Consumer Rights Bill
The Committee consisted of the following Members:
John-Paul Flaherty, Georgina Holmes-Skelton, Committee Clerks
† attended the Committee
Chris Warner, Lead Lawyer, Policy, Advocacy and Enforcement, Which?
Adrian Harvey, Head of Policy (Consumer and Public Services), Citizens Advice
David Hertzell, Law Commissioner, Law Commission
Professor Hector MacQueen, Full-Time Commissioner, Scottish Law Commission
Matthew Fell, Director for Competitive Markets, Confederation of British Industry
Paul Downhill, Chairman, Consumer Policy Advisory Group, British Retail Consortium
Mike Cherry, National Policy Chairman, Federation of Small Businesses
The Chair: Before we begin, I have a few preliminary announcements. Will all Members please ensure that all electronic devices are turned off or are switched to silent mode during Committee sittings? As a general rule, I and my fellow Chair do not intend to call starred amendments which have not been tabled with adequate notice. The required notice period in Public Bill Committees is three working days. Amendments should therefore be tabled by the rise of the House on Monday for consideration on Thursday and by the rise of the House on Thursday for consideration on the following Tuesday.
As not everyone is familiar with the process of taking oral evidence in Pubic Bill Committees, it might be helpful if I briefly explain how we will proceed. The Committee will first be asked to consider the programme motion on the amendment paper, for which debate is limited to half an hour. We will then proceed to a motion to report written evidence, and then to a motion to permit the Committee to deliberate in private in advance of the oral evidence sessions, which I hope we can take formally. Assuming that the second of those motions is agreed, the Committee will then move into private session. Once the Committee has deliberated, the witnesses and members of the public will be invited into the room and our oral evidence session will begin.
(1) the Committee shall (in addition to its first meeting at 8.55 am on Tuesday 11 February) meet—
(a) at 2.00 pm on Tuesday 11 February;
(b) at 11.30 am and 2.00 pm on Thursday 13 February;
(c) at 8.55 am and 2.00 pm on Tuesday 25 February;
(d) at 11.30 am and 2.00 pm on Thursday 27 February;
(e) at 8.55 am and 2.00 pm on Tuesday 4 March;
(f) at 11.30 am and 2.00 pm on Thursday 6 March;
(g) at 8.55 am and 2.00 pm on Tuesday 11 March;
(h) at 11.30 am and 2.00 pm on Thursday 13 March;
(2) the Committee shall hear oral evidence in accordance with the following Table:
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 60; Schedule 1; Clauses 61 to 63; Schedule 2; Clauses 64 to 70; Schedule 3; Clauses 71 to 75; Schedule 4; Clauses 76 and 77; Schedules 5 and 6; Clauses 78 and 79; Schedule 7; Clause 80; Schedule 8; Clauses 81 to 86; new Clauses; new Schedules; remaining proceedings on the Bill; and
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 13 March. —(Jenny Willott.)
Examination of Witnesses
The Chair: Good morning, gentlemen. Welcome. Chris Warner is lead lawyer for policy, advocacy and enforcement with Which?, and Adrian Harvey is head of policy for consumer and public services at Citizens Advice.
Before calling the first Member to ask a question, I remind all Members that questions should be limited to matters within the scope of the Bill, and that we must stick to the timings in the programme motion that the Committee agreed this morning. We are scheduled to finish the first group of questions at 9.45. I hope I will not have to interrupt anyone mid-sentence, but the programme motion must be adhered to and if necessary I will do so.
Adrian Harvey: Citizens Advice has a network of 330 bureaux throughout the country, and we also operate the consumer service, which is a telephone and online inquiry service. On the consumer side, we probably deal with about a million to one and a half million inquiries a year by phone, face to face and online. The single biggest issues are second-hand cars, building repairs and improvements, electrical goods, home maintenance and improvements, and a bit of telecoms. Everything else is similar, with about 30,000 inquiries a year.
Chris Warner: A wide range of consumer issues is raised with Which?, and the vast majority fall within the scope of the Bill. Quality of goods and remedies for services are a well-trodden path to our door, as are issues of unfair terms and particularly contract variations, which are very common. We can come on to thoughts about that in due course.
Q 2 Stella Creasy: Of the complaints and concerns you are seeing, which involve things that consumers do not know but should know, and which involve practices or activities that you would argue need addressing? So, two different things: one is about information, and the other is about the nature of the markets you are seeing people operate in.
Adrian Harvey: Quite a lot of it at the first level is about information, but obviously people come to Citizens Advice when they have sought redress elsewhere and failed to get it. We conducted a survey of consumers more generally a couple of years ago, which asked people if they had had a problem with goods and services, what they had done about it and what happened as a result. In our sample—these are not Citizens Advice clients, but the general public—75% had had a problem with a good or a service, more than 90% had sought some sort of redress from the supplier and only 10% had had success in that. So there is a huge problem with getting redress when a problem has been identified.
Certainly in the evidence we see from bureaux, there is a degree of ignorance of rights not only on the consumer side, but on the provider or supplier side. We have reports from bureaux of people going to shops and being told that their statutory rights do not apply. I choose to believe that that is ignorance rather than mis-selling on the part of the retailer, for example. There is an awful lot of mis-selling and bad practice around. But that is because we tend to see things at the end when they have gone horribly wrong.
Chris Warner: In many situations, it is quite difficult to tell the difference between lack of understanding and lack of clear rules. I can take the example from some of the issues the Bill is seeking to address in the context of the remedies for faulty goods. The Bill seeks to introduce clarity, moving away from nebulous terms like “reasonable” to “30-day period”, or from an unspecified number of repairs and replacements to a single repair or replacement. Both are very welcome developments. In the past, when consumers who have purchased a faulty good try to engage with the trader, the lack of specificity in the law has made it difficult for them to engage in a meaningful way. The law says the trader has a “reasonable” time to effect a repair, so when days trickle by and two or three weeks have elapsed, is that reasonable or not? That is when disputes arise, because there is a lack of certainty. Even people who know what the law says—what the
Q 3 Stella Creasy: Sure, although that slightly contrasts with what Adrian was saying about people then coming to you at the end of that process. You both talked about redress and the capacity of consumers, even when they know their rights, to argue for them, and having a system for intervening when, for example, a trader does not know their rights. How you deal with that? Do you think that the lack of detail in the Bill on redress systems, especially given the EU directive coming down the line, is a challenge that could undermine some of the good work in the Bill on clarifying some of those terms? Even if someone knows their rights, if you do not have an intermediary who can say, “No, they are right”, we will be no further forward with some of the problems we are seeing.
Chris Warner: There are various elements to empowering consumers. First and foremost, you need to get right the law and the underlying framework of rights. People, both businesses and consumers, then need to understand those rights. Thirdly, and perhaps most importantly, there needs to be a forum for exercising those rights and the ability to enforce them. In the event that that cannot be done between the parties themselves, there needs to be a mechanism which people can use. In the absence of that, you are absolutely right: it undermines some of the good work on information and the framework. The alternative dispute resolution directive is coming down the track and is due for implementation next year. There is an opportunity in the Bill to lay the groundwork for that and to start developing it to make sure that everything is a coherent package, which it needs to be in the end.
Q 5 Stella Creasy: We have talked about the complaints you are seeing in general terms. Do you see any of this applying to the public sector as well? People’s experience of complaining is not confined to their private dealings. Could you tell us a little about your experience of people dealing with the public sector?
Adrian Harvey: Citizens Advice sees a great deal of complaints about public sector services. That is partly why my job exists around consumer and public services. We see them as the same thing. People are using services for which they have paid in one way or another, and they are not always getting the best deal. We see a lot of issues around health and social care. That is where most of it comes through. The complaints system within the health system is a real area of concern for us and something we will be looking at this year.
Chris Warner: In many circumstances the line between public and private services is becoming increasingly blurred. There is the opportunity for ensuring coherence between the private and public sectors. Health care is a particularly good example. You might be buying some
Adrian Harvey: I am not sure about that, if I am honest. It is not something that we have thought through sufficiently to get to a yes or no answer to that question. There are other ways of dealing with public sector services problems than a consumer rights Bill.
Chris Warner: It is a difficult question to answer, because there are so many things that could fall within the scope of the Bill or could be added to it, and it could become unwieldy. So it is a question of priorities.
Q 7 Oliver Colvile (Plymouth, Sutton and Devonport) (Con): First of all, gentlemen, welcome to the House of Commons and thank you for coming to give evidence to us. May I ask what percentage of cases you think end up becoming so nasty that they end up going to court? What are the successes in all of that?
