Baroness Hayter of Kentish Town
Main Page: Baroness Hayter of Kentish Town (Labour - Life peer)Consumer Rights Bill
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“( ) For the purposes of this Act, consumer notices are considered to be any information or requirements about the contract conveyed to the consumer before or during the commissioning of the contract by the trader which may reasonably be considered designed to influence the behaviour of the consumer.”
Baroness Hayter of Kentish Town (Lab)
My Lords, in moving Amendment 55A, which is in the name of my noble friend Lord Stevenson and myself, I shall also speak to Amendments 56FA and 56FB in this group.
Clause 62(2) states:
“An unfair consumer notice is not binding on the consumer”.
We concur with that, but we are concerned that the consumer notice should clearly include any promotions that are designed specifically to catch the shopper’s eye. We are also clear that in assessing whether something is unfair, the CMA should be able to include some elements of price where those have been hidden from plain sight—that is, if the consumers do not appreciate their significance at the point of purchase.
To some extent this amendment and those in the next group are part of our attempt to ensure that consumers should not fall victim to hidden traps in the traded standard terms and conditions, and that while some core terms and some charges are immune from any fairness assessment, that should not be the case where such terms or charges may influence behaviour or where they are not fully understood at the point of sale. The Unfair Terms in Consumer Contracts Regulations put the terms into two categories: those that a consumer will or can be expected to properly take into account when deciding to enter the contract; and those that he or she will not or cannot. It is the latter that can be assessed for fairness.
The Consumer Rights Bill narrows the scope of the price exemption following the somewhat unwelcome 2010 Supreme Court decision on bank charges, but still assumes that the consumer will behave like a rational economic person and take account of all prominent information. However, behavioural studies tell us that people are often far more influenced by presentation than by the information itself, or put more emphasis on salient rather than actually useful information. As such, even when a price or term is disclosed, consumers do not always factor that into their purchasing decision. They also tend to overvalue a benefit received now and underestimate the impact of deferred costs, which leads to an excessive willingness to pay at the point of purchase while underestimating the future use of the product, which may lead to future costs. Earlier in Committee we talked about a future fee, which a shopper may not consider relevant to them as they do not appreciate the likelihood of it affecting them.
Similarly, we know that consumers are influenced in their buying choices by a wide range of factors, which is what Amendment 55A seeks to cover. Indeed, it is interesting to note that one of the leading university departments specialising in behavioural economics—how consumers actually make decisions—the University of Warwick Business School, wrote to the Minister in the Commons on 7 October, saying that,
“simply providing consumers with information about a charge does not absolve the seller from the responsibility for ensuring the charge is fair and reasonable”.
The business school therefore asked that terms that are effectively “hidden in plain sight” should be assessable for fairness, but its wise words pertain also to other issues that might have been included in information put to shoppers with exactly the aim of tempting them into the purchase.
One example of this, which we know influences behaviour, is the choice of price times; in other words, when you find out about them. Research done in 2010 by the OFT shows that consumers make more mistakes and poorer purchasing decisions under what is known as “drip-pricing”, a form of partitioned pricing, where consumers see only part of the full price upfront and price increments then drip through the buying process. This can cause the most consumer detriment.
We all tell stories in this Committee. I was on the point of buying a walking jacket the other day because it was reduced to only £15. But as you get into it, you choose the colour, the size and whether or not you want a hood, and then you get insurance added on. The jacket was only £15 but the postage and packing was 1p short of £4. That is a very large amount to add on to the price but by that stage you have chosen the size, you have chosen the colour—it is a very clever way of selling. However, drip-pricing has a very negative effect on behaviour because we start our purchasing process before we see the whole price. Other offers, such as “take home today”, “easy to assemble”—I have fallen for that one—and “money-back guarantee”, are the ones that influence the buying process. We are not saying that they should be outlawed but they should be looked at for fairness.
Amendments 56FA and 56FB would amend the terms that cannot be assessed for fairness and replace them with,
“only where the price payable does not relate to future variable fees”.
Normally, price is absolutely not assessable for fairness, because it is assumed to be clear to the purchaser. It is up to them to decide whether to accept it and then it is part of the contract. However, future and unknown prices within a contract need to be assessable for fairness, as the consumer is not in a position to judge them and evaluate their worth at the point of purchase. I beg to move.
Baroness Drake (Lab)
My Lords, I support Amendments 56FA and 56FB. These amendments are not about extending consumer rights, so that more contract terms can be deemed unfair; they are about enabling more matters to be assessed for fairness. The problem arises because of the interplay of two provisions. The court may assess a contract term for unfairness unless it falls into a certain exempt category; and core terms in a contract are exempt from assessment for fairness by the courts if they are prominent and transparent.
Through this Bill the Government are clearly seeking to address the problem thrown up by the 2009 Supreme Court decision in the case of the OFT v Abbey National that held, as my noble friend has said, that charges for unauthorised overdrafts were exempt for assessment for fairness. This gave rise to uncertainty about whether ancillary charges could be assessed for unfairness. To use the Government’s own words, this created a situation whereby:
“Some protection in law is necessary because consumers often cannot, or do not wish to, investigate the detail of every contract term before they sign up to an agreement”.
This Bill provides for the “prominence” test for core terms in a contract to be exempt from assessment for fairness by the courts, but this raises other concerns. Prominence is very important and welcome, but its efficiency in providing a remedy both for unfairness and for a weak and ineffective market depends on how the consumer’s attention is drawn to a term and their understanding of its significance. As the OFT commented:
“Transparency alone cannot turn a substantially unfair term into a fair one”.
As the BIS Select Committee commented, bringing something to the consumer’s attention is not the same as a consumer appreciating its significance.
