Lord Stevenson of Balmacara
Main Page: Lord Stevenson of Balmacara (Labour - Life peer)Consumer Rights Bill
Lord Stevenson of Balmacara Excerpts“Consumer credit: bill of sale
(1) Where a person is a purchaser of goods subject to a bill of sale, made in connection with a regulated agreement under the Consumer Credit Act 1974, in good faith and without notice of the bill of sale, title to those goods shall pass to that person.
(2) A creditor is not entitled to enforce a bill of sale made in connection with a regulated agreement by recovering possession of the goods except through an order of the court.
(3) If goods are recovered by the creditor in contravention of subsection (2)—
(a) the bill of sale will be treated as invalidly made; and(b) the debtor shall be released from any outstanding liability under the regulated agreement.(4) If the creditor has disposed of goods taken in contravention of subsection (2), the debtor shall be compensated to the value of those goods.”
Lord Stevenson of Balmacara (Lab)
The amendment stands in my name and that of my noble friend Lady Hayter of Kentish Town. I declare my interest as retiring chair of the charity StepChange. Your Lordships’ House will be well aware of the considerable influence that it has had in curbing the explosion of high-cost credit that has so disadvantaged consumers in recent years. However, there is more to do.
The purpose of the amendment is to level the playing field on logbook loans by requiring the lender to obtain a court order before repossessing goods being repossessed by this archaic system, which uses legislation first introduced in 1878. A logbook loan is a bill of sale securing a loan on an asset, often a vehicle, and it gets its name from the fact that the lender retains the vehicle’s logbook or vehicle registration certificate, the V54, until the loan and any outstanding interest are repaid. Logbook loans are another form of very high-interest credit, and share with payday loans the use of unfair terms and conditions. They tend to be used by people who have bad credit ratings but need cash quickly. If you check them out on the internet you will find that an application for a logbook loan can be completed in as little as 15 minutes.
Recent research shows that logbook loans secured by a bill of sale are generally for amounts ranging from £500 to £2,000; the average is about £1,000. They are typically repaid over a six to 18-month period. The APR varies, but tends to range between 200% and 500%. These are not cheap loans.
It is the use of a bill of sale that causes the most difficulty. The legislation governing such loans, which dates from Victorian times, means that, uniquely in the high cost credit market, the lender can repossess the debtor’s asset—the vehicle—without a court order. We need to change this, to level the playing field. Bills of sale are already illegal in Scotland. Should we not take a leaf out of its book?
The history of this is interesting. After reviewing the position in December 2009, the previous Government proposed to ban the use of bills of sale for consumer lending, but, after the election, the coalition Government decided not to go ahead but to rely on a voluntary code of practice. Recent research by Citizens Advice shows that there is likely to be a 60% increase in bills for sale registered from 2011 to 2014. We believe that it is now time to stamp out this arcane practice. The Victorians had much to commend them but this legislation is not their finest monument.
When we raised this issue in Committee, the Government response was twofold. First, the Minister confirmed that the Law Commission has agreed to a request from Treasury Ministers to look at how best to reform bills of sale. This is indeed somewhat ironic, given that we had a debate only yesterday on Schedule 20 to the Deregulation Bill, when the Government were rather limply trying to defend their decision not to ask the Law Commission to review acres of what they call “legislation no longer of practical use”. However, this process will take time and unless the noble Baroness has some more information to share with us, it seems highly likely that this issue will not get into the next Law Commission Bill, which is unfortunately not due until 2016. The Government also pointed out that the FCA is in charge of this sector of consumer credit and mentioned that it had defined logbook loans as “higher risk activities”. That is certainly not wrong but when, oh when, will they get around to doing something about it?
As we found with payday lenders, it does no harm to give the regulator a bit of a push when you think that it may not get to the right place quickly enough. Consumer detriment is happening now and it ought to be stopped, so our amendment follows the approach that the House took to capping payday lending, as a sort of regulatory push. As well as welcoming the promised robust action by the FCA, we think it is appropriate to hasten it on its way. If loan book lenders have to use the courts to repossess goods, it will level the playing field with the other consumer credit operators and make it more likely that many will exit the market. That would be “job done”. I do not believe that the actions being proposed by the Government are sufficient to outlaw this scourge in good enough time. Our amendment will strengthen protections for consumers using logbook loans. I beg to move.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, before turning to Amendment 1 in detail, I would like to take a step back and set out why the Government do not believe that this Bill should be the vehicle for addressing issues in consumer credit and financial services more generally.