Chris Warner: Very few cases end up going to court, to be quite honest. Consumers are generally scared of going to court, and it will only be when something has gone seriously wrong or is worth an awful lot of money that they will be properly incentivised to go. That does not mean that there are not many cases or situations that should not go to court or some form of dispute resolution. Building on the previous question, that is one of the problems at the moment. There is a lack of a proper framework for resolving disputes outside negotiation between the two parties.
Q 8 Oliver Colvile: Yes, I think it is fair to say that going to court is the nuclear option in all this, and something that I would always encourage anybody—including myself—to end up avoiding under any conditions at all. So what is the next level down that people can use to try to make sure they have their concerns and feelings about the sale of goods properly dealt with?
Chris Warner: In some sectors, you have an ombudsman or alternative dispute resolution in place, but for general consumer purchases, one of the things that is very much lacking at the moment is a general consumer ombudsman or some general form of ADR that can sort out those kinds of disputes. In financial services, for example, you have the Financial Ombudsman Service, which is very well used and very popular, but there is nothing equivalent for dealing with builders or used cars, which you mentioned, or things like that.
Adrian Harvey: Yes, that is precisely it. There is a massive gap between making a complaint to the trader and going to court, and there is nothing that fills that. Quite a lot of the evidence that we see from bureaux is that people come to us because they have kind of run out of steam with going after the trader. The trader has kept on saying that they will recompense the person, but never gets around to it, so the next thing is that they take them to court, but that is quite a high barrier to get over. I think a lot of traders rely on that attrition, and that if they wait it out long enough people will just give up, so something that fills that gap between addressing the trader and taking it to court would be really helpful in general terms.
Q 9 Andy McDonald (Middlesbrough) (Lab): Good morning, gentlemen. “Your statutory rights are unaffected” —we see that on goods for sale. What is your view about that bald statement? Is it understood, is it helpful or is it a fetter to people trying to exercise their rights?
Adrian Harvey: I am not sure it is always understood, which is why Citizens Advice is very keen on more transparent and understandable point-of-sale information, so that people know what their statutory rights are, rather than that they are unaffected by any of the terms. Quite a lot of consumers do not really understand what their statutory rights are, what is not affecting them or what is there in place of them. So a far clearer statement of the rights that they can expect at point of sale would be a way of addressing that.
Chris Warner: I agree. I do not think anyone really knows what their statutory rights are or what that phrase means. It is not enough just to tell people that their legal rights are not affected. They need to know what those legal rights are. A good example is in the Bill, with the manufacturer’s guarantee. There is an obligation on the manufacturer, when setting out their guarantee, to inform consumers that their statutory rights are not affected, but that is a meaningless statement unless people are told what it means. We see it lead to a wide range of confusion among retailers, consumers and manufacturers about whose responsibility it is to sort out problems when things go wrong. Being explicit and clear and having clear information, particularly at the point of sale, would be very valuable. This is about having the right information at the right time and in the right format.
Q 10 Andy McDonald: On the issue of guarantees, have you a view about the obligation being on the consumer to activate a guarantee on the purchase of goods, and whether that should be automatic? I am thinking specifically about white goods. In that case, there is a requirement on the purchaser to do something to make the guarantee for parts and labour effective. Have you a view about that?
Adrian Harvey: I am not sure that Citizens Advice has a formal view on that, if I can put it that way, but making that automatic seems to me to be a perfectly legitimate approach. The general approach that we would take is that this legislation and legislation like it needs to even up the playing field between the rights of the consumer and the trader. To go back to point-of-sale information, it does not just help the consumer. It helps the trader to understand what their responsibilities are, as well as making clear the rights of the consumer. I think that if guarantees were made automatically applicable where they exist, rather than being activated by the return of a card or whatever the mechanism is, that would help to even out the playing field.
Q 11 Stephen McPartland (Stevenage) (Con): I am wondering, following on from the previous questions, whether there is a gap between consumers’ expectations of their statutory rights and what they discover their rights actually are when they contact your organisations.
Chris Warner: Within the scope and range of complaints that I suspect both our organisations receive, some of the complaints will be well founded, but there will be some people who expect the world and have an over-zealous view of what their rights should be. However, my experience is that that is very much the minority of cases. Generally, consumers have a very reasonable approach to what they feel should be done or what they are entitled to. They have a good sense of what is right and wrong, even if they do not know what their rights are.
Adrian Harvey: The people who come to citizens advice bureaux are not necessarily coming because they have grandiose claims. They are coming because they have a basic understanding that they have paid for something and it does not work; it does not fulfil its purpose. Quite a lot of the evidence forms that we see relate to people who have an understanding of the basic consumer protections that they have from the media—from television and newspapers—but are then finding those things rebuffed by traders. It is not that people are expecting the moon. They are just expecting what the newspaper says are their essential rights or the fulfilment of the basic terms of a contract—“I’ve given you some money for this, but I haven’t got it.”
Chris Warner: I will give an example from the Bill, if I may. This is about the issue of deduction for use. This is quite a good example of where consumer expectations and business expectations are often aligned, so it is worth exploring for a moment. Deduction for use—apologies if you know this already—applies where you have a faulty good, which is unable to be repaired or replaced, and you are seeking a final right to reject to get a refund. Provisions in the Bill allow for a partial refund, rather than a full refund, in certain circumstances. Consumers quite often feel that a full refund is justifiable if they have bought a good that does not work and does not do what they expected, particularly during the first six to 12 months after purchase if it is a high-value good—a TV, hi-fi system, computer or something along those lines.
Under the proposals in the Bill at the moment, there is a presumption that there should be a full refund in the first six months unless there is an active second-hand market for the goods. That is an example of where the Bill is slightly out of kilter with what consumers expect, and what is reasonable. There may be an active second-hand market, but that does not reflect how much use you have had from the goods, faulty or otherwise, during that first couple of months.
Take the example of a used car. You have bought a brand new car that is faulty; you cannot get it repaired, and you have had it for a couple of months. We all know that that car is worth significantly less than it was at the beginning, but you have not had those thousands of pounds-worth of value out of it. The provisions in the Bill have been improved since the draft Bill was published, but that is still an area that merits close attention from the Committee.
Q 12 Fiona O'Donnell (East Lothian) (Lab): Good morning, Chris and Adrian. I want to ask a little bit more about the 30-day period for a refund. Are there any conditions on that, such as providing proof of purchase or products’ original packaging?
Chris Warner: The Bill does not say, on its face. A receipt will be the most obvious way of proving purchase, but if you can prove it another way, that should be acceptable. It just gets more difficult when you are pointing to a credit card transaction, because that shows that you spent £50 in that store, but not that you bought that particular item. It is not explicit.
Q 14 Fiona O'Donnell: “Should be” worries me slightly, because that kind of terminology is often what a supplier of goods will use to not give you your rights. What about packaging? Will that be a condition?
Q 15 Fiona O'Donnell: Good. Do you think that that information should be available to consumers at the point of sale—that they have to retain the receipt, and that the packaging is not necessary? I have been refused a refund on both those grounds.
Q 16 Fiona O'Donnell: What about repairs to goods? The 30-day period does not cover that; there could be lengthy periods without a washing machine or fridge-freezer. Should the Bill have addressed the question of what is a reasonable time in which to carry out a repair?
Adrian Harvey: We at Citizens Advice think that should be 30 days, unless you negotiate other terms with the trader. If you have to ship in a part from the other side of the world, that is reasonable, but you should have the right to say, “I’d rather have the refund, if you can’t sort it in 30 days.” If you want the repair or the replacement, and you are prepared to wait longer and negotiate that with the trader, that should be fine, but yes, there should be a 30-day limit.
Chris Warner: I agree. That is one of the areas where we would like to see more clarity. That comes back to my original point about empowering the consumer. It is much easier for the consumer to be able to point to a particular time frame and say, “You haven’t repaired it; it has been two weeks,” than to say, “I think it’s been a reasonable length of time now.” We are really pleased to see that there is a restriction now, so you have to have only one failed repair/replacement before you can move to refund. That helps to challenge the issue of a cycle of failed repairs/replacements. The specificity around the time frame, and having a long-stop date, is something that we support. For simplicity, you might want to have 30 days, but I still think that is too long for many repairs, and Which? advocates looking at a 14-day
Q 18 Laura Sandys (South Thanet) (Con): I am particularly interested in redress. We will have the Federation of Small Businesses in later, and it will no doubt say that for smaller businesses, the whole process can be very difficult and quite expensive. On the reverse side, when you start to look at what Trading Standards is able to do in relation to very large businesses, sometimes one feels that it is a bit like putting your hand in the petty cash; it is almost a cost of doing business. Do you feel that there is any possibility of looking at other elements of redress, for example having to put your Trading Standards fines on the front page of your website and ensuring that your so-called prosecution was communicated widely, so that customers understood what had happened? Otherwise, this is all below the radar screen. To be frank, these issues rarely get publicity. I think strawberries got a bit of publicity recently but, beyond that, I do not see that consumers know what is happening in the wider sense.