Prominence should not be operationalised in a way that gives too great a protection to traders in exempting contract terms for assessment for unfairness and too weak a defence to the behavioural bias that consumers demonstrate, so unfairly restricting their access to the courts for assessing the fairness of the term of a contract.
These amendments are clearly seeking to mitigate that risk by limiting the wide range of price terms that are immune from a fairness assessment. Consumer markets and products are becoming more complex, increasing the risk that consumers do not understand the significance of certain information. We have behavioural bias. We have asymmetries of knowledge and understanding between the trader and consumer that can actually create incentives for the trader to frame information in certain ways—a problem which the noble Lord, Lord Taverne, illustrated has not been remedied in 400 years.
The Bill may narrow the scope of the price exemption following the Supreme Court’s decision, but it does so on the assumption that consumers will take into account all information that is provided prominently. However, we know that that is so very often not the case. Consumer behavioural bias is very powerful. If the most important goal is buying a house or a holiday, people will focus less on the detail of the associated insurance policies. The closer that the consumer gets to signing something, the less likely they are to walk away or assimilate the detail. As my noble friend Lady Hayter has spelled out, the behavioural biases that consumers exhibit are very significant. At risk of repetition, I shall restate some of them. People are more influenced by presentation than the information. They overvalue a benefit that is received now. They underestimate the impact of any deferred cost. They underestimate future use. They are prone to optimism bias. Volume information means that they reach saturation point. Excessive or complex product information can freeze their decision-making. That is probably one-fifth of the list that one could enunciate if one was going through a study of the literature.
The one thing that behavioural science shows us is that if consumers are not factoring certain prices into their decision, those prices will not be subject to competitive forces, so the markets cannot work effectively. In effect, the Government will not secure the functioning markets they are quite rightly so keen to secure unless there is some limit on the wide range of price terms which are now immune or could be immune to fairness assessment.
By way of illustration, perhaps I may refer to the letter dated 27 October from the noble Baroness, Lady Neville-Rolfe, to my noble friend Lady Hayter on mortgage contracts. To me, the contents raise more concerns than they settle. On the issue of “mortgage prisoners”, the letter makes a reference to the FCA’s concerns that some firms do not seem to be applying its transitional arrangements in the spirit in which they were intended. That is very politely and gently stated, but it is quite clearly yet another example of the failure of rule compliance and is hardly an expression of confidence that Clause 64 of the Bill will work effectively. In her letter the noble Baroness also refers to a number of things that the FCA is doing to address the concerns raised by my noble friend, but of course these apply to regulated products. They cannot deal with unregulated products, which include the Bank of Ireland example cited by my noble friend. For these unregulated products we must rely on the unfair contract terms, the problems with which my noble friend and I have, I hope, gone through in some detail.
Other non-financial sectors will exhibit similar problems with unregulated products, especially where switching is difficult because of the length of the contract wrapped around the product. Examples of these would be products bought in the ICT and telecoms sectors or longer term courses in higher education. When one takes into account the extent of the behavioural bias which consumers bring to the market and how that creates incentives for traders to frame information, the fact is that if consumers are not factoring these prices into their decisions, it means that competition and functioning markets cannot be operating. There really is a compelling case for amendments that would constrain terms that are not assessable for unfairness.
Baroness Jolly
My Lords, this is the first amendment to Part 2 of the Bill covering unfair terms, so allow me to set the scene. Part 2 responds to the Law Commission’s recommendations to the Government on how to improve the rules around contracts between a business and a consumer. The aim of this part is to provide clarity for business and consumers, resolve uncertainties and avoid lengthy court disputes in the future. The basic framework remains the same: terms in a consumer contract must be fair and they must be plain and intelligible. A court can decide whether a term is fair or not, but the “core bargain”, what you pay for and how much it costs, is exempt from that assessment in certain circumstances. The legislation also lists certain terms as examples which the court may look at, known as the “grey list”.
What are we changing in this Bill? I would draw the attention of noble Lords to two particular changes. First, we are making the “small print bigger”: price and subject-matter terms must be transparent and prominent to avoid a court being able to consider whether they are fair. That requirement for prominence to avoid assessment is new. Secondly, we are adding three new types of term to the grey list. These are the types of term which are always assessable for fairness. We are adding terms which permit the trader to claim disproportionately high sums in compensation or for services which have not been supplied where the consumer has attempted to cancel the contract. These are also known as early-termination clauses. We are adding terms which give the trader discretion to decide the subject matter or price after the consumer has become bound by the contract. These additions were recommended by the Law Commission and based on evidence of consumer detriment and case law.
I turn to the amendments specifically and, first, Amendment 55A. As I am sure the Committee is aware, one of the other ways in which this part of the Bill increases consumer protection is by bringing consumer notices into the scope of the fairness test and transparency requirement which currently apply only to consumer contracts. We based our explanation of what constitutes a “notice” on the current regime, specifically the Unfair Contract Terms Act 1977. We make clear in Clause 61(8) that a consumer notice,
“includes an announcement, whether or not in writing, and any other communication or purported communication”.
I can therefore reassure the Committee that “notice” has this broad definition, meaning more protection for consumers.
We have been asked whether the provisions in Part 2 include general statements such as adverts which are not made to a particular consumer but to all consumers. Such notices are covered by the unfair terms part of this Bill where they relate,
“to rights or obligations as between a trader and a consumer, or … purports to exclude or restrict a trader’s liability to a consumer”—
as stated in Clause 61(4).