First, as noble Lords will be aware, the Government have introduced a major package of reforms to strengthen regulation of financial services markets. In the Financial Services Act 2012, we replaced the flawed system of financial regulation that we had inherited. We created the Prudential Regulation Authority to take the lead in ensuring that our banks and our insurers are safely and soundly run. We also set up the Financial Conduct Authority—FCA—as a consumer protection and market conduct regulator.
To ensure that the FCA has a clear and comprehensive remit covering all consumer financial services matters, we transferred the responsibility for regulating consumer credit from the OFT to the FCA. This means that the FCA’s statutory objectives, such as consumer protection, apply to the regulation of consumer credit. It also means that the FCA’s comprehensive and flexible rule-making powers can be used to help protect consumers from bad practices in the consumer credit market for the first time. For example, the payday lending rules introduced by the FCA have meant that the volume of payday loans has shrunk by 35% since the FCA took over regulatory responsibility in April 2014, demonstrating the strength of the regulatory regime. The Government therefore consider that the Consumer Rights Bill is not the place for making amendments to the law on consumer credit.
I turn to the detail of the amendment. Across government, we share concern about the risk to consumers from logbook loans, which were well described by the noble Lord, Lord Stevenson. The Government believe that people should be able to borrow and should have the tools to make an informed decision about which credit products are right for them but that consumers should be confident that they will be treated fairly when things go wrong. As I have said, responsibility for consumer credit regulation, which includes logbook lenders and the associated arrangements, transferred from the Office of Fair Trading to the Financial Conduct Authority on 1 April. Consumers are far better protected under the stronger, well resourced FCA regime.
Like payday loans, the FCA defines logbook loans as “higher risk activities”, as has been said, so lenders face closer supervision. Logbook lenders are subject to a range of binding FCA rules, including requirements to provide precontractual explanation to borrowers of their rights before any agreement is signed. The Government have ensured that the FCA has a wide enforcement toolkit to take action where its rules are breached. There is no limit on the fines it can levy and, crucially, it can force firms to provide redress to consumers.
Lord Stevenson of Balmacara
My Lords, I thank the Minister for that very full and positive response. I am glad that she reaffirmed that the FCA is doing all it can in this matter and that the Law Commission, even at its somewhat leisurely pace, is going to be moving in on this area. Clearly the field is moving, and that is a good thing, but is it not the case that although the FCA can do all it can about companies, their balance sheets, their terms of trade and their operations, it does not have the power to make primary legislation, so it therefore cannot abolish bills of sale, nor can it require that any lending agreements should introduce court orders? We have a gap, a lacuna, between now and when the system kicks in, during which time the playing field is not level, the lack of a court order creates a significant imbalance between the consumer and the lender, consumers have fewer rights, and logbook loans will continue to cause severe consumer detriment. It is time to act. I wish to test the option of the House.
Baroness Jolly
My Lords, the Bill sets out key remedies for consumers but the Government recognise that it is also important that consumers are not discouraged from exercising them. These amendments relate to the costs of returning rejected goods to the trader. It is important that such costs do not put consumers off rejecting goods. We debated this issue at some length in Grand Committee.
We listened to the point made by the noble Baroness, Lady Hayter, and the noble Lord, Lord Stevenson, and agree that it does make sense to make it clear on the face of the Bill that the trader bears responsibility for the return costs. These two amendments provide that clarity and set a sensible balance. The trader is responsible for any reasonable costs of the consumer returning rejected goods. This would apply whether or not there is an agreed requirement for the consumer to return rejected goods. The amendments do not cover the costs of the consumer returning the goods in person to the place where the consumer took physical possession of them. We think that these are sensible amendments that meet the needs of consumers by making the law clearer without a causing significant burden to business. I beg to move.
Lord Stevenson of Balmacara
My Lords, I am extremely grateful to the Minister for accepting the words that we used when we proposed the amendment the first time around. It does not happen very often; I will relish this experience. It is a curious irony that, in Committee, in the place where I had to sit in the Moses Room—I am sorry to take up the time of the Chamber in this way—the Minister responding was framed against the television on which, as noble Lords may now remember, those little swinging bells had just been introduced. It struck me that it was Christmas: it felt like Christmas. However, her words did not say, “Christmas”; they said, “No, go away; this is silly; this is already in legislation”. Now she has changed her mind and come back. I am so pleased.
Lord Stevenson of Balmacara
I am sorry to interrupt the noble Lord but I want to point out two things. First, the noble Lord spoke warmly about newspaper proprietors and what a wonderful thing it is that we have a rule in this country that editors should always be named so that they can be sued for libel. That has just been deregulated. Secondly, it was a Conservative Government who introduced the requirement to regulate chocolates.
