Consumer Rights Bill

Lord Harris of Haringey Excerpts

Wednesday 19th November 2014 Lords Chamber

[Baroness Jolly]

My Lords, the Government share the noble Baroness’s concerns about the risk of consumer detriment in the hire-purchase credit market, particularly to the vulnerable consumers that she has described to the House. I wrote to the noble Baroness on this subject recently and want to take this opportunity to underline that this does include rent to own and we are talking about the same issue.

We have stated before in Committee that consumer credit regulation transferred to the Financial Conduct Authority on 1 April this year. The rules for the consumer credit market, put in place by the FCA, were made with the stated aim of: ensuring that firms lend only to borrowers who can afford it; increasing borrowers’ awareness of the costs and risks of borrowing unaffordably; and ensuring that consumers have access to support if they have financial difficulties.

Accordingly, the FCA rules for hire purchase and conditional sale agreements, including rent-to-own agreements, specifically require firms to provide pre-contractual explanations and information to a consumer before a contract is made. These rules are in line with European requirements, including setting out the total amount payable, the cash price of an item and the total cash price if there is more than one.

Firms must also adhere to debt collection rules, including treating customers in default or arrears difficulties with forbearance and due consideration; and assess creditworthiness and affordability, including the potential to impact adversely on the consumer’s financial situation, and the consumer’s ability to make repayments as they fall due. Where firms sell insurance products, they must do so in line with the FCA’s requirements around assessing consumers’ eligibility to claim on a product, and the high-level principle of “treating customers fairly”. Firms must also give a separate price for the insurance product and explain whether it is compulsory.

These rules are in force now, and the FCA can enforce breaches of its rules— there is no limit on the fines it can levy and, crucially, it can force firms to provide redress to consumers. The FCA keeps all its rules under review and continually considers whether further interventions are needed in the consumer credit market. It will set out further thinking early in the new year.

Regarding the noble Baroness’s specific points about contract enforceability, lenders are already required to serve a statutory notice under the Consumer Credit Act before enforcing the agreement or repossessing goods. Goods cannot be repossessed without a court order if the consumer has paid at least a third of the total amount payable. The FCA also sets out how firms must undertake affordability assessments before entering into an agreement, including taking reasonable steps to assess the customer’s ability to meet repayments in a sustainable manner, without undue difficulties.

To underline that point, the FCA has had full use of these powers since 1 April and can make use its broad enforcement toolkit to punish breaches of its rules. The FCA also has flexible rule-making powers to take further action where it deems it necessary in the protection of consumers. The Government believe that this, alongside the existing protections set out in legislation, provides robust protections for consumers in the conditional sale and hire purchase markets. I therefore ask the noble Baroness to withdraw her amendment.

[Lord Harris of Haringey (Lab)]

Before the Minister sits down, could she address the point about the requirement to purchase an insurance policy? Is that something specifically not permitted at the moment; or is she saying that that is acceptable policy that the Government are prepared to see happen, on the basis that customers are able to enter into choices knowing their position? At the moment, it is not clear that that rather important clause in the amendment is addressed by the answer that the Minister has given.

[Baroness Jolly]

My Lords, the information that I have regarding insurance is that the FCA makes clear rules about insurance with these sorts of products. I will write to the noble Lord to clarify the situation on insurance that has to be purchased from the same firm from which customers are taking out hire purchase on a product.

--- Later in debate ---

[Baroness Hayter of Kentish Town]

My Lords, this amendment is in my name and that of my noble friend Lord Stevenson. It addresses a serious, indeed often fatal, weakness in consumer protection. When a dangerous fault occurs in an electrical product, there is no adequate mechanism whereby other owners of that same dangerous product are notified of the need to exchange it. The amendment therefore requires manufacturers to inform enforcement authorities about the number of consumers affected and the extent of damage and injury that has been caused. It also requires the Secretary of State to publish information on dangerous products.