I also remind the Committee that Part 2 complements other protections. First, this Bill makes clear that certain information the trader gives the consumer forms part of a contract for the supply of goods, service or digital content. For example, in relation to a contract for a service, Clause 50 provides that where a trader gives a consumer information about a service they are offering, and the consumer relies on that information in deciding to enter the contract, the trader must comply with that information. Secondly, the Consumer Protection from Unfair Trading Regulations 2008 are already in place to protect consumers from being misled by a trader. I can therefore reassure noble Lords that the definition of “notice” has a very broad scope and that a wide range of notices are covered by Part 2 of the Bill. Both Part 2 and the other provisions and regulations will protect consumers from being misled.
On Amendment 56FA, concerns have been raised today that our drafting of the exemption will allow traders to surprise a consumer with additional charges after a contract has been agreed, without those charges being assessable for fairness. I do not like these surprises any more than noble Lords do. I would rather know about them upfront so I can shop around to avoid them. That is what the new requirement for “prominence” will allow. Traders should make such charges prominent when they enter into a contract. There should be no surprises. If there are, the consumer or a regulator can challenge them in court. Through that new requirement, consumers will for the first time have significant protection from unfair terms in the small print.
The noble Baroness, Lady Hayter, mentioned drip-pricing. The Bill will help protect consumers from drip-pricing, alongside the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 which say that these extra charges must be clear and comprehensible before the consumer buys. In contrast, were we to allow only the main price to be exempt from assessment for fairness, traders might just bundle all their charges under the headline price. That is not beneficial for consumers or creating a competitive marketplace. The Law Commission recommended to us in 2013 what you see in the Bill now. It considered this a careful balance between protecting consumers and allowing the market to operate. The Government agree with that view; we need an unfair terms regime that works in practice.
On Amendment 56FB, which would change the requirement for prominence under Clause 64, concerns have been raised that our current definition allows terms to be “hidden in plain sight”, where a consumer could see and read a term because of its prominence but still not appreciate its significance. We recognise that consumers rarely read terms and conditions and that those who do may not fully appreciate how they will impact them. After thorough consultation we agreed with the Law Commission’s recommendations that the way to tackle this was through transparency, prominence and the maintenance of the grey list—that is, the list of terms which are always assessable for fairness. In answer to the concern of the noble Baroness, Lady Hayter, about customers being irrational, I understand that the Minister has responded by letter to the University of Warwick academics on this particular point. I am not sure whether the noble Baroness has seen a copy of that letter.
The grey list is key to protecting consumers from terms which they may not fully appreciate when agreeing to a contract because it covers such a very wide range of such terms. We are therefore making clear in the Bill that terms on this list are always assessable for fairness. We are also adding three terms to the list, again on the recommendation of the Law Commission, thereby protecting consumers from three additional types of term that they may not fully appreciate when they agree to a contract. Finally, we are taking a power in the Bill to allow us, after parliamentary scrutiny, to update the grey list. That means that were consumer or trader behaviour to change, we could add terms to the grey list to accommodate that.
I agree with noble Lords that consumers might not appreciate all the terms when agreeing a contract, but I think that we have already addressed this in the Bill as drafted. I hope that I have explained our reasoning for accepting the Law Commission’s recommendations for the construction of Clause 64 and I therefore ask that this amendment be withdrawn.
Baroness Hayter of Kentish Town
My Lords, I thank the Minister for that response. As she says, this is the first time that we have discussed this provision. I also thank my noble friend Lady Drake for her professional and expert intervention; this is her area. Among the details which she so rightly raised, she used the phrase “transparency alone is not enough”. I think that that is the problem that we still have—that transparency and prominence are highly welcome but, by themselves, are not enough.
I very much welcome the expansion of the grey list. I think that there was a half-offer there that we could see the letter that was sent in reply to the Warwick University Business School, so I thank the Minister. I particularly welcome something that I am not sure I had noticed—it is confession time—which is the ability to update the grey list. We might return to this on Report after we have read those words carefully to see whether we would still like to tweak it at that stage, although it may be that we will want to do it later. I think that some points are still not sufficiently well covered. For the moment, I beg leave to withdraw the amendment.
“ A term (including those within the scope of paragraph 22 of this Schedule) which has the object or effect of permitting a trader to increase the price of, or alter unilaterally any characteristics of, goods, digital content or services during any minimum contract period or before the end of a contract of a specified duration without a valid reason or where it is reasonably foreseeable that the consumer would not be free to dissolve the contract without being disadvantaged.”
Baroness Hayter of Kentish Town
My Lords, Amendment 56ZA, which stands in my name and that of my noble friend Lord Stevenson, deals with a similar area. It would add a type of contractual term to the list of what may be regarded as unfair. The purpose is to ensure that consumers do not have terms imposed on them which could leave them disadvantaged, specifically in a minimum or fixed-term contract where a price was increased and where they would then be disadvantaged if they were to switch products or providers. I refer to the discussion that we had on “mortgage prisoners” earlier in Committee.
Which? has pointed out that the Unfair Terms in Consumer Contracts Regulations 1999 recognise that such variation in contracts can lead to consumer detriment. However, the grey list, as currently drafted, would appear to absolve the person varying the terms of the contract from responsibility should the consumer be unable to end the contract. We discussed examples of where consumers could not leave contracts, for whatever reason. There are clear examples of where ending the contract would lead to significant consumer detriment—for example, if another mortgage is not available or one’s circumstances no longer qualify one for a mortgage. Merely being able in theory to terminate a contract does not alleviate the difficulty of a change being made to the contract for no good reason because the person concerned still needs to find another mortgage but cannot do so at that stage.
A mortgage is not the only kind of contract where growing older during its term could make it disadvantageous suddenly to have to find a new one. Life insurance is another such example, or home insurance where a neighbour might have experienced flooding or subsidence since the consumer first bought their own coverage. In the case of a university degree, where suddenly a subject is withdrawn, merely being able to move to another university does not mean that the student is not disadvantaged, especially if they have worked hard for two years at the first university.