Chris Warner: I agree with a lot of that. That is why one of the additions to the regime that the Bill seeks to introduce is called enhanced consumer measures. That would give Trading Standards and other enforcers the ability to seek a wider range of remedies, and essentially bring the infringement to an end. That could include seeking redress on behalf of the consumer as well as other remedies along the lines you are suggesting, such as enabling consumers to switch, greater publicity of the infringement and making people aware. That is a very welcome addition, and we are pleased to see that the intention is to broaden it out to private enforcers as well as public ones.
You are right that redress in general is very important. There is a suite of tools available. It is about ensuring that the range of tools is available for the right situation, so that enforcers and consumers can call on them where appropriate. It does not mean that they are going to be used all the time. Consumers need to have individual redress sometimes, and at other times they need access to collection redress, because on an individual basis it does not make sense. The enforcement community should be able to seek the additional remedies on top of bringing infringements to an end, including consumer redress. That makes sense, is an efficient use of the regime and can help remove the economic incentive to cheat the system. It can help to encourage compliance in such a way that it forms part of the overall package.
Adrian Harvey: I agree with pretty much all of that. The point about appropriate response is important, so that there is a range of options available to enforcers to use in an appropriate way. Not every situation is the same; that is part of the problem with consumer law. It can become very individual, and interaction with a trader is very individual. Getting that balance on collective redress and different sorts of responses to the range of problems that arrive is important.
Chris Warner: That’s fine. I would like to think they would be used to deliver redress to consumers where there has been a finding of an unfair term, for example, or where people have been misled. It would make redress an automatic part. Where people have entered contracts on the basis of misleading advertising and so on, the remedies could include the freedom for those people to switch away from that contract if they would not have entered it in the first place had the full story been known.
A good example is to look at the recent issue of copycat websites. A lot of people are being misled or confused by these copycat websites. At the moment the normal enforcement powers can bring those websites into line in terms of transparency in compliance. However, with some of the websites that are relatively transparent, people are still falling into the trap. The enhanced consumer measures could be used to solve the problem in the round—to give people who have been caught out their money back; enable people to switch; and encourage greater transparency than the law currently requires.
Chris Warner: One of the concerns I have about the enhanced consumer measures is that, in the absence of agreement between the enforcer and the trader, the back-stop is to go to courts and seek a court order. That is not always straightforward, quick or cheap for the enforcers to do. We have to ensure that the right incentives are in the system, that people will engage with and negotiate the enhanced consumer remedies, and that we are not forcing people to go to court all the time. Proportionality fits into that piece.
Chris Warner: One idea springs to mind, but we would need to think more about it, which is whether there should be administrative penalties alongside the public enforcement regime. However, as I said, that is just one thought off the top of my head.
Q 22 Rehman Chishti (Gillingham and Rainham) (Con): On the point about redress and cases going to court, I think you said that not many cases go to court, and that could be for a number of reasons, for example concern about the court process or costs.
Changes have been brought about regarding small claims courts. At the moment, what is being pushed is that there should be mediation to start off with between all parties before the claim goes any further. Do you
Adrian Harvey: I am not sure if it will result in a lot more people going through the courts. I think it is a move in the right direction, so I think we need that level of mediation. However, I am not sure it is going to take more cases through, mainly because I think the barriers are almost psychological.
Quite a lot of consumer detriment is on quite a small scale. The burden of going to court when you are not absolutely certain of your rights anyway is what would stop you doing it, rather than the interaction with the court system itself. What you need is an intermediary that exists before court. That is not at the small claims court level.
Q 23 Rehman Chishti: Is it also a case of ensuring that people who should be going to court go to court, because sometimes they may not go? It will make them aware that the process—a small claims court—is pretty informal compared with other court hearings, so even if they represent themselves, which many do, they have every chance of success.
Chris Warner: The other point to note is that, for many consumer claims, the cost of going to court is the same as or more than the amount you have lost out by. If you have been overcharged by £50, the court fee is going to be higher than that, so there is a disincentive to go. You have to try to bridge that gap somehow.
In terms of mediation, there has been, as I understand it, a successful pilot, but we have to be careful about mandating ADR and mediation as alternatives, because that can string out the process. If the parties are not willing to reach an agreement, all you do is just lengthen the dispute process, and you have to be careful about that, because the attrition rate will see the consumers drop off first.
Q 24 Rehman Chishti: You say that we should make it easier for people to go to court. Sometimes you have lost a small amount, but you will be paying more in the process by going. On that basis, do you think that we should get rid of the court fee, which may be £50 for small claims cases, so that people are not disincentivised from lodging cases in court?
Chris Warner: I have not thought about whether there should be no fee. In terms of the ADR process, we advocate a free service for consumers. We are also acutely aware that the courts have got to be funded somehow. I am not sure what the answer is; I am just pointing out that there is an issue about proportionality and going to courts.
Q 25 Rehman Chishti: Finally, the issue of costs could quite easily come at the end of the hearing, when the costs are awarded against the other party. There would therefore be no up-front cost, which would mean that somebody could go to court in the knowledge that the losing party would be penalised.
Q 26 Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op): I have two very quick questions. First, do you think that the grey list of unfair contract terms is clear enough to be enforced? Secondly, do you think that citizens advice bureaux are adequately resourced to implement the Bill effectively? I have seen some challenges in my own city of Cardiff, where the citizens advice bureau has a long history around that. Do you think you are adequately resourced to implement it?
Adrian Harvey: Shall I start with that one? Obviously, an organisation such as Citizens Advice is never going to say that it is adequately resourced, because that is the nature of the beast. However, we have a wide and deeply embedded network across the country and we have different channels through which we can deal with complaints and issues, so we have a good, broad-based platform to deal with the Bill and provide mediation. Obviously having more resources would help us with the job, but we are fit for purpose.
Chris Warner: The long and short of it is that the grey list can be improved. It serves a purpose, but one of the problems is the way in which it is interpreted in practice. If something is very close to a grey list term but is not actually within the scope of the grey list term, some people seem to think that they have carte blanche to think it is a fair term, even if that is not how the law was intended.
A good example of that occurs around contract variations. Last year, there was the example of the Bank of Ireland mortgage customers who, 10 or 12 years into their mortgage, found that, as far as they were concerned, the bargain had changed and the price of their mortgages was going up significantly. They thought that they had entered into a particular bargain, which was now changing. Although they had, at least in theory, the ability to exit the contract, some people were not able to get a new mortgage because they were unemployed or significantly older, and those who could switch to another mortgage faced a similar, if not a greater, cost than they would have suffered by staying with the Bank of Ireland.
The grey list covers a number of contract variations, but it does not cover every kind of fixed-term contract or contract of fixed duration. The rules overlay each other, and gaps appear. The Bank of Ireland example was difficult to challenge because no clear grey list term covered it. One thing we are suggesting is to create a new grey list term to introduce some much-needed clarity into contract variations, so when consumers enter into a fixed-term contract or a contract of fixed duration any variations to that bargain during that term are presumed to be unfair. The ability of a consumer to physically exit and replace the contract is something that is taken into account in the fairness assessment.
Q 27 Mr Brooks Newmark (Braintree) (Con): I will ask only one question, because I appreciate that time is short. It relates to the question that Fiona O’Donnell raised. Often, when consumers receive contracts and
Adrian Harvey: I think simplicity and clarity are the keystones for this. If we can get people’s rights simple and clear, the font can get bigger on the terms and conditions. One of the things in the draft Bill was that traders should point out contentious clauses, but that has gone. I think there is certainly a weaker protection than there would have been, although it does have consistency with other sectors. There is something about pointing out where difficult clauses and terms exist that legislation could help with, but I understand that that is not always possible. It is problematic.
Chris Warner: I agree that most consumers do not understand the terms and conditions. Even consumer lawyers find it difficult from time to time to understand what the contract is dealing with. Does the Bill tackle it? It goes some way, particularly around introducing the “transparent and prominent” test for pricing terms to make sure that only those price terms that are transparent and prominent are excluded from an assessment of fairness, but I think the Bill can go further to address that.
