Lord Stevenson of Balmacara
Main Page: Lord Stevenson of Balmacara (Labour - Life peer)Consumer Rights Bill
Lord Stevenson of Balmacara Excerpts
Lord Stoneham of Droxford (LD)
I rise on behalf of my noble friend Lord Clement-Jones, who has a conflicting commitment this afternoon.
This amendment—I thank the noble Baroness, Lady Hayter, and the noble Lord, Lord Stevenson, for their support for it—is designed to ensure that consumers experience a consistent, simpler and quicker switching process when seeking to switch communication provider, led by the receiving provider.
UK consumers, now more than ever, depend on a range of communication services. Ofcom research has shown that 94% of all UK adults own a mobile phone and that 15% of UK consumers live in a mobile-only household. It is therefore vital that the communication market works well for UK consumers. However, the current switching processes, not just for mobile phones but across the communication sector, are complicated and slow, working against consumers and distorting fair and open competition.
Recent reforms mean that banking and energy customers are able to switch by contacting their new provider—a system known as gaining provider-led switching. However, mobile, pay TV and broadband customers must contact their original provider before switching.
Under current legislation, communications providers operate a losing provider-led switching regime, which forces consumers to contact their current provider to terminate their old contract before being able to switch to a new provider. Not only is this time-consuming and can lead to breaks in service or periods of double-billing when switching between providers but it has a negative impact on competition and pricing.
Consumers who threaten to switch are usually offered preferential deals in order to stay. The retention offers made to these consumers are effectively subsidised by the supplier’s remaining customers, who pay higher prices. Competitive offers are often reserved for new customers or those who attempt to switch, with existing customers often losing out. The existing complicated switching regimes across the communication sectors are leading to real consumer harm. For example, Ofcom data show that of the 9 million UK mobile customers who switch annually, as many as 1.2 million are double-billed or experience a total loss of service. The hassle and confusion for consumers deters them from switching provider. By contrast, the car insurance market has a switching level of 38%, compared with 9% in the mobile and broadband market and just 3% in digital television.
Forcing customers to contact their original supplier often leads providers to operate poor retention practices. The best deals are hidden away and are available only to those who can play the system. This means that the vast majority of UK consumers, including the inactive, the out of contract and the vulnerable, face higher prices while only a minority of savvy customers, willing or able to game the system, get the best deals. A gaining provider-led system forces operators to place their best deal on the open market, accessible to all.
When Ofcom attempted to introduce the gaining provider-led switching system in 2007, it was subjected to appeals from the major mobile networks. Ofcom, in its 2010 strategic review of switching in telecoms, concluded that gaining provider-led switching systems perform better than those led by the losing provider, they are easier for customers to navigate and they are more likely to support competition, yet there has been no progress since then. This amendment would free the path for Ofcom to achieve the outcome it sought as long ago as 2007.
By contrast, last year Ofcom mandated a gaining provider-led switching process on BT’s Openreach network, which supports the services of BT, Sky, TalkTalk, the Post Office and EE’s broadband. This will be in place by June 2015, meaning that customers will need to contact only the provider they are moving to, not the one they are leaving. This will simplify switching for landline and broadband services and will also apply to BT’s Sport TV. In fact, the gaining provider-led system has been acknowledged by both government and the regulator as the best switching system.
In July 2013, DCMS published Connectivity, Content and Consumers, which set out its plans for the communications sector. In it, the department supported a move to gaining provider-led system switching across all communications services. It said:
“We recognise that switching processes work better for consumers when only one call needs to be made to the company the consumer wishes to switch to for the switch to happen, and there is no need for consumers to contact their existing provider … Working with Ofcom, we will do everything we can to move towards a system of gaining provider-led switching across the board. Consumers are increasingly buying services in bundles, for example, phone, broadband and pay TV. This can make switching providers more difficult as there are different switching processes attached to each component of a bundle. We will legislate to give Ofcom a duty to ensure a consistent and effective experience for consumers switching between bundles”.