This amendment is limited to fixed-term contracts and minimum-term contracts, where the expectation of the deal advertised is at its clearest. The fairness test allows consumers to challenge a term of a contract to make it non-enforceable. Any compensation would have to be decided separately, whether by the financial ombudsman or elsewhere. The Minister will be aware that the approach we are taking here was supported by the BIS Select Committee and the CMA, so I hope that the Government will find themselves in a position to support it, too.
Amendment 56D returns us to the issue of “mortgage prisoners”, although it takes a slightly different approach. It would add to the grey list a term in a contract which would give a mortgage provider the ability to increase the price of a mortgage in cases where the consumer cannot get a new contract for the reasons we have been through. It would have the effect of giving a consumer recourse to argue that the change in the terms of the contract is not legal and should not take place. This consumer detriment, where people cannot get another contract, will be familiar to the Committee.
The Minister’s letter, received on 27 October, to which my noble friend referred, relates to Amendment 56ZA and contracts that vary in their supposedly fixed lifetime, such as a mortgage. However, it applies only to what the FCA is doing on mortgages. But the bottom line is that there is little concrete provision in the rules to stop a lender changing the terms of a mortgage deal that they have come to regret offering in the first place—perhaps when hidden terms and conditions allow them to do so—leaving consumers high and dry where there is no alternative product. Does the Minister agree that if the banks cannot honour the terms and spirit of a fixed mortgage deal, they should never have offered it in the first place? After all, consumers cannot exit the contract without penalty if this happens the other way round, when there may well be exit fees. Therefore, it is hard to see why the provider should be able to do so.
Furthermore, while the Bank of England example allowed BIS to deflect the issue back to the FCA, this issue can occur in other markets that are regulated by different regulators, such as Ofcom with telecoms fixed contracts and Ofgem with fixed energy contracts. Even more importantly, what happens where there is no regulator at all? Who would take action then? Would it be trading standards or the CMA? Again, it is worth noting that the CMA supports our approach to this.
I turn now to the other issue in the example of the Bank of Ireland. The Government said that it would be for the court to decide if the Bank of Ireland case was unfair, although the FCA has already said that it does not think it was. Furthermore, while the Minister says that consumers can go to the Financial Ombudsman Service, in fact that service adjudicated against the complainant because the unfair contract term regulations are not adequate in this case. The financial ombudsman actually cannot help unless the grey list is complete; that is, if it allows these terms to be open to assessment for fairness. Our amendment would add terms that vary by unknown amounts within a fixed lifetime to the grey list and would thus be able to be assessed for fairness. That is what we are trying to achieve.
I would add once again that although the Government have tried to use the particular case of mortgages to show what the FCA considers to be acceptable, we are worried about wider markets where it does not operate. The amendment would provide a clear route for someone to take their complaint in such a situation, and I hope that the Minister will either be able to accept it or will lay out plans to provide an equivalent level of protection within this legislation. I beg to move.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, these amendments also relate to Schedule 2 covering the grey list, containing terms which are always assessable for fairness under Clause 62. These are terms that are likely to trip up even an astute consumer or that someone would not fully appreciate when agreeing a contract. As the noble Baroness, Lady Drake, set out, consumers do not always appreciate the terms they have agreed, and I agree with the sense of the debate that this is not the easiest area in the Bill in terms of understanding exactly what is happening. I note the points she made not only about regulated areas but other areas as well, and I am grateful to her for making them.
I shall try to address the generalities and then perhaps I may move on to financial services, which are the subject of Amendment 56D. Let me reassure the Committee that there are protections in place to protect consumers from unfair variation clauses. Where traders include a term to allow them unilaterally to change the characteristics of the goods, service, or digital content being provided without a valid reason, that is included on the grey list as set out in paragraph 13 of Schedule 2. Those terms can be challenged in court even if they allow the consumer to exit the contract. For example, if a painter decorating your bathroom includes a term stating, “All materials may vary in style, colour and finish”, that term can rightly be challenged for fairness.
Where traders include a term to allow them unilaterally to change the price of the goods, service, or digital content being provided, that is also included on the grey list as set out in paragraph 15 of Schedule 2. In that case, a term can be challenged for fairness if the increase is too high and it does not allow the consumer to exit a contract. I should remind the Committee that just because an item is not on the grey list, it does not mean that it is fair or exempt from the fairness test. In order for a price term to be exempt, it must be prominent and transparent, and I believe that the requirement for prominence that we are introducing in this Bill marks a significant increase in consumer protection. I hope that the noble Baroness, Lady Hayter, will bear that in mind in her further consideration of this issue.
The noble Baroness, Lady Drake, mentioned that I had written round—thank you for that. It may be worth reiterating a couple of the points that I made in that letter. The Government are determined that lenders should treat mortgage borrowers fairly. That is why, during the course of this Parliament, we have strengthened protections in a number of ways. Most significantly, in April of this year, the new independent consumer regulator, the Financial Conduct Authority, introduced a revised set of rules as part of its mortgage market review. These provide stronger protections than ever before for borrowers taking out a mortgage to buy a home and, indeed, have changed the marketplace a bit. Among the key changes were improvements to sales standards and to affordability assessments. The FCA’s rules are designed to protect consumers who find it difficult to switch once market or regulatory conditions change. Therefore there is a general requirement on firms to treat customers fairly, but there is a specific provision within the FCA rules that forbids lenders from taking advantage of a borrower who is stuck with their current mortgage—a circumstance that the noble Baroness, Lady Hayter, referred to. FCA rules say that lenders should not treat these customers less favourably than other, similar customers. In addition to that specific provision, the FCA has provided for transitional arrangements that allow lenders to waive the new affordability requirements for existing borrowers seeking to remortgage as long as they are not increasing the size of the loan. Finally, and most importantly, the FCA is also undertaking a review of its new mortgage rules which will consider how the rules are working in practice and whether any adjustment or clarifications are required. If need be there is scope for action and the FCA has the powers.