There is a risk of some prices being presented to consumers that they do not take into account when they enter into the contract, because they do not think they are going to be relevant. For example, when you are buying a mobile phone, you are looking at your monthly cost and what is included in your monthly allowance. You are not focusing on the cost of out-of-tariff, out-of-bundle minutes, or out-of-bundle data. Those prices could be unfairly high, but because they are displayed in the marketing material, they are arguably prominent. Consumer behaviour is such that they are not going to be taken into account. So I think there is more to be done in the Bill around how pricing is disclosed to consumers to make sure that the only things that are immune from the fairness assessment are those that are in the forefront of the typical consumer’s mind on purchase.
Chris Warner: No. The Bill does not tackle those at all. We have the consumer protection regulations that deal with misleading websites, but they only encourage traders to be more transparent and do not necessarily go to the heart of the issue. Consumers are still being caught out by these websites, despite the disclaimers, so I think something more needs to be done to address the
Adrian Harvey: I agree that it is not sufficiently dealt with, but I think that part of the problem is around enforcement, rather than the legislation. Citizens Advice has copycat websites, too. It is difficult to track those things down and keep on hitting them on the head. So I think it is about equipping enforcement to be able to deal with those sites. That is probably the key to this.
Q 29 Mark Durkan (Foyle) (SDLP): Going back to the question that was asked earlier on the list of unfair contract terms in part 1 of schedule 2, does the Bill sufficiently anticipate the possible contentions and issues that might arise around how the different deals under which cars are procured—
Examination of Witnesses
Q 31 Stella Creasy: Good morning. Again, I think it would be really helpful if you could set out whether you think this Bill goes far enough in clarifying consumer law, and what you think are the tangible benefits and limitations of the law as it currently stands.
David Hertzell: We think it makes a good attempt at bringing some simplicity to this area, which has long been required. We were originally instructed by what is now the Department for Business, Innovation and Skills to try to simplify an area where European-derived directive legislation and tradition English legislation were melded together and were not sitting together very happily. By and large, we think that considerable steps have been made to do that, although in many ways it is not a perfect solution.
Part of the issue and part of the complexity that must be considered here is that this is a high-level generic set of solutions, dealing with vast ranges of services and products, all of which may have their particular concerns and difficulties. It sits above that, and does not necessarily always come to the level of detail that might be required. That inevitably imposes a limitation on how the measure works. However, by and large we think it has been a significant step to improve the current situation.
Professor MacQueen: The only observation I would add is that quite an important feature of the law as it has been in the past is that quite often it has been dependent on particular technical ideas, usually but not always from English law. These things do not necessarily get well understood in other jurisdictions. In general, the Bill produces a statement of the law that is clear and does not depend on technical terminology, particularly that of any jurisdiction within the British isles.
Q 32 Stella Creasy: Thank you. It is very helpful that you set out that there has always been difficulty in trying to clarify and simplify consumer law, partly because of the myriad different laws that fit together. With that in mind, do you think problems could be caused by the fact that the Bill will not deal with the European directive on ADR, which has to be in place by next year at the same time? Do you think that, having tried to simplify the law, without doing the two at the same time we could end up creating a further problem and going backwards rather than forwards?
David Hertzell: Yes. A lot of this is about the remedies and solutions as much as it is about the underlying law. It is perhaps a problem that that has not been addressed. We were not specifically asked to consult on the ADR directive, so it would be wrong for me to comment on that as such, but there is a clear problem here of how these disputes, which are often pretty minor and pretty low-level, are dealt with. You may have a difficulty in how these two things combine.
Q 33 Stella Creasy: Was it unusual for you not to have been asked? You said that you had been looking at how various bits of European legislation had already been enacted in the UK, and obviously that is a fairly major piece of European legislation when it comes to consumer rights. Is it not rather bizarre for you not to have been asked to consider that?
David Hertzell: Not necessarily. We have a very specific set of instructions to look at here, which concern the remedies for faulty goods and unfair contract terms. Those are the two areas that we were asked to address, and we were not asked to look at this in the absolute round. There is quite a lot of this Bill that we have not commented on.
Q 35 Stella Creasy: Finally on that point, you talk about having looked at unreasonable remedies. Is it unusual to have a question of reasonable costs decided in court as a question of fact, as proposed in clause 51?
David Hertzell: Again, I think it comes back to the point that you are covering such a broad spread of things. “Reasonable” is one of those terms that are used often to cover that kind of spread of difficulties. I do not think there is anything particularly hanging on that. It was in the services section as well, was it not? Again, that was not something that we specifically reviewed.
David Hertzell: There was one point that I would like to make. We recommended, and I heard previous witnesses talking about, information provided to consumers at the point of sale. We did not think that the phrase, “This does not affect your statutory rights.” was at all useful. We carried out some Consumer Focus research before we prepared our work. That phrase not utterly understood by either traders or consumers, and frankly it serves virtually no purpose whatsoever. It would be useful, if you were considering giving information to consumers at the point of sale, to be a bit more specific about what is provided.
Professor MacQueen: Quite a lot of the Bill is informed by the desire to bring together existing law and simplify that law, where it is possible to do so. It has not been, as it were, an ambitious attempt to move into a completely new regime of consumer rights. It states what consumer rights are in basically simpler language. That, I think, has been the primary goal of this particular Bill.
Q 37 Mark Durkan: Just to extend the issues raised around point of sale and statutory rights, often at the point of sale an additional sale is offered to consumers in terms of extended warranties. In some cases, it is sold as “peace of mind for your product,” and in other cases it is perhaps more accurately described as “optional insurance”. Does the Bill in any way help to clarify some of those issues? A term such as “warranty” means very different things and is used to mean very different things by very different sellers.
David Hertzell: I do not think that this Bill does deal with that. There is some further work, which we dealt with but which is not here, around misleading and aggressive practices. That is being dealt with separately by regulation. If the contract is presented in a misleading way—and that is the inference of your question—that will be covered by those regulations.
Professor MacQueen: I think the word “warranty” is a good example of the sort of problem we have. These terms are absolutely laden with legal meaning, and it is quite possible that different legal systems use them with slightly different inflections. “Warranty” does not appear in this Bill as such, and the question of how you deal with the warranties provided by various kinds of traders seems to me to be separate. I suspect that where there is abuse, the misleading and aggressive practices regulation will go quite a long way if consumers and their advisers chose to make use of it.
Q 38 Mark Durkan: Some people read “warranty” as meaning “guarantee” in the style that people think of—so a seven-year warranty advertised for a car somehow guarantees it against rust or whatever. When it comes to unfair terms in and around contracts, do you think that would sufficiently cover the question of any additional warranties above and beyond the purchase price for the product or the good?
Professor MacQueen: As long as they are seen as contractual, they are subject to the unfair terms regime, but the terms within the warranty must be capable of being captured by the rules set out in the unfair terms
Q 39 Kwasi Kwarteng (Spelthorne) (Con): You spoke about simpler language in terms of the mood you want to see. We all want simpler language, but is there a system or method by which you are trying to reduce complexity to allow the consumer to understand this?
David Hertzell: That is a very good question that goes far wider than just this. These things are drafted by parliamentary counsel, who use the language that parliamentary counsel use when they prepare legislation, and they also incorporate material drafted in Europe. If you started with a completely blank sheet of paper, you may not use the same phrases and terminology, but given the constraints of preparing legislation that has these two different routes, I do not think they have done a bad job in trying to simplify what they have said, although it is obviously not written in plain English.
Professor MacQueen: I think there is a scheme—I have not heard much about it recently—called “good law,” which the parliamentary counsel are much involved in, the idea of which is to render legislation in as plain and simple language as possible. Certainly, the Scottish Law Commission has as its mission to make the law simple and easy to understand. I think, looking at one or two of our efforts, we may not have succeeded completely in that, but we do try. To some extent, in this context it is a matter of drawing on your own experience as a consumer, or the experience of those around you as consumers, plus the material you receive in consultation.
Q 40 Kwasi Kwarteng: The danger in this practice is that things get more complicated, because you are simply batting it around for longer. What is your sensitivity or approach to that sort of problem?
Professor MacQueen: One other thing on that. In the written evidence that the Scottish Law Commission submitted, we drew attention to one area that we think is quite important: risk, which is things happening to the goods that are beyond anyone’s control, such as flood damage, just to take a topical example. We suggest in our written evidence that it is quite hard to work out what the risk is where someone is providing goods alongside services. There is an answer in the Bill, but you have to straddle two or three sections to get to it and there are still gaps. We suggest that that should be dealt with by a proper, comprehensive provision on that whole topic of risk.