Lord Deben
There may be regulations which, when people did not do it, you need. I think that if the Daily Telegraph took its address off, we would be able to find it. We would not be in too much difficulty with newspapers today. The problem here is that these websites are in the same position as newspapers were in those days, when there were a very large number of them, they were run off by hand and people did not know whence they came. I think that that explains the difference between now and then: the world changes and it moves quickly. I used the example of liqueur chocolates because it was always silly to have liqueur chocolates under the rules. I do not know which party proposed it, but whoever it was should be ashamed.
I finish with the real reason I wanted to stand up and talk about this. Britain is increasingly the centre of a very large tourist trade. London is the only world city, in a real sense. We have the glory of the most diverse society with the most wonderful opportunities. We should be saying, every day, “Thank goodness we live in this great country and in this great city”. Therefore, we must ensure that we protect the brand. I do not want to be vulgarly capitalist, but let us protect our brand.
I want us to be a major force in the European Union, where we are properly at home, but I want people coming from the rest of the European Union to feel that we protect them when they buy tickets here, when they buy them from abroad and when they come in from the EU and beyond—I want our American and Australian friends to feel that they can do this safely. The Government have a very simple way of doing this, which is to accept the amendment. I very much hope they will.
Lord Grade of Yarmouth (Con)
My Lords, I declare an interest as an occasional West End producer who tries to flog a few tickets here and there. The secondary market has been with us for many years. I well remember in my youth assisting in a Royal Variety performance and my job was to get the artists lined up on the stage to be greeted by Her Majesty after the performance. I stuck particularly close to the late and rather wonderful Tommy Cooper, who was somewhat uncontrollable; he was told very clearly—as all the artists were—not to speak to Her Majesty until the conversation was opened by her good self. Of course, however, as Her Majesty approached Mr Cooper, he jumped in and said, “Your Majesty, do you like football?”. Her Majesty replied, “Actually, not terribly, Mr Cooper”. He said, “Can I have your Cup Final ticket?”.
Whether this is an early example of the secondary market, I am not sure; but what is clear to me from listening to this debate is that the secondary market is alive and well and needs to be encouraged. The proponents of this amendment are seeking not to attack the secondary market, but to encourage it and legitimise it, and to help the sports bodies and promoters who create the events for which there is demand for tickets to manage them so that there is not £1.5 billion-worth of fraud. This is an attempt to attack tickets that do not exist; it is not an attempt to attack the secondary market. There is clearly a very serious problem here: people are being defrauded; the law is clearly deficient. If the Minister sets the Government’s face against this amendment, it is incumbent on them to acknowledge that there is a problem here and come forward with a solution of their own. This is easily the best solution that I have heard; it has the support of the people who create the events and have the interests of their consumers at heart. I sincerely hope that the Government—if they are unwilling to accept this amendment—will come forward with proposals of their own to deal with the £1.5 billion-worth of fraud that has been going on too long.
Lord Stevenson of Balmacara
My Lords, I echo the words of those noble Lords who have said that this has been a very good debate: it has indeed been good and it is right that it should have been, because it raised difficult issues with which the Government have been grappling. The predominant weight of the arguments that we have heard today—because they were not universally on one side—was for change, so I hope that that will weigh heavily with the Government when they come to consider what they are going to do.
I had a full speech here, full of witty aphorisms and wonderful evidence, but you always find that in debates of this nature, somebody stands up and says, “Do you know, just about everything that could be said about this thing has been said, but not by everybody,” and then they repeat them. I am not going to do that. The issue on which I want to reflect is what on earth the Government are going to do with this. When you have had your case as put in Grand Committee completely destroyed by the forensic words of the noble Lord, Lord Moynihan; when you have had your best arguments bashed to boundary by the noble Baroness, Lady Heyhoe Flint; when you have reduced the noble Lord, Lord Clement-Jones—and it is an astonishing thing—to speak for less than three minutes in a debate; when your former Secretary of State is lining up to give you good advice about how you should deal with this, then you are in a spot of trouble.
You know you are in trouble when you have to rely on people on the other side who are basically scaremongering. I respect the noble Lords who have spoken in support of the Government on this matter, but I think they went way over the top, while we on this side were utter models of restraint. We insisted on only two things: that the equity that should exist for anybody who wishes to buy tickets is not abolishing, changing or adjusting any market; I thought that the noble Lord, Lord Grade, made that point very well, and it was previously made by the noble Lord, Lord Holmes, who picked up the point made by the noble Baroness, Lady Heyhoe Flint. Instead, it is about making those markets that exist work fairly, removing the fraud where it is possible, and making sure that people can see and get access to the events they want. When you have consumers, event organisers, participants and the police—for goodness’ sake—on your side, what on earth are you doing, and who are you listening to when you stand against them?
