Consumer Rights Bill

Damian Hinds Excerpts

Tuesday 13th May 2014 Commons Chamber

[Lilian Greenwood (Nottingham South) (Lab)]

I should like to speak in favour of new clause 2, which seeks to clarify how the Bill will be implemented and how consumers will be informed of their rights.

In particular, I want to ask some questions of the Minister about the implications for rail services. It was welcome news in Committee when, in responding to a question from my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty), the Minister confirmed that the National Rail conditions of carriage will be refreshed to provide stronger provision for consumers in order to make them consistent with the rights set out in this Bill. The operators’ trade body, the Rail Delivery Group, has said:

“The Conditions of Carriage are under review. They will be published by the end of the year and will be fully compliant with the Consumer Rights Bill.”

It also said:

“They’ll be more consumer-friendly in terms of the language used”.

That will be a huge improvement from the passenger’s point of view.

I have a number of questions about how this implementation will be carried out. Do the Government intend to conduct a wider review of the passenger protections in the National Rail conditions of carriage? They could use the Bill as an opportunity to strengthen passenger rights where, for example, the train operator fails to provide passenger assistance, which is so important for disabled passengers; where someone finds that the seat reservations on their train are not being honoured; where there are planned engineering works that the operator could have known about in advance but has not informed people about; or where someone finds on arriving at the station that part of the journey they expected to be by train will be on a replacement bus service.

If the intention is to carry out this wider review of the National Rail conditions of carriage, why has Passenger Focus so far been excluded? Can the Minister guarantee that there will be no watering down of passenger protections in the National Rail conditions of carriage that may be additional to the protections provided in the Bill? All the consumer protections in the Bill are subject to parliamentary scrutiny, and the public have had an opportunity to influence them and have a view on them. Changes to the National Rail conditions of carriage are not usually subject to such public consultation, but this is an unusual circumstance. Will the Minister clarify whether the proposed revisions to the National Rail conditions of carriage to make them consistent with the Bill should be subject to public consultation?

I have a few more questions about implementation and the consequent need for further guidance, as set out in the new clause. The National Rail conditions of carriage do not apply to light rail systems such as the Docklands light railway or the London underground, where separate conditions of carriage are set out by Transport for London. Have the Government made an assessment of the various light rail conditions of carriage? Do Ministers plan to exclude them from the rights in the Bill, as with the National Rail conditions of carriage, or, indeed, to do something different about them?

There are also a number of issues concerning equivalent protections and how they will be met. At present, under the National Rail conditions of carriage, a passenger is entitled to a full refund only if they decide not to travel after the service is cancelled or delayed or when a reservation is not honoured and the ticket is unused. Passengers are entitled to partial refunds if they decide not to travel for other reasons, but they are subject to a £10 administration charge. Passengers who start their journey are entitled to compensation of only 20% of the price paid, and only if their service is more than an hour late. Although some rail operators offer a more generous delay/repay compensation scheme, that is not set out in the national rail conditions of carriage.

If passengers are entitled to a repeat performance, as set out in clause 54, on the grounds that the journey was not in accordance with the information given about the service, as outlined in clause 50, will they now be entitled to a full refund? Could that therefore be the stronger provision relating to compensation for consumers that the Minister mentioned when she responded in Committee in March?

I also want clarification on another issue. When passengers are affected by planned possession works by Network Rail, rather than the train operator, they will clearly be receiving a substandard service, but will they be entitled to compensation? I do not think they have such an entitlement at present.

Obviously, I am speaking in my capacity as a Back Bencher rather than from my position on the Front Bench. Many of our constituents are frustrated by their experiences on the railways, and they want to know that the rights set out in the Bill in relation to rail fares and services are being addressed by the Minister and that there is an opportunity to strengthen consumer protections in such an important area of policy.

[Damian Hinds (East Hampshire) (Con)]

I want to talk briefly about new clause 3 and new schedule 1, particularly because they relate to the private sector and one of the three sectors named under the Enterprise and Regulatory Reform Act 2013.

