13 Oct 2014 : Column GC1

Grand Committee

Monday, 13 October 2014.

Arrangement of Business


3.30 pm

The Deputy Chairman of Committees (Lord Bichard) (CB): My Lords, welcome to the Grand Committee. If there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.

Consumer Rights Bill

Consumer Rights Bill3rd Report Delegated Powers Committee

Committee (1st Day)

Relevant document: 3rd Report from the Delegated Powers Committee

Clause 1 agreed.

Clause 2: Key definitions

Amendment 1

Moved by Baroness Hayter of Kentish Town

1: Clause 2, page 2, line 12, at end insert—

“( ) Businesses with fewer than ten employees and which are purchasing goods or services for use within their commercial activities will be considered consumers.”

Baroness Hayter of Kentish Town (Lab): My Lords, maybe I could just take the opportunity of welcoming everyone back after the summer. In particular, I welcome the noble Baroness, Lady Wilcox, who first announced that the Bill would happen—it is all down to her, perhaps, that we are here. In his absence, I thank the noble Viscount, Lord Younger of Leckie, for having got us through the Second Reading, and I have great pleasure in welcoming the noble Baroness, Lady Neville-Rolfe, in her new and elevated role. As with her predecessors, she has already shown her willingness to meet with us and to understand our point of view, even if either she or those around or above her do not always agree with it. We look forward to working with her as the winter nights draw in.

Amendment 1, which stands in the names of my noble friend Lord Stevenson and myself, is really about what we can do to help small businesses, three quarters of which are one-man bands—or occasionally one-woman bands—be they hairdressers, builders, plumbers, farmers, publicans or web designers. Such small businesses really have very little bargaining power because they are not making large-scale purchases. They do not have any more time or specialist knowledge than any of us as individual consumers have to do any shopping around; they do not have in-house legal advice or a specialist procurement function.

Amendment 1 tries to give such micro-businesses the protections that are being introduced in the Bill. Without the amendment, they will not have the right to refunds, repairs or replacements for faulty goods or

13 Oct 2014 : Column GC2

products or services simply because they are a business. For example, we might expect a small hairdresser to know what they are doing when they are purchasing shampoo or hair-dryers, but they are not in any stronger position than any other individual consumer when they are getting a window cleaner in or buying a type of floor cleaner or purchasing electricity. Similarly, a small café that happens to offer wi-fi to its customers may be as vulnerable as the rest of us to poor service or being fobbed off by a wi-fi supplier. Similarly, small landlords may let out perhaps only one or two properties but some of those landlords will be classed as business and will not be able to enforce their rights when they are dealing with utility suppliers, or indeed the Post Office or anyone else, that they may deal with as a business.

Along with Citizens Advice and others, we are keen that the protections in the Bill, which we welcome, should be afforded to smaller businesses. We also know, from the work for Consumer Futures on The Experience of Small Businesses as Consumers in Regulated Markets, that such businesses are often dissatisfied with their suppliers and with how their complaints are dealt with. Four in 10 businesses that have complained to their water or gas supplier are unhappy with the way that their complaint is dealt with. About one-third feel similarly in dealing with a telecom service. So we want these very small businesses to be able to have these rights.

It is not that unusual a thing to ask. A number of regulators already treat micro-businesses as consumers. The legal services and financial services ombudsmen will both treat micro-businesses as consumers for their complaint handling. Ofcom extends consumer protection to micro-businesses and requires providers to apply an alternative dispute resolution scheme for dealing with unresolved complaints from domestic and small business customers. The Communications Act 2003 specifies that small businesses should be classified with domestic consumers, as long as they do not employ more than 10 people or trade in the telecom sector. The Federation of Small Businesses has reminded us that small businesses also count as consumers in respect of breaches of competition law, and the FSB can act as a super-complainant in that. Small businesses will also be covered under Clause 80 of this Bill with regard to redress under competition law, where the opt-out provisions will cover small businesses and the FSB can be a party to that. So what we are asking is not that unusual.

I know that the Government do not accept this amendment, allegedly because it is not what business wants. In the other place there were quotes from the 2008 and 2012 consultations giving the views of the British Retail Consortium and the CBI, but of course they mostly represent big businesses that maybe do not want their micro-business customers to have these rights. Rather as micro-businesses cannot spend time researching tariff options, I am afraid they also do not have time to respond to government consultations, so the responses may be rather more from big business than from small businesses. The most important point is probably that the Federation of Small Businesses is the voice of micro-businesses, and it supports the appropriate widening of the definition of “consumer”

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to encompass micro-businesses so that they can benefit from similar protections as consumers when they are buying goods and services that are not related to their core commercial activity. Again, it understands that hairdressers should know about hair-dryers but not about other products.

I know that the Government have said, “Well, these businesses are already covered by the Sale of Goods Act, which says that goods must be of satisfactory quality and fit for purpose”—so, if a greengrocer buys a kettle, they would be covered under that Act. However, when this Bill is quite rightly aiming for clarity, it seems to be a bit of a nonsense, both for retailers and for everyone else, if two different bits of legislation are relied on when someone goes to buy a kettle from a shop.

The Government have also said in the other place that our amendment would undermine the clarity that the Bill seeks to achieve, as the consumer rights directive uses a common definition of “consumer” and there would be a difference if our amendment were accepted. However, our amendment would not change the definition of “consumer”; it would simply apply the Bill’s provisions to micro-businesses. It should perhaps be noted that the EU directive certainly would not make it difficult because regulations in Germany, Austria, France and Sweden have all included small businesses as consumers within their domestic legislation.

In its pre-legislative scrutiny, the Commons Select Committee recommended that the Government consider the case for small businesses to be treated as consumers. The then Minister in the Commons said that her department was happy to commit to actively considering the treatment of smaller businesses when developing consumer law in future. It is a wasted opportunity not to do that now. At the very least, therefore, perhaps the Government would be wise to build in an enabling power to extend the Bill to micro-businesses so that, should they conclude at some time in future that this is a sensible way to promote small businesses, which I know they are committed to doing, then an order could make that happen. I beg to move.

Baroness Crawley (Lab): My Lords, I simply wish to add my support to my noble friend’s amendment. We know that there are more than 4 million small businesses in the UK today. I am sure that we would all agree that they are the lifeblood of the economy. They account for well over 90% of all enterprises and employ up to 14 million people. We know that we live in very difficult economic times; that is the case for millions of our fellow country men and women. We also know that the vast majority of people who move from unemployment into employment go through the private sector and the small business sector.

This amendment put forward by my noble friend gives us an opportunity to assist those smallest micro-businesses in these difficult times to avail themselves of all the rights and protections that are, rightly, in the Bill. Such a move on the part of government, should it look sympathetically on this amendment, would help to sustain small businesses, as my noble friend put it, through the often complex minefield of

13 Oct 2014 : Column GC4

business-to-business relationships, where the micro-business is very much the junior player and is often open to manipulation and resource-draining tactics by more powerful players.

When it comes to negotiating business contracts, the Federation of Small Businesses has identified four areas that add up to real detriment for those businesses. It talks about a “lack of expertise” in purchasing policy, high opportunity costs of time spent making those purchasing decisions, low benefits, and little bargaining power, which I have attempted to outline.

As my noble friend said, small businesses are already treated as consumers in many parts of the European Union and in many of the regulatory areas in our own country. I simply quote the complaints handling process for the legal services and financial ombudsman—and my noble friend quoted many more areas. Therefore the Minister—whom I, too, welcome to her new post—would not be going where angels fear to tread if she was to look sympathetically on this amendment.

Baroness Wilcox (Con): My Lords, I, too, welcome the new Minister. I know what she will go through for a while, sitting there, so she has my sympathy and I wish her great success with the Bill.

The line,

“where angels fear to tread”

is a good one for me to come in on. A long time ago, when I chaired the National Consumer Council, as it was called then, this very subject came up. Why could we not do it? Small businesses, et cetera, were referred to, but at the end of the day it was difficult to identify a small business and a consumer. A consumer, as we did then call them, looked for six particular things, and if we found that they were missing out on two, we could take their case for them. Those were: access to what it was they wanted; choice to make sure that they had it; information on it; safety; equity; and redress—very much for the individual consumer, and not for the citizen. All the rules that were made for the consumers were made for somebody consuming. We could never quite get to the point whereby we felt that we could move over into taking forward these very small businesses. It was to the small business organisations that we spoke, to see if they could look after this side of business. It is fortunate indeed for the Minister that her next Bill is the small business Bill. She might want to take this forward there.