We believe that this amendment would significantly reduce valuable flexibility that lenders currently have in making commercial pricing decisions across the market. If we make it much more difficult for lenders to increase rates in response to changing market conditions, then lenders’ ability and readiness to offer the most competitive deals will be constrained. Ultimately, it will be mortgage borrowers who lose out.
In conclusion, we believe that introducing new legislative requirements would undermine the robust but flexible system of regulation that has been put in place in recent years. It would constitute a backward step in terms of delivering the Government’s aim to deliver a regulatory environment that offers consumers protection as well as choice and good value. I therefore ask that this amendment be withdrawn.
Baroness Hayter of Kentish Town
I am not certain about the flexibility point, because both amendments use the words “without a valid reason”. That is the point—there are valid reasons for things having to change. We are very focused on changes that are made without a valid reason and which therefore of course cannot be within the expectation of the purchaser. Valid changes in interest rates they know; we are worried about changes made without a valid reason. I want to look carefully at the words used in this amendment and the one before, which to some extent try to address the same problem, to see how we might come back to this. I beg leave to withdraw the amendment.
“ A term which either—
(a) requires or encourages a consumer to contract third party services without informing them of their right to seek independent advice; or(b) seeks to limit a consumer’s access to independent advice regarding third party contracts where there is a potential conflict of interest for the third party involved.”
Baroness Hayter of Kentish Town
My Lords, in moving Amendment 56C, I shall speak also to Amendment 56FD, both of which also stand in the name of my noble friend Lord Stevenson.
These amendments are about protecting consumers who take out legal protection through their insurance policies against being allocated a lawyer who has some tie with the insurance company. Instead, they should clearly be offered independent advice and have greater certainty that any lawyer arranged through such a deal will act independently of the interests of the insurance company. This is about ensuring that, following an accident, the lawyer, who has after all been paid for by their premiums, is working for the driver and not in any way for the insurance company. Unfortunately, experience shows that it is necessary to look at this. At the moment, if you look at your car or house insurance, you may well find a paragraph about legal protection.
The problem is that, should you need to call on this, you would probably have to use the law firm that the insurers appoint, not a lawyer of your own choice. And one has to ask, in order to stay on the panel recommended by the insurance company, what incentive would there be for a law firm to do extensive and therefore expensive work, which would be paid for by the insurance company, rather than a quick job which perhaps looks very satisfactory to the driver, if it results in a very fast settlement? Would such a law firm on the panel which relies for its work on referrals from the insurance company, really fight the driver’s corner with any vigour in a personal injury claim, or would there be a temptation to settle for the first offer from the other side? These legal expenses clauses are often difficult to remove from an insurance policy, which does not sound like a healthy market for consumer choice.
Baroness Jolly
Perhaps I may reassure noble Lords that where conflict of interest is an issue in particular sectors, the Government have taken action. As I am sure noble Lords are aware, in November 2008 the then Master of the Rolls, Sir Anthony Clarke, appointed Lord Justice Jackson to lead a fundamental review of the rules and principles governing the costs of civil litigation and to make recommendations in order to promote access to justice at proportionate cost. Lord Justice Jackson published his final report in January 2010 and the recommendations are being taken forward in a variety of ways. A number of measures required primary legislation, and some of the major reforms are in the Legal Aid, Sentencing and Punishment of Offenders Act 2012. Other reforms will be implemented through rule or policy changes.
Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act implements recommendations made in Lord Justice Jackson’s review. No-win no-fee conditional fee arrangements have been reformed, but remain available. They provide a means of funding legal cases for those who could not otherwise afford them. That part also provides that for personal injury cases, referral fees are prohibited. This ban covers both the payment and receipt of such fees, which means that a firm cannot benefit through referring a customer to a particular third party. In effect, this removes the incentive on the trader to refer a consumer to a particular third party, just as this amendment would do. The ban captures all of the main businesses involved: solicitors, claims management companies and insurers. Any breaches of the ban will be subject to appropriate regulatory action by the relevant regulators, which are the Solicitors Regulation Authority, the FCA and the Claims Management Regulator. This regime has been in force since April last year.
Provision is also made in the Act for a power to extend the prohibition to other types of claim and legal services beyond personal injury claims. However, the Government do not intend to use this. There is no evidence that such a ban is needed in other sectors. I hope that that reassures the noble Baroness and I would ask her to withdraw the amendment.
Baroness Hayter of Kentish Town
I thank the Minister for her reply. I have worked on referral fees a lot and of course this is not quite the same. It is not about the payment of referral fees, but about a law firm which is dependent for the volume of its work on being referred by an insurance company. I made no allegation whatever that a referral fee was being paid. The problem is that if the insurer is putting all its cases to one or more lawyers on its panel, that sets up a potential conflict of interest for the law firm which wants to remain on the panel.
I know that the Minister will not be able to answer my next point now, but she has talked about claims management companies. She will not be aware, because she was not the Minister at the time, that another amendment I did get through was that complaints against claims management firms should be able to be made to the Legal Services Ombudsman. I think that that happened around 18 months ago, but the SI has still not come before your Lordships’ House. Despite this House having taken the decision—a very wise decision, I have to say—that complaints against claims management firms can be made to the Legal Ombudsman, the MoJ has been so tardy that we still do not have the SI. I am sorry to get that in as a dig, but we are still waiting for it. It is really important in these sorts of issues.
