Consumer Rights Bill

Written evidence submitted by the Finance and Leasing Association (CR 06)

1. The Finance and Leasing Association (FLA) represents a wide range of banks and non-banks in the consumer, motor and asset finance sectors. In 2013, our members provided £62.3 billion of consumer credit to their customers, representing a third of all consumer credit lending via credit and store cards, unsecured loans, store instalment credit and second charge mortgages. Within that total, FLA members provided £27.5 billion of motor finance to consumers and financed nearly three quarters of all new car registrations.

Summary

2. The Government has proposed new legislation to govern how businesses deal with consumers in relation to the provision of goods (including digital goods) and services. The Consumer Rights Bill (the Bill) has been laid in Parliament the aim of which is to simplify, clarify and consolidate key pieces of consumer rights legislation into one statute. However, the Bill introduces a number of changes which will have significant implications for the credit industry given that, in some cases, lenders are held jointly liable with suppliers under the Consumer Credit Act for providing redress in the event that a supplier has failed to meet its obligations to a consumer. Some of the provisions could also serve to confuse consumers rather than clarify their rights.

The current situation

3. The consumer credit industry is currently regulated by the Consumer Credit Act. This Act, together with the Supply of Goods and Services Act 1982, the Sale and Supply of Goods Act 1994 and the Unfair Terms in Consumer Contracts Regulations 1999, provides significant protection for consumers in relation to their dealings with traders. From 1 April 2014, the regulation of consumer credit will transfer from the Office of Fair Trading to the Financial Conduct Authority (FCA). As a result, the consumer credit industry will be subject to a much broader framework of regulatory requirements, similar to those that currently apply to the banking, savings and insurance markets. These will deliver enhanced consumer protection and additional rights of recourse to put things right when they go wrong.

Our main concerns

4. The FLA is not opposed in principle to the consolidation of consumer protection legislation. Our main concern is that the Government’s proposals go beyond this remit and establish a number of new requirements, some of which lack clarity, fail to reflect commercial reality, adopt an inappropriate "one size fits all" approach and as such will have a number of potentially adverse consequences for the consumer credit industry – and cause confusion for consumers.

Our position

5. We believe that the following areas of the Bill should be revisited because they could lead to consumer confusion and will have significant implications for the consumer credit industry.

Clause 17 – Trader to have right to supply the goods etc.

5.1. This clause requires that the trader should have the right to sell or transfer the goods or to transfer possession of them, at the time when the sale, transfer or hire takes place. It also requires that no other person should have rights over the goods, unless the consumer is made aware of this before making the contract, and further that the consumer’s possession of the goods should not be disturbed by anyone with rights over the goods (except any rights of which the consumer is made aware).

5.2. We are concerned that the current drafting of this clause of the Bill does not reflect commercial reality and will be difficult to implement in the consumer credit markets.

5.3. Clause 17(2) does not fit with the design of the hire purchase product. Although the Bill exempts hire contracts from these requirements, a similar exemption is not made for hire purchase contracts. This exemption is important as a main feature of the hire purchase product is that title passes at an agreed time. In addition, most traders hold stock subject to some form of encumbrance or charge, whether it is retention of title (ROT) arrangements from their suppliers, floating charges, or motor dealer stocking plans. At the time the trader enters into a contract to sell goods, the goods will still usually be subject to those ROT terms, floating charge, stocking plan etc. The current drafting of the Bill would potentially require traders to explain the complex issues that surround these types of stocking arrangements, to customers. Providing this information to consumers would be unnecessary and overly confusing. For the consumer, the primary concern would only be that that there are no charges or encumbrances attached to the goods at the point when title is transferred.

5.4. Amendments required: : Clause 17(2)(a) and (b) should be combined into a single provision and redrafted (new words in bold) as follows:

17(1)(a) Every contract to supply goods, except a contract for the hire of goods [or hire purchase] or a contract within subsection (4) is to be treated as including a term that

 

(a) The goods will be free from any charge or encumbrance, not disclosed or known to the consumer before entering into the contract, at the time when ownership of the goods is to be transferred, and

(b) [Existing wording currently in 17(2)(c).]

Clause 22, Short-term right to reject

5.5. This clause allows the consumer to reject goods for even minor defects and could result in disproportionately high costs for businesses where it may have been possible to repair or replace the goods at a lower cost. This could have a significant effect on the motor market where the value of the goods depreciates significantly on initial use and is of particular importance given that the right for a seller to make a deduction for use does not apply to the short-term right to reject.

5.6. Amendments required: The clause should be amended so that it should not apply where rejection of the goods is disproportionate to the defects in the goods and to give the seller the opportunity to repair the goods where possible.

Clause 50 – Information about the trader or service to be binding

5.7. Section 75 of the Consumer Credit Act 1974 (which makes some consumer credit lenders liable to provide consumers with redress where a supplier has failed to do so) applies to the new remedies set out in the draft Bill in relation to the provision of services.

5.8. Clause 50 provides that potentially all statements (written or oral) made by a trader may form part of the contract. This has the potential to give rise to contentious disputes about what was or was not said and could lead to businesses providing consumers with increased amounts of documentation to avoid opening themselves up to reprisals if innocent comments made face-to-face were misconstrued. Lenders could also face increased costs as they would be liable to provide redress to consumers for claims where traders failed to meet requirements under the draft Bill.

5.9. This clause was inserted by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 which come into effect on 13 June 2014 and from which financial services is excluded.

5.10. Amendments required: Section 75 CCA 1974 should be amended to exempt lenders from the requirements of this clause.

Clause 53 – Relation to other law on contract terms

5.11. The Government must work with the FCA to ensure that the Bill does not create another layer of legislation which ends up confusing consumers as to what their rights actually are.

5.12. While this clause states that Chapter 4 of the Bill is subject in certain circumstances to ‘other enactments’ or rule of law that impose a stricter duty, it is not clear if this includes the forthcoming FCA Consumer Credit Sourcebook (the Sourcebook) – which will set out new rules for consumer credit regulation.

5.13. Clarification required: The Bill should clarify exactly how it will interact with requirements set by industry regulators such as the FCA’s Sourcebooks.

Schedule 8 - Collective Action

5.14. These provisions introduce a collective action opt-out regime which means that claimants are automatically included in a claim (currently only in relation to claims brought under the Competition Act 1998) unless they opt-out. The introduction of this regime could promote a "litigation culture" (which the Government has indicated it wishes to avoid) and would potentially be open to abuse from unscrupulous claims management firms.

5.15. Amendments required: The Government’s approach to collective action should be consistent with the European Commission’s Recommendation that Member States should allow for an opt-in mechanism for collective action. The provisions of the Bill gold-plate the EC Recommendation which had been achieved following extensive deliberations at EU level.

Implementation

6. The Bill will be introduced at the same time when 50,000 consumer credit firms transfer to the FCA. This will be a difficult period and the Government will need to ensure that the implementation of this Bill and the transition period are co-ordinated to ensure minimum disruption to businesses.

February 2014