There is only one question I would like to ask, not of the Minister, but of Her Majesty’s Opposition. They were in government for a long time; why did they not do it then?

3.45 pm

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con): My Lords, I join the noble Baroness, Lady Hayter, in thanking my noble friend Lady Wilcox and my predecessor, my noble friend Lord Younger, who so elegantly got us to this point. I am also very touched by the welcome you have given me. I look forward to working with your Lordships on this very important Bill, the first on which I represent the Government. I was very sorry to miss Second Reading, but I have

13 Oct 2014 : Column GC5

carefully studied the


. I am honoured to be discussing a Bill that represents a seminal modernisation and simplification of consumer law. Simple rights simply expressed are, to me, very important.

I agree that it is vital that we support the smallest businesses and help them to grow. Small businesses are the lifeblood of our economy, making up 99% of private businesses and employing 14 million people. Small businesses are responsible for nearly half the job creation in the UK, employing more than 500,000 more people in 2013 than in 2011. That is why the Government are doing more than ever before for small businesses.

It has never been a better time to start, grow and operate a small business in the UK. To give you just a few examples, we launched a £1.1 billion package of business rates measures, with extra relief announced for small businesses through the extended doubling of the small business rate. We set up a £30 million growth vouchers programme, which will see 20,000 small businesses receive up to £2,000 to help them access specialist support on hiring, financial management and marketing, which, as I know from business, are key areas. Since April 2014, every business and charity is now entitled to a £2,000 employment allowance to reduce their employer national insurance contributions bill each year. Over 90% of this allowance will go to small business.

Perhaps even more importantly, in December 2013 the Government published Small Business: GREAT Ambition, setting out our commitment to making it easier for small businesses to establish and grow in the UK. As my noble friend Lady Wilcox said, we have now introduced the Small Business, Enterprise and Employment Bill in the other place. That Bill will help to reduce the financial and regulatory barriers to starting and growing businesses. I very much look forward to debating that Bill with your Lordships.

However, this Bill is about consumers. Its background is that consumer rights are found in a variety of places, often set out in inaccessible language. We know that consumers and businesses often do not know their rights. That is the motivation to have key consumer rights set out in this one place, where they are easy to find and to access. As soon as we start including rights for other parties in this Bill, that core purpose is diluted and we risk losing the clarity we are aiming for, which I believe is valuable to businesses and consumers. In passing, I should reassure the noble Baroness, Lady Hayter, that there are protections in law for businesses dealing with other businesses. For example, the Sale of Goods Act 1979 gives them a right to reject faulty goods.

We consulted on our proposed definition of “consumer” in 2008 and 2012. In both cases, we received overwhelming support for what we have now in this Bill—that is, clear support from the business community for not defining micro-businesses as “consumers”. The noble Baroness, Lady Hayter, suggested that small businesses do not have time to respond to consultations, but that is a reason to ensure that we do engage with them via their trade bodies, including the Federation of Small Businesses, with which I met only last week; it is not a reason to legislate on the assumption that we are doing what is right for them.

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The Federation of Small Businesses recently commissioned and published research on this issue. The FSB did not recommend, as I think has been suggested, treating smaller businesses as consumers for this Bill but did make several suggestions for the future. My colleague Jenny Willott wrote to Parliament giving our detailed response to that report. Within that, we committed to considering the treatment of smaller businesses in developing future consumer legislation, just as we did in 2008 and 2012 for this Bill.

The noble Baroness, Lady Hayter, talked about taking an enabling power. We have already considered covering small businesses in 2008 and 2012, and taking a power would not be appropriate because this change could impact 97% of all businesses. It should not be left to secondary legislation.

This Government are also committed to closely monitoring and ultimately reducing burdens on business. That means that, for each and every proposal, we must be sure that we are not directly or through unintended consequences overburdening business. This amendment does not meet that test.

We simply do not have clear evidence of what the effect of treating small or micro-businesses as consumers would be. As a business person, my concern would be that, if a smaller business can, for example, successfully challenge terms as unfair, does it mean that a larger business will simply stop dealing with them? To give another example, how do we know that the benefits outweigh the costs? If smaller businesses were classified as consumers, there would be benefits to a small business as a buyer, but also a cost to them when they sell to small businesses. We must be wary of giving with one hand and taking with the other.

We do not know how larger businesses would react, and we do not know whether the costs outweigh the benefits, but we would need to know. We would need to change the legal framework for over 95% of businesses—that is, 4.7 million businesses—without a full and complete understanding of the impacts. This Government are committed to helping small businesses to grow. Businesses, including small and micro-businesses, are not of course unprotected despite not being defined as “consumers” for this Bill. Provisions under the Sale of Goods Act and the Supply of Goods and Services Act apply to them now and will continue to apply.

In conclusion, this Government are doing more than ever to help small businesses to grow, and there is a great deal of evidence that this is working. However, this Bill is about consumers. For the reasons that I have explained, I ask that the amendment be withdrawn.

Baroness Hayter of Kentish Town: I thank the noble Baroness, Lady Wilcox, and my noble friend Lady Crawley for contributing to this debate. I did not know that I was meant to answer questions but, of course, I was not in the previous Labour Government. Had I been, I could give noble Lords a long list of things that they perhaps should have done—please do not report me to the boss for that.

I thank the Minister. She has not actually answered the question of whether this would be wrong. She said, “We don’t know; there is not enough information; we haven’t got research”. Actually, however, she had

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no good answer. If two of us go to John Lewis and buy a kettle, one of us for a charity that we run which employs all of one person and three volunteers, and the other just for themselves, it does not help John Lewis for them to take their complaints in two different ways. John Lewis probably would not worry at all about there being the same form for both.

I was sorry that the Minister used the examples I had cited, the 2008 and 2012 consultations. Obviously, we can blame the 2008 consultation on the previous Government, but there is an issue in that this is about the big companies. We know that from responses to consultations. It is therefore important to remember that the Federation of Small Businesses has said that it supports this amendment. I would like to make that correction because the federation has asked me to do so, should the Minister refer to its research. It has said that, “This is not an accurate reflection of our conclusions. The report that we commissioned was to inform our policy”. So they were not actually the federation’s recommendations; they were recommendations made in an independent report. However, apparently where the report talks about “non core” area business such as purchasing energy supplies, there was a case for it being treated separately.

I would add only that all the help for small businesses is great, and I believe that on deregulation there is even more to come. But if the Federation of Small Businesses says that the best thing to help micro-businesses is this, it seems a little funny not to hear the federation on it.

I am grateful to the Minister for her comments and at this stage we will seek leave to withdraw the amendment, although I think that it is probably something to which we will want to return on Report.

Amendment 1 withdrawn.

Amendment 2 had been withdrawn from the Marshalled List.

Clause 2 agreed.

Clause 3: Contracts covered by this Chapter

Amendment 3

Moved by Lord Stevenson of Balmacara

3: Clause 3, page 3, line 1, at end insert—

“( ) a financial services contract which contains a bill of sale agreement regarding the ownership of goods”

Lord Stevenson of Balmacara (Lab): My Lords, in moving Amendment 3 I shall speak also to Amendments 5, 10 and 56. Few people will not be aware of the considerable influence that your Lordships’ House has had on curbing the explosion of high-cost credit, which has so disadvantaged consumers in recent years. Perhaps this is not the place to rehearse the broader arguments as to why high-cost credit became such a scandal in the first place, but it may be worth recalling that it was mainly spawned out of a need for access to credit when the banks stopped lending and it was certainly compounded, in my view, by the Government’s initial indifference to the issue, reflected in their oft-repeated mantra that the market would

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sort itself out, and then their grudging admission that there was an issue and an acceptance that regulatory intervention was required, and finally the issuing of instructions to the regulator to sort things out by January of next year. In mentioning this we should acknowledge the all-party support for this démarche on high-cost credit, a roll of honour which has been led by my noble friend Lord Mitchell and the then right reverend Prelate the Bishop of Durham, now the most reverend Primate the Archbishop of Canterbury—and of course there are others.

However, the job is not complete and much still needs to be done to deal with personal debt, and as I declare my interest as the retiring chair of StepChange, the debt charity, I want to point out that its report published last week indicates that while unmanageable debt is a devastating problem for every family which has problems in this area, it is also an £8 billion problem for the economy in terms of its impact on services, reductions in GDP, and as a break on the aspirations we all share of the country returning to something better than trend growth. We need to do all we can to help consumers in the area of credit, and that means looking at other examples of high-cost credit which continue to evade the regulatory structures that are now in place.