David Hertzell: To deal with the goods point, the phrases used are tried and tested and have been around for a long time. Phrases such as goods of a satisfactory quality are pretty well understood by most people. When we carried out our Consumer Focus work, people did not have any difficulty understanding those kinds of concepts; they were quite confident of that. The corollary of that—because the phrase has been around for a long time—is that businesses and traders have a fair degree of certainty around them. If you take something that is long-used and long-tried and tested, and put something else in, in modern-day English, I think the risk is perhaps that sometimes the interpretation is that you intend it to mean something different. As Hector said, this was a codification—an updating—of the current law. It was not an attempt to rewrite, always, new concepts into the law. In that area, I do not think the intention was to write new concepts, so they used the old framing.
Professor MacQueen: I would agree with what David has just said. I think “satisfactory” was first coined to replace “merchantable”. Merchantable is another illustration of the point about a word that perhaps meant something in the 19th century, but did not mean a great deal to a consumer in the late 20th. “Satisfactory” has worked, as far as I can see. People have an understanding of its meaning and it is a plain English word, so I think there is quite a lot to be said for “satisfactory” in the context of goods. Again, in the written evidence that we have submitted to the Committee on services, the Scottish Law Commission is provisionally of the view that there should be a higher standard than “reasonable care”, which is the present one.
The locus we have to think about this is that we were asked by colleagues in the Advocate-General for Scotland’s office to consider the question and to offer some advice. We took the view that, fundamentally, goods and services frequently go together and it would be difficult for the consumer, in terms of simply understanding the law, if somehow or other the question of what the liability of the supplier was depended to some extent on whether we were talking about the services bit or the goods bit, and that it would be much simpler if the two standards were level with each other. That is the view we have maintained through the consultation period. It has not been taken up so far in the Bill, but for the reasons that you mentioned in your question, it is worth thinking about.
David Hertzell: Well, they were not drafted here, were they? We originally recommended, back in 2005, that we should write these terms into plain English. We consulted again on that recommendation when we carried out the work for this particular Bill, and we got a resounding no from consultees. They wanted to keep these terms as they are, and that was from all sides of the spectrum—not just businesses, but consumer groups, consumer representatives and enforcers.
The argument that was raised with us most strongly was that although we may not have written these things in the way they are if we had started with a blank sheet of paper, they had become used and meanings had grown up. People had got used to them and were comfortable with them, and they did not want us to try and rewrite them because they thought that that would create another process of getting comfortable with something completely new. Therefore, we went with that consultation response. There does seem to be some kind of comfort-blanket effect in familiarity.
Q 44 Oliver Colvile: Maybe I am being particularly stupid—which probably has happened before—but surely this is an issue in which the devolved Assemblies have a keen interest. I sit on the Select Committee on Northern Ireland Affairs and I am for ever being told that we cannot discuss various bits of legislation and matters because it is a devolved matter. Surely this is exactly the case where frankly, the Scottish Assembly—
Professor MacQueen: Consumer law is a reserved area, so there is no real problem. My understanding is that the Scottish Government have been consulted and kept informed of developments in various routes and they do not have any particular difficulty with the Bill. I do not think there are any border issues so far as Scotland is concerned in this area.
Professor MacQueen: Well, the issues should not really arise. It would obviously be a question of which court, if it was to be a court matter, would have jurisdiction. In terms of the rights, they would be exactly the same on the scheme provided in this Bill. I do not think anyone is terribly concerned about that, so long as the rights themselves are decent, worthwhile rights.
Professor MacQueen: Yes, if that were feasible, it could be amended relatively simply. We have suggested a way forward. Again, it is about language and what language means. It is a little bit curious to define an exclusion for Scotland in terms of an English law concept. The only reason for drawing this to the Committee’s attention is that the Scots lawyer will not understand what that means. Consideration is one of those bits of English law that we always carefully leave out and say, “The English have that.” Failure of consideration, which is also mentioned, is again an English law concept which would need some explanation to make it comprehensible to a Scots lawyer.
These things can be done. Some of the things that are in the Bill are very good attempts to achieve that. I think it is only in this latest draft that this terminology has crept in. I assume the draftsman was not thinking particularly at that point about the Scottish element, but it behoves this Committee to address that problem to make sure that the jurisdiction-neutral picture is maintained.
Q 48 Andy McDonald: I want to ask about satisfactory quality—I think that is a term. We have had a discussion about merchantable quality and reasonably fit for purpose and so on. All of those describe something that is less than perfect. Is it really acceptable for somebody to purchase any good that is short of that which is described and advertised?
Professor MacQueen: The courts have interpreted this at a pretty high level where consumers are concerned, so little scratches and flecks of rust on a new Range Rover, for example, will entitle the consumer to say, “These goods are not satisfactory.” The courts have talked about the consumer surplus, the pride an owner feels in the new goods and their appearance. That is part of the definition: the appearance and finish of the object. The courts have interpreted the standard of “satisfactory” at a pretty high level. I teach in the university and we run a model action, as we call it, on the present legislation. The people who represent the traders are always complaining that the law is totally against them, which I find quite amusing. As a matter of pure law, I think the consumer is well served by that formula. The problems are the practical ones which were addressed by the previous witnesses.
Q 49 Stephen McPartland: I understand the Law Commission’s interest is in contract terms and remedies for faulty goods, but you state that you have little interest in digital content or services. With many people purchasing over the internet nowadays, especially in Northern Ireland and places like that, is there not an opportunity for the Bill to bring together some of the laws, so that a consumer would have the same rights whether they purchased a product in a shop or online?
David Hertzell: Yes, I think that would be sensible. We did not carry out a project on the digital part of this—so again, this is just a personal view rather than a Law Commission view—but there should not be a difference in remedies depending on whether you buy
Q 50 Stella Creasy: One of the things we know is that most people experience consumer problems at a local level—it is in their local communities. I am sure all of us have seen cases in our local areas of the same trader causing problems for a number of people—not a huge number, but more than one or two. You might have a rogue builder who is doing loft conversions of dubious quality, or a second-hand car dealership that has numerous complaints.
Given the cost of going to court to get redress—especially if people have spent several thousand pounds on a loft conversion that is not effective—could we do more to help people at a local level to take action together privately? Have you seen any schemes or examples that you think might have merit for this context?
David Hertzell: There are systems in place for certain goods and services that do provide that. The ombudsman scheme does help there. Part of that boils down to the effectiveness of the local Trading Standards and how they can manage to deal with rogue traders identified in their locality. That is again a question partly of funding and resources. It is difficult to think of a generic mechanism that could be set up to deal with all goods and services where there might be particular local problems.
I hope that the ADR mechanism might help. Greater access to the small claims system, where there is no cost penalty on consumers, might help. Some form of collective redress mechanism—on which work is being done elsewhere—might help. The concern has been correctly identified that there is a huge gap between arguing with the Saturday girl when you take your goods back and going to court. There is nothing much in the middle to cover these very limited costs disputes.
Professor MacQueen: Something struck me in Scotland, though I don’t know if there is anything similar in England. With regard to building works and so on, residents’ associations seem to be springing up, especially in new housing developments. The basic point is that the developer runs the show for the first five years or so, as the development gets sold off, and then disappears. Up until that point, the developer has been the enforcer, if you will, of the rights of the residents. The residents’ association then takes over. That was a development I was relatively unaware of until quite recently. It came up in another area of work in the Scottish Law Commission. I think there are interesting possibilities there that could perhaps bear investigation—whether the idea of the residents’ association employing the builders, the maintainers, the repairers and so on—and be extended into other areas.
Q 51 Stella Creasy: Do you think there would be merit in exploring what we could do to help more people at a very local level—a sort of micro-level—to club together privately to take on the builder who has caused problems for a number of people, perhaps not in the same tenant block but in the same area, or the car dealer who is persistently causing problems?
Professor MacQueen: Yes. The developments I am thinking of are a mixture of the block or the housing estate, which may have blocks within it. It is usually a
Q 52 Stella Creasy: I have the same question on all of these things. Given that this is our opportunity, once in 20 years, for consumer legislation, do you think we should try to make provision in the Bill to deal with this, since the biggest problem people see is local-level implementation? There might be merit in exploring what more we can do in the Bill to help that process happen at a local level.
David Hertzell: I think there is a piece of work to do supplementary to the Bill. It is not a legislative matter, but there is work to do around statutory rights and the kind of issues you raised that would improve the consumer experience. That would ultimately benefit everybody, of course. There is something to be done about that, but I am not sure that a piece of legislation is the right vehicle. That does not mean to say that the matter should not be addressed.
Professor MacQueen: It is really a civil society issue. It is about people thinking together, as opposed to atomising themselves and seeing it as just their complaint and not wanting anyone else’s complaint as part of their package. There may be room for developing that as a bit of culture within society.
Examination of Witnesses
The Chair: We shall now hear from the Confederation of British Industry, the British Retail Consortium and the Federation of Small Businesses. Good morning to our witnesses. Could I ask you to introduce yourselves for the record, please?