As the hon. Member for Walthamstow (Stella Creasy) has said, this country, like the rest of the world, is undergoing a revolution in data in terms of their volume, richness and accessibility, and, in some ways, their associated risks. There is also a rapidly changing market in price comparison, and the hon. Lady has referred to some of the benefits that can accrue from that. The development of that market is not entirely benign and is certainly not without cost. There are two opposing forces: consumers’ ability to compare prices and services side by side tends to bring prices down, but the nature of the marketing—the branding land grab, the cost of advertising and particularly the pay-per-click auction model on the internet—tends to drive costs and therefore prices up. It is certainly true, however, that price comparison has great potential to make markets work better. I am very proud of everything the Government are doing with midata to help make that a reality.

One market that does not work at all is one of the three mentioned in the 2013 Act: retail banking current accounts. The actual cost to consumers of having a current account is, on average, £152 a year, but nobody we talk to, including informed consumers and even Members of this House, knows that. Whenever we talk about “free” banking, we should use inverted commas, because, of course, there is no such thing as free banking. If consumers could see how much they are actually paying, both explicitly in behavioural charges and implicitly through forgone interest, the retail banking market would work better because there would be more diversity and competition.

Critically and perhaps even more importantly—this touches on some of the new clauses and amendments we will debate later—the fact that people do not know how much their banking is costing them inhibits the development of new retail banking products. Such products include budgeting bank accounts—so-called jam jar accounts—for which people have to pay a fee, but through which they are much less likely to tip into debt, because they make it easier to budget money and also that tiny bit easier to save a small amount.

New clause 3 is not necessary because progress is already being made. The powers already exist.

[Stella Creasy]

indicated dissent.

[Damian Hinds]

The hon. Lady shakes her head, but the powers already exist under the 2013 Act. The Government are looking for voluntary progress, which I think is the right way to proceed on reforming markets. A review of progress is due about now, and I hope the Government will continue to do what they are doing. They have the reserve right to push for more and have said explicitly that if not enough is being done, they will consult on the wording of regulations in order to make those markets work better compulsorily. That is the right approach, as opposed to jumping the gun.

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[Damian Hinds]

It is always a pleasure and an honour to follow the hon. Member for Makerfield (Yvonne Fovargue) who talks not only with passion but with a great deal of knowledge and expertise about these matters. I wish to speak briefly about new clauses 11 and 6. Before I do, may I say that it was a little unfortunate that the remarks of the hon. Member for Walthamstow (Stella Creasy) took the turn that they did at the end? What she said is simply not true, and everybody in this House who takes an interest in these issues, which she certainly does, knows that the sub-prime high-cost credit market has been around for donkey’s years. It has not started—[Interruption.] No, it has not started, or even in its totality dramatically shifted, in the past three years.

The hon. Lady mentioned statistics for payday lending and logbook lending, but, if she was being complete in her analysis, she might have talked about when the big growth spurt came in home credit. She might even have talked about when the growth spurt came in rent to own. Perhaps she would like to take the opportunity to talk briefly about those things now. I would happily take an intervention.

[Stella Creasy]

Will the hon. Gentleman clarify whether he voted three times in the House over the past three years against capping the cost of credit and therefore tackling some of these problems? If he recognises that there are problems, is he saying that he will support the new clauses today?

[Damian Hinds]

Clearly, I was not saying that. I was asking the hon. Lady whether she wanted to comment on the growth of home credit and rent to own. We have had many opportunities in this House to discuss a cap on the cost of credit, and she and I—and she and many other Members—have had an opportunity to discuss some of the practical aspects. There will now be a cap on the total cost of credit, but that is not to say that the definition of that is without difficulties. It remains a tricky thing to do. All of us, including her, who take a close interest in these issues know that there is no single silver bullet solution that solves any of these market problems. We need regulation, empowerment for consumers, financial education and sensible alternatives. This House is at its best when we are discussing what those practical approaches might be, and I welcome the new clauses, which allow us to talk about those very things. I have an awful lot of sympathy for the sentiment behind new clause 11, which was put forward by the hon. Member for Makerfield, and for what is behind new clauses 7 and 9, but we must be wary about seemingly straightforward legislative solutions that may not deliver all they purport to.

We always talk in the plural when we refer to rent-to-own companies, but in reality there is one really big company. There is a problem with the pricing and marketing of these companies. I have recently been added to the BrightHouse e-mail marketing list. I do not know what I have done to deserve that honour—I am not sure whether I should take it as a compliment—but I am now bombarded with messages saying how easy it is to pay weekly, and it is those messages that go to the heart of the problem. To be fair, the slightly misleading approach that we are talking about does not necessarily apply just to rent-to-own companies. We could say that it applies to every pay-monthly mobile phone contract, through which we not only pay for our calls but finance the phone, but it is never advertised how much is for the phone and how much for the calls. We always see it as one all-together monthly amount.