A logbook loan is a bill of sale securing a loan on an asset, often a vehicle, and it gets its name as the lender retains the vehicle’s logbook—now the vehicle registration certificate; I think it is the V5C—until the loan or any outstanding interest is repaid. But unlike all other consumer credit areas, the use of the archaic bill of sale legislation which was passed in 1878 for this particular form of loan means that the lender can repossess the debtor’s vehicle without having a court order. Logbook loans are another form of very high interest credit and share with payday loans potentially unfair terms and conditions. Logbook loans tend to be used for people who have had bad credit and need cash quickly. A check on the internet shows that logbook loans can be completed in as little as 15 minutes with very few credit checks and certainly no checks on affordability or the ability to repay. Recent research by Citizens Advice shows that logbook loans secured by a bill of sale are generally in the range of £500 to £2,000 and average at just over £1,000. They are typically over a 16-month to 18-month period with APRs in the range of 200% to 500%. It is true that a logbook loan can be issued only by a company that holds a consumer credit licence, but the pernicious aspect of this type of loan lies in the use of the bill of sale mechanism because that is not regulated and, as I have said already, companies can seize the asset—for example, if the loan is not repaid.

4 pm

In December 2009, the previous Government announced a consultation on whether to outlaw logbook loans. In 2010, they proposed to ban the use of bills of sale for consumer lending. This is already the case in Scotland. However, after the election the current Government decided not to go ahead but to call for greater industry self-regulation with a voluntary code of practice. At the same time, they committed to look again at reforming logbook lending if problems continued.

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I would be grateful if the noble Baroness would confirm whether that is still their position, because recent research confirms that this is still a very problematic area, with considerable evidence of consumer harm. For example, there has been a 35% increase in bills of sale registered from 2011 to 2013 and within these a number of issues are emerging. Under this bill of sale arrangement, ownership of the car, when the borrower receives a loan, moves directly from the consumer to the lender, which is why no court order is needed before a lender can repossess the car. This encourages irresponsible lending and debt collection practices as there is no onus on the lender to negotiate when the consumer gets into payment difficulties, because they can just seize the asset. It also means that consumers feel forced to put logbook lenders at the top of their list of creditors, often above priority debts such as mortgages or utility bills, because they are very concerned about losing their car. According to Citizens Advice, there is evidence that significant numbers of consumers in financial difficulties are not being dealt with in a fair and appropriate manner despite the fact that the code of practice says that consumers should be treated “sympathetically and positively”. However, the evidence shows that that is not the case.

Under the bill of sale arrangements there is an imbalance of power between the lender and the consumer given that there is no court order or other statutory intervention. The code of practice states that lenders should review the debt collection procedures annually, and those of any third parties that they employ, to ensure that they conform to “high ethical standards”. However, a report from a citizens advice bureau in west Sussex states that a 34 year-old woman had her car repossessed by a bill of sale lender while on her way to work. Apparently, a tow-truck driver blocked her car, reached through the car window and took the keys and the car without allowing her to remove her possessions. She was left on the roadside in the rain. This caused severe problems, one of which was that she lost some £200 in earnings and faced difficulties taking her disabled son out of the house.

Logbook loans are a very expensive form of credit with high interest rates and can involve punitive fees and charges. This means that if you miss one payment you can quickly spiral into significant debt. There are also reports of creditors charging fees which bear little, if any, relation to the reasonable costs of the lender. In one case, a man was twice charged £300 for repossession costs even though his car was not actually repossessed.

As the Bill of Sale Acts originate from the Victorian period, the language used in the credit documentation is often outdated and unclear. This can lead to consumers not understanding the terms and conditions of the loan. For example, they do not always realise that they no longer own the property on which the loan is secured. Clearly, understanding risk is an essential part of making an informed choice about taking out loans. The code of practice states that credit documentation should be in “plain and intelligible language” and that the lenders should,

“provide adequate explanations of the credit on offer”.

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However, the evidence proves that the opposite is the case. This industry exploits the vulnerable and the lack of proper credit checks is a feature of it. Citizens Advice has evidence that in many cases limited or no credit checks are carried out by lenders, and there is very little evidence that reasonable assessments of affordability had been undertaken. If Wonga has had to write off loans to vulnerable consumers, which they clearly would not be able to pay back in time, should not this approach apply also to logbook loans?

Another feature of logbook lending is that there is no protection for third-party purchasers. Where a person buys a second-hand car without knowing that it is subject to an outstanding logbook loan, they have few options other than paying back somebody else’s debt, losing their car or going to court, which can be very expensive. Therefore, our argument in this amendment is that the present regulatory and legislative framework governing logbook lending is untenable as it creates a significant imbalance between the consumer and lender. Consumers have considerably fewer rights and protections under logbook loans than under other secured lending agreements and they cause severe consumer detriment to consumers who are often struggling to make informed choices about how they should borrow. Previous government policy was to ban bills of sale. We think that is now the right solution, as is the case in Scotland. I beg to move.

Baroness Jolly (LD): My Lords, I turn first to Amendment 10. The Government agree that it is important that when a consumer buys goods they should have confidence that they have free use of them without worrying that someone else has a claim to them. The consumer should always be made aware if someone else has a claim to the goods so that it does not come as a nasty surprise later. While I appreciate that the intention of the amendment is to ensure that this happens, Clause 17(2) already addresses this point appropriately and proportionately.

Clause 17(2) requires the trader to disclose any outstanding claims or charges over the goods. The provision makes it a term of the contract that there are no charges that the consumer was not told about or does not know of. If such charges are not disclosed to the consumer, the trader will have breached the contract and the consumer may claim for damages.

In simple terms, the trader makes a contractual promise that there are no charges or claims over the goods other than those disclosed. If the consumer is unaware that goods are subject to any charge, and the trader has not told them of any charge, they can expect the goods to be free of any charge. They will have protection if this is not so. That protection already exists under the current law and Clause 17(2) retains it. By making this a term of the contract, subsection (2) also provides a means of access to compensation for the consumer.

Clause 17(2) potentially goes further than the amendment in that it requires the trader to disclose all outstanding claims or charges. The amendment would require disclosure only when the claim or charge might impact on the consumer’s enjoyment or use of the goods or cause them financial detriment. I worry that

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this could be a potential source of dispute between the consumer and the trader. It is not clear how the consumer could demonstrate that a particular claim should have been expected to impact on their enjoyment or finances. The approach that is already in the Bill in Clause 17(2) is simpler; it is sensible; and it provides stronger protection to the consumer.

I want to respond more specifically on logbook loans, as addressed in Amendments 3, 5 and 56. One market where there are examples of consumers buying goods that have other claims to them is that of logbook loans. Across the Government, we share the Opposition’s concerns about the risks to consumers from such loans. The Government believe that people should be able to borrow and have the tools to make an informed decision about which credit products are right for them, but consumers should be confident that they will be treated fairly when things go wrong.

As the noble Lords will be aware, responsibility for consumer credit regulation, including logbook lenders, transferred from the Office of Fair Trading to the Financial Conduct Authority on 1 April. Consumers are far better protected under the stronger, well resourced FCA regime. The FCA defines logbook loans as “higher-risk activities” and, as a result, lenders face closer supervision. Moreover, logbook lenders are in the first phase of firms to require full authorisation, with the FCA thoroughly scrutinising firms’ business models and compliance with its rules.

It is important that consumers are aware of their rights before taking out logbook loans. The FCA therefore requires logbook lenders to provide a pre-contractual explanation to borrowers of their rights before any agreement is signed. On the noble Lord’s point about logbook lenders and affordability tests, logbook lenders are required to meet the standards that the FCA expects of lenders, including making affordability checks. These rules are binding, and the FCA can take action where wrongdoing is found.

Logbook lenders are subject also to the FCA’s high-level principles, including the overarching requirement to “treat customers fairly”. The Government have ensured that the FCA has a wide enforcement toolkit to take action where its rules are breached. There is no limit on the fines that it can levy and, crucially, it can force firms to provide redress to consumers.

The FCA actively monitors the market. It has flexible rule-making powers and, if it finds further problems, it will not hesitate to take action. Indeed, the FCA has said that it is,

“putting logbook lenders on notice”,

and that its new rules give it,

“the power to tackle any firm found not putting customers’ interests first”.

