendment of notice4 (1) A local weights and measures authority may at any time—
(a) withdraw a notice of intent or final notice, or(b) reduce the amount specified in a notice of intent or final notice.(2) The power in sub-paragraph (1) is to be exercised by giving notice in writing to the letting agent on whom the notice was served.
Appeals5 (1) A letting agent on whom a final notice is served may appeal against that notice to—
(a) the First-tier Tribunal, in the case of a notice served by a local weights and measures authority in England, or(b) the residential property tribunal, in the case of a notice served by a local weights and measures authority in Wales.(2) The grounds for an appeal under this paragraph are that—
(a) the decision to impose a financial penalty was based on an error of fact,(b) the decision was wrong in law,(c) the amount of the financial penalty is unreasonable, or(d) the decision was unreasonable for any other reason.(3) An appeal under this paragraph to the residential property tribunal must be brought within the period of 28 days beginning with the day after that on which the final notice was sent.
(4) If a letting agent appeals under this paragraph, the final notice is suspended until the appeal is finally determined or withdrawn.
(5) On an appeal under this paragraph the First-tier Tribunal or (as the case may be) the residential property tribunal may quash, confirm or vary the final notice.
(6) The final notice may not be varied under sub-paragraph (5) so as to make it impose a financial penalty of more than £5,000.
Recovery of financial penalty6 (1) This paragraph applies if a letting agent does not pay the whole or any part of a financial penalty which, in accordance with this Schedule, the agent is liable to pay.
(2) The local weights and measures authority which imposed the financial penalty may recover the penalty or part on the order of the county court as if it were payable under an order of that court.
(3) In proceedings before the county court for the recovery of a financial penalty or part of a financial penalty, a certificate which is—
(a) signed by the chief finance officer of the local weights and measures authority which imposed the penalty, and(b) states that the amount due has not been received by a date specified in the certificate,is conclusive evidence of that fact.(4) A certificate to that effect and purporting to be so signed is to be treated as being so signed unless the contrary is proved.
(5) A local weights and measures authority may use the proceeds of a financial penalty for the purposes of any of its functions (whether or not the function is expressed to be a function of a local weights and measures authority).
(6) In this paragraph “chief finance officer” has the same meaning as in section 5 of the Local Government and Housing Act 1989.”
Baroness Neville-Rolfe
My Lords, I remind the Committee that we have also tabled amendments to put the enforcement provisions on the face of the statute, which means that our provisions on lettings will take effect on the common commencement date of 6 April next year. I will try to address the noble Baroness’s points in turn, without talking at too great a length. I will say upfront that my colleagues in DCLG are frequently in discussions with the organisations that she mentioned. It was good to have the intervention of my noble friend Lord Palmer of Childs Hill on Amendment 81D, and to hear from the noble Lord, Lord Harris.
Turning to Amendment 81B and fees, most letting agents offer a good service, as I think has been acknowledged, so a blanket ban cannot be the answer to tackle a minority of irresponsible agents. We are not convinced that banning fees will make renting cheaper for tenants. An outright ban would mean that agents would either absorb the charges or pass them to landlords. Many small letting agencies have small profit margins and if they were unable to pass the charges on to landlords, they could struggle to remain in business. Given the high demand for rental properties, it is extremely likely that any increase in costs to landlords will simply get handed down to tenants through higher rents.
That is what has happened in Scotland, where fees to tenants are banned. The Office for National Statistics has confirmed that average rents have been rising faster in Scotland than in England. In fact, average monthly rents in Scotland before fees were banned in November 2012 were around £508 and had been stable since 2010. In July 2014, average monthly rents had risen to £534, which is 2.7% higher than in the previous July. This suggests that tenants in Scotland have been paying perhaps an extra £26 a month in rent on average than they paid before the legislation was introduced. That is £312 over a year.
We believe that the course we have adopted—transparency of fees—is a better answer than banning them. Forcing agents to publicise their fees will mean that while every business remains free to set its own fees, competition, which is strong in this area, will ensure that the fees are justified.
Lord Harris of Haringey
Before the noble Baroness leaves that point, I think she said that if you move towards a system of regulation of letting agencies it would be necessary to set up a new system for banning and warning orders. Why is it not possible to graft that on to the existing system for estate agents?
Baroness Neville-Rolfe
The noble Lord makes the fair point that a precedent exists. However, if you are going to introduce provisions into a new area, it is necessary to look at the detail, to consult and so on.
Lord Palmer of Childs Hill
When I took up a position in this industry on an advisory board, the question I asked immediately was: what happens if the letting agent goes bust or into liquidation? The three redress schemes mentioned by my noble friend, starting on 1 October, are jolly good but do not provide any monetary redress if anyone goes bust or is fraudulent. This Bill is about consumer protection and it seems that there is a need to protect consumers’ money as well as anything else. The redress schemes do not help any individual whose money has gone astray, be they landlord or tenant.