[Mrs Anne Main (St Albans) (Con)]

My hon. Friend is making very measured comments. It is true that no one party has a handle on debt in this debate. Many of us are concerned about the matter. Does he agree that companies such as Emmaus in my constituency have helped to ensure that people do not have to take on ridiculous payback terms, by enabling them to access good refurbished second-hand goods free of charge if their circumstances allow? I pay tribute to companies such as Emmaus that have helped many people in difficulty who need goods.

[Damian Hinds]

I am not familiar with Emmaus, but I am sure that it is an admirable organisation. I can mention Furniture Helpline in my constituency, and there are many others throughout the country.

[Mr Mike Weir (Angus) (SNP)]

I am listening carefully to what the hon. Gentleman is saying. Affordability is at the root of this issue. It is not only companies such as BrightHouse that concern us—for years, when interest rates were rising, supposedly reputable companies simply extended the time that people had to pay, so that the weekly payments stayed relatively low. That is the real issue at the heart of this.

[Damian Hinds]

The hon. Gentleman is absolutely right. [Interruption.] My hon. Friend the Member for St Albans (Mrs Main), who is sitting next to me, mentions catalogues: catalogue credit has worked on that basis for a long time, stressing the weekly repayment amount. There is also an ability to shift the amount that is apparently the cost of the product and how much is paid for the financing—in the case of catalogues, that is often zero, but the base price is inflated to allow for that.

My worry about the approach in the new clause tabled by the hon. Member for Makerfield is that I do not know how we would make the price comparator work. She made an important point about product numbers. As electronic comparison capability increases, it will be important to be able to make a direct like-for-like comparison, and adding an extra letter to a product number to make such comparison impossible should certainly be cracked down on.

[Mrs Main]

My hon. Friend is absolutely right. Many of the goods that are advertised are often own-label brands, and that makes it very hard for consumers to make a direct like-for-like comparison with another branded good.

[Damian Hinds]

It is difficult, but if we are talking about a big plasma TV or a washing machine, equivalent products and other brands are also available. The basic problem, however, is not that the information is not available, because the idea that people do not have the ability to make such comparisons becomes less and less true every month, with smartphones and so on. The difficulty relates to money advice, and encouraging and prompting people to make the comparison. We do not solve that problem by adding small-print text about the total cost, the annual percentage rate, the total cost of credit, the reminder that “your house may be at risk”, blah, blah, blah. All those things do not solve the problem of how we encourage people to make that comparison and do the analysis to ensure that they are not worse off than they need to be.

That leads me on to new clause 6 and the so-called

“annual report on the level at which a levy on lenders in the high cost consumer credit market should be set”.

There is a levy that applies to lenders, so I assume that the requirement for a report is a device to call for something that might be in place anyway. Debt advice is also provided. We could argue that, at the high-cost end of sub-prime, such lenders should make a greater contribution, because of the detriment associated with them, but that does not require primary legislation.

The new clause would also have the Government make provision for affordable credit to be available through credit unions. I would argue strongly that the Government have brought and are bringing forward measures to ensure that affordable credit is available to vulnerable customers through credit unions. Through the credit union expansion project, tens of millions of pounds are being made available to modernise and upgrade the sector. Through regulatory reform—the passing, finally, of the legislative reform order—the increase in the monthly interest rate cap from 2% to 3% makes competition with high-cost, short-term lenders a little more possible. Also, as we were discussing, the cap on the interest charged in the commercial sector will at least help to slow the apparently inexorable rise of that sector. There are also things that the social lending sector must do. It has to step up to the plate on its marketing, branding and consistency of product offer. There will have to be consolidation in the sector to provide the services that people want.

I do not know whether the idea behind new clause 6 in the mind of the hon. Member for Walthamstow came from the recent IPPR report, on which she commented, which suggested that a one-off levy on high-cost lenders would facilitate a great expansion in the social lending sector.

[Mrs Main]

Will my hon. Friend speak a little more slowly? The hon. Member for Walthamstow (Stella Creasy), on the Opposition Front Bench, is having trouble tweeting. She is trying to provide a running commentary on his speech and perhaps if he went a little more slowly she would catch up.