Baroness Neville-Rolfe
My Lords, many of us love British sport and our creative industries. This love unites most of us in the House and certainly those in the Chamber today. As the noble Lord, Lord Stevenson, said, it has been a very good debate. We have had a star cast, including ladies of sport—the noble Baronesses, Lady Grey-Thompson and Lady Heyhoe Flint—and the noble Lord, Lord Holmes, so we have had real experts.
Noble Lords will know that I take a great deal of personal interest in this issue. In fact, I should almost declare an interest as a mother of three cricketers. I have met the England and Wales Cricket Board, the organisers of Wimbledon and the Rugby Football Union. I have also met Which? and I am aware of the interest of UK Music, which I meet on other things. I have actively engaged with Mike Weatherley MP and his All-Party Parliamentary Group on Ticket Abuse. I have been working with these bodies to try to get to the core of this issue: what we can best do to help and protect the fans? It is the fans who really matter in this equation.
I congratulate the noble Lords, Lord Moynihan and Lord Clement-Jones, and the noble Baroness, Lady Heyhoe Flint, on their extensive work on this issue and the expertise they always bring to our debates. Most fans buy tickets direct from the venue or the organiser, often well in advance of the event. To pick up a point made by the noble Baroness, Lady Heyhoe Flint, debenture holders and sponsors often get ticket allocations well in advance, which is why there are sometimes tickets on sale well ahead of events. A lot can change between a ticket being bought and the event itself—people fall ill or make other plans—and these fans then resell their tickets to other fans. This is the market we are discussing today, for which there has been great support. I agree with the All-Party Parliamentary Group on Ticket Abuse when it says that,
“the existence of a secondary market is justified by the need of consumers to pass on tickets bought for events that they can no longer use”.
Let me be clear: we believe fans should be protected in this market.
If the House will bear with me, I will respond to the debate and will then set out some new plans to take things forward. The noble Lord, Lord Moynihan, talked about fraud. Fraud is a criminal offence under the Fraud Act 2006. It covers activity by all sellers, including consumers and traders. Many of the actions referred to are fraud: selling tickets you do not have and have not purchased is fraud; traders impersonating consumers to sell tickets are committing criminal offences; and, arguably, selling tickets knowingly in contradiction of their terms and conditions without informing the consumer of this may be fraud.
Repeating in the Bill that fraud is a crime would not make it any more illegal. What matters to fans, and many of your Lordships, is enforcement of the law that we have. There is fraud in the ticket market: we do not dispute the numbers quoted from the National Fraud Authority on this. In the specific case of ticket fraud, it reports £1.5 billion of losses. That is not a number to be ignored and we are not going to ignore it. As my noble friend Lord Grade said, there is a serious problem.
The Government have a huge focus on cutting economic crime, and we have created a powerful Economic Crime Command within the National Crime Agency to drive this forward. We have also strengthened the reporting and intelligence arrangements for fraud. ActionFraud is now the single national reporting centre for fraud and financially motivated cybercrime. Since 1 April this year, responsibility for ActionFraud rests with the City of London Police, bringing it closer to the National Fraud Intelligence Bureau. This allows links to be made between disparate crimes that would otherwise not be connected and it has led to a significant increase in the reporting of fraud. The Government are also investing £860 million through the National Cyber Security Programme, which includes work on online fraud.
“( ) Digital content as defined under section 2(9) shall carry the same rights as goods under this Act.”
Lord Stevenson of Balmacara
My Lords, Amendment 16 stands in my name and in the name of my noble friend Lady Hayter of Kentish Town. Digital sales are booming and the digital music, video and games market now accounts for 43% of the total UK entertainment sector. Recent research puts the UK as the leading European country for total digital spent per capita. This is indeed the future.
The main focus of Amendment 16 is the question of whether, when digital content is provided in an intangible form and does not meet quality standards, the consumer should, as the Government propose, be restricted simply to a right of repair or replacement. We believe very strongly that, in addition, the consumer should in such cases have both a short-term and a long-term right to reject the digital content. The Government’s argument is that where digital content is downloaded or streamed, it is not provided on a tangible medium and therefore cannot be returned in any meaningful sense. Passing over the obvious metaphysical absurdity of believing that only physical objects can be meaningful, that is inconsistent—not least because consumers will have a short-term and a long-term right to reject the identical digital content if it is bought on a tangible medium, such as a DVD or CD.
As the BIS Select Committee commented when it was reviewing the draft Bill:
“The different remedies available for tangible and intangible digital content in the bill would … embed inconsistency into consumer law. Consumers experience intangible digital content in the same way as tangible digital content, as a good, and therefore would expect to be able to reject it and receive a refund if the statutory rights are not met”.