In addition to this robust action from the FCA, I confirm that the Law Commission has agreed to a request from Treasury Ministers to look at how best to reform the Bills of Sale Act. This legislation underpinning logbook loans is old, lengthy and incredibly complex, and affects businesses as well as consumers. Evidence suggests that around 20% of bills of sale are used by small businesses rather than individual consumers. As a result, the Government believe that the Law Commission

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is best placed to undertake a thorough assessment of how to bring this complex, arcane and wide-ranging Victorian legislation up to date. This project is now under way and the Law Commission launched its call for evidence last week.

The Government believe that this package of action will fundamentally strengthen protections for consumers using logbook loans. I therefore ask the noble Lord to withdraw his amendment.

Lord Stevenson of Balmacara: I thank the Minister for her comments. On the first point, about the third party, I take her point that Clause 17(2) covers the issue; I understand that. I would like to read what the Minister said in Hansard before I make up my mind on this, but my worry is that it still leaves the situation that anyone who wishes to take advantage of Clause 17(2) has to raise an action in order to recover the costs and damages that they may have lost. We would rather have the thing eliminated altogether so that it just cannot take place. That is the difference between us on this. We have cross-read Clause 17(2) carefully but still feel that it was right to try, within this overall package, to focus on the bill-of-sale techniques and legislation that have been used. That was the basis of our understanding, but I note what the Minister said on that point.

I am glad that the Government share our concerns about logbook loans. They are a really unpleasant way of offering high-cost credit. I am conscious that the responsibility now lies with the FCA on this. However, I make the following points. Simply passing responsibility to that body is not necessarily the same as cleaning up this area. There will be a time lag before the FCA gets around to this and it is quite interesting that the changes that have been made in the area of payday lending have been brought to the front of the FCA’s enormous workload—it has a lot to do to get itself up to speed in so many areas across our financial services sector—really only because of the insistence of this House and, therefore, of the Government. There had to be a decision, for instance, on capping payday loans by January 2015 and that has of course produced action on a magnificent scale. It is not quite there yet, but it is moving in the right direction. While I understand the point, therefore, I still do not think that it would be sufficient to get this issue addressed very quickly.

The problem, on which I think we agree, is about the use of these archaic bills of sale. While I accept that the Law Commission has a good record in this area and it might well be appropriate, there is a time problem with this. The Law Commission is not noted for rushing into action on these matters and, although I in no sense wish to impugn its great work, we are probably talking about three or four years before we get an outcome on that. Are the Government really saying that they are prepared to sit back and allow this to be dealt with by an FCA that, although it has a concern for consumers, as the noble Baroness said, also has a responsibility, which it insists on parading every time you talk to it, to ensure that markets are working efficiently? These two things do not necessarily sit well together. Here is a case with clear consumer impairment. It will not be to the benefit of many consumers to know that the market is working well.

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Nevertheless, I accept the Minister’s point on that. I understand that we are basically moving in the same direction. The commitment to ask the Law Commission should result in changes, and it is clear from the evidence that I have already produced that we will be looking forward to legislation coming through. I am worried about the timetable, so we will reflect on this. In the mean time, I beg leave to withdraw the amendment.

Amendment 3 withdrawn.

4.15 pm

Amendment 4

Moved by Baroness Neville-Rolfe

4: Clause 3, page 3, line 12, leave out “contract for which there is no consideration” and insert “gratuitous contract”

Baroness Neville-Rolfe: I am pleased to say that this Bill benefited from useful scrutiny in the other place. As part of that scrutiny, the Committee heard evidence from Professor Hector MacQueen of the Scottish Law Commission. In discussion with the Committee, Professor MacQueen recommended a change to the drafting to improve the references in the Bill to Scottish contracts. He described this change as important to ensure that a,

“jurisdiction-neutral picture is maintained”.—[

Official Report

, Commons, Consumer Rights Bill Committee, 11/2/14; col. 22.]

We received similar feedback during our discussions with stakeholders in Scotland. These amendments therefore address that issue. They rephrase Clauses 3(3)(e) and 48(3) so as not to use the term “consideration” to describe a Scottish contract, and therefore to reflect the fact that that term is not a Scots law concept.

Working with the Scottish Law Commission and in consultation with other stakeholders we therefore propose the wording in this amendment. This is a point of clarification after feedback in the other place; the policy and its effect remain the same. I therefore beg to move Amendment 4.

Amendment 4 agreed.

Amendment 5 not moved.

Clause 3, as amended, agreed.

Clauses 4 to 8 agreed.

Clause 9: Goods to be of satisfactory quality

Amendment 6

Moved by Baroness Hayter of Kentish Town

6: Clause 9, page 5, line 28, after “goods” insert “, or any claim made as to the outcome the goods will achieve,”

Baroness Hayter of Kentish Town: Being Welsh, I would not intervene on an issue on which the Scots felt strongly.

Under the Bill, goods are satisfactory if they,

“meet the standard that a reasonable person would consider satisfactory, taking account of”,

13 Oct 2014 : Column GC14

how they have been described, their price, and all other relevant circumstances. Those “relevant circumstances” are specifically stated to include any public statement about the “specific characteristics of the goods”. That suggests to me and many others that any description is of the physical characteristics of the goods, rather than any claims made about the use of the goods—that is, what they will do. Therefore, for example, merely to describe a washing machine by size, colour, capacity, speed, energy efficiency et cetera, is probably rather less significant to a busy parent than whether it will get the football kit clean, or whatever it is that they want to use the washing machine for. That is probably what the machine has been sold as doing; it has been sold as being a certain size, and having so many revolutions per minute.

Our amendment aims to broaden the definition to include public statements about the outcome that goods are claimed to achieve. In the Commons, the then Minister said that the term “specific characteristics” would capture outcome claims, such as whether a washing-up liquid that claims to remove grease actually does so. She also said that advertising standards rules and consumer protection regulations provide additional protection. However, particularly as regards the ASA rules, I am not convinced that that would cover in-shop leaflets or posters. We therefore remain concerned that if those words are not in the Bill, it will not be clear to the retailer, and certainly not to the buyer, whether such claims about what the product is meant to do will be honoured.

If the Minister believes that such claims are covered, it is hard to see why that should not be included in the Bill, given that the objective is to have everything in one place and made clear. We would like to be sure that such claims are covered, and the best way would be to include them in the Bill. I beg to move.

Baroness Jolly: My Lords, claims made about the outcomes that goods will achieve can be vital in a consumer’s decision to choose certain goods over others, and the noble Baroness, Lady Hayter, has given us a nice example of how that might apply. Such claims in advertising can be a significant benchmark against which consumers measure the performance of goods. In many cases, it is absolutely right that a consumer is able to take a claim about a key outcome into account when assessing if the goods they bought are satisfactory. Clause 9 already provides appropriate protection. It provides that goods supplied by a trader to a consumer under a contract must be of a standard that a reasonable person would think was satisfactory. It is appropriate that this is a flexible concept in order to ensure that it can be applied to a variety of different goods. It takes into account factors such as the description and the price of goods. It also takes into account all other “relevant circumstances”. This is a broad and flexible category, and includes any public statements made about the “specific characteristics” of the goods.

“Specific characteristics” is an intentionally broad term which would capture specific aspects of goods referred to publicly, and that would include key outcomes. There is no collusion here, but I am staying with the washing. For example, an advertisement might state that a washing powder will remove tar from clothes

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and a consumer will get 50 washes from one box. These are characteristics specific to that product, so if the consumer found that they got only 30 washes from one box, the statement would prove to be inaccurate. Under the Bill the consumer could seek a remedy from the trader to put this right. This is a consolidation of current law. The tests and criteria I have described are already applicable and familiar to business.

Consumers are also protected from misleading selling under the Consumer Protection from Unfair Trading Regulations 2008. These regulations prohibit misleading actions by traders towards consumers. In addition, the Government have introduced the Consumer Protection (Amendment) Regulations 2014, effective from 1 October this year. These give consumers a new private right to redress if the regulations are breached. An example would be a trader who gives a consumer false information about a key factor, such as a mobile phone shop assistant telling a consumer that a network’s coverage is good in their area when in fact it is not. The new regulations allow the consumer remedies such as unwinding the contract where the consumer has been misled in this type of case. The combination of the Bill and the existing regulations, strengthened by the new private rights to redress, therefore provide strong consumer protection in relation to a claim made by the trader as to the outcome the goods will achieve. As such, the Government consider that the Bill provides the appropriate balance and flexibility in determining whether goods are satisfactory. The amendment would unnecessarily expand the scope of the clause and give potential for dispute, potentially covering a wide range of claims which may be made about outcomes, and therefore I hope that the noble Baroness will be prepared to withdraw the amendment.