Given that Ofcom has consulted extensively on switching processes, the Government's subsequent reluctance to legislate is frustrating and baffling for all concerned. On behalf of consumers, Which? has confirmed that it agrees and supports this amendment precisely because it would introduce gaining provider-led switching across all telecommunications markets, drive forward competition and significantly improve the consumer switching experience, enabling people to switch with greater ease and convenience.
This amendment would bring communications providers into line with other markets—including energy and personal current accounts—which operate a gaining system. It would force companies proactively to offer best deals on the open market, rather than withholding the best offers to retain customers threatening to switch. Having a single gaining provider-led switching regime across the whole sector would alleviate confusion around the process of switching, and would help give consumers a consistent experience when switching. Increasingly, consumers view broadband, landline, TV and mobile as complementary services.
If consumers did not have to contact their existing provider before switching, there would be more incentive for suppliers to focus on retaining customers at all parts of the journey rather than at the end point. This would result in more competition and better- value deals for all consumers, with prices harmonising across customers of the same supplier. Gaining provider-led switching in communications markets is already standard practice across most other EU countries, where it works well. I hope that the Government will support this amendment and get this policy moving in the interests of consumers.
Lord Stevenson of Balmacara (Lab)
My Lords, I am sure that I saw the noble Lord, Lord Clement-Jones, only a few moments ago, asking questions in the Chamber, so his conflicting engagement is extremely irritating because we were looking forward to his contribution here. Of course, we now have his parasitic packaging analogue who is gradually inhabiting all of his previous positions on matters to do with this, and we should not complain, because he once again has managed to introduce a very complicated and not very easy to grasp topic with exemplary clarity, and I thank him for that.
We on this side support the amendment in the name of the noble Lord, Lord Clement-Jones; indeed, we signed up to it for very much the same reasons as those just explained by the noble Lord. It is a huge gap in the telecoms area that there is no simple and easy switching regime: such a regime would be the foundation of ensuring a competitive market that would drive down prices, while at the same time empowering consumers. Who could be against that?
The problem we have at the moment is completely the reverse, because in the mobile industry—but also in broadband and pay TV—there are very complicated switching processes. These are huge disincentives to consumers to changing provider and this can lead to very real consumer harm in the form of either double bills—which have been well reported in recent days—or a loss of service when providers are switched, because of the difficulty of making all the ends join up.
We think that the gaining provider-led system across the communications sector will make a huge difference. It puts the customer in charge of the process; it prevents competitors in the market using different and complicated switching processes—which, as the noble Lord said, creates hassle and confusion; and it will make it much more competitive.
At the heart of the issue is an irony that does not happen in many other sectors, such as banking. If you force customers who wish to switch to contact their original supplier, you often get problems and disincentives built in, because it is not in the best interests of the supplier who is losing the customer to ensure that that egress is smooth and uncontested. That inevitably means that consumers get a raw deal, possibly do not get good price comparisons and have a lot more hassle than they otherwise would. I am happy to support the amendment.
Baroness Jolly (LD)
My Lords, a requirement for the switching of communications providers to be receiving provider-led—RPL—is part of the EU Connected Continent package. The European Parliament’s First Reading version would amend the universal services directive to require RPL switching. I assure noble Lords that the UK is engaging actively in those discussions to ensure the best outcomes for UK consumers.
The Government have considerable sympathy for RPL switching in the UK. In the Connectivity, Content and Consumers paper published last year, we emphasised that we want that across the board. I am very pleased to say that, as my noble friend said, RPL switching already operates for fixed-line voice and broadband services delivered over the BT Openreach network, although it does not yet operate for mobile services or for pay TV.
Ofcom has the power to mandate RPL switching for all communications services. In July 2014, it called for inputs from stakeholders on consumer switching. Ofcom announced that it is considering mandating RPL switching for mobile services and bundles of services, including pay TV and services over the Kcom network. The Ofcom work is essential to ensure that we get any new rules right first time, so I welcome my noble friend’s interest in consumer switching but, given the good work done so far, Ofcom’s ongoing consultation and the response to it to be published before the end of the year, I ask him to withdraw his amendment.