As I say, it is not referral fees that we were touching on in this. It is about being absolutely certain that when you pay for insurance to cover legal representation if anything happens, that legal representation should be absolutely non-conflicted and should act for the driver concerned. For the moment, I beg leave to withdraw the amendment, but if the Minister could talk to her colleagues in other departments, and if they could move on the complaints against claims management firms going to the Legal Services Ombudsman, many people would be very grateful.
Baroness Jolly
My Lords, I want the requirement for letting agents to publicise their fees to come into effect in both England and Wales as soon as possible to ensure that tenants have some certainty over the payments they have to make. This is why I have laid an amendment putting the enforcement details into the Bill rather than subsequently using secondary legislation. This amendment simply uses the process described in the existing clause but makes it clear that the duty in England and Wales will be enforced by county councils, county borough councils, unitary authorities and London boroughs.
These authorities will be able to fine agents who fail to publicise their fees up to £5,000 for each office and website. Agents will be able to appeal to a tribunal. I recognise that enforcing the requirements for agents to publicise their fees will entail a new burden for English local authorities, so we will make additional funding available for this. Furthermore, authorities will be able to retain the fine, potentially enabling the proceeds from agents who are opaque on their fees to be used to tackle rogue agents where they exist, thus continually driving up standards in the industry. I beg to move.
Baroness Hayter of Kentish Town
I rise to say “well done”. I should warn the Minister that we will have other amendments on letting agents next week. However, we are very pleased that this will be in the legislation and that it will happen early, by the extra resources, and by the incentive for local authorities to take action, given that they will be able to retain any fines levied. I realise that that is the end of her political career, having had praise from me, but so be it.
Baroness Neville-Rolfe
Before the noble Lady sits down, perhaps I can say thank you to her.
Baroness Crawley (Lab)
My Lords, I thank the noble Baroness for her interesting description of going out with local authority officers. I would recommend that experience, as I am sure she would, to all Members of the Committee. Environmental health officers do an extraordinary job, given the scale of the work they are involved in and the scarcity of the resources they have to work with.
The amendments in the names of the noble Lords, Lord Clement-Jones and Lord Stoneham, and the noble Baroness, Lady Bakewell of Hardington Mandeville, are to be welcomed—I think. I am sure they are a sincere attempt to bridge the gap between the Government’s stance on enforcement and the rather more clear-cut and preferable amendment of the noble Lord, Lord Best, which we will discuss in a few moments. However, I am not yet persuaded that these amendments best the amendment of the noble Lord, Lord Best, on the same subject of trading standards officers conducting inspections on business premises. I am sure it was not at all the intention but these amendments might unfortunately bring about increased barriers to enforcement for officers conducting inspections. For me, the jury is still out on these amendments.
Baroness Hayter of Kentish Town
I am slightly confused by this. If I am completely honest, among friends and just within these four walls, I think our Lib Dem colleagues would very much like to support the amendment of the noble Lord, Lord Best, but are not allowed to. They do not want to confront the Government, so they are trying to find a weasel way of not quite confronting them while almost writing down exactly the same words but making it very complicated. They are not going the whole way but saying, “Well, in certain circumstances other than those already allowed for in the Bill, the 48 hours would not have to be given; that is, when a trading standards officer shows his or her credentials and they are going to see whether an offence has taken place”.
I am sure that the noble Baroness, Lady Bakewell, knows that trading standards do not go around in policemen’s big boots unless they think some offence is being committed. They do not have the time or inclination—why on earth would they? They always show their bona fides anyway. This basically seems to be saying, “We don’t like what the Government are suggesting but can we find a way of saying that round the back?”. I could be quite wrong—and look forward to being corrected—but I have my suspicions.
Of course, the problem with these amendments is that they have all the disadvantages of the Government’s own clause; that is, the uncertainty. The same people do food as do electricity safety, counterfeit booze or whatever else one is looking for. The amendments would still introduce two systems for when somebody could go in to do an inspection. It leaves all that complication and uncertainty of having to checklist things first but with no added advantage. That seems a convoluted way of saying that they do not like the present clause.
There seem to be two things going on here. First, in moving the amendment, the noble Baroness, Lady Bakewell, said very strongly that she supports unannounced inspections—which is exactly what is said in the amendment of the noble Lord, Lord Best. Secondly, she raised the interesting point about costs in civil courts, which we will come on to. I look forward to her support for that amendment when we get there. My concern about these amendments is not that they would not move a little way towards making life easier but that they are actually a rather weak way of telling the Government, “We don’t like your clause”.
Baroness Neville-Rolfe
My Lords, I thank my noble friend Lady Bakewell for her very interesting comments and good examples. They help us to understand so much more clearly the issues that we are debating.
In this part of the Bill we are consolidating and updating our investigatory powers in order to make enforcement more efficient and effective. A further objective is to reduce burdens on business without compromising consumer protection. We are doing this, for example, by making it easier for enforcers and businesses to know what enforcers’ powers are by consolidating them across 60 pieces of legislation and setting them out in one place. I think that the Committee will welcome this. We are also modernising them—clarifying that where there is a good reason enforcers can access information held or stored on computers. This brings us into the 21st century. We will return to the notice requirement again under the amendment of the noble Lord, Lord Best, and I expect that we will have a fuller debate.
I want to say a few words about why we have introduced the requirement for enforcers to give two days’ written notice, subject to some important exemptions. The Government are committed under the Protection of Freedoms Act 2012 to protect civil liberties and to reduce burdensome and intrusive powers of entry. Our aim is to strike a balance between the powers and safeguards that are needed for protecting businesses while ensuring that enforcers can tackle illegal activities. I am sure that we will come back to the detail.