Baroness Hayter of Kentish Town: I am slightly confused. If outcomes are covered by a combination of the Bill and the regulations, there would certainly be no harm in having these words in the Bill. It may be unnecessary, but it would do no harm. However, the Minister’s last words suggested the amendment would extend the clause further. I am therefore trying to think of what she thinks would be covered by these words that is not covered under either the misleading advertising regulations or the private right to redress. I need to think about what it is she thinks this would extend it to that is not already covered. If the view is that it is covered—that “specific characteristics” does cover a,

“claim made as to the outcome the goods will achieve”—

then it may be superfluous wording, but it is not adding anything.

I hope the Minister understands why I am wondering whether there is something there. I need to think about that and come back to it, because I am slightly worried about the comment that where we are at the moment is familiar to business. It may well be. My concern is that it is not familiar to consumers. They ought to be able to know very clearly whether the claims made are covered, preferably without having to go to another set of regulations. I will not ask for a particular promise, but it would be helpful, before we get to Report, to have either an exchange of letters or some

13 Oct 2014 : Column GC16

idea of whether, if these words are covered, that means that it extends protection that is not currently there. That is what I have not got a handle on.

Baroness Jolly: To give a quick response, the Bill applies to “relevant circumstances”; my team has underlined “relevant”. However, some claims regarding outcomes might not be relevant.

Baroness Hayter of Kentish Town: I feel a new amendment coming up. Maybe we will return to this on Report. We will certainly give it some thought between now and then, but for the moment I thank the Minister for that helpful advice and beg leave to withdraw the amendment.

Amendment 6 withdrawn.

Amendment 7 had been withdrawn from the Marshalled List.

Clauses 9 and 10 agreed.

Clause 11: Goods to be as described

Amendment 8

Moved by Baroness Hayter of Kentish Town

8: Clause 11, page 6, line 24, at end insert—

“( ) The trader is required to provide full details of the total cost of the goods prior to sale, including any additional service fees or charges that could be incurred by the buyer in purchasing the goods, and to portray this information in all public communication.”

Baroness Hayter of Kentish Town: I am sorry that noble Lords are hearing a lot from me today, but there will be other days that will be much more pleasant for them. Amendment 8 again stands in my name and that of my noble friend Lord Stevenson. It is to ensure that when consumers decide to buy something they do so in the full knowledge of the total costs of what they are signing up to. I cannot be the only one who has been attracted by a bargain offer, only to find that there are additional fees that have not been signalled upfront. We get four or five pages into an online purchase, only to discover, usually just at the point we get the credit card out to pay, that there is an additional £10 delivery charge, a fee for installation, or the ever popular booking fee on theatre or concert tickets. The amendment is to ensure that the total cost is signalled upfront.

We know, because it has been debated in the other place, that the Government’s arguments against this amendment are, first, that the consumer contracts regulations 2013 require traders to make consumers fully aware of the costs before a sale is made—though, of course, they do not—and secondly that requiring such information to be contained in all public communications would be enormously burdensome to businesses, because every time the price changed they would have to alter their communications. However, that underestimates the extent to which prices are now online. Most of these sorts of things are online purchases. We are not talking about the old days, when I was younger, of having to pulp umpteen advertising leaflets every time a change was made. The bad practice we are looking at here is mostly online.

13 Oct 2014 : Column GC17

4.30 pm

The Minister in the Commons also cited research done by the National Consumer Council from 2007—not a time when the noble Baroness, Lady Wilcox, was there but a time when I was there—which showed that consumers do not take in too much information. However, in our view and in the view of the NCC at the time, the full price of a purchase is not too much information and is of such significance that it really cannot be classed as “too much information”. We also know that that is excluded from being assessed for fairness elsewhere in the legislation, so it is even more important that the price is known in full and up front not just before the purchase is actually made—the moment when you click—but when you are contemplating and getting very close to saying, “That’s the one I want”. This amendment is really to make sure that the total costs are clearly signalled at the stage when the consumer is entering into that process of purchase. I beg to move.

Baroness Drake (Lab): My Lords, I support my noble friend Lady Hayter on Amendment 8 to Clause 11. As we all know, consumer markets are becoming increasingly complex and more and more transactions are conducted online, but we still have the asymmetry of understanding between the trader and the consumer and the consumer’s behavioural bias—both of which we are all familiar with—which can create real incentives for traders to frame and present price information in a way that enhances their chances of a sale rather than enhancing transparency or the protection of the consumer.

For markets and trading to be fair, consumers need to have full and easily accessible knowledge of the real costs of what they are purchasing. I am sure that most people in this Room, including myself, have been attracted into purchasing a bargain only later to discover that it comes with many catches. My husband dines out on humiliating me on my inability to see some of these catches when I am swayed by the attraction of the bargain. These additional costs may be things that we did not see or realise until we were just about to pay or had just paid—or, even worse, did not see until after the event when the receipt has come in and we start noticing these little items that we did not realise were there.

I do a great deal of my purchasing online and there are three things in particular that irritate me. The first is when, just before clicking “OK” to the purchase, the purchaser is asked to confirm that they have read the associated terms and conditions, which are lengthy and dense and may require one to disengage from completing the purchase in order to go back and find them. As we know, the closer that the consumer gets to confirming the purchase, the less likely they are to walk away from it and to come out of the purchase and start again in order to read these dense and lengthy terms and conditions. I and others like me are unlikely to do so and, because we do not, we subsequently find that we have agreed to additional costs. Secondly, as one proceeds through these websites to make the purchase, the default setting may be to add extra items and charges to the purchase of the goods, and this is not made clear—one has to see and recognise that this is happening before one can even negate or delete the

13 Oct 2014 : Column GC18

additional costs from the default setting. Thirdly, the headline price that attracted the purchaser to contemplate or initiate the purchase can be significantly different to the final cost, when all the extras are added.

My noble friend mentioned a government reference to a previous National Consumer Council publication. We all know that consumers do not take in too much information when they make a purchase, but the price is so significant and so at the heart of that purchase that it is all the more reason why the trader should be required to provide full details of the total costs. It is incomprehensible that, because the consumer cannot take in too much information, that should become an argument for limiting the obligation on the trader to make sure that the full extent of the costs that can be incurred in making that purchase are made clear before it is made. In fact, the fact that people cannot take on too much information is a compelling reason for making sure that our legislation requires the party who is the trader to make clear what charges the consumer can be expected to be exposed to when they make a purchase.

I am sure that the Government will argue that requiring the visibility of such information may be burdensome to business because of the frequent price changes that they may have to incur. However, given that much of the bad practice takes place online, it is difficult to see how such a requirement can be burdensome. When a price is altered, the trader will have to change their internal processes and internal systems, so having to go that bit further to update a website to make clear what the prices are hardly seems a compelling reason why the consumer should not be protected from not knowing the exposure on costs that they can incur when they make a purchase. Presumably one has the infrastructure of the information set out regarding the additional charges; it is a question of putting the new figure in.

Baroness Jolly: I am sure that noble Lords will be happy to know that, under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, traders are already required to make the consumer fully aware of total costs before a sale is made. The regulations require traders to give, or make available to the consumer, information about costs—and this includes online sales; it is any sales at all—before the consumer is bound by a contract. From on an online point of view, it is before they have pressed the return button. The information must be clear and comprehensible. The regulations came into force on 13 June 2014 and the main body of this amendment is therefore not required.

However, the Government believe that the additional requirement in the amendment for this information to be included in all public communication could place an enormous burden on business. The trader would need to alter all associated communications every time a price was altered, upwards or downwards. In some instances, that might put traders off lowering prices or offering special deals. In other instances, the price change might have been decided by the manufacturer or supplier, but the trader would have to bear the costs of the change.

13 Oct 2014 : Column GC19

Where the trader uses television or radio adverts, the additional costs could be significant. Already, radio adverts for financial services end with a lengthy and sometimes almost incomprehensible declaration of terms and conditions—the audio equivalent of small print. How much worse will this become if they must also detail every possible charge that may apply to every type of goods?