Lord Stevenson of Balmacara
I endorse what my noble friend Lord Kennedy has said on this matter. These are new examples of the pernicious behaviour that is often adopted by petty lenders and similar types. It is not just them; it is also other high-cost credit providers. As the Minister indicated, we had a very good discussion on this at our last session, and many of the points there will have resonance for what is being said today.
I have two questions left in my mind after hearing what the noble Lord had to say. First, how did he know about those flashing lights at the corner of the screen? I know that his wife is present so he would not wish to reveal undisclosed secrets, but I think we ought to be told at some point. More seriously, why does it always seem to take pressure from within this House to get movement on this? If the practice were stamped on very quickly, a serious harm would be removed. I hope the Minister, when she comes to respond, will indicate the Government’s willingness at least to investigate this, to assess whether it is something they want to do. Hopefully, they will say that it is something they do want to do.
Baroness Wilcox
I will just add a word at this stage. I am very interested to hear what the Minister says about what the noble Lord, Lord Kennedy, has described, with the money all going into a fund somewhere else and people not getting their hands on it. I winced slightly, because I thought, “The Minister is listening to somebody talking about ring-fencing here”. I wondered how she was going to respond to ring-fencing money like this; I am not quite sure. The Financial Conduct Authority, as I understand it, is this big, new strong regulator that the Government brought have in, so I wondered if the Minister was going to tell us the result of the consultation paper they put out fairly recently. I have not heard too much about that since.
“Credit broker fees
(1) The Consumer Credit Act 1974 is amended as follows.
(2) In section 160A (credit intermediaries), after subsection (4) insert—
“(4A) Persons engaged in credit intermediary activity under this section or credit brokerage under section 145 shall not charge or take any fee from a debtor in respect of these activities until such time as an introduction results in the debtor entering into a relevant agreement.””
Lord Stevenson of Balmacara
My Lords, I declare my interest as the retiring chair of StepChange, a debt charity which is the UK’s leading independent debt advice and solutions service. StepChange offers free-to-client debt management plans, and the charity estimates that it is administering over a quarter of the total number of DMPs that are currently in place.
We know that people who face unmanageable debt often delay, sometimes for as long as a year, before seeking help. By that stage, they are often so desperate for help that they will enter into a plan with the first provider they happen upon, whether it is telephone or web-based, or whether they have just read about it in the newspapers. In a previous debate, attention was drawn to the volume of marketing calls or texts offering fee-charging debt management services. Of course, there is also the scourge of daytime advertising of such products on television and radio.
In its 2010 review of the debt management plan sector, the OFT concluded that commercial debt management companies,
“are not giving the advice or offering the solution that is in the best interests of the consumer but instead that which is most profitable to them”.
That is quite a serious accusation but, compared with what charities such as StepChange offer all its clients, which is the best independent advice with the client at the centre of the discussion, it is fair to point out that in many cases commercial debt management firms simply do not have the expertise to help resolve people’s debt situations in their best interests even if they want to do so. For instance, out of the hundreds of debt management firms that exist, the Insolvency Service lists only four as able to set up a debt relief order—one of the key tools to help debtors on lower incomes. In contrast, StepChange spends about £2 million a year on DROs for its clients.
The October 2014 report on this sector produced by the newly formed Competition and Markets Authority says:
“We consider that there is … a case for the FCA to conduct a more broadly-based review of the activities of lead generators”,
including,
“the role of fee-charging brokers ... possibly timed to take place during the authorisation process ... that is now getting underway”.
It is estimated that there were about 600,000 DMPs at the start of 2012. Of these, about 350,000 were with commercial fee-chargers. In 2010, the OFT estimated that debt management firms were making some £250 million profit from these plans—from clients who were, by definition, already over-indebted. It must be obvious to all concerned that, if fees are charged by commercial debt management companies to people who are suffering from unmanageable debt problems, the consequence will be that the extra costs taken will divert funds away from the creditor to the fee-charging DMP provider, and that will ensure that the time taken to repay the debt is extended. That cannot be good for consumers. It cannot be good for the creditors, who will wait longer and get less, and it is not good for the economy because it is a drag on GDP and will slow the recovery.