I will answer a couple of points that my noble friend raised. She asked about notices and litigation, and court cases being lost on a technicality. As is currently the case, enforcers will need to ensure that they follow correct investigatory practices and procedures to ensure the integrity of their investigations and supporting evidence. We will not be amending the well developed principles on what amounts to reasonable grounds for suspicion. Many large businesses have a primary authority relationship with a local authority. This includes an inspection plan. Where an inspection plan is in place covering consumer law, this must be considered when deciding whether to carry out an inspection. We are committed to providing good guidance on what the law means; as noble Lords would expect, that is being developed by business and other organisations.
My noble friend also touched on the fact that enforcers risk costs in the civil courts. I reiterate that it is a fundamental principle of civil litigation that one side is at risk of having to pay the other side’s costs if it loses. That would be a difficult principle to change. Of course, the object of that is to deter unmeritorious cases and ensure that the winning party is not too adversely affected.
Amendment 63ZA, on the issue of whether food hygiene visits are covered by the Bill, is a probing amendment. There may be confusion in general as to whether food is covered by the Bill so it is good to have an opportunity to clarify the position. For example, the Bill does not apply to food hygiene inspections carried out under the Food Safety Act. That sort of inspection is normally done by environmental health officers. I should add that, curiously, I was the official Civil Service lead on that very Bill; I remember it with great affection. It was an important Bill at the time. In view of those alternative provisions, we do not see the need for this probing amendment.
On the lessons that horsemeat might give us for this Bill, the issue arose mainly through fraudulent activities of traders. That highlights the importance of greater sharing and use of intelligence sources, and how important that is in safety. The Bill supports the sharing of information and intelligence by local authorities, business and other partners such as the police. That can be used by enforcers to determine whether it is necessary to exercise a power of entry to premises and whether one of the exemptions to giving notice applies.
On Amendments 60, 61, 62 and 63, tabled by the noble Baroness, Lady Bakewell, it is worth noting that currently enforcers such as the Competition and Markets Authority, which has been referenced often today, have to give notice only for civil enforcement purposes. The amendments take us back to that position. However, when an enforcer decides to carry out a visit, they will not necessarily be focusing on whether civil or criminal enforcement action may result. We therefore think it makes more sense to provide a general requirement for notice to be given regardless and then provide a number of clear exemptions to giving notice, such as where giving notice would defeat the purpose of the visit because, for example, counterfeit or illegal software might be destroyed.
I am also keen to emphasise—we will come back to this—that this means notice need be given only for routine inspections. If there is a risk of a breach of a law, enforcers can still carry out unannounced inspections where they need to investigate illegal activities. The exemptions ensure that we have the safeguards we need. Small businesses in particular, which have been consulted about the changes in the Bill, welcome this approach. They welcome clarity, and the noble Baroness, Lady King of Bow, emphasised the importance of that earlier.
I believe that the Bill provides a better and simpler enforcement regime for both businesses and enforcers, whether civil or criminal enforcement action is involved. Hygiene and food inspections are dealt with elsewhere in the statute book. Therefore, I ask my noble friend to withdraw the amendment.
Baroness Hayter of Kentish Town
My Lords, at Second Reading and at the start of this Committee I said that this was not a bad Bill, it is just a weak one. I also said that there was one exception, and this is it. I hope that when the noble Baroness replies, she will allow herself—using what is probably not a very Hansardian term—some “wriggle room”. The debate we have already had will be loud and clear at Report. The Minister will know better than me how well this could come across in the House. It would perhaps be much easier to withdraw gracefully rather than to try to fight to the bitter end. As I have offered to Ministers before, we will give them all the credit and say what wisdom they brought to it, although we will allow the noble Lord, Lord Best, some credit.
It is a nonsense—I do not know who used that word before—to require trading standards officers, who work to protect consumers, to warn traders of an inspection visit. My noble friend Lady Crawley asked what evidence there is of misuse and my noble friend Lord Harris asked what the problem is that this has been set up to solve. I will add three more questions. First, what is the benefit of this measure to consumers? Secondly, who asked for it? Thirdly, what consultation took place? Before anyone jumps to the 2013 consultation, which I have read very carefully, I would remind the Ministers that businesses were mixed in their responses and were not unanimous. Only some of them supported this notice. Some of them said it would lead to better co-operation between enforcers and businesses, but I thought that enforcers were meant to act on behalf of consumers rather than work too closely with businesses.
The consumer reps who responded to the consultation were worried that giving notice would hamper enforcers’ ability to tackle rogue traders. There were three categories. The third category, comprised of local authorities and regulators, was similarly concerned about the requirement to give notice before exercising a power of entry as it could encourage the obstruction of officers or hinder an intelligence-led approach. Local authorities and regulators also commented that on-the-spot checks would be necessary where there was intelligence about non-compliance, but of course, some of that intelligence could never be used in a court of law. If challenged in the way we have heard either over costs or whether it was reasonable, there would be times when a trading standards officer would not be able to cite the intelligence that led him to that particular retailer. It is true that the respondents supported the restriction on powers, but that was in relation to private dwellings, and that is not what this whole issue is about.
While the Minister tries to find some more persuasive answers to the questions posed today, I will make a couple of extra points. Even with the let-outs mentioned by my noble friend Lord Harris, it still makes no sense to give notice to those who are potentially breaking the law about when enforcers are going to check on them. As we have heard, food safety officers do not have to do this, although very often they are the same people. It is hard to know why they should have to do so here. As we have just heard, it is difficult for the very same person to need to have different criteria in their head and different lots of powers depending on which breach they are trying to check up on.
The Government have said—certainly to us, but I am not sure if in public—that a trading standards officer can always enter the premises as a member of the public. That way, they can see what any ordinary shopper could, assuming it was a retail rather than wholesale area. However, I have to tell noble Lords that retailers do not keep the counterfeit drink on top; they keep it underneath for those who come in with a nod and a wink. They do not put counterfeit cigarettes out on top either. They are put where a member of the public could not see them but where, on our behalf, we want trading standards officers to be able to see them.