Q 54 Stella Creasy: Thank you, Mrs Osborne. Welcome, gentlemen. May we start by asking you to comment on the Bill, particularly how it would affect your members? I am particularly interested in Mr Cherry’s views on this, but also I am sure, Mr Downhill, that you have many small businesses and micro-businesses as part of your groups. The Bill explicitly does not cover businesses as consumers, so could you say a little about this? We know it is a complex issue, but what are your views on this and do you think it is something we should be looking at in this Bill? I would invite the CBI to comment as well, but I appreciate that these guys may have a stronger interest in this than you.
Mike Cherry: If I can make some opening remarks, I will cover that point as well, if I may. The FSB is the UK’s leading business organisation, representing the self-employed and those who run their own businesses, with around 200,000 members, many in retail services and the construction sectors. We envisage the Bill will impact on a large proportion of our members. We welcome the aims of the Bill, which are to consolidate confusing and complicated legislation, to update legislation that has not kept up to date with technological developments and to make rights and responsibilities clearer to businesses and consumers.
While broadly in favour, we have some concerns about private actions falling into a US-style litigation culture. I am happy to expand on that in later questions. The FSB remains concerned about the proportionality and scope of the enhanced consumer protections and calls on inspectors to take into account the size of the business when considering their actions. We call for clear and strong communication to small firms and traders about the rights and responsibilities enshrined in this Bill before the provisions come into law. The smallest of firms are the hardest to reach and a significant risk is there for them to fall foul of legislation just through not knowing about it.
While the FSB and, I am sure, colleagues in other organisations will do what we can to help to get the message out, we feel the Government have a very significant role in helping businesses and traders to understand the changes that are involved in this Bill. We note that the definition of consumer for the purposes of the Bill does not include small and micro-businesses, even though evidence suggests that they are. Indeed, the OFT came out with this around 2008 or 2009 when looking at class actions. This applies particularly when dealing with the regulated sectors, as they operate very much in the same way as domestic consumers. At the moment we are undertaking quite a significant piece of work around businesses as consumers. I think we need to recognise that as we discuss the various clauses in this Bill.
Q 55 Stella Creasy: Thank you for that introduction. Would you perhaps then go into why we should treat micro-businesses and small businesses as consumers, rather than looking at them as a business-to-business purchase?
Mike Cherry: Because we are basically no different. I had this very conversation with one of the ISP providers a couple of weeks ago. Small businesses, where you have one person responsible for doing everything and concentrating very much on their business, do not have the time or expertise to undertake a lot of the work that goes on, in the way that a large business may have those resources in specific areas. For instance, on energy tariffs and things like that, we still at the moment do not even have published tariffs. Small businesses just do not have the resource; we do not have the expertise; we do not necessarily have the time, especially, to do the research that is necessary. And as far as the regulators are concerned, we do feel that we should in many ways be treated in exactly the same way as consumers are, particularly at the micro end.
Paul Downhill: It is a tricky one for the BRC, as we are a broad church and represent large and small businesses. There is a concern with regard to representing small businesses where they do not have legal teams and they do not have the ability to interact, when they are purchasing things, in the same way as a large business would in a business-to-business relationship. It will underpin things with a contract and have robust means to deal with things if they go wrong. I think there is some merit in considering that.
The other side of the coin, perhaps talking about larger businesses—obviously, I have some experience from the retail group that includes the Argos brand—is that consumer goods purchased by small businesses are often not used in the same way as they would be in a consumer environment. Small businesses might buy things that are not used in the same way. An example would be tables and chairs. You buy a table and chairs for the kitchen of your home and you will sit on them at mealtimes, which might be in the evening, whereas if a small business that is a restaurant buys them, they might be used all through the day. The same applies to a kettle in a kitchen that is available to people in a work environment. The business might have two or three employees who make tea a number of times during the day, as opposed to the three times that I might make it at home. There is a tension between ensuring that small businesses—that do not have access to the support that big businesses have—are able to assert their rights if things go wrong, and allowing small businesses to buy things and use them differently from consumers and then have the same rights, including the same right of redress. That has not really answered the question. It just identifies that tension. The situation is not as clear-cut as it might at first appear.
Matthew Fell: I have two brief thoughts. Our general approach is that muddying the waters between businesses and consumers generally is not helpful. We tend to find
The second thought, which is particularly relevant to the Bill, given that a good deal of the focus is on the digital environment and bringing legislation up to date and making it relevant in that world, is this. Most creative and digital businesses are either individuals who collaborate or at the micro-business end, so I think it is worth while bearing in mind that dynamic when thinking about small businesses as consumers. What sort of camp are you trying to bring them into and how are you trying to refresh them all?
Q 59 Stella Creasy: Are you making a further distinction and saying that not all small businesses are the same? You are talking about micro-businesses—those that employ fewer than 10 people—and there perhaps being a stronger case here in relation to the protections, as Mr Cherry says. You are asking them to know a lot about consumer law and business-to-business trading. In contrast, a slightly larger small business would have people who could manage some of those relationships.
Matthew Fell: It is certainly true that not all small businesses are the same as they go through the life cycle. The point I was making in direct reference to the Bill is that if you are trying to bring into scope a lot of the digital-style activity, you need to consider that that will be produced and developed by those at the most micro end. If the intent is to bring that into scope, it is worth while thinking about how you want to treat those businesses.
Q 60 Stella Creasy: Obviously, one of the things that we have been discussing this morning is the systems of redress that exist. We have heard from the consumer side how important it is for consumers to have access to ombudsmen and some of the concerns that the EU directive on redress will not be addressed in this legislation. It would be helpful to hear about this from your perspective, because obviously it is one thing to have rights, whether you are a business or a consumer; it is another thing to have a process of intermediaries who might mitigate how those rights are used. Do you have a view on whether it would have been helpful to have this system of the right to redress that is going to come in by next year clarified in this legislation, so that businesses knew what people’s rights were as well?
Paul Downhill: There is a longer view around alternative dispute resolution, which is what I think you are talking about, where an ombudsman is one way of doing that. Retailers are very keen to take a look at that, because we all want to have satisfied customers who go out of the door and come back again some time in the near future. Redress is really important in that relationship between business and consumers, whatever the size of the business.
Obviously, if things go wrong, resolving those matters is really important. There is always a process of escalation and you get to a point where maybe court is the only
Q 62 Stella Creasy: One of the challenges is that, right now, any of us could set ourselves up as an ombudsman. In fact, some trade bodies have set themselves up as ombudsmen for that purpose. In a consumer rights framework, it is confusing for consumers whether an ombudsman is a truly independent voice or a trade body masquerading as an independent voice. That is a problem for all ombudsmen. Would it be helpful for your members to have the clarity and incentive to have an independent ombudsman service to resolve some of these issues?
Paul Downhill: Absolutely. The directive is clear on independence and impartiality, so the British Retail Consortium would not be able to fulfil the role of an ombudsman or offer an alternative dispute service—we would not be able to tick that box. We are looking forward to the existence of that body that sits outside of consumers and retailers, because we feel that that will offer something that currently is not there. I heard in the previous session there was that expression that consumers will happily complain to the shop girl on a Saturday morning in the store, but then taking it to the next level of going to court is something that people do not necessarily embrace. By introducing that, there is another route to loyal and happy customers, because an alternative way of resolving matters is presented. But it also gives us the clarity, because we know it is done in an organised, binding way. The question is not left unanswered, but you do not need to go to court for an answer. It is something that will deliver all those really good outcomes.
Mike Cherry: On this particular issue, we would emphasise that most small businesses like to satisfy their customers in the first place and do not like to go to law, because they cannot afford it very often. Anything around alternative dispute resolutions is to be welcomed, but, going further than that, the FSB has been appointed as a super-complainant under the Financial Conduct Authority. We would very much like to look at the option of being able to take class actions on the behalf of small businesses in the future.
Q 64 Kwasi Kwarteng: I think people might be rather surprised to hear that any legislation that looks to protect the consumer in some way damages or undermines your position. I know that that is a stark way of presenting this, but what specifically are your concerns about the developments in the law that the Bill proposes?
Matthew Fell: Overall, the balance in the Bill is something that the CBI very much supports, particularly in refreshing legislation and bringing it up to date for the digital world. The vast majority of the Bill is supported by the CBI and our members.
The one exception to that is introducing the opt-out private actions regime. We think that that is not the best way to deliver effective—or certainly cost-effective—redress to consumers. Experience of other jurisdictions who operate on that basis suggests that most of the financial claim does not reach the end consumer: it gets soaked up by the legal costs involved. So, for us, that is not the best way to go about introducing redress to consumers. We are much more in favour of alternative dispute resolution for getting speedy and cost-effective redress to all parties concerned. That is the one area of the Bill that we think is not helpful to consumers or to business.