It is estimated that approximately 40 to 45 deaths a year are caused by faulty appliances. Although there is a system for recalling dangerous products, it is deeply flawed because of the difficulties of alerting consumers who bought such faulty products and because of unjustifiable delays on the part of some manufacturers in recalling products, even once they know them to be unsafe. Such cases relate to potentially fatal faults arising either from fire, electrocution or carbon monoxide poisoning. Indeed, probably more than 1 million faulty products are still in people’s homes.

The problem is that manufacturers currently have no legal obligation to declare how many such dangerous applications are in circulation. Furthermore, once a manufacture becomes aware of faults, there is no specified timeframe within which they have to act to have others recalled. Some manufacturers have taken years to take action after accidents caused by their appliances. The BIS guidelines are that recall should be expected as soon as the manufacturer becomes aware of the problem, but that is not specific enough. Even more important, perhaps, it is not mandatory. Sadly we see preventable deaths occurring because of failings in the recall system.

I spoke in Committee about the case of Santosh Benjamin-Muthiah, a 36 year-old father of two who was killed in 2010 by a fire caused by a fridge freezer that had been recalled. The manufacturer had been aware of the fault three years earlier but failed to issue a safety notice until 2011—in other words, a year after the death of Santosh Benjamin-Muthiah. By that time, half a million defective fridge-freezers had been sold. Even two years after the recall started, there were probably 100,000 still unidentified in people’s homes.

In another case, Beko was fined £76,600 for failing to inform trading standards of a serious risk posed by some of its cookers. Despite being aware of the fault in 2009, Beko notified trading standards only in 2013. Hotpoint recalled dishwashers with a fire risk a whole year after Which? had raised concerns about them. So there are problems of late starting but, even once something starts, the average success rate for product recalls is only between 10% and 20%.

The current voluntary and slightly haphazard approach is clearly not working. On the one hand, manufacturers fail to recall—due either to cost or to worries about reputational risk, in which case sanctions are inadequate. On the other, despite the producers’ best efforts, current practice is dangerously inadequate, leaving thousands of faulty products in circulation.

In Committee, we asked the Government how many cases of preventable deaths were documented. The Minister responded by letter, saying that she was unable to provide the number of fatal injuries caused by unsafe electrical appliances. However, the DCLG fire statistics do have the data, which show that there were more than 16,000 fires a year caused by faulty products, leading to 15 deaths and nearly 800 injuries. Electrical Safety First’s research into consumer attitudes towards product recalls demonstrated a strong appetite for change. Its report, Consumer Voices on Product Recall, found that a quarter of people thought there was already a central repository of all recall information. So the website called for in our amendment would create what many consumers assume already exists.

Only one-third of consumers always fill in the registration form down at the bottom of the packet when they buy electrical products—we have all seen it there. Six out of 10 say they would be more likely to fill it in if reassured that the information would not be used for commercial gain. Only an independent database, as proposed in our amendment, would deliver this peace of mind. An industry-led list would not encourage people to register, because they would believe that their details would be used for marketing. Of 17 registration forms analysed, only one mentioned safety as a benefit of registration—so it is no wonder people do not think they want to sign up. It is simply not the manufacturers’ priority and it will not become their priority until legislation compels them to take action. Peter Dartford, President of the Chief Fire Officers Association, said:

“The reality is that it is the manufacturers who have created these risks and it is their moral and legal responsibility to ensure these risks are eradicated from homes”.

At the inquest into the death of Mr Benjamin-Muthiah, the coroner called for the creation of a simple, easy to use, government-funded or national website where all faulty products could be registered and accessed by consumers and retailers. He called also for increases in the fines for manufacturers who failed to notify and the creation of a code of practice on product recalls. Our amendment would strengthen consumer protection in line with the views of the coroner, of consumers and of the fire officers, to say nothing of the views of the families of those who have died needlessly. I beg to move.