[Damian Hinds]

I will always follow the hon. Member for Walthamstow, so I shall pay great attention to what she has tweeted after the debate.

I have a lot of sympathy with any measures proposed to help support the growth of the credit union sector. A lot of things in the IPPR report are welcome and positive, such as the idea of having credit unions in post offices, Church of England facilities and so on, but with respect to all concerned I would say that those are hardly first-time-out occurrences of the proposals. A back-stop reclaim facility, through the benefit system, could also have some benefits.

However, the idea—this is the main point—that some huge one-off capitalisation of credit unions would help to facilitate their growth, is not right. Under the previous Government, we had the growth fund, and I am not here to diss that. It was a well-intentioned initiative and will have done a lot of good. Such things are also eroded over time, however, and by definition if one has a big one-off capitalisation one ends up having to address a slightly more costly part of the market, which contributes to that erosion. What we need to do to help support and facilitate the growth of credit unions is what this Government are doing. We are trying to get them on to a sustainable footing with modernised systems, working collaboratively together to get the marketing and branding right so that the sector does not need a subsidy for ever but reaches a scale at which it can address more and more consumers, meaning that fewer and fewer consumers need or want to access the types of lenders we have been discussing today.

[Fiona O'Donnell]

Despite appearances, my hon. Friend the Member for Walthamstow (Stella Creasy) and I are not taking part in a mother and daughter catalogue photo shoot later. We should perhaps co-ordinate in future on what to wear when we are both taking part in the same debate.

It is a pleasure to follow the hon. Member for East Hampshire (Damian Hinds). He said that his Government are taking an interest in issues around payday lending. They are certainly taking something, although I am not sure whether it is just an interest. When he criticises Labour, saying that for 13 years we did nothing, he fails to recognise that there has been an incredible growth, certainly in my constituency, in the number of people having to resort to payday lenders. They are having to increase the amount they are borrowing from those lenders as well as their general debt levels. There is a cost of living crisis and poverty is the root cause, and the Government should have acted more quickly. The hon. Gentleman is on the record as having said that self-regulation works, but even he has had to admit that self-regulation of payday lending has not worked and that it is time for action.

Figures reported by StepChange last December showed that among its clients, people seeking debt advice in East Lothian, my constituency, are now saddled with average payday loan debts of £1,864, £466 above the Scottish average.

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[Jenny Willott]

I am very grateful to the hon. Gentleman for highlighting that.

[Damian Hinds]

To complete the set, may I use this opportunity to mention the important work done by credit unions that operate junior savers clubs in schools in the constituencies of many hon. Members? It would be great to have them in many more schools in many more places, so that young people get into a savings habit before they reach the first point at which they might take on consumer credit.

[Jenny Willott]

Perhaps the hon. Gentleman would like to speak to the hon. Member for North Swindon (Justin Tomlinson) about that. He raises a very important point: the more we can help young people to understand some of these complex financial systems and how to manage money, hopefully, fewer people will end up in debt—particularly unaffordable debt—in the future.

Returning to the FCA rules on hire-purchase contracts for household goods and what has been called the “BrightHouse clause,” the FCA’s new rules will require firms to provide pre-contractual explanations and information in line with European requirements. I hope that answers the point made by a number of Members on both sides of the House. The information will include the cash price of the goods being financed and the total amount payable. The FCA rules will require that information to be provided to consumers before they sign up. I hope that will ensure greater transparency for customers.

The rules also mean that firms have to adhere to debt-collection rules—a point raised by the hon. Member for Makerfield—including treating customers who are in default or arrears with forbearance and due consideration. They also require firms to assess credit worthiness and affordability, including the potential to impact adversely on the consumer’s financial situation and their ability to make repayments as they fall due. There are, therefore, broad requirements on firms to try to tackle some of the hon. Lady’s concerns about consumer detriment.

When firms sell associated insurance products, they must do so in line with the FCA’s requirements for assessing a consumer’s eligibility to claim on a product and the high-level principle of treating customers fairly. Those are new requirements to ensure that we try to tackle consumer detriment. The Government believe that the tough and decisive action taken by the FCA will ensure that customers are better protected as a result.

Finally, we discussed the issue of logbook loans at some length in Committee and I completely understand the concern about the potential for consumer detriment as a result of these products. The Government believe that people should be free to borrow and have the tools to make an informed decision about which credit product is right for them, but consumers should be confident that they will be treated fairly and that the regulator will step in when things go wrong.