In this Committee we have discussed the role of the FCA and other sectors of the credit market, and have raised similar concerns in other Bills, not least the one that originally set up the FCA. Although I think highly of the FCA and respect the intentions of senior staff I have come across, it is becoming clear that there is a fundamental problem with the way it is established. Although its paperwork states and its staff will assert that the consumer is at the centre of its thinking, in practice the FCA has a different objective, which it takes as a surrogate for consumer welfare but which is not correct. It ensures that, across the financial services sector, markets are functioning well.
This means that we get perverse results. Almost irrespective of the consumer detriment or harm, the FCA appears to be content if a smaller number of well capitalised firms are trading, such that they are making reasonable profits—which I suppose means reasonable in relation to the capital employed. That is why cleaning up the payday loan market will not in fact eliminate payday lenders or other high cost credit operators, and why its tougher, more proactive regulation of the debt management market—while long overdue and very welcome—will not remove the problem of commercial DMP providers. If, for example, the FCA determines that the DMP market is functioning well, the FCA will be happy—even though the existence of fees will make it much harder for clients to repay their debts, and it will take them longer to do so.
A good example of this is the cap the FCA has introduced on charges in the DMP sector. We think fees should be abolished altogether on the ground that all clients’ money should be utilised to repay their debts. However, the cap has been set at a relatively high level: firms can charge a maximum of 50% of a customer’s repayments, although that must decrease once set-up costs have been recovered. Thereafter, however, monthly management charges—as distinct from set-up fees—can be charged at a flat percentage of customer repayments. Most of our clients pay about £200 to £250 per month into their DMP. If 50% of the early payments, and let us say 10% of the rest, go to a commercial operator, you can see how the impact will work out. This is absurd. It means that a client of a profit-seeking debt management company with £20,000 of debts will typically pay hundreds of pounds in set-up fees and thousands of pounds in monthly management fees over the term of the plan—money they cannot afford, which should be being paid to their creditors. Compared with a free debt management plan, this will extend the time it takes to pay down debts by as much as several months, and sometimes more than a year. There is substantial consumer detriment here in this market, and it is hard to believe that such a high level of charges is consistent with promoting good consumer outcomes. Our amendments would ban upfront fees for credit brokerage, and clean up DMPs.
Finally, I will touch on one other issue. As a result of FCA regulation, commercial debt management companies are starting to exit the market, and under the amendment, this would accelerate. There will be some transitional problems; for example, when a fee-charging debt management company closed its doors earlier this year, StepChange Debt Charity was on hand to pick up the pieces—and that was good. It was able to support over 400 people, but it is important to note that in so doing, the charity found that more than half of those people had been sold a debt management plan which was not suitable for their circumstances. As the FCA authorisation process starts to clear out the worst operators in this market, it will be up to charities such as StepChange, working with the regulator, to pick up the pieces and help rebuild people’s lives. That will be a significant amount of work. I have written to the FCA to suggest that a plan needs to be put together with the creditors, StepChange and others in the charitable sector to ensure that clients whose DMPs fold under them can be offered a free DMP or other appropriate debt solution. I hope that the FCA will take up that offer to engage. I beg to move.
Baroness Jolly
My Lords, I thank the noble Lord for raising such an interesting and critical point on this aspect of consumer credit, and I acknowledge the excellent work of StepChange. The Government have fundamentally reformed regulation of the consumer credit market. Consumer credit regulation transferred from the Office of Fair Trading to the Financial Conduct Authority—FCA—on 1 April 2014. The Government have ensured that the Financial Conduct Authority has robust powers to protect consumers. It has a broad enforcement tool-kit to punish 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 also has flexible rule-making powers to take further action if it is deemed necessary to protect consumers.
Turning to Amendment 105K on the issue of credit brokers, it is clear that there is a real risk in this market of consumer detriment being caused by unscrupulous brokers. FCA rules already require credit brokers to disclose their status and any fees payable before the consumer enters into a brokerage contract. The FCA has made clear that disclosure must also cover the consumer’s right to a refund if no credit agreement is entered into within six months following an introduction. The FCA requires credit brokers to comply with the high-level principle of “treating customers fairly”. However, the Government share the noble Lord’s concern about the continued bad practice in this sector. The Government and the FCA are currently jointly considering what further action is needed to protect consumers, and will provide an update in the coming weeks.
