Business, Innovation and SkillsWritten evidence submitted by the Ombudsman Services

Executive Summary

(i) The Ombudsman Service Ltd (Ombudsman Services) is a not for profit company limited by guarantee. It provides ombudsman services for the energy, telecommunications, property and copyright licensing sectors, by appointment or approval from the relevant regulators. Ombudsman Services is also appointed by the Department for Energy and Climate Change (DECC) to cover the Green Deal and by the Asset Based Finance Association (ABFA) to provide ombudsman services to its members. Ombudsman Services complaints resolution service is free to consumers and, apart from the initial period of the Green Deal contract, receives no public funding; it is paid for by the participating companies under our jurisdiction by a combination of subscription and case fee.

(ii) Ombudsman Services welcomes the simplification of consumer law including greater powers being given to Trading Standards and other enforcement authorities to require traders to compensate consumers where they have breached consumer law. However, it is important that sufficient resources are available not only to ensure that the law is enforced but more importantly that traders and consumers are educated as to their rights and responsibilities.

(iii) The simplification of consumer law should, in our view, be accompanied by a greater emphasis on redress to enhance consumer rights; the Consumer Rights Bill could be considerably strengthened by linking it to the requirements placed on the UK by the EU Alternative Dispute Resolution (ADR) Directive.1

(iv) For ADR/ombudsman bodies to be effective there is a need for either regulation or, preferably, self-regulation through consumer codes of conduct which are approved by the Trading Standards Institute.

(v) The enabling legislation in the Enterprise and Regulatory Reform Act2 (ERRA) provides a model that encourages self-regulation which could be applied more generally to other sectors where there is the possibility of consumer detriment.

(vi) There should also be a reduction in the number of redress schemes. The complex patchwork of redress across the UK is confusing for the consumer. There is a powerful argument that, to assist the consumer, there should be a single Consumer Ombudsman (alongside the Financial Ombudsman Service and the Legal Ombudsman) for the private sector covering important areas such as the general retail sector, second-hand car market and sole traders (such as plumbers and builders). Ombudsman Services, has the breadth of experience and the competence to provide the services of the Consumer Ombudsman.

About Ombudsman Services

1. The Ombudsman Service Ltd (Ombudsman Services) is a, not-for-profit company limited by guarantee. It provides ombudsman services for the energy, telecommunications, property and copyright licensing sectors, by appointment or approval from the relevant regulators. It was appointed by the DECC to be the ombudsman and investigation service for the Green Deal; its most recent contract is to provide ombudsman services to the members of the ABFA. We provide dispute resolution and redress to domestic consumers and micro-businesses. Established in 2002, Ombudsman Services now has around 8,500 participating companies and last year we resolved just under 20,000 complaints. The company employs around 200 people and has a turnover of just over £8 million.

2. Ombudsman Services complaints resolution service is free to consumers and receives no public funding, apart from the initial period of the Green Deal contract; it is paid for by the participating companies under our jurisdiction by a combination of subscription and case fee. The participating companies play no part in the management of Ombudsman Services; our governance structure ensures that we are independent from the companies that fall under our jurisdiction. The more complaints there are about a company, the more the company pays, ensuring an incentive for the company to improve their customer service.

3. To help level the playing field between consumers and companies, we have a contact centre which provides information and helps those who have difficulty in making a complaint. We achieve proportionality by providing alternative dispute resolution through different processes; from early resolution which involves trying to mediate a settlement between the two parties that is acceptable to both, to an Ombudsman Services decision which is made once all the evidence has been taken into account and for which there is no appeal.

4. We very much welcome the simplification of consumer law. The need for simplicity was one of the key findings of a Which?3 report into consumer literacy. There are however, a number of issues that the committee may wish to consider as part of its scrutiny of the draft Bill.

Overall Content and Coverage—Redress before Enforcement

5. Ombudsman Services welcomes greater powers being given to Trading Standards and other enforcement authorities to require traders to compensate consumers where they have breached consumer law. However, Ombudsman Services believes that enforcement should be seen as the last resort and in many respects can be seen as an admission that the system has failed. In our view, it is important that the scope of the Consumer Rights Bill is extended to include the requirements of the European Union ADR Directive^. The Directive requires European Member States to ensure that there is independent redress for most consumer transactions. The Directive also requires that dispute resolution schemes themselves are, amongst other things: free or at minimal charge to consumers, accessible, have regulatory oversight and are genuinely independent from those that fund them. Traders that are members of a redress scheme are also required to provide consumers with the contact details of the redress scheme; if traders are not members of a scheme, they must inform the consumer of the fact.

6. Schemes could be established by the sectors themselves, but a “backstop” could be provided similar to that included in the ERRA in respect of copyright licensing. In this case, the Secretary of State has been given powers to regulate and to establish a redress scheme for the copyright sector—in the event that the sector fails to introduce codes of conduct and an independent scheme of its own volition. The sector has responded positively and Ombudsman Services now provides the independent redress. This approach through enabling legislation would be effective in other sectors not currently covered by an independent redress scheme.

7. Ombudsman Services already complies with the requirements of the EU ADR directive. When considering the expansion of ADR coverage across the consumer landscape we encourage adhering to the recommendation in the Directive that governments should, as far as possible, build on what already exists rather than establishing something new. This accords with Cabinet Office guidance4 to government departments on ombudsman schemes, prepared jointly with the Ombudsman Association (OA), which says that it is preferable to use existing redress schemes rather than establish new schemes, thereby saving unnecessary duplication, be cheaper and avoid confusion in the mind of the consumer and, in some, the trader. The guidance also advises departments that there should be only one redress scheme per sector, thereby preventing traders selecting the scheme that favours them the most. Thus, the government should be encouraged to use the existing redress schemes that are already in place to ensure consumers have access to independent redress. The Department for Communities and Local Government (DCLG) is currently looking at the requirement in the ERRA that all lettings and property management firms be a member of an approved ombudsman scheme. Currently DCLG are looking at a process by which individuals or companies can apply for approval to run an ombudsman scheme to cover lettings and managing agents despite the fact that the letting sector is already well-served by two well recognised ombudsmen schemes, which are approved by the OFT; both are not-for-profit companies limited by guarantee. We have written to the DCLG5 explaining our concerns and questioning the need to spend public money on an unnecessary process.