As the hon. Member for Walthamstow will be aware, logbook lenders now also fall under the responsibility of the FCA. As I have said with regard to other credit firms, I believe that consumers will be far better protected under the FCA regime than they have been in the past. The FCA has been very clear that logbook lenders are among the firms that it considers pose the greatest risk to consumers, and they will be in the first phase of firms that have to be fully authorised from October. Logbook loans are defined by the FCA as higher risk activities and, as such, lenders face closer supervision and higher regulatory costs.

Logbook loan providers are now also required to meet the standards the FCA expects of lenders in making thorough affordability checks and providing the adequate pre-contractual explanations to consumers. They are also subject to the high-level principle of treating customers fairly. Indeed, the FCA considers this area to be a particular concern. It has said that it is

“putting logbook lenders on notice”,

and that its new rules give it

“the power to tackle any firm found not putting customers’ interests first.”

It is therefore taking its new responsibilities very seriously.

In addition to the FCA’s robust action, Treasury Ministers have asked the Law Commission to look at how best to reform the Bills of Sale Act—as we know, the legislation underpinning logbook loans is old, lengthy and incredibly complex—and, as the hon. Member for Gainsborough (Sir Edward Leigh) highlighted, the Government believe that the Law Commission is best placed to undertake a thorough assessment of how we can bring the legislation up to date. It has responded favourably to the Treasury request, and it will confirm its upcoming work programme soon.

The hon. Member for Walthamstow raised concerns about people buying cars with outstanding loans against them and about the impact on customers. She said that a large proportion of second-hand cars are sold with pre-existing charges. The Bill, like the existing law, is clear that there is a legal obligation on the seller to notify the buyer of any outstanding charges. The Bill covers business-to-consumer sales, and sales between individual consumers have the same level of protection under the Sale of Goods Act 1979, which provides that the seller must have the right to sell the goods. That applies to all contracts for the sale of goods, so it covers private sales, in addition to purchases of goods from a shop or a business. Goods must be free from any undisclosed charge or encumbrance, which applies to hire-purchase terms for goods sold on, as well as to logbook loans. The private seller is in breach of contract if they do not have the right to sell, or if there are undisclosed charges on the goods, which means that the buyer can get their money back from the private seller.

The Government are concerned about the impact of unscrupulous traders in all these areas. That is why we have taken so much action and given such strong powers to the Financial Conduct Authority, and I do not believe that the Opposition’s new clauses are the right way forward. The Government’s approach is the right one for protecting consumers, particularly the most vulnerable, and I hope the hon. Member for Walthamstow will withdraw new clause 6.

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[Damian Hinds]

The hon. Lady rightly talks about the difficulties that many people face in trying to find the money to pay these fees, but is it her assumption, and that of the Opposition, that were letting fees to be banned, that source of revenue would disappear for the agents but they would not seek to reclaim it elsewhere?

[Stella Creasy]

It is not simply an assumption; it is based on the evidence we have seen from Scotland, which is that this money would be incorporated in the centre of the tenancy and so that the landlord would pay the fee. We would expect the tenant to pay one fee—the credit referencing fee—but once the tenancy was secure and the landlord could therefore be confident that the person was back in the place, we would expect it to be refunded. We are very clear that the practice of charging fees to both parties at the same time is a conflict of interest and therefore needs to be addressed, which is what our proposal would do. It would spread the fee over the course of the tenancy.

[Damian Hinds]

Just to complete the point, is it also the hon. Lady’s assumption, and that of the Opposition, that were landlords to face greater fees, they would not seek to recoup that extra cost in some other way?

[Stella Creasy]

One issue is what landlords are charging for. I see landlords who are charging twice for credit referencing, because they are charging the landlord and the tenant that fee. [Interruption.] The presumption the hon. Gentleman makes is that all the fees are for different activities—

[Damian Hinds]

I am asking what your presumption is.

[Stella Creasy]

Our presumption is that the fees would then be taken on by the landlord and taken as part of the tenancy agreement. Our approach would resolve the problems we are seeing for tenants and the conflict of interest over whom the agent would act for. Our proposal is about making sure we deal with that conflict, particularly how for landlords and for tenants it creates a series of perverse incentives whereby both can be charged for the same service.