The important point is that the consumer is provided with the necessary information before they enter into the contract so that they can decide whether to continue. The consumer contracts regulations already require this. It might help Members of the Committee if I give a quick breakdown of the two sets of regulations that are independent of, but are referred to in, the Bill. The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 implement the consumer rights directive. They set out the information that the trader should provide to the consumer, and this will form part of the contract. It will also include cancellation rights for consumers buying away from trader premises, such as a trader visiting their home, on the phone or, of course, online. It will also include measures to avoid hidden costs to consumers. As these regulations implement the consumer rights directive, the same basic rules apply across Europe and came into force on 4 June this year.

The second set of regulations came into force on 1 October, the Consumer Protection (Amendment) Regulations 2014. These give consumers new rights to get their money back and seek damages through the civil courts where they have been victims of misleading or aggressive practices. The regulations make the processes clearer and simpler for consumers, and consumers will have 90 days to cancel a contract and receive a full refund if they have been misled or bullied into agreeing it. They had previously only limited rights in this area.

To recap, the important point about the amendment is that the consumer is provided with the necessary information before they enter into the contract so that they can decide whether or not to continue. The consumer contract regulations that I have just outlined already require this. I therefore ask the noble Baroness to withdraw her amendment.

Baroness Hayter of Kentish Town: I thank my noble friend Lady Drake for her help on this. I cannot believe that she has ever fallen for one of these. In a sense, that is the point. It is at the very last moment, and so is technically before the contract but is not in all communications. I have been looking a lot at travel ads, which still use the construction of a price being “from” something, and you go a long way through buying it before you realise that there are some supplements at the end, or that if you want to go from a certain airport the price will change a lot. It is correct that that is all before contract, but it is certainly not happening on all the advertisements.

I am the consumer from hell, I am afraid; every time I see this, I complain. My last complaint to the ASA was before these regulations came in after the noble Lord, Lord Borrie, was looking after it. It was over a travel ad, and at that point the ASA was not

13 Oct 2014 : Column GC20

dealing with travel advertisements for some reason. Holidays were still being advertised and at the very last moment some would add to their prices.

Clearly, some of these regulations are very new and it is therefore no good asking how many have yet been prosecuted under them. The other issue is how well consumers know them. One of the good things about the Bill and all the work that is being done on its implementation by BIS and its implementation group is that there is some really careful thought about how consumers will know about them. As with the earlier amendment, the main worry is that if some of the protections are elsewhere they will not be swept up in the advertising, promotion or education around the Bill. That will clearly be the case here, where some of these are covered by the Consumer Protection (Amendment) Regulations 2014. It is a shame that this will not be in the Bill, because we support what the Government are trying to do in putting all the rights in the same place. For the moment, however, I beg leave to withdraw the amendment.

Amendment 8 withdrawn.

4.45 pm

Amendment 9

Moved by Baroness Hayter of Kentish Town

9: Clause 11, page 6, line 36, at end insert—

“( ) Prior to exchange of the goods or agreeing the contract, whichever happens first, the trader will explicitly provide the consumer with relevant details of their statutory rights under sections 20, 23 and 24.”

Baroness Hayter of Kentish Town: In moving Amendment 9, I wish to speak also to Amendments 13 and 25 in this group, which all stand in my name and that of my noble friend Lord Stevenson of Balmacara.

Amendment 9 is central to the aim of the Bill as it states that the trader must be explicit about people’s statutory rights at the time of the purchase so that people know when they are buying something what they can do if something goes wrong and what their rights are. The Bill’s laudable aim of simplifying rights and making them useable will be achieved only if consumers understand what those rights are. The best time to explain them is when they are about to make a purchase; we should not wait until something goes wrong. For the vast majority of consumers nothing does go wrong, or we hope that is the case. We purchase goods where nothing goes wrong far more often than we do goods where something does go wrong, but it is at the moment of purchase that these rights should be explained. It is also part of the process of deciding whether to buy something. It is important to know what redress you have if you are worried about whether something is faulty or will work. I cannot be the only person who has been a bit mystified when standing by a till and reading a notice which says, “This does not affect your statutory rights”. Indeed, I am tempted to ask the Minister to explain that term, but I will save her blushes on this occasion.

BIS’s own consumer detriment survey showed that although the majority of people consider themselves to be confident and savvy there were still substantial

13 Oct 2014 : Column GC21

gaps in their knowledge, so just asking consumers whether they are confident about knowing their rights is not good enough. For instance, more than two-thirds of them did not know that if a major appliance broke down 18 months after purchase, they could still have a right to have it repaired or replaced even if they did not purchase an extended warranty. Indeed, very few of us understand our rights and that will remain the case unless we all receive some very simple explanations, no matter how well the Bill is drafted. We agree with Citizens Advice that rights can be set out briefly and simply. It has produced wording on this issue which has been seen by BIS—for example, “Under the Consumer Rights Act, consumers have 30 days to return an item if it is faulty”, so we are not talking about complicated wording. Similar information on repairs or refunds could be given at point of purchase.

We know that the Government agree in principle with giving this clear information but have backed off including it in the Bill, arguing that that would reduce flexibility for the implementation group, which comprises retailer and consumer organisations. We know from gossip on the street that there is consensus in the group that action is needed to make sure that consumers are aware of their rights but no consensus on whether point-of-sale information should be mandatory. I hope that I am not giving away any secrets in saying that the business members, with support from trade associations, BIS and retail groups, argue that a voluntary approach would be the best way forward, whereas Citizens Advice, Which? and moneysavingexpert, which I think also sit on the group, remain unconvinced about that, as do we. There is no guarantee that traders will voluntarily display this type of information and, once a Bill is passed, attention and enthusiasm tend to fade. Some traders will go on displaying the information for a short period but that is not the same as it being displayed everywhere all the time.

It is true that at an earlier stage in the other place we were told that the implementation group would be looking at whether consumers would consider this sort of information better when something actually went wrong. If that is the case, I am sure that the Government will accept our Amendment 13 in this group, which I will get to shortly, which is about giving information at the time of a problem. However, our view is that information should be given both at the point of purchase, in the sense that it is part of the purchasing decision but it is also part of educating consumers, and later, should something go wrong.

Amendment 13 is about telling people their rights when they actually make a complaint. A key part of consumer rights is the availability of redress. The noble Baroness, Lady Wilcox, who is not in her place at the moment, started going through the six consumer principles, and of course the right to redress, as she knows very well—she probably wrote them—is one of them. The right to redress is having something put right, preferably by the service provider but, if not, having the issue settled by an ombudsman, perhaps with compensation. However, the consumer will not even start on that journey of complaint and seeking repair, replacement or refund unless they know they have that right to complain and when that right is there. Amendment 13 would ensure that the rights to

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redress was more widely understood and used by explaining, at the time when someone complained, what those rights were.

Although some of us have confessed to not being the savviest of shoppers, I hope we do not still fall for those offers. I do not know how savvy we are when we go back to a shop to complain, wanting either a replacement or a repair. What happens very often is that we are misinformed about what our rights are. There is a lot of evidence that traders themselves either do not understand the position or choose to misrepresent consumers’ statutory rights. Which? did a secret shopping exercise and contacted six major retailers, visiting them each 12 times. In nearly 80% of cases, a member of staff,

“stated or gave a clear impression that we”—

that is, the people doing the mystery shopping—

“didn’t have any rights against the retailer, or told us to speak to the manufacturer instead”.

Shoppers also get told that goods are out of warranty, that they need to go to the manufacturer or that there is simply nothing that can be done. The other thing that can happen is that traders refuse to give a refund even when they should, but offer a credit note to be used in the same shop. Clearly, that does not meet statutory rights. If the consumer is very persistent and goes to Citizens Advice, they may then know better and go back, but there is then still no guarantee that the member of staff they talk to will know what their rights are. Under Amendment 13, both staff and consumers would have easy access to information about the buyer’s rights and therefore would be able to have a better conversation.

I know that the Government were hoping that the implementation group could come up with a way forward but, given that we think that has not happened, it would be useful to take advantage of this amendment and put it into the Bill. Even if the group did come up with recommendations we are unsure of what their legal force would be, so perhaps the Minister could also say whether any recommendations from the voluntary group would have any legal force. We have the opportunity here to set a requirement that such information will be provided. This does not need to be the exact wording—the group can do that—but if we fail to put it into the Bill at all, we risk undermining the Bill’s benefits. We know that good traders are going to do all this; it is the poor ones that we are after.