Paul Downhill: I echo Matthew’s comments that the balance in this Bill is very good. Businesses asked for clarity, and this is driving some areas where there is clarity. There are a few areas where the BRC has some concerns. One example is in the unfair contract terms part, about the regulators being expanded to include private enforcers. We see that the Government are working on the basis of “one in, two out” in relation to legislation, but it seems odd that at the same time you are increasing in one area the number of regulators on a particular aspect. We are concerned about the potential to have uncertainty driven by competing regulators in one space. If you have one regulator, it is clear what that regulator thinks and how he applies his powers, but if you have maybe two or three regulators competing for that space, it is difficult for businesses to know what the right thing is to do.
Again, to come back to balance, in relation to the wording, checks and balances are introduced through references to the regulators code and other such matters that drive consistency. One thing the BRC would always want to see is thought given to making sure that the regulators code is something that any regulator has to comply with and that even matters like the primary authority principle operated by the Better Regulation Delivery Office are adhered to, particularly in that space about unfair contract terms. Obviously, the local weights and measures authority is an enforcer, but the Competition and Markets Authority and the Consumers’ Association are also mentioned, and they operate on a national basis. There is a risk of conflict there. You might be having a good dialogue with your primary authority about what you think is a good thing to do in relation to contract terms, but another regulator might be telling you something different. It opens the door for disputes that we could do without. That is an area where there is a problem.
The other thing that might damage our position is this. There is concern around—I think the expression used is “enhanced consumer measures”. Again, there is a feeling of proportionality where the measures are balanced by the usual enforcement checks and balances and direct reference to the regulators code if private enforcers were to come on board in that area. The Bill has done a really good job of balancing those areas and pushing consumer redress and enhanced consumer measures into a space while making sure that there are checks and balances so it does not completely become something that retailers and businesses would not want to see.
Mike Cherry: From our side, we would very much request a clear step-by-step guide for small businesses and tradesmen providing goods and services so they are
I think the important thing, though, is to recognise that it is about communication. Very often, small businesses do not have the resource whenever a new change to legislation or regulation comes in. It is the time it takes for them to understand it. I suspect that even now, under current consumer legislation, there are misperceptions and misconceptions out there that many small businesses probably are not aware of. I think that clarity around that, and proper and effective communication from Government and through business organisations, will help allay those concerns.
Q 65 Mark Durkan: First of all, can I go back to Matthew’s point in reply to Stella? He said that CBI would basically work on the premise that it is not good to conflate the personal or individual consumer with businesses when it comes to consumer legislation. I cannot recall that that was the case in relation to when the Financial Services Bill was going through Parliament, where we were very clear that “consumers”, as provided for in the consumer panel for the FCA, could include businesses, including businesses in the financial services supply chain, for valid reasons. Why the difference? Why were you comfortable with businesses being included in the class of consumers there but not here?
Q 66 Mark Durkan: That is okay. That is helpful. On the car industry, do you have any sense of how the provisions in the Bill about unfair terms, variations and interpretations will apply to the changing model by which a lot of car sales are conducted? A lot of people seem to be confused about whether they are buying a car, hire purchasing a car or taking out a contract for hire. It is a new market, and they are new terms; a lot of people now pay for cars on the assumption that after a certain date the car will be treated as being of a certain value. Are you conscious of any contentions or apprehensions about what may happen in the context of that market?
Q 67 Mark Durkan: Okay. May I ask this question to the others? Obviously, in the context of point of sale issues, product protection insurance is sold to people under the guise of extended warranties and other things. Do smaller businesses, which do not sell those things in their own name, rely less on them than bigger businesses? What is the justification for the Bill not looking at the practice of extended warranties and the high degree of variation in their interpretation?
Mike Cherry: From the FSB’s point of view, that is for our larger cousins to look at, rather than our members. Were they to do that, in most cases they would do it through a third party rather than directly, apart from the independent financial adviser areas.
On the unfair contract terms, we do request that the Government publish guidance tailored to small and micro-businesses regarding contract terms so they can ensure that contracts are fair. We suggest that fairness be defined on the face of the Bill to assist businesses when drafting contracts. That would help both consumers and small businesses.
Paul Downhill: Fortunately, in my day job I do not get drawn into extended warranties and financial services, so I can watch from a safe distance. There have always been concerns about the tension between the customer’s awareness of their statutory rights and the fact that they can be mis-sold products under the implication that they need them to protect themselves. We work hard to ensure that there is clear blue water between what an extended warranty offers to customers and what their statutory rights do. The statutory rights are inalienable and cannot be taken away from customers.
A section in the regulations that enact the consumer rights directive talks about information for consumers at the point of sale. We are currently looking at that to ensure that the information given to consumers at the point of sale is clear and complies with our set of regulations. The area that relates to warranties is already well-regulated. There is a cooling-off period, and information is required. My response to the question about whether the Bill could do more to cover that is that it is pretty well covered already by the existing regime.
Q 68 Oliver Colvile: You seem to be, if I might say so, in a rather unique position. You represent traders, who also have consumer rights, and you must look after their interests so they do not find themselves in trouble. Surely one of the big problems that we must get rid of is rogue traders—dodgy builders, dodgy car salesmen or anything like that. What else do you think the Government and Parliament can do to try to make sure we do that?
Do you also think that there is a big role for the media to play? “You and Yours” is a very good consumer rights programme, and there used to be a programme called “That’s Life”, which exposed lots of people for their dodgy dealings. In my mind, there is a role for the media to expose people who contravene consumer rights. So what else do you think Parliament and Government can do?
Matthew Fell: We would absolutely echo the view that it really is important to identify and get rid of rogue traders. The vast majority of compliant, well-behaving businesses would absolutely echo that. Competing against people who break the rules does them harm, because there is not a level playing field. Any compliant business would entirely agree with the sentiment. I think the Bill does a very good job of looking at the whole landscape—refreshing it and bringing it up to date for the modern environment, including the digital world. It strikes a very good balance. That is why the majority of the proposals in the Bill have our support.
I agree with the notion that increasing awareness among consumers for the routes of redress that are available to them, including the new proposals around
Paul Downhill: On the question of rogue traders, the BRC represents people who want to comply and give consumers a good experience. They want to comply with the law and make sure everything is fine so that there are no problems. There are rogues out there who will not sit round the table or appear in front of this Committee to represent themselves. They will not come to the BRC. They will not engage with primary authorities or engage with any of the measures that are there. Clearly, it is an issue for the enforcers to make sure they target their resources at rogue traders. The Bill helps in a way.
For example, the enforcement powers and the issue of giving notice of inspections are for us a positive piece of the Bill. They are about recognising people who want to have a meaningful dialogue with the regulator. If you have notice, you can prepare for the meeting and have all the necessary people and resources available. That is good for us; it does not waste our time, and it does not waste the regulator’s time. They are coming to see us and having a conversation, which is time well spent. It frees up time to deal with the rogues, to go off and do the other part of the job. Having assessed and looked at the compliant business, they can then go off and pursue the rogue traders who are causing the problems and bringing our retail sector into disrepute.
The media point was well made. The media covers stories of huge public interest. The concern with the media is that the stories are aimed at those who people will engage with, so often large businesses are focused on, and rightly so if things have gone wrong, but there is a concern that in the court of public opinion it is very hard to argue a case fully in the time that might be available on a television programme. We big retailers have the ability to work with the media through our media teams. For smaller businesses it is a problem, because they might not have the resources to be able to engage with the media in a professional and joined-up way. There might be a question around what happens nationally. The programmes you referred to are national programmes, but what happens locally is really important. That is where the problems occur. That is where people buy things and where people complain.
Mike Cherry: I certainly agree with a lot of what both Matthew and Paul have said. Certainly in our sector, small and micro-businesses are undermined completely by rogue traders. We think that the enforcers, the legislators, need to make sure that the right resources are put in to tackle that. I echo what Paul has said about investigators and local authority inspectors making the right appointment and treating small businesses with a light touch. The vast majority of our members—and small businesses generally, I suspect—definitely want to comply. Just making sure that there is communication, both to consumers and businesses, on what the changes from the Bill will mean is paramount. As I said earlier, we are certainly there to play our part, but the Government have a very big part to play as well, as do local authorities.
Mike Cherry: I will kick off. I think we have no problem at all with the 30-day limit. As we have said before, it should not be causing any problems at all to our members. Most of our members would in any case try to keep their customers happy in as short a time as possible. The last thing we want is for consumers to have a bad experience, whether it is with tradesmen, retailers or any other sector. So we do not see too much of a problem with that 30-day period.