Turning to Amendment 105M on the issue of debt management companies, the Government are concerned about the potential for detriment to occur to vulnerable consumers using debt management plans. Our focus is on comprehensively reforming regulation of this sector, as part of our wider reform of consumer credit regulation. Consumers participating in debt management plans are far better protected under the new FCA regime. The FCA has introduced a range of binding rules designed to protect consumers; it has made it clear that fees should not undermine the customer’s ability to make significant payments to the creditors throughout the duration of the debt management plan.
The FCA is thoroughly assessing every debt management firm’s fitness to trade as part of the authorisation process—a process that is already under way. Firms that do not put their customers’ interests first and comply with the FCA’s threshold conditions will not be authorised. The FCA is also undertaking an in-depth thematic review of the debt management sector. The Government therefore firmly believe that the new FCA regime will deliver—and is already delivering—a cleaned-up debt management market that is able to meet consumers’ needs in supporting them to deal with their debts.
The noble Lord suggested that the FCA review lead generators for debt-management providers. The FCA is undertaking this in-depth review of the sector, including looking at how use of these lead generators may be affecting consumers, so that is all part of the mix. I would be very grateful if the noble Lord would consider withdrawing the amendment.
Lord Stevenson of Balmacara
I thank the Minister for her very considerate response. It is a very complicated area, one that is in much flux, but I do not think that that should just be taken as a given, because the pressures, the pain and the anxiety that all this causes to vulnerable consumers—and also to ordinary people who are not necessarily too vulnerable in the conventional sense—are very substantial. We must always think of them as well as of the broader points that have been made in response to the amendments.
My central point, which, with respect, I think the Minister did not mention, is our increasing concern about the difference between saying that consumers’ interests are at the heart of the operation—which I absolutely accept is like a piece of rock built right through the FCA; you cannot have a conversation without it saying how much it puts consumers at the centre of it—and the reality that the measures that it uses in its day-to-day work are about market efficiency and fairness. I am not saying that that is wrong: I am just saying that I am not entirely sure that this is a one-to-one fit. Establishing a market involving payday lenders that is efficient and fair, may not remove the detriment that the remaining payers will be caused. I do not think that there is an easy answer to that; it is just something that we all should bear in mind when we think about how we regulate these matters.
Lord Stevenson of Balmacara
My Lords, we should all pay tribute to the amazingly long and trenchant campaign that has been waged by the noble Baroness. I have sat through most of her attempts during the past three or four years to get movement on this. Her arguments grow with every year and add new dimensions. Often, as she has done today, she offers a lifeline to the Government if they want to take it. It is always sad that they do not seem to be able to see the points that she is making or act on them. It occurred to me when she was speaking that it is a big pity that the Bill is arranged as it is. She ought really to appear at Halloween as an eerie ghost rattling her chains and saying, “Remember the financial transactions blocking”. Ministers would all shake and shiver in their shoes and be unable to respond without fear and trembling. I realise that that might apply to us if we are so lucky as to win the next election; she may come back to harass my noble friend or even me if we are in a similar position, so perhaps I shall wipe that away.
This is serious stuff. I recall being given the hope by the Minister in charge of the gambling Bill, when we were pursuing similar lines, that such a measure would be the right approach. The noble Baroness is absolutely right to bring it back at this stage; that is entirely in line with what was said then and the advice that was given.
The gambling Bill was a small, modest measure which was not expected to take up much time in the House or to carry much weight. It was deliberately sold to us as a measure that would be of great advantage to all concerned if it could slip through quickly because it was dealing with the particular issue of bringing back onshore the gambling bodies that had moved offshore. They were offering offshore opportunities for people to gamble; if they were onshore, they would be subject to the regulatory process.