Well, they can get a refund, but they cannot reject it. It cannot be sensible for the Government to be sanctioning two different regimes for tangible and intangible goods and services, and I very much doubt that the courts will support that.
The department has produced and circulated a useful note on this whole issue, for which I am very grateful. I am also grateful to the Minister, who wrote to me after the debate we had on this issue in Committee. That was also extremely helpful and informative. However, it is a question of consistency and equity not whether we can analyse this or parse it to the last extent. The right thing to do here is to provide the same rights for all faulty purchases, tangible or intangible, while recognising that any short-term or long-term right to reject needs to be matched by a requirement placed on the consumer to delete the content and, if that is impracticable, to desist from use or copying. There are already remedies in law that would match this issue.
The BIS adviser on this issue, Professor Robert Bradgate, who sadly, I recently learnt, died before he could see his recommendations implemented, recognised that problem in his initial report and suggested that it should be tackled by,
“an extension of the definition of goods to apply provisions of the Act both to goods, and to digital products … and to include power in the … legislation for Her Majesty’s Secretary of State to apply the Act by Statutory Instrument to new developments as they arise”.
That remains good advice. I beg to move.
Lord Clement-Jones
My Lords, I am not sure whether the noble Lord, Lord Stevenson, will thank me for making an even shorter speech than I made in the previous debate. I must say that my breath is somewhat taken away by the sweeping nature of the amendment, which tries to sweep all digital content into the clauses on the sale of goods. The software industry may have some difficulty with some areas of Chapter 3 on digital content, but if what the noble Lord wants happened, it would be horrified. The dialogue between the software industry and the Government may not have produced everything that the software industry wants, but it has recognised that digital content is very different. I forewarned the noble Baroness, Lady King, that I would cite her. Like me, she said:
“I will not speak at length on this amendment or the other amendments … but it seems worth reiterating the peculiar nature of digital content”. [Official Report, 20/10/14; col. GC 183.]
Although I do not have the exact reference, I entirely agree with her. The noble Lord, Lord Knight, made similar points about the peculiar nature of digital content. It would be an extremely retrograde step to sweep up the additional content in this. If the noble Lord had come with individual amendments to the clauses to bring digital content in, I might have been more sympathetic, because one then could have seen the exact consequences of the amendments, but the consequences of this amendment could be quite unforeseen and extremely contrary to the interests of the strong and vibrant software industry that we have in this country.
Baroness Neville-Rolfe
My Lords, the Bill brings in clear quality rights for consumers of digital content for the first time. In this digital age, many of us are consumers of digital content on our smartphones, our smart televisions, our computers and, I was hearing this morning, on wearables. The sector is crucial and growing for the UK economy. The Business Population Survey estimated that there were more than 300,000 digital content firms in 2013—e-book publishers, games, software and website developers—with an annual turnover of just over £200 billion. It is vital that we have the right sort of regulation for that important, very innovative sector. That is why we have consulted widely on our approach to digital content.
The digital content chapter provides that when digital content is faulty, the consumer is entitled to a repair or replacement of the digital content. If that cannot be done within a reasonable time, or without significant inconvenience to the consumer, the consumer is entitled to a price reduction, which may mean some money back or, in some cases, 100%. I set out the general picture because we are about to discuss a number of amendments in this area.
This approach takes account of the way that industry works. As my noble friend Lord Clement-Jones, who I am delighted to see here at this debate, said in Grand Committee,
“in practical terms the software industry will always find a workaround or fix to a problem”.—Official Report, 20/10/14; col. GC 211.]
I have been using that quote elsewhere. In other words, when digital content is faulty, the problem is usually remedied quickly through an update.
The proposed amendment would apply to intangible digital content the same rights as apply to goods. So when intangible digital content is faulty, the consumer would also be entitled to a short-term right to reject, a limit to a single repair or replacement, and a final right to reject. Applying the full suite of goods remedies to digital content where it does not form part of goods, as it does in a washing machine, for example, would result in provisions that were not fit for the digital world.
We want provisions that encourage an increase in uptake and allow industry to innovate and flourish. This amendment would be a retrograde step, to the detriment of consumers. As the noble Lord, Lord Knight, who has already been quoted as a real digital expert, reflected in Committee, we must remember that many digital content producers are micro-businesses and start-ups, and we need to maintain an environment in which they can flourish and provide innovative products—while, of course, not letting them off the hook for substandard offerings.
The noble Lord, Lord Stevenson, made a number of good points, but I feel, as does my noble friend Lord Clement-Jones, that the proposals in his amendment could have unforeseen effects. A short-term right to reject intangible digital content and strict limits on the numbers of repairs and replacements would not be practical in the complex world we live in. In the digital environment, a fault in one copy of digital content may be replicated in all copies, or the fault may not be a result of an action by the trader at all. That is why a repair is a more equitable solution in the first instance than a full refund.