Baroness Neville-Rolfe
I thank my noble friend for his intervention, and perhaps I may return to the mandatory client money protection proposals.
Mandating insurance cover for money received or held by letting agencies in the course of business would introduce additional costs for the agencies, and these could simply be passed on to landlords and thus to tenants in the form of higher rents. I am sure that I do not need to remind the Committee that tenants’ deposits, which are an important aspect, are already protected as a result of separate legislation. I know this from a problem one of my children had, and I was able to offer him advice thanks to the debates we have had in this Room. That is a crucial element of tenant protection which is already in place, so we are not talking about deposits here, but other aspects. This amendment seeks to protect other funds but, I fear, at a potentially higher cost to tenants.
I can reassure noble Lords that the Government already encourage agents to join client money protection schemes via the Safe Agent kitemark, which denotes that the participating agent is a member of a client money protection scheme. Our How to Rent guide encourages landlords and tenants to choose agents with client money protection. Ensuring that tenants know their rights and landlords their responsibilities will empower consumers to make the right choices and, if things go wrong, to find appropriate redress. Yet further regulation could deter letting agents and make it difficult to encourage landlords to invest in properties. This investment is much needed to expand the overall supply of housing and help meet the country’s urgent housing needs. I am sure that that is an objective we all share. However, we have had an interesting debate and I will reflect on the detailed points that have been made by my noble friend Lord Palmer of Childs Hill, the noble Lord, Lord Harris, and the noble Baroness, Lady Hayter.
Turning to Amendment 105R, I share the concerns raised about the practice of “double charging” by estate agents. In the lettings sector I can understand that an agent is providing a service to both parties and therefore may in some cases charge both. I can see that there are some justifications in other consumer markets. However, in the case of estate agents, I share the concerns of noble Lords. Estate agents have to be transparent in their dealings. Under the existing legislation that this amendment would affect—the Consumer Protection from Unfair Trading Regulations 2008—as well as their own self-regulatory industry codes, estate agents must already make fees and charges clear for both buyers and sellers. This means that fees and charges must be transparent. While I have serious concerns about the practice, I believe there is a danger that if we were to rush into further legislative measures, we could impose unjustified new burdens and risk damaging this important industry.
We believe—and I think that we have said this elsewhere—that a better way of addressing the rise of double charging is through estate agent redress schemes. My predecessor, my noble friend Lord Younger of Leckie, and my colleague Jenny Willott met with the Property Ombudsman and Ombudsman Services: Property earlier this year to draw their attention to issues around double charging and sale by tender. They told us that while they had not yet received complaints about double charging, they shared our view that this was not a practice that should be encouraged. As a result, the Property Ombudsman committed to addressing the matter with the industry to ensure that its code of practice is properly adhered to and high standards of behaviour are followed. I can today confirm for the Committee that positive discussions with the industry have taken place and updated guidance is being finalised. The aim is to have updated guidance ready to come into effect early in December.
This guidance will ensure that agents recognise their obligations under the Property Ombudsman Code of Practice in respect of transparency, disclosure and avoidance of conflicts of interest. If the guidance is not complied with, agents will be in breach of that code. Breach of the code could result in removal from the redress scheme. This would effectively prevent them from operating as an estate agent, as membership of one of the redress schemes is a legal requirement for estate agencies.
Given this ongoing work, I do not believe that it is currently necessary to legislate against double charging by estate agents. However, I reassure the Committee that action is being taken to protect consumers from the worrying and emerging trend of double charging, and we will monitor developments. In the circumstances, I ask the noble Baroness to withdraw her amendment.
Baroness Hayter of Kentish Town
My Lords, I regret that answer, particularly on client money protection. The only case made against the amendment seems to be that it would cost the industry money. It is not clear which industry—the only industry that it would cost money is bad letting agents, because good letting agents do it. Landlords support compulsory client money protection, tenants’ groups support it, estate agents support it, the British Property Federation supports it; and I have not read out—because I was trying to save time earlier—a submission from SAFEagent, to which the Minister referred. It stated that it supported the amendment and that it was excellent to see so many organisations supporting what it has been campaigning for over several years; that is, protection of consumer money through a requirement for all letting agents to be part of a client money protection scheme. Therefore, even those who used to support the Minister’s case are now saying, “No, this needs to be written in law”.
I think that the Minister also said that the amendment would in some way discourage landlords from entering the market, but it is exactly the fear of letting agents walking off with their rent that may discourage them. The amendment is the security that a landlord needs, particularly if they are raising money to enter the market. Anyone who has tried to raise money to put into property knows that a bank will ask, “What is the security of your income?”. If you can say, “Well, I know it’s secure because it’ll be coming through a letting agent and that money has been secured by law and an insurance service”, you are more likely to get a bank loan to be able to become a landlord and a slightly cheaper rate of interest for it. This amendment is therefore good for the housing market and I hope that, before we come to Report—because it is an amendment that we will re-table—the Minister will think about this.