The Government have also argued that this amendment would help small businesses so that they are not troubled by too many visits from the TSO. However, trading standards officers these days work very much on a risk-based programme. Having looked at some of the detail behind that, small businesses are actually very low risk. One TSO said, “We never go to small businesses”. Please do not tell small businesses this, but actually TSOs go to the big ones much more because they work on a basis of risk. The idea that one should constrain the powers across the piece because apparently some small businesses do not like it is worrying.
Another issue, of course, is that wanting 48 hours’ notice in writing still does not allow the trading standards officer to politely phone or text to say, “Can I come on Tuesday?”, which may well be what is best for the small trader that the Government seem to be worried about. It would anyway be perfectly possible for a trading officer to give notice; it is only the absolute requirement that we are worried about. Good practice would be, for many routine visits, that notice would be given for exactly the reason that has been given: so that the right person is there. None of this would prevent that.
Baroness Neville-Rolfe
The officers would be looking for a faulty electrical product that might be in circulation in an area; there would be a suspicion. That is exactly the kind of thing I am talking about. I am sorry, but I wanted to take the noble Lord through the examples in order to explain how the power will be used.
Perhaps noble Lords will bear with me while I make another point about powers of entry. The powers that other law enforcers have when they investigate offences are of interest, and the noble Lord has raised one or two of those. The police have no general powers of entry to commercial premises. They can enter a premises only with reasonable suspicion or a warrant. So there is, if you like, a form of notice. Even with a notice requirement, enforcers such as trading standards will have very substantial powers—more powers than the police, who deal with serious offences and serious crimes.
A noble Lord mentioned Ofsted—a question I have asked, actually. For practical purposes, Ofsted does give notice. It normally gives up to two working days’ notice before a planned inspection to a further education college—that is, a routine visit—but for schools, notice is given by midday on the working day before the start of the inspection. But it also has the right, quite rightly, to undertake unannounced inspections in cases of serious concern.
The noble Lord, Lord Best, asked about interpretation. I assure the Committee that we will be providing guidance. We are not creating principles such as reasonable suspicion. They are already well understood but obviously we will need to explain them for day-to-day work.
The noble Lord, Lord Harris, asked about evidence of the abuse of powers. This is not about abuse of powers; it is about reducing the burden on business from intrusive powers of entry and protecting civil liberties. It is about routine inspections, which, in my opinion, should be the subject of a warning. Where there are reasonable grounds of suspicion, obviously you can proceed immediately. I am a businessperson and I think business planning can have value in these circumstances.
I was also asked how notice can be given. Notice can be given by post or e-mail to the occupier or by leaving it at the premises. Actually, we have engaged extensively with the trading standards community while formulating the exemptions. That brings me on to the point that a number of noble Lords have made about the funding of the trading standards service. Obviously, spending and resourcing decisions are made by individual local authorities, which are better placed to make decisions about the enforcement needs of their communities than central government. Like all parts of central and local government, the services have faced budget reductions in recent years. There is no point denying it; that is agreed.
As noble Lords know, the Government are committed to tackling the inherited budget deficit by making savings and trying to improve value for money for the taxpayer, and this is part of that effort. We greatly value the work of trading standards to protect consumers from rogue traders and scammers, and we want to develop a better understanding of the impact it has across the economy. That is why, in partnership with the Trading Standards Institute, we have commissioned a group of academics at the Institute of Local Government Studies in Birmingham to undertake research to build an evidence base on the impact, effectiveness and efficiency of services, how improvements can be made, what works well and how we can do partnerships. This sort of evaluation is really important in public policy.
I think I have pretty well finished. I was asked about the deterrence effect of inspections. We would be concerned about the resource implications for trading standards services where uncovering breaches by chance is seen as an effective strategy for the future, even on the basis that it has been useful in the past. Targeting finite enforcement resources using an intelligence-led approach is a more efficient and effective strategy. I speak as a former businesswoman, with experience of a pretty small business trying to do a good job, and I think that better planning and targeting can save money both for business and for enforcers.
In conclusion, it has been an important and good debate. I have listened. I have tried to explain where we are coming from in the way in which we have drafted the Bill. I am trying to ensure that the investigatory powers in the Bill, modernised and brought together, strike the right balance between protecting civil liberties, reducing the burden on compliant businesses and ensuring that enforcers can tackle rogue traders.
Baroness Hayter of Kentish Town
The noble Baroness said that the balance is between civil liberties and business. Unfortunately, she did not use the word “consumers”. Perhaps I might leave her with three questions. I know she will not be able to answer them now but they are extremely serious ones. First, she alleges that £50 million will be saved. I would like to know how many visits are included in that £50 million. Secondly, as I understand it, test purchases can be made only in a retail outlet and someone would not be permitted to go into a warehouse or a wholesaler’s premises to make such purchases. Thirdly, the biggest worry about this issue is suspicion, as I mentioned. How could suspicion be proved in a court of law if it was the result of an anonymous tip-off? I am very content for her to write to the Committee on those questions as I do not think that she has answered them this evening.
Baroness Neville-Rolfe
I thank the noble Baroness. Perhaps she will also read Hansard on these points. We carried out an impact assessment and I think that the £50 million figure comes from that assessment, which I can certainly make available. I wanted to say that I was going to mention consumers at the end because this is the Consumer Rights Bill. It is important that we have a deal that is good for all sides. There are various different pressures relating to investigatory powers. I have tried to explain the wider picture and the parallels elsewhere. I am very keen that this should be an effective part of the Bill, which is obviously designed to modernise and improve both consumer rights and consumer enforcement. I therefore ask the noble Lord, Lord Best, if he will consider withdrawing the amendment.