There are also issues around the practicality of “returning” intangible digital content. I think the noble Lord, Lord Stevenson, is suggesting that there should be an obligation on the consumer to delete digital content and on the trader to provide a refund. I do not believe it would be equitable or necessary to impose such a burden on consumers, who may not be technically savvy enough to achieve this—or not without assistance from the content supplier. Of course, many forms of digital content are quickly used, so the consumer may already have taken advantage of the digital content as much as they intended—for example, having viewed the film or read some of the e-book—before they reject it. There is a high risk that a short-term right to reject would therefore push manufacturers towards more restrictive data management techniques that would not be in the best interests of the consumer. Or it could cause the industry to be more conservative in its product offerings, reducing our competitiveness. Innovation would be chilled.
Looking to the future, it is also worth considering the moves in Europe towards a digital single market, and remembering that digital content is commonly sold across borders. The short-term right to reject is a domestic law; there is no short-term right to reject in the consumer sales directive from which many of the goods remedies derive. If we went ahead with a short-term right to reject intangible digital content, we could be out of step with Europe, creating problems for our manufacturers who want to sell across borders.
I believe that, although there are attractions in providing a short-term right to reject for digital content where it does not form part of goods, this would tip the balance of the Bill too far the wrong way. Indeed, it would be to the detriment of consumers, who would suffer from, at the very least, restricted product offerings and higher prices. I therefore ask the noble Lord to withdraw his amendment.
Lord Stevenson of Balmacara
I thank the Minister for her full reply. I would like to come back on one or two of the points that she mentioned. I also thank the noble Lord, Lord Clement-Jones, for coming at me with rather less venom than he threatened me with outside the Chamber beforehand, when he implied that I would be mad even to stand up and make my speech. The bark was rather worse than the bite on this occasion, particularly as I have now discovered that, even though he had the correct item in his hand, he misquoted my noble friend Lady King. My noble friend is incredibly adept on the iPad, and was able to summon up the full quote, and of course it was about a different issue. I shall have words with my noble friend Lord Knight later: he gets quoted too often on these issues and, as I have discovered, he is not always sound on some of the points that we want to put through.
Lord Clement-Jones
My Lords, my noble friend was kind enough to quote me in her previous response, so I hope that she will go even further than that and accept an amendment from me. One lives in hope. I am indeed returning to the fray on the subject of software. I hope that when the noble Lord, Lord Stevenson, reads Hansard he will realise how accurate my quote from the noble Baroness, Lady King, was.
Lord Stevenson of Balmacara
I did not say it was inaccurate; I just said that it was not the complete phrase as recorded. The reference that my noble friend showed me was to bug fixes; it was not about the particularity of the need for a separate regime for returning material to digital suppliers because it was defective in some way.
Lord Clement-Jones
Logically, one thing follows another. That is exactly the purpose of this amendment. Indeed, I shall refer again to the speech made by the noble Baroness, Lady King, on 20 October, as recorded at column GC 183 of Hansard. It has been extraordinarily helpful in formulating the terms of this amendment.
Let me explain. Amendment 34, tabled in Grand Committee, sought to amend Clause 34 to include a provision stating that it is common for computer software to include defects due to its dynamic nature and the complex environment in which it operates. In response to that amendment my noble friend Lady Jolly asserted that,
“the Bill is flexible enough to cope with”,
the differences between complex software and simpler forms of digital content such as music. She said that “reasonable consumers” understood that complex content contains bugs, and that,
“freedom from minor defects is an aspect of satisfactory quality only ‘in appropriate cases’”.—Official Report, 20/10/14; col. GC 184.]
The Minister was clear about this in Grand Committee, but, as the Federation Against Copyright Theft has said, it is far from the case that a district court or a county court would be clear about it.
In the debate, the noble Baroness, Lady King of Bow, suggested that,
“it seems reasonable to say that where minor defects in software do not affect the overall functionality of the product, that digital content should not be deemed unsatisfactory”.—[Official Report, 20/10/14; col. GC 183.]
I agree—and the software industry agrees, and very much supports this approach, as it is much more outcome based. We have reformulated the amendment as a result, and it now says that as long as the defect does not affect the main functionality of the digital content, it should not be regarded as rendering it unsatisfactory.