Enforcement Powers

8. If an ombudsman scheme in the private sector is to be successful it is important that it has enforcement powers but there is also a need for “regulator” level intervention when an organisation under jurisdiction does not comply with the findings of the Ombudsman. Thus, in the case of Ombudsman Services, Ofcom and Ofgem are the regulators to whom we can report the conduct of a company when necessary. Similarly, in property we can report a non-compliant company to Royal Institution of Chartered Surveyors (RICS) or the trade association of which the company is a member.

9. The need for regulation, or self-regulation, through codes of conduct, should be taken into account when considering the expansion of independent redress through ombudsman schemes. An important element in this is the Trading Standards Institute Consumer Codes Approval Scheme which can underpin self-regulation and trade associations that can deal with rogue traders.

Enhanced Consumer Measures

10. While Ombudsman Services welcomes the government’s intention to strengthen Trading Standards, we are concerned that the reduction in local government funding will inevitably have implications on how the proposed legislation will be enforced. Trading Standards ability to carry out enforcement actions against rogue traders will be further weakened if they are required to give notice of their inspections, as currently drafted in the Bill. The government should be urged to reconsider this requirement in the draft Bill. Furthermore, as detailed at paragraph 9 above, we believe that Trading Standards Institute Consumer Codes Approval Scheme has a key role in sectors where there is no statutory regulation.

11. The Government’s policy of concentrating consumer advocacy and advice with Citizens Advice has not been fully realised and there remains a number of sources for consumer advice across the consumer landscape. This is confusing for the consumer and the plan to pass responsibility for research, advocacy and advice to Citizens Advice should be rolled out as soon as possible. In some sectors consumer advocacy is currently combined with the provision of redress. Such an arrangement adds to consumer confusion and fails to provide the necessary independence that is required by the EU ADR Directive. The responsibility for redress should move to an independent redress scheme; a one-stop-shop, or at the very least a single point of access.

Consumer Law

12. We are disappointed that the Bill does not address the depreciation on faulty goods. In our experience, this is a particular issue in the telecommunications sector. For example, if a handset develops a fault after 30 days and the retailer is unable to repair or provide a replacement; the retailer can, currently, refund the purchase price less an allowance for use. It is notoriously difficult to value the use a consumer has had from a faulty product, and the lack of clarity on the matter has resulted in considerable dispute. We suspect that this may be a significant problem for the consumer in other retail sectors. We are disappointed that the Bill does not take the opportunity to remove this source of frustration for consumers and we urge the committee to press the Government to reconsider the matter.

Private Actions in Competition Law

13. As part of the actions in competition law, the draft Bill allows for the establishment of voluntary redress schemes (VRS) specifically in relation to competition law. There are two ways that VRS can be established; firstly, a business and consumer organisation will be able to approach the Competition Appeal Tribunal (CAT) to agree a settlement that the CAT will need to rule on as just and reasonable. The second is through the Competition and Markets Authority (CMA) certification scheme. This requires a business to create a voluntary scheme that the CMA will then certify. In relation to the CMA power, it will be for a business to decide whether or not to offer a scheme (in other words there is no need for a consumer representative).

14. While Ombudsman Services accepts that breaches of competition law are most likely to occur between businesses in a sector, it is our view that approving what will be new redress schemes will allow the widening of redress and place such schemes on a legal footing. Ombudsman Services considers that such schemes should not be, indeed cannot be, regarded as independent of the company under the scheme’s jurisdiction and would in our view fail to comply with the requirements of the Ombudsman Association and the Cabinet Office guidelines on ombudsman schemes.

15. While the Bill may not be the place to establish how the act will be implemented, it will be essential that the CMA has the power to ensure schemes meet the requirements of the EU’s ADR Directive.

Digital Content

16. The pace of technological innovation means that “consumer rights” is an area were legislation finds it difficult to keep pace with change. Ombudsman Services welcomes the government’s intention to extend the scope of the Bill to cover digital content—this is an area where we consider that the law needs to be strengthened. This could be achieved if the draft Bill viewed “goods” differently. The draft Bill is too limited in its scope as it is restricted to the exchange of “goods” that have a value. The Bill does not cover for example the exchange of data as data is not defined as “goods” although it is becoming increasingly obvious that personal data has a value and can be exchanged. The Committee may wish to urge the Government to reconsider the very narrow definition of “goods” in this context.

Conclusion

17. Ombudsman Services welcomes the simplification of consumer law. However, this should, in our view, be accompanied by a reduction in the number of redress schemes. We believe that there is already a plethora of ADR schemes, resulting in a complex patchwork of redress across the UK, which in turn undermines consumer confidence. Ombudsman Services believes that in order to assist the consumer, there is a powerful argument to establishment of a single Consumer Ombudsman (alongside the Financial Ombudsman Service and the Legal Ombudsman) for the private sector. Ombudsman Services believes that it is ideally placed to provide the services required of a Consumer Ombudsman and would be willing to take the lead on developing a single consumer portal.

Lewis Shand Smith
Chief Ombudsman

23 August 2013