My Lords, the focus on updating and strengthening consumer law certainly is to be welcomed. I agree with the Government’s rationale for the Bill—that empowered consumers will make markets work more effectively and drive economic growth. However, there are provisions with regard to services which leave me with some concern. I hope that these matters will be considered further in Committee. As my noble friend Lady Hayter identified, under the Bill the statutory rights of the consumer that are implied in a contract between consumer and supplier are not fully aligned as between the sale of goods and the sale of services. Goods supplied must be “of a satisfactory quality”, whereas services must be provided,
“with reasonable care and skill”.
The liability standard for services is based on fault rather than on liability for satisfactory quality, which is an outcome measure, and I am concerned that it may not sufficiently support consumer protection and market effectiveness in the provision of services. It may prove more difficult for consumers to prove that a service has not been provided with reasonable care and skill. It focuses on the way in which a service is carried out rather than on the quality of the end result. It could fall short of reasonable consumer expectations on quality of outcome. A “reasonable care and skill” standard places greater emphasis on compliance with rules rather than on outcome for consumers.
In certain service sectors and markets, the asymmetry of knowledge and understanding between trader and consumer is extensive. In financial services, evidence frequently demonstrates that while provision of services may comply with the regulatory requirements, the product supplied often falls short of delivering a desirable quality for the consumer. A reliance on reasonable care and skill would not address the mis-selling or product design problems that have persisted in the sector. It is not the absence of skill that causes these problems. Something else goes wrong, such as a conflict of interest, complexity or lack of transparency, any one of which leads to consumer detriment.
A Bill that sets a statutory liability standard in the provision of goods on quality, with its focus on outcomes, and in the provision of services on reasonable care and skill, with its focus on compliance, risks a two-tier outcome to consumer protection. An argument frequently mobilised against an outcomes-based quality standard for services is the risk to traders of being held to unrealistic expectations by consumers, but this can be qualified by reference to reasonable expectations by a consumer. It should be remembered that the scale number of complaints from consumers comes from sectors such as energy, broadband, mobile phones and financial services.
I am also concerned by the possible continuing ambiguities in how the Bill addresses unfair contract terms. The court may assess a contract term for fairness unless it falls into a certain exempt category, such as terms that relate to the main subject matter of the contract or the adequacy of the price. The 2009 Supreme Court decision in the case of the OFT v Abbey National, which held that charges for unauthorised overdrafts were exempt from assessment for fairness because they were price terms, gave rise to uncertainties about whether ancillary charges could be assessed for fairness. This created a situation where, to use the Government’s own words:
“Some protection in law is necessary because consumers often cannot, or do not wish to, investigate the detail of every contract term before they sign-up to an agreement”.
This Bill introduces a requirement for “prominence”. For the core terms in a contract to be exempt from assessment for fairness by the courts, a term must be prominent and,
“brought to the consumer’s attention in such a way that an average consumer would be aware of the term”.
The emphasis on prominence is to be welcomed. However, any deficiencies in what the prominence requirement embraces could give rise to new uncertainties and disadvantage for both the consumer and the goods companies. I share the concern of the BIS Select Committee that bringing something to the consumer’s attention is not the same as a consumer appreciating its significance. The current wording of the Bill is unclear as to what would be sufficient to meet the prominence test for core contract terms. If it is too weak, the consumer’s level of understanding or behavioural bias may leave them not appreciating that the terms are unfair but the court could not intervene as to their fairness. Which? and the Law Commission have both stressed the importance of getting the definition of “prominence” right, and the OFT commented:
“Transparency alone cannot turn a substantially unfair term into a fair one”.
I also note that the Association of British Insurers and the Building Societies Association have stressed the importance of achieving clarity on what is needed to meet the prominence test, particularly given the increasing regulatory requirements on consumer disengagement and key information. Consumer products and markets are becoming more complex, which increases the risk that consumers do not understand the significance of certain information; asymmetries of knowledge and understanding between trader and consumer can create incentives for traders to frame information in certain ways. Consumers’ behavioural bias is very powerful. Consumers focus on the main element of a contract. If the most important goal is, for example, buying a house, they will focus less on the detail of the insurance policy for that house. The closer the consumer gets to signing, the less likely they are to walk away.
Prominence is very important and welcome, but its efficiency in providing a remedy both for unfairness and for a weak and ineffective market depends on how a consumer’s attention is drawn to a term and their understanding of its significance. What is required in the prominence test is something to be explored further in Committee.
Finally, echoing concerns articulated by my noble friend Lady Crawley, in order to deliver competitive markets there is a need to increase the range of measures available to enforcers under the civil law enforcement regime, as the Government have acknowledged. It is to be welcomed that the Government have increased and extended the range of measures available not only to the public enforcers but to private enforcement bodies.
Good businesses need safeguards as to how these powers will be used and the Bill sets obligations and conditions that enforcement bodies have to meet to be allowed to use these civil law enforcement powers.
However, concerns have been expressed that the detail of the safeguards built into the Bill, particularly those in Schedule 17, may not provide the right incentives for enforcement bodies to utilise the extended civil law enforcement measures. Private enforcement bodies may be deterred by the costs regime, for example. Public enforcement bodies may consider that they face less organisational risk if they stick to the criminal law route, particularly if the trading standards bodies feel they have insufficient resources to take the potential risk around a cost regime. It would be unfortunate if some of the detailed provisions in the business safeguards as drafted actually became deterrents to enforcers utilising the otherwise positive changes in the civil law enforcement regime contained in the Bill. That is something to be explored in Committee.