On banning letting agents from charging tenants fees other than for security checks, the Minister’s figures on Scotland and what has happened since it banned fees to agents are very different from those that I have seen. Two independent reports were done, one by Rettie & Co, the property specialists, and one by BDRC Continental, which is another independent specialist, looking at the impact of clarification of letting agent fees in Scotland. On the impact of the 2012 change in Scotland, they state:
“Any negative side-effects … have been minimal for letting agencies, landlords and renters, and the sector remains healthy … landlords in Scotland were no more likely to have increased rents since 2012 than landlords elsewhere in the UK … Renters in Scotland were no more likely to report a recent increase in their rent than those in other comparable parts of the UK … Less than one in five … letting agency managers said they had increased fees to landlords”.
They went on to say that 70% of landlords had not noticed any increase. Our figures from Scotland are therefore clearly rather different, and those were from independent reports.
One of the arguments advanced is that transparency of fees is very good for driving competition, but, in the case of estate agents, the people who pick agents are the sellers of houses and, in the case of letting agents, they are the landlords. In both cases, the buyer of the property cannot shop around for an estate agent, nor can a tenant shop around for a letting agent. They have to go to the one who is handling the property they need. Transparency does nothing to drive the market. If our amendments are refused, two lots of people will be affected: buyers who are being charged by somebody who is already charging the vendor; and tenants who are being charged by the landlord. Neither of those groups is in any position to argue about the fees because they are not the people going to the agencies.
I hope that the Government will look at this again. We are clearly going to bring it back. The client money protection is widely supported. As for taking fees from both sides, the Minister herself said that she has serious concerns. I hope that she does something to deal with this issue.
Baroness Neville-Rolfe
As I have said, I will reflect on the points that have been raised this afternoon, particularly on Amendment 81D. On the point about Scotland, there is not a lot to be achieved by having a war of facts, but my facts came from the Office for National Statistics, and showed what they showed. I do not think that I can leave the debate without saying that there is value to transparency in this sector. I honestly believe that having transparent fees helps the consumer and competition. The truth is that often houses are listed with more than one agency.
Baroness Hayter of Kentish Town
They are, because there is an agreement for a half-charge but the buyers still cannot choose between them. Having made the case and having forewarned the Government that we will return to it on Report, I beg leave to withdraw the amendment.
“Enforcement of the duty
(1) It is the duty of every local weights and measures authority in England and Wales to enforce the provisions of this Chapter in its area.
(2) If a letting agent breaches the duty in section 81(3) (duty to publish list of fees on agent’s website), that breach is taken to have occurred in each area of a local weights and measures authority in England and Wales in which a dwelling-house to which the fees relate is located.
(3) Where a local weights and measures authority in England and Wales is satisfied on the balance of probabilities that a letting agent has breached a duty imposed by or under section 81, the authority may impose a financial penalty on the agent in respect of that breach.
(4) A local weights and measures authority in England and Wales may impose a penalty under this section in respect of a breach which occurs in England and Wales but outside that authority’s area (as well as in respect of a breach which occurs within that area).
(5) But a local weight and measures authority in England and Wales may impose a penalty in respect of a breach which occurs outside its area and in the area of a local weights and measures authority in Wales only if it has obtained the consent of that authority.
(6) Only one penalty under this section may be imposed on the same letting agent in respect of the same breach.
(7) The amount of a financial penalty imposed under this section—
(a) may be such as the authority imposing it determines, but(b) must not exceed £5,000.(8) Schedule (Duty of letting agents to publicise fees: financial penalties) (procedure for and appeals against financial penalties) has effect.
(9) A local weights and measures authority in England must have regard to any guidance issued by the Secretary of State about—
(a) compliance by letting agents with duties imposed by or under section 81;(b) the exercise of its functions under this section or Schedule (Duty of letting agents to publicise fees: financial penalties).(10) A local weights and measures authority in Wales must have regard to any guidance issued by the Welsh Ministers about—
(a) compliance by letting agents with duties imposed by or under section 81;(b) the exercise of its functions under this section or Schedule (Duty of letting agents to publicise fees: financial penalties).(11) The Secretary of State may by regulations made by statutory instrument—
(a) amend any of the provisions of this section or Schedule (Duty of letting agents to publicise fees: financial penalties) in their application in relation to local weights and measures authorities in England;(b) make consequential amendments to Schedule 5 in its application in relation to such authorities.(12) The Welsh Ministers may by regulations made by statutory instrument—
(a) amend any of the provisions of this section or Schedule (Duty of letting agents to publicise fees: financial penalties) in their application in relation to local weights and measures authorities in Wales;(b) make consequential amendments to Schedule 5 in its application in relation to such authorities.”
““the appropriate national authority” means—
(a) in relation to England, the Secretary of State, and(b) in relation to Wales, the Welsh Ministers;”