Consumer Rights Bill

Lord Palmer of Childs Hill Excerpts

Monday 3rd November 2014 Grand Committee

[Baroness Hayter of Kentish Town]

My Lords, Amendment 81D would require letting agents to have appropriate client money protection in place, which in itself would mean that they would need to have established client account audits and proper procedures. About £2.7 billion is held by letting agents at any one time, so this would be a rather important consumer protection.

Finally, Amendment 81C would extend the existing consumer protection measures for estate agents to letting agents. Most importantly, it would empower the CMA to close letting or managing agents that have acted improperly. It would therefore stop the present, rather stupid situation in which an estate agent banned today can set up as a letting agent tomorrow. This was something that the CLG Select Committee recommended. It wanted letting and managing agents to be subject to the same regulation as estate agents, and that is what this amendment would do.

I know that Ministers have suggested that there is in effect a sort of back-door banning at the moment, in that now that every letting agent must be a member of a redress scheme and if a poorly performing letting agent was turned down by all three recognised schemes, that would effectively debar the letting agent from operating. However, this misses two important facts. One is that the three redress schemes, though they will co-operate by not taking on an agent debarred by another of the three, can only act on complaints brought to them by landlords or tenants. As we know, many people dissatisfied with the service never complain. So these redress schemes only see the tip of the iceberg, as both the two established ones acknowledge. The third one is really yet to get going. So the intelligence for their veto on a business is pretty minimal. They do not have access to information from the police, trading standards or insolvency practitioners, so they are working on a tiny aspect of the whole scene.

There is a second problem. The state is effectively contracting out this enforcement to three private companies with no requirement that they abide by the regulator’s code, are properly qualified for this role or have ever been authorised to be front-line enforcers. They have been authorised by the CLG simply as adjudicators, not as law enforcement officers. Yet without this amendment they are the only organisations able to stop a rogue letting agent from trading. I beg to move.

[Lord Palmer of Childs Hill (LD)]

My Lords, I will talk to Amendment 81D and in doing so I declare an interest as a director of the Property Redress Scheme Advisory Council. I support what the noble Baroness, Lady Hayter, said, and want to add briefly to her detailed comments.

The noble Baroness spoke about the £2.7 billion estimated to be held in clients’ funds. I might add that this was calculated by the industry as the amount that letting agents will be holding in tenants’ deposits and one month’s rent. That was how it was calculated; it seems a fairly sensible estimate. So, there is £2.7 billion in clients’ funds, some of which is at risk. There are already clients’ money protection schemes run by some of the organisations described by the noble Baroness. However, if the letting agent is not covered for client money protection both the landlords and the tenants stand to lose their money. If it is not one of the estate agents or one of these big organisation schemes, which are not compulsory other than for the members of that organisation, these tenants and landlords—it is both—would lose their money. The amendment is designed to protect both parties in the event that an agent goes bust or misappropriates the clients’ funds, as it covers any losses through the actions of the letting agent.

The consumer protection offered by this amendment would be financed by the industry itself and would not need the financial backing that the Government currently provide—I am not sure that the noble Baroness mentioned that point but I thought I should highlight it. At the moment it is a voluntary protection, and it works for a lot of the industry. There are forces in play which could protect the moneys owed to the landlord or tenant if something goes wrong with the letting agent. However, there are many letting agents which are not a part of such an organisation. There are two voluntary schemes that I know of, one of which was mentioned by the noble Baroness. All this amendment seeks to do is to protect the very people who are most at risk: a landlord or tenant using a letting agent which is not part of a larger organisation. This would turn a voluntary scheme into a compulsory scheme overseen in the way the noble Baroness described. If we ever got to a vote on this, I would support it.

[Lord Harris of Haringey (Lab)]

My Lords, I repeat my declaration of interests as chair of the National Trading Standards Board. Of particular relevance here is that we fund the National Trading Standards Estate Agency Team, which is responsible for issuing individual banning or warning orders under the Estate Agents Act 1979, maintaining a public register of such banning or warning orders, and approving and monitoring consumer redress schemes. Of course, those activities apply specifically to estate agents; they do not cover letting agents. As my noble friend Lady Hayter said when she introduced the amendment, it is noticeable that there are occasions when estate agents are banned under the Estate Agents Act and then reopen as letting agents. As far as many members of the public are concerned, there is not much difference between them.

The purpose of the amendments is extremely helpful. First, they address the problem that is becoming increasingly an issue for estate agents of trying to charge both the seller and the buyer for the same transaction. I have to say, I find this an extraordinary process because my understanding of the word “agent” is that you are acting on behalf of somebody. How can you act on behalf of both the seller and the purchaser? There is clearly a conflict of interest. It is not clear that anyone benefits from this arrangement, apart from those estate agents that claim fees from both sides of the transaction.

It is an anomaly that letting agents are treated differently from estate agents. I would have thought that that is something it would be sensible to address as part of this process. I know that the Government are keen to avoid duplication and so on, so why are they not moving towards treating estate agents and letting agents in the same way and by the same regulation process?

The point that has been made about the consumer protection of clients’ money by letting agencies is, again, unanswerable. I find it extraordinary that with this particular type of transaction there is not the sort of protection that you would expect in most other instances where a professional or so-called professional body is holding money on your behalf. I hope that the Minister will be positive about the themes in these amendments and try to ensure that we can incorporate those principles somewhere in the Bill before it goes much further.

--- Later in debate ---

[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.