One further small area in this group that consumers also need more clarification on is free guarantees—guarantees provided free of charge by traders over and above statutory rights. We are talking here not of paid-for warranties but of free guarantees. Amendment 25 would require that any such guarantee provided by a trader sets out what the statutory rights are; otherwise, the purchaser has only the trader’s guarantee and is still not told what their statutory rights are. This approach has been very much supported by Martin Lewis of moneysavingexpert.com, who says that it is really important for consumers to know whether the trader’s guarantee is worth anything more than statutory rights. Also, if consumers are told what their statutory rights are, they might decide not to buy the extended warranty, because they may have more rights—particularly

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after this Bill—than they thought that they had. Without this amendment, they might get very confused when they have a trader’s guarantee to know whether there is still something left to them under their statutory rights.

What the Minister in the Commons said is important: that statutory rights always override any statements in a trader’s guarantee. Even if a trader’s guarantee does not meet something, the statutory rights always override it, but my guess is that not many consumers know that. Even in that position, they may have to take legal advice to find that out or to go to court, which is not the position we want them to be in.

We hope this small amendment will be accepted, because it will again be a way for consumers who have this extra guarantee to know exactly what their statutory rights are, which is an objective that the Government, as well as ourselves, would like to meet. I beg to move.

Baroness Neville-Rolfe: My Lords, I should start by saying that it is extremely important to the Government that the implementation of the Bill should be done really well. Good implementation is a key feature of good regulation and our attention will not fade. That is why we set up an implementation group last year with representatives from business, consumer organisations and consumer law enforcers. I think we are agreed that we all need a better understanding of our rights. The group is helping us plan key aspects of implementation of the new law, including: the content, channels and timing of guidance; advice; and publicity. The group has been influential in devising our implementation strategy, which is summarised in the implementation plan that we recently published.

If this legislation is to be effective then it is hugely important that consumers should feel confident about exercising their statutory rights and that businesses should know and fulfil their statutory responsibilities. We certainly accept that this is not currently the case. This year’s consumer detriment survey and research by Citizens Advice and Which? show that consumers become discouraged from pursuing claims to a satisfactory settlement. Lack of knowledge about their rights and even misinformation by sales staff are factors in their giving up. That is why we asked the implementation group to consider carefully whether there should be a requirement for traders to provide information on consumer rights to all consumers at point of sale or when rights are enforced.

As your Lordships can imagine, the implementation group strongly supports the Government’s objective of making it easier for consumers to find out about their rights. We believe that traders have a very important role in this. Business and consumer organisation members of the group have therefore worked together to develop a high-level summary of consumer rights when consumers buy goods, services and digital content. The summary also signposts consumers to the Citizens Advice helpline and website for more detailed guidance on specific issues. We have begun testing this model wording with businesses and consumers to ensure that it is easily understood and we have had some very good feedback on the concept so far. We aim to make it available to businesses by April next year to use in their

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communications with their customers. I have a working draft, which is being canvassed widely, on my iPad. I do not think that I am allowed to show noble Lords my iPad on the Floor of the House.

5 pm

However, there are several reasons why we do not believe that it is desirable to require the provision of information detailing a consumer’s rights at point of sale as required by Amendment 9.

First, consumers often have a lot of information, both about the goods themselves and about the trader, to absorb at point of sale and they may also be comparing different products. To quote the noble Baroness, Lady Hayter, consumers cannot take in too much information. Like her, I am a keen consumer, and my sometimes embarrassed family also think that I am something of the consumer from hell. There is a real risk that additional information will be ignored or will irritate the customer, as this is not information they are likely to consider essential before making their purchasing decision.

Secondly, it is likely to be impractical in certain settings; for example, in telephone sales or street markets where the trader would have to make an oral statement. Few of us would appreciate being reminded of what our rights are every time we bought fruit in Lower Marsh Market, or a newspaper in our local shop.

Thirdly, it could send mixed messages where the trader’s own policies were more generous than consumers’ statutory rights. One major retailer—a household name, and not the one I used to be associated with—told us that when a consumer had a good case, its store policies would allow a full refund for faulty goods significantly beyond the statutory 30-day limit. It had built its brand on customer loyalty and thought that displaying information on consumers’ statutory rights would undermine its core message that a customer who was dissatisfied for any reason could bring that product back.

For these reasons we believe that this amendment is not the best way to address the real problem of consumers being uninformed or misinformed about their rights. Which?—whom I saw last week—shares this view and told me that it does not think that mandating the provision of point-of-sale information on consumer rights will automatically mean that either consumers or businesses are better informed. Instead, it is supporting our approach. This is to encourage businesses, when they communicate with consumers, to use the model wording on consumer rights, which I referred to earlier, which was developed jointly by BIS and the consumer and business groups. That means that businesses and consumers will be able to have confidence in its accuracy. I am pleased to say that business groups have already committed to promoting use of the model wording and also the signposting of consumers to Citizens Advice to their members.

It is not that consumers are put off complaining because they do not know their rights; the most recent consumer detriment survey in 2014 found that the vast majority of consumers—87% in the survey—take action when they have a problem. Of those who take no action, only one quarter of 1% fail to complain because

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they are unsure of their rights. Moreover, the consumer contracts regulations, which came into force this June, already require traders to remind consumers before they enter a contract that they have a right that goods must conform to the sales contract. I listened to what was said earlier about those regulations and the consumer protection from unfair trading regulations, and I am sure that we should include guidance on those regulations in our implementing plan, as both businesses and consumers need to understand the breadth of consumer law.

Amendment 13 raises some similar practical issues. It would be quite straightforward to put a full summary of consumer rights on a trader’s website, but it is less easy to see how this would work in other settings. What if I return to a shop to ask for my money back six weeks after purchasing a faulty pair of shoes? I know that the noble Baroness, Lady Hayter, and I, have shared that experience. Do I really need to be told that my right to an immediate refund has expired and I am entitled only to a repair or replacement if the retailer is actually perfectly happy to give me an immediate refund? Conversely, if I had returned to the shop within the first 30 days and said that I wanted to exchange the faulty but very fashionable shoes, would you expect the retailer to say, “Have you considered having your money back instead, because that is your right within the first 30 days?”.

This, again, is why we have preferred a more flexible and voluntary approach. The summary of rights developed by the implementation group is a useful tool for traders to explain their full set of rights to consumers, and we want traders to use this in a way that works best for their customers. However, requiring the trader to set out the consumer’s full rights at every point in the complaints process would be onerous for both consumers and business, and would come at a cost.

Businesses will be able to use the wording in full or incorporate only the elements relevant to their businesses. It will also help to avoid shop-floor staff causing unnecessary disputes by making mistakes and giving inaccurate information. For all these reasons, we expect businesses to see this as a helpful tool to comply with the new legislation.

I turn to Amendment 25. I should clarify that this clause applies only to guarantees that are provided alongside goods at no additional cost to the consumer. It does not apply to guarantees that the consumer has paid for, such as extended warranties, for which consumers have other protections. For example, an extended warranty should comply with the unfair terms provisions of the Bill.

Clause 30 already requires, I am glad to say, that any free guarantee must be written in plain and intelligible language. It must also include a statement informing the consumer that he or she has legal rights that are not affected by the guarantee. Given that the clause covers only freely provided guarantees, which must make clear that the consumer remains entitled to their full statutory rights, it does not seem reasonable to impose a further requirement to set out the consumer’s basic rights. I hope that this provides sufficient reassurance that we can achieve better information to consumers

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about their rights without the drawbacks of a mandatory approach, and I ask noble Lords to withdraw the amendment.

Baroness Hayter of Kentish Town: I think I heard the Minister say that she would ask the implementation group to look at the regulations in what they are doing on information. If that is the case, I welcome that; that is a very joined-up approach, if I heard that right.

On the guarantee, yes, it was very much the free one that I had in mind. I think that the Minister has just highlighted the reason why we want our amendment: at the moment the Bill says that any trader’s free guarantee must say, “Your legal rights are not affected by the guarantee”. That is exactly the problem; no one knows what their legal rights are that are not affected by the guarantee. We want words along the lines of, “Your rights to a full return if this is faulty are not affected” or whatever, rather than the phrase, “Your legal rights are not affected”, because I do not think anyone understands what their legal rights are. That is why we want that phrase there.