Paul Downhill: Again, we are happy with 30 days. One of the things we argued for this Bill to do was to simplify the legislation. Coming up with a single time frame is great for us, so we welcome that.
The second question was about repairs within 30 days. The legislation has fought shy of applying the same logic there and saying that it has to be done in 30 days, instead using the term “reasonable time”. We are happy with that, because I think repairs in our sector can be for things like washing machines, big televisions and kitchen installations, where it might take more time to rectify the problem. I think leaving some wriggle room there by using the term “reasonable” is not a problem for us.
The way to address it from the point of view of, “Why is it working one end and not the other?” is that repairs are a small number. From Argos’s perspective, the average returns rate is, I think, 6%, so 94% of our products that go out stay with customers. The amount of work that we do in relation to repairing items is very small compared with the amount of items that go out the door. To have that wriggle room of leaving it as “reasonable” is great for us, and we welcome that.
Q 70 Fiona O’Donnell: Can I just quickly say that consumer groups were not so enthusiastic? They thought that 14 days was a reasonable time, but there is room for negotiation beyond that for washing machines and fridge-freezers.
Paul Downhill: Maybe there is a crosspiece around big retailers versus small retailers. The majority of big retailers will have a policy that says, “The law says ‘reasonable period’, but we will have something that sits under that”. So if something is going to take too long, we will intervene and ensure that the customer experience is a good one.
That is more difficult for the small and mediums, because they cannot have control over third parties that are perhaps coming in to do the repair. Argos has a policy that, if an item goes away for repair and is not back in the customer’s hands in a period of time, we will give them a refund. But for smaller businesses that rely on third-party repair agents who are outside their control, it will be more difficult to have those sorts of policies in place. If that was regulated, clearly that would be one-size-fits-all, and would, I fear, penalise small, medium-sized and micro-businesses.
Matthew Fell: The only thing I would say about the timelines in the Bill is that they seem reasonable. From the CBI’s perspective, we have not had that as a major area of focus for companies talking about that as being problematic. The general view is that if something goes wrong, the vast majority of businesses want to put it right as soon as possible.
Paul Downhill: I understand that that is more a question on bank processes. The retailer will process the refund straightaway, but it is about the time it takes for that money to be transferred from our bank accounts to customers’ bank accounts. That sits in the banking part of the process.
Q 73 Laura Sandys: Would you say that the Bill ensures that there is a presumption of truth in what you sell and how you sell products? Do you believe that there is enough enforcement in terms of deep transparency? Strangely enough, on one of the websites there has just been a report about shrinkage, where a cornflakes packet used to be about three-quarters full and it is now 60% full, although the package looks identical. Of course, if you go around the supermarket armed with the details of all the previous ingredients and contents, you will see that the content size has changed. Do you believe that we are getting to the place where transparency is really there for the consumer and there is a presumption of selling something fairly?
Q 74 Laura Sandys: The Grocer has said that shrinkage has become a policy among retailers, to pass inflation on to consumers without there being any transparency about the size of the product or any change in the packaging.
Paul Downhill: I would always start by saying that for retailers, truth is at the forefront of what we do. If there is an issue such as that that is underpinned by evidence, that is covered by the law. That is unfair commercial practice, so the enforcers should be looking into it. My day job is to make sure that the business I work for is compliant. Obviously, we do that in conjunction with our primary authority Trading Standards to look at our policies and our process to make sure that we are there.
I cannot speak on behalf of every business, because I do not have the insight into how they do things, but I would be very concerned if businesses were systematically setting out to mislead people in such a way that that deep transparency, which might not necessarily be in the gift of consumers, is not available. Maybe that is a question about enforcement, because the law is there to cover those sorts of unfair commercial practices. If they are being identified, the enforcers need to engage with that.
Matthew Fell: I echo that, and I think it is right that we should work on the basis of that presumption of trust and truth. If it is not there, as Paul has said, there are mechanisms to address that. The one piece that I would add is that from my experience, the vast majority of businesses want repeat business, not one-off business, because repeat customers are the most valuable. If you do not operate on a basis of truth and trust, that is not a good way to retain repeat business.
Q 75 Laura Sandys: What you are saying is that nobody is behaving illegally in my proposition. My proposition about shrinkage is that the presentation of the product appears to be the same. The reality is that on the side, it will say that a different number of grams has been put into the box, but the box looks the same. The presumption of truth means that as a consumer with time limitations, who does not go around with previous weights and measures, I would presume that that product was the same as it was two months ago. The point is that it is not. It is not illegal at all, but the point is: are we creating a transparent transaction between the consumer and the product?
Matthew Fell: All I can say is that that transparency ought to be there. Where it is not, if I, as a consumer, subsequently discovered that that was happening to me, I think there would be plenty of other options. We have choice and competition in the market, and you might be more inclined to take your business elsewhere if you felt that that truth and trust had been broken between you and the brand from which you had previously purchased.
Mike Cherry: I would suggest that what you are alluding to is not a fault of small businesses. As others have said, we very much welcome and revere our repeat customers, and that is what we want going forward. We do not like upset customers. I think that that presumption of truth is certainly there from the small business sector. I reiterate that small businesses are no different from consumers in many ways. We have the same issues, perhaps, as you may be alluding to.
Paul Downhill: My response to that is that we are in a space now where the dialogue with regulators might be more transparent than it has previously been. Primary authority offers great opportunities for businesses to talk to the regulators in a different way. On such matters as this, where there is technical compliance with the law but there might be issues that are being fed through the primary authority on complaints that are being received from customers, there is an opportunity to have that conversation.
It is not just big businesses; the scope of primary authority has been extended to trade associations now. We have talked about alternative resolution in relation to consumer complaints. Alternative resolution in relation to enforcement issues is there, and there are opportunities. So I am optimistic that we are in a space where, if allegations like that are being made, we can work on those and deliver the best outcome for consumers.
Q 76 Stephen Doughty: I want to ask a couple of questions about the digital aspects in the Bill. Do you have any concerns about the definitions that are used in the digital section, particularly freedom from minor defects? Do you see that as a workable definition?
Paul Downhill: It works well in relation to goods. The digital piece is an evolving area. One of the comments that the BRC has made is that we have gone ahead in the UK with our approach. Europe is behind. Was there a benefit in waiting for Europe to catch up? Maybe, maybe not. We are where we are. We have got this in the legislation and, frankly, we are happy with the definitions. We see no problems from a retail point of view in delivering what is expected of us by virtue of the legislation.
Matthew Fell: Again, I echo what Paul has said. There are advantages as well as disadvantages in being the first mover in the digital space. If it helps to give consumers greater confidence, that might be a good thing for the UK digital marketplace. One point where we feel the Bill has landed in the right place is the decision not to give consumers the right to reject digital content. We feel that that would leave it very open to piracy or unscrupulous consumers if, for example, you could download material and then return it.
Q 77 Stephen Doughty: I can understand that concern. But if it were possible to prove that a consumer had permanently deleted something that was faulty, is there any way in which you could accept the consumer rejecting content such as if there was a way of proving that they had not copied it and moved it on?
Matthew Fell: It is a very big proviso to say “if”. If—heavily underscored—that was achievable, it would address the vast majority of the concerns. I just think that practically it is very difficult to envisage a world where the technology would permit you to do that, as things stand today.
Q 78 Rebecca Harris (Castle Point) (Con): You talked about being the first mover in Europe on this. Do you see competitive advantages for us here rather than overall any competitive disadvantage from bringing in this legislation?
Matthew Fell: I do not think it is a straight either/or. I think there is a line of argument that says that the UK being the most trusted environment on digital, which the Bill might help with, may count in our favour. So, yes.
Q 79 Stella Creasy: In conversation with Fiona, you said that you did not think there was a problem with speedy refunds. Would you then have no problem with clarifying for consumers a time frame in which they should expect a refund? Your argument is that the issue is with the banks rather than with the companies in providing the refunds. We see quite a few people who wait a considerable length of time for a refund.
Paul Downhill: I understand the question. You have pushed me to the limit of my knowledge. I know from my interactions that there is this issue with the banks, but what that means in terms of time, and what we could tell customers about that, I am not sure.
Q 80 Stella Creasy: Obviously, if somebody pays online straight away and if they then have to wait two or three months, as is quite common, for the money to be refunded to them, that seems a disparity for consumers.
Paul Downhill: Yes, and as a consumer I would be unhappy and as a retailer I would be unhappy if my customers were waiting that long to get their money
Paul Downhill: Are we promising something that we are unable to deliver because it is out of our control? We can confirm that we have processed the refund. We have