My noble friend Lady Jolly questioned in Grand Committee what the driver for industry would be to improve the software if the legislation stated that some types of software contain bugs and, as such, this would not mean that the digital content was faulty. However, it is in industry’s commercial interest constantly to improve its products. In fact, to the contrary, the clause as formulated might have an adverse effect in encouraging industry not to make changes or improvements to its digital content. The consequences of strict compliance are likely to be increased costs to consumers and slower product evolution, arising from the increased time and resource required for testing. It is preferable for consumers and businesses to require that minor defects or malfunctions that may surface as a product or service is used be fixed as promptly as possible.
Amendments 18 and 19 aim to remove the risk of claims in relation to minor software glitches. Such claims are potentially expensive and time-consuming for software providers to resolve and would not benefit consumers. In Grand Committee, Amendments 37 and 38 sought to amend Clause 36 to clarify that the presence of bugs in complex types of digital content does not mean that the content is not as described. My noble friend Lady Jolly responded by commenting that,
“digital content either meets the description or … not”,
and that the amendments would undermine,
“the requirement that the digital content should be as described”.—[Official Report, 20/10/14; col. GC 186.]
My noble friend provided a simple example of a defect in software where the spellchecker no longer worked yet the software was described as having this function. With all due respect, the spellchecker example is very simplistic. It is a different situation with regard to complex software such as security software, which has to evolve over time and needs to be updated to address the myriad situations to enable the software to continue to interface with other third-party software and platforms, to continue to function or to address new vulnerabilities.
These issues were discussed during the debate in Grand Committee on Amendment 40A, moved by the noble Lord, Lord Haskel. His amendment would have amended Clause 40 to enable suppliers to make modifications to the software if they are of benefit to the consumer, remedy risks or improve functionality, irrespective of whether the modification would mean that the digital content no longer meets that description. I am pleased that the Government have partially relented on that and that, as a result, we now have government Amendment 20 to Clause 40. The supplier can now add functionality but software suppliers will still not be able to remove features. Neither Clause 36 nor Clause 40 takes into consideration that certain features may have to be removed or disabled from security software. Suppliers of security software may have to remove a function as it is in the very interest of a consumer to do so, as the function could be vulnerable to attack and this specific vulnerability could leave the consumer open to a range of threats—from a virus that will steal personal information or credit card details to malware that will infect a user’s machine, rendering it unusable and/or wiping data such as precious family photos.
Functions of security software are not removed without good reason. If suppliers do not remove a function, there are many circumstances where this will be to the detriment of consumers. I hope that my noble friend will recognise the particular circumstances of software and give her approval at least to the tenor of these amendments. I beg to move.
Baroness Jolly
My Lords, this amendment reflects the dynamic nature of digital content. We all recognise that digital content changes to some extent over time when we receive updates to our software and apps. I listened carefully to the concerns raised in Committee by the noble Lord, Lord Haskel, and my noble friend Lord Clement-Jones that industry viewed Clause 40 as a potential barrier to providing improvements to digital content, and I am grateful for their careful consideration.
Clause 40 provides that following an update to digital content, that digital content must still meet the quality rights: satisfactory quality, fit for a particular purpose and as described. The provision that digital content should match the description was never intended to fix the digital content to a static point in time. That would not be an option that reflected the way updates work. We made it clear in the Explanatory Notes that there was nothing to prevent updates as long as the contract stated that such updates would be supplied. Moreover, the trader has flexibility in how they describe the digital content at the outset. For example, traders can make it clear that improvements are not precluded. However, the consumer should have some protections against digital content changes which remove features that they relied on when they made a decision to buy the digital content.
There is clearly an important balance to be struck here between the ability of the digital content industry to adapt, change and innovate in a fast-paced environment and the rights of consumers to get what they have paid for. This amendment aims to address the concerns raised in debate that the provision on updates as originally drafted could prevent traders improving digital content or offering flexible products. That is not an outcome that would be good for consumers. The amendment clarifies in the Bill that Clause 40 does not prevent traders adding new features or enhancing existing features as long as the original description is still met. I beg to move.
Lord Stevenson of Balmacara
My Lords, I welcome the Minister’s comments. She is right to have responded to the discussions we had in Committee. I am sure my noble friend Lord Sugar will be looking to hire her shortly, given how much she has responded to what he said through his surrogate, my noble friend Lord Haskel.
I shall ask a couple of questions because, although I am not against this, I am reflecting on the earlier discussions in Committee and the letter received on 5 November from the Minister in relation to free digital content. I am intrigued by her remarks, which are, I think, really about a situation where there has been a consideration—I assume money has passed—so we are talking about content that has been supplied because of a contract that has been established between a consumer and a trader. I am grateful to Pauline McBride of Glasgow University, who raised this point with me, and I shall put a couple of questions to the Minister which arise from the correspondence I have been having with her.