[Lord Harris of Haringey]

My Lords, about a year ago, in my capacity as chair of the National Trading Standards Board, I had a meeting with what I think was then called the Electrical Safety Council, now rebranded as Electrical Safety First. We were not discussing this issue but it was raised as one of the concerns that the then Electrical Safety Council had about the way in which the recall system worked.

My noble friend highlighted a number of concerning issues. These include, for example, the length of time that often seems to elapse between manufacturers becoming aware of a product failure or an incident, even one leading to an inquest, before they take action to recall products. Their recall efforts are often minimalist in trying to make sure that the message reaches consumers.

I hope that the Government are not simply going to tell us that self-regulation works best and that the systems in place are adequate. The examples that have been cited and the fact that this remains a continuing concern show clearly that action needs to be taken along the lines of my noble friend’s amendment.

[Baroness Neville-Rolfe]

My Lords, protecting consumers from serious injury and property damage caused by unsafe appliances is a crucial government responsibility. I can assure your Lordships that the Government are listening carefully to the concerns expressed in this House during the passage of this Bill and are absolutely committed to improving the systems of product recall, as I will explain. I am grateful to the noble Baroness, Lady Hayter, for sharing some recent experiences.

I am grateful for the work done by the noble Lord, Lord Harris, and the trading standards teams across the country which put considerable effort into enforcing an effective product safety regime. In 2012, they inspected more than 100,000 products, which led to more than 2,000 product lines being withdrawn from the market and more than 750 voluntary actions by manufacturers and retailers. There are other withdrawals that good retailers take proactively. Product liability law is an added incentive to action. Most manufacturers and retailers are keen to co-operate with this enforcement effort and there are strong sanctions if they do not. Under product safety law, offenders can rightly face fines of up to £20,000 and 12 months in jail.

However, noble Lords are understandably concerned that we should be rigorous in looking for ways to improve the effectiveness of the recall system, the importance of which I know so well from my retail experience. One important aspect of an effective system is making sure that retailers and manufacturers can contact consumers who have bought an unsafe product. Some good work is already going on across the supply chain to address this issue. It is being led by the Association of Manufacturers of Domestic Appliances and supported by BIS and the Trading Standards Institute on a Register my Appliance portal for consumers, which was launched earlier this month—I hope that noble Lords are all listening because, as a citizen, one should register one’s own appliances. This will make it considerably easier for consumers to register contact details so that they can be traced more easily in the event of a product recall. By encouraging consumers to register their products and to maintain their contact details, it will be much easier to contact relevant consumers in the event of a product recall.

In addition, Electrical Safety First, to which the noble Lord, Lord Harris, referred, is working to explore the options for improving traceability and recall effectiveness, in partnership with government and industry members. While this work should increase the traceability of consumers in the event of a product recall, we also need to consider whether we can improve the effectiveness of the current system for registering and publicising products that are subject to recall. Alerting consumers to the risks posed by faulty products can be difficult, especially where goods have changed hands or contact details have altered. It is important that all those who have a part to play in alerting consumers can access the information they need. That is why we are acting today to address the concerns raised by noble Lords by launching an independent review of the product recall system. The review will consider existing information systems, such as the Trading Standards Institute website for informing consumers about product recalls, and how well these work in practice, as well as looking at the cases and data to which the noble Baroness referred. It will also consider how well the EU’s RAPEX rapid alert system for dangerous consumer products covers UK needs and identify any gaps in the coverage that may need to be addressed. Once we have appointed a suitable chair for this review, we will expect it to report back within 12 months.

That review demonstrates that the Government take very seriously the issues raised by noble Lords during the passage of the Bill. Robust product safety legislation is in place based on an EU-wide regime, and this legislation provides consistency for business and consumers across member states, but we must ensure that the whole system works effectively to minimise harm to consumers. That will require all the different players to work better in partnership across the supply chain.

In the light of our decision to conduct an independent review of product recall, I very much hope that the noble Baroness will feel able to withdraw her amendment.