I absolutely understand one half of what the Minister was saying about wanting this to be flexible. It is “flexible and voluntary” that I have a problem with, in that the good traders are going to do this but leaving this as voluntary means that the bad traders will not. If at the moment they do not want this as a statutory requirement—we may return to this on Report—I leave it to the Minister to think about whether she is able to consider looking at a back-up power in case the voluntary approach does not deliver the desired result. If the group comes up with something and all the businesses involved in the group say, “We’re going to do it”, but the businesses that are not there do not, in a year or two we will find out that it is not being done by some retailers. A back-up power to make the voluntary approach statutory might be a way forward. Flexibility is important, but leaving it just to the good will of traders will not help us with some of them. An order-making power that could allow the Secretary of State in future to make displaying point-of-sale information mandatory, should the voluntary approach fail, is something that perhaps could be considered. We will certainly come back on the first of these amendments on Report, but for the moment I beg leave to withdraw the amendment.

Amendment 9 withdrawn.

Clause 11 agreed.

Clauses 12 to 16 agreed.

Clause 17: Trader to have right to supply the goods etc

Amendment 10 not moved.

Clause 17 agreed.

Clause 18 agreed.

Clause 19: Consumer’s rights to enforce terms about goods

Amendment 11

Moved by Baroness Hayter of Kentish Town

11: Clause 19, page 10, line 6, at end insert—

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“(4A) Where the installation of goods leads to a risk to the consumer, as set out in the Housing Act 2004, the consumer retains a right to a full refund of the cost of the contract and any additional fees associated with the installation.

(4B) Any action taken under subsection (4A) will not prevent the consumer from seeking other remedies or further compensation for the consequences of the installation.”

Baroness Hayter of Kentish Town: Amendment 11 seeks to protect the consumer if a faulty installation puts them at risk by giving them an immediate right to a full refund without having to accept a repair first. The amendment is about domestic situations and people’s homes. It is about permitting the consumer in certain circumstances, where there is a risk to them, not to have to go through one repair before they have a right to a full refund.

There will be circumstances where it is not appropriate to have a repair done first. When I mentioned to a colleague who was here earlier the example of an attempt to install a dishwasher where a trader has caused enormous flooding, she said, “Oh, you mean they shouldn’t have the chance to come back and flood it a second time?”. I thought that my noble friend Lady Drake got it in one.

Other examples might be an electrician who has come to install a new shower and wires it up to an electric light bulb rather than to the mains, which could produce interesting results, or a gas engineer who has made a complete mess of a new boiler installation and caused a gas leak. Such instances will leave the consumer thinking, “I actually don’t want these people back. They don’t know what they’re doing. I want them out of my house before they do any more damage and I want my money back so that I can get someone trustworthy in here to install something”.

Under the Bill as it is, the trader can say, “No, sorry, you can’t have your money back. I’ve got to come back and mend it and you’ve got to give me the chance to sort it out”. There will undoubtedly be times when that is not appropriate. The amendment would provide great clarity for both parties and allow a customer to say, where there is a risk, “I’m sorry, as a consumer I don’t trust you. I don’t want you back in my house and I want my money back”.

I know that the Minister in the Commons was sympathetic when this issue was discussed there, but she argued that the amendment was unnecessary because, in those circumstances, the consumer retains the option to seek damages for the unsatisfactory goods or installation and the trader cannot enforce the right to repair. However, that option of seeking damages is not what this Bill is about. It would involve the consumer instigating legal action; it is complicated; it is a little frightening; it is expensive and uncertain; and, in particular, it is quite lengthy. If it involved your shower or dishwasher, and you needed it the next day, being told that you can go to court does not quite answer the point.

Consumers share our approach to this issue. We know that, in a survey, four out of 10 people thought that consumers should not have to give the trader the chance to sort out the problem. Given that the Bill tries to make this very clear, and if it is the consumer’s expectation, it would be much better that we keep it

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out of the courts. We should make it clear that where someone has put a resident a risk, they should be able to have a full refund rather than have to go to court.

The Bill allows that right to reject under Clause 24 only after the consumer has given the trader one shot at repair or replacement. The amendment would change that. We are talking only about residential premises and those areas of risk. I beg to move.

5.15 pm

Baroness Jolly: Of course, my Lords, consumers must have appropriate remedies if goods are not installed correctly, especially if this puts them at risk. The Bill provides that, if a consumer has a contract with a trader for goods to be both supplied and installed, the installation must be done correctly. If it is not done correctly, the consumer can ask the trader to rectify this by a repair or replacement. This would include a re-installation.

For example, a consumer buys a door and pays the seller to fit it, too. After a few days, a hinge is loose. In most cases it suits both parties for the trader to be given the chance to come back and refit the door. As a consumer, I would certainly want the goods that I had bought to be installed correctly, and I would take the opportunity for the installer to put this right had they not done so correctly initially. As a trader whose business is often based upon word of mouth and reputation, I would certainly want to be given the chance to correct a faulty installation.

However, we recognise that there may occasionally be cases in which a trader has done such a bad job that the consumer does not want them back on their property; the noble Baroness, Lady Hayter, has given us some examples of these occasions—indeed, of workmen from hell. However, the Bill does not prevent the consumer from seeking alternative remedies. For example, they have the alternative option of claiming damages for the loss they have suffered from shoddy or dangerous work carried out. In extreme and hopefully very limited cases such as this, damages may provide a more appropriate remedy.

Businesses also wish to avoid the cost and damage to their reputation of a court case. The consumer can use the right to damages as the basis for negotiation. For this reason, the Bill enables consumers to receive appropriate redress as a result of a poor installation in the various circumstances which may arise. As a result, the amendment is unnecessary. I therefore ask the noble Baroness to withdraw the amendment.

Baroness Hayter of Kentish Town: I thank the Minister. She has not actually answered the point that going for damages means going to court, which means a long time until you get your money back. There can be a great delay and if you have tried to have a new dishwasher or washing machine installed you could well have paid a few hundreds pounds for that, and it can be a long time before you get your damages back. I think we are going to have some clarification.

Baroness Jolly: The point I was trying to make is that there is the option of taking the whole thing to court, but you can negotiate for damages before you actually get to that stage. Your expenses would therefore be nowhere near as great.

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Baroness Hayter of Kentish Town: But that is the right to a refund. All we are saying is that that should be a right. I think that we are very close on this. You are saying that if you do not want the trader back, please negotiate for damages, which are basically your money back. We are saying that there should be a right to your money back. At that stage, either you go to court, which we do not think is appropriate because it will take a long time to get your money back and you have no washing machine for that period, or you get your money back from the trader. The only difference is that we say that it should be automatic, and the Minister is saying that you should negotiate with them. The consumer is in a very weak position at the moment; we would like to strengthen it. We may return to this. We are probably not that far apart: we both agree that in those circumstances you would not want the trader back and you would want your money back. It is really just a matter of how we could get to that point. For the moment, I beg leave to withdraw the amendment.

Amendment 11 withdrawn.

Amendment 12

Moved by Baroness Jolly

12: Clause 19, page 10, line 42, leave out “Chapter” and insert “Part”

Baroness Jolly: My Lords, I am very grateful to Professor Hugh Beale, an eminent legal academic, for his view that the Bill required greater clarity on our intention that there should be no right to terminate a contract for the supply of digital content when the quality rights are breached. It is important to put this beyond doubt to provide the necessary clarity for consumers and business.

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The amendments, which are government amendments so they are an improvement that we have made to the Bill, seek to make that explicit by adding a new line into Clause 42 making it clear that there is no right to terminate the contract for digital content when the quality rights are breached. The related amendments in Clause 19 for goods and Clause 54 for services ensure consistent terminology across the goods, digital content and services chapters.

The amendments are technical changes but I realise that the underlying issue has not been fully debated. We will be returning to the substantive point about whether there should be a short-term right to reject digital content when we debate the amendments to Clause 33. If there are no questions at this point, I beg to move.

Lord Stevenson of Balmacara: I thank the Minister for introducing these very technical amendments. We have no objection to them as they are drafted, we want to get that on record, but she has made it clear that Amendment 14, and to some extent Amendment 17, bearing on matters relating to digital content in Chapter 3 of the Bill, contain within them substantive issues that we will want to readdress. I was grateful to note her comment that the fact that we will not oppose these amendments as they go forward at this stage does not rule out the possibility of coming back to the substantive point at a later stage.

Amendment 12 agreed.

Amendment 13 not moved.

Clause 19, as amended, agreed.

Committee adjourned at 5.22 pm.