At another point in Committee, my noble friend Lord Knight mentioned that customers frequently supply non-monetary consideration for the supply of digital content. Promises and undertakings made by a consumer under a website terms of use are a good example. There is no doubt that clicking on terms of use or some form of conditions, for example, with a well known retailer would be an example of entering into an arrangement with a supplier of digital content, but is it a contract? If it is, clearly one or two of the things that the Minister said are going to be raised. If it is not a contract, because it is not a monetary consideration, then what exactly are we talking about?
The reason for worrying about this is that research suggests that providers of websites through which access is provided to digital content are applying terms and conditions, warranty disclaimers and indemnity provisions which limit the consumer’s rights. Providers may not be able to circumvent the statutory considerations —even limited to those in the Bill, which I object to them being—but consumers will not be able to get full redress if they have self-limited themselves through clicking on to terms of use created by the website which have somehow reduced the quality of the redress they can get from the original provider. I am taking a long time to describe this, but I hope the Minister understands the point I am trying to make. I am worried about consumers who are not paying a monetary consideration but who are engaging in a contractual arrangement with a website being excluded from normal redress provisions on the grounds that there has been no monetary consideration. If the Minister could write to me on that, I would be quite happy. There is also a question about what happens if the contractual obligations being placed are such that they would not be recognised under the Bill.
Baroness Jolly
I am happy to offer a full explanation to the noble Lord by letter, but I understand that the unfair terms provision still applies when there is a contract but no money is involved.
Baroness Jolly
During the debate on digital content that we had in Committee, I noted a number of concerns raised by my noble friend Lord Clement-Jones, who is not in his place, about the complex environment in which digital content works and the difficulty for the industry in ensuring that its digital content will work seamlessly in all possible configurations on a user’s device and will not have any unintended effects elsewhere on the device.
I am grateful to my noble friend for giving such careful consideration to this matter. As I have said before, it is essential that we strike a balance between providing an appropriate and workable set of protections to consumers in this growing area and the need to enable the industry to innovate and respond flexibly to changes in a fast-paced environment. I believe that the remedies provided in the Bill for faulty digital content are proportionate and appropriate. They provide that if digital content is faulty, the consumer will be entitled to a repair, an update or a replacement, or if that is not possible, some or all of their money back.
However, there is one area in the digital content provisions where statutory liability could extend beyond the price paid for the digital content, covering where the digital content damages the consumer’s device or other digital content, and that is in Clause 46. The clause was drafted to reflect negligence principles and to clarify that consumers have a right to compensation, even for free digital content, when it causes damage and the consumer can show that the trader failed to use reasonable care and skill to prevent the damage occurring.
Clause 46 was drafted to reflect negligence principles. It is therefore appropriate that the position on limitations to liability for Clause 46 is different from that for the quality rights provided in the rest of the digital content chapter. The amendment allows traders to exclude or restrict their liability for damage to the consumer’s device or other digital content to the extent that it would be fair under Part 2 of the Bill. This seeks to maintain the approach taken to this clause of reflecting negligence principles and bring it even closer to the current position on limits to liability. The amendment also corrects an error in a cross-reference in Clause 47(2). I do not think it appropriate, however, to extend this amendment to cover the quality rights in the rest of the digital content chapter. Consumers should clearly be entitled to a remedy for faulty digital content, and the remedies provided in this chapter are appropriate. I therefore beg to move Amendment 22.
Lord Stevenson of Balmacara
My Lords, I am becoming a single-trick pony, as I think it is called. I am going to ask again about free content and I hope that the Minister can give me some solace on it. We on this side are still worried about whether free digital content, generically, can be brought within the requirements of providing quality, fitness for purpose and conformity with description. I am still unclear about how this will work in practice because of the problem in consideration. Maybe that will be covered in the letter she has promised to write to me.
I have an additional worry about this, which is that there are often contracts for delivery of services that might fall into the type caught by the amendment and which may be from a manufacturer rather than from a particular provider of software. I do not wish to accuse any particular manufacturer but will take a well known brand which has a connection with fruit. If its terms of use were such that they were going to cause significant detriment to consumers, would it be possible for the Secretary of State, in extreme circumstances, to make an order specifically addressing the terms of use that were generically produced and always clicked into by people without, I suspect, ever being read? I am a little uncertain about how this bites—sorry about the pun—when we are talking about generic material which will probably be running hidden and not even ever recognised by a consumer, and is possibly free or has at least been delivered free of any additional charge, perhaps because it is an update or a fix. Is there something that could be done on this? I quite understand that it might take time to generate a response and I would be happy with a letter.
Baroness Jolly
I, too, am the digital person for the evening, so rather than trying to put something together here at the Dispatch Box, it is probably safer for all of us if I add it to my letter.