Of course, we were happy to support that, but we were also able to make it a bit better by adding a few things during the process. It was clear in that process that the Bill was largely doing an awful thing that occasionally occurs in government: willing the ends of policy but not the means. The end of the policy is that we do not want people who are not regulated and not operating according to the rules within this country still to reach out to gamblers in United Kingdom. To achieve that, obviously there must be some mechanism by which we can pursue them. That is either by blocking their internet activities—these people operate in small foreign territories without fear of being pursued, so that is completely fanciful—or by ensuring that the financial arrangements, which are the lifeblood of their operation, can be blocked.
It is a matter of some irony that only yesterday we were discussing—in this very Room but on a different Bill—those who have had their intellectual property traduced by other companies in the internet world, otherwise known as copyright theft. We were investigating the best way of ensuring that those who owned intellectual property and had it stolen could seek remedies through the courts to make sure that the abuse was stopped and damages paid. It turned out that there were two pieces of statute that were possible to use. One was brought in long before the internet was as widely used as it is now—the Copyright, Design and Patents Act 1988 —and the other was the not yet fully implemented Digital Economy Act 2011, of great memory. This had specific clauses for regulations to be brought forward to allow the courts to block internet sites that were abusing copyright.
I would argue, on the basis of that experience, that this is something that is coming. Here we have a situation where, we are told, more than 40 blocks of this type were made last year. The Minister who responded to the debate was very proud of the fact that the Government had a mechanism in place to deal with internet abuse of the type specified in relation to copyright. This could be read across to those engaged in illegal or unregulated activity relating to gambling in the UK. Why is it not possible to use the experience that has been gained through this process to answer the questions of the noble Baroness, Lady Howe, about how to make sure that we are able to provide the means of delivery for the desirable policy aims included within the gambling Bill?
Baroness Jolly
I thank the noble Baroness for the amendment. We have met before on this issue, and her involvement and advice on this matter has helped us to make progress, which I am going on to explain. This amendment relates to the enforcement of the Gambling (Licensing and Advertising) Act 2014, which also has consumer protection as its primary focus. The issue of enforcement was extensively debated during the passage of the Act. I wholeheartedly agree that effective enforcement is essential to deliver the consumer protection aims of the 2014 Act.
Earlier this year I announced in the House that the Gambling Commission had reached agreement with major payment systems organisations—MasterCard, Visa and PayPal—to work together to block financial transactions with unlicensed operators. It is worth teasing some of this out for noble Lords, because MasterCard, Visa and PayPal cover the vast majority of relevant financial transactions. The noble Baroness mentioned the others but, although they might not appear in the list, the other payment service providers also use Visa and MasterCard. The branding might not be there but, behind the system, the actual infrastructure will be Visa or MasterCard. Reputable and legally compliant payment service providers are unlikely to have any greater interest in facilitating unlawful activity than the major providers have.
The noble Baroness raised a point about organisations being legally obligated in common law not to process transactions of any illegal provider. The terms and conditions of Visa, MasterCard and PayPal require that all transactions must be legal in all applicable jurisdictions. I hope that that has clarified that issue.
Since then, the Act has come into force, but only a few days ago on 1 November. I am able to confirm that the arrangements for disrupting illegal financial transactions are now in place. We believe that these arrangements offer the best solution and will disrupt revenue to unlicensed operators selling into the British market. They enable the Gambling Commission to take swift action against illegal operators; outside of a rigid legislative framework, these arrangements can adapt to tackle the very latest developments as technology changes.
The Government believe that working in partnership with those organisations towards a common goal of tackling illegal activity is the most appropriate way to proceed. No payment system organisation wants or can afford to be associated with illegal activity. I am sorry if the noble Baroness does not remember that from the previous Bill but it was certainly something that I was aware of; I am almost certain it was mentioned in Committee or in the Chamber on Report. However, we are not complacent on this issue and it is right that it is kept under scrutiny. The Gambling Commission will provide in its annual report to Parliament, which will be tabled each July, an assessment of the effectiveness of these arrangements in enforcing the 2014 Act. That will enable the Government to ensure that the Gambling Commission continues to have all the enforcement tools that it needs.
I thank the noble Baroness for her extensive input on this important issue, but, given the action taken and my reassurances, I ask her to withdraw her amendment.