Memorandum by Citizen’s Advice 1. Introduction 1.1 Citizens Advice is the national body for Citizens Advice Bureaux (CABx) in England, Wales and Northern Ireland. The CAB service is the largest independent network of free advice centres in Europe, with 462 main bureaux in England, Wales and Northern Ireland. Bureaux provide advice from over 3,200 outlets, including courts, prisons, GP surgeries, hospitals, probation services and prisons. All CABx are registered charities. 1.2 The CAB service has twin aims: to ensure that individuals do not suffer through a lack of information about their rights; and equally to exercise a responsible influence on the development of policies and practices, both at a local and national level. 1.3 In 2005/6, CABx in England and Wales dealt with 5.2 million enquiries. The breakdown of issues relevant to the work of the sectoral and functional regulators is as follows: Problem type Number of enquiries handled by CABx during 2005/06 838,000
Consumer credit debt (including bank overdrafts, credit and store card debts, unsecured loan debts, catalogue debts, arrears on hire purchase agreements) Financial services and products (including credit, mortgages, banking, insurance, debt management services and financial advisers)
Consumer goods and services (including new and 157,000 second-hand vehicles, furniture, electrical appliances) Utilities (including communications, water and energy) Travel, transport and holidays (including package holidays and timeshares) Total 57,000
1.4 Citizens Advice undertakes significant public policy work on consumer issues, based on the evidence we receive from bureaux. We encourage regulators to work to tackle consumer detriment and ensure that consumers are protected. We also work with the Government and parliamentarians to the same ends. We were, for example, pleased to see moves to strengthen clause 43 of the Consumer, Estate Agents and Redress Bill ensure that regulators prescribe standards for the handling of consumer complaints, rather than just having the option to do this. Our work is particularly relevant to the areas regulated by the following bodies:
Office of Fair Trading (OFT) Financial Services Authority (FSA) Office of Gas and Electricity Markets (Ofgem) Office of Communications (Ofcom) 1.5 This memorandum comments on our work with each of these regulatory bodies. 2 The Office of Fair Trading
2.1 CABx help people resolve a significant number of consumer problems relating to markets which are overseen by the OFT. 2.2 Through our advice work we come across evidence that consumers are being treated unfairly by traders, including those specifically authorised by the OFT under the consumer credit licensing system. CAB clients are often people who live on low incomes or state benefits, and a minority are homeowners in contrast to the population at large. We therefore have a significant interest in the OFT acting to remedy consumer detriment which may cause our clients direct financial hardship, especially in the areas where they have a direct locus as a regulator such as consumer credit. 2.3 Citizens Advice has engaged with the OFT on numerous policy and investigation initiatives over many years. We welcome close co-operation and consultation and wish to see our evidence used by the OFT to achieve its purpose. Overall Citizens Advice wishes to see increased activity of the OFT in a wider range of areas than they have to date. Currently, the OFT’s working practices are slow and the style and manner of working too remote, meaning that opportunities are missed and concrete outcomes are rare. Examples of these issues include: the absence of a clear comprehensive regulatory strategy for consumer credit, or any high profile, accessible or robust systems for gathering evidence and monitoring compliance. the considerable time taken for the OFT to investigate and come to conclusions on significant issues such as the credit card interchange fee, default charges and the matters identified in super-complaints. Its latest annual report documents a number of Competition Act investigations concerning fast moving markets which have taken anything up to 3 years, and in one case 5 years. the absence of action by the OFT on fair trading and consumer credit practice issues in super-complaints and market investigations relating to payment protection insurance (though we welcome referral to the Competition Commission). the modest impact of self-regulation and codes of practice. 2.4 The OFT has expanded its remit as a consequence of the Enterprise Act (giving it a leading role in relation to self-regulation and consumer education). It has also been given delivery responsibility for Consumer Direct. The new Consumer Credit Act should inject a new energy to its work as a regulator of this significant market.
There is considerable scope for the OFT to take an increasingly dynamic and effective role in protecting consumers, tackling bad practice and promoting better practice. The OFT is not yet performing to its full potential for the consumers who turn to us for advice. 3 The Financial Services Authority
3.1 The legal framework regulating personal lending has historically been fractured, partial and insufficiently powerful. Although recent legislative reforms have empowered both FSA and OFT to regulate aspects of personal lending in a more effective way, the two regimes have not developed in a joined-up manner other than to ensure that no individual loan is regulated twice. The result is two rather different views of how and what to regulate. For example, FSA mortgage rules tend to place a heavy emphasis on the sales process while Consumer Credit Act 2006 regulation concentrates on the form of agreements. 3.2 While there is an argument that secured and unsecured lending have different specific needs requiring separate regulatory frameworks, there is no reason for this to extend to the capacity of regulators themselves. Indeed the new legislative tools available to both OFT and FSA should be powerful enough to respond quickly and efficiently to consumer detriment and flexible enough to allow each to learn from the other if they have the will to do so. 3.3 Citizens Advice has found that there is no obvious way to hold either regulator to account. Neither has developed transparent and comprehensive systems of rules and guidance that reflect the actual problems consumers are experiencing. 3.4 While the FSA has produced a comprehensive rule book it operates at a high level leaving firms with a good deal of freedom to interpret them. This would be sufficient if firms were required to do this through public commitments that consumers can hold to account and challenge. However the FSA does not require this commitment in key areas. High level principles without a process of consumer engagement will effectively operate at as a sophisticated form of voluntary regulation. 3.5 Citizens Advice was encouraged by the FSA/OFT statement on future joint working and strongly support specific initiatives such as the FSA’s thematic work in areas such as payment protection insurance and sub-prime mortgage lending. 4 The Office of Gas and Electricity Markets and the Office of Communications
4.1 Both Ofcom and Ofgem are required by legislation to protect the interests of consumers. Ofgem also has statutory responsibilities to have regard to the interests of those people who are disabled or chronically sick, of pensionable age, or living on low incomes. 4.2 Citizens Advice has a strong interest in how these regulators discharge their key responsibilities with regard to consumers since CABx clients are often disadvantaged and many are on low incomes or benefits. Our clients need a utilities regulator to protect them from underhand practices and to take swift action where necessary.
4.3 Ofgem and Ofcom work to safeguard consumer interests by promoting effective competition. It is clear that for this to work effectively two main conditions must be met: Consumers must have access to timely, objective and reliable information about the nature, price and quality of services on which to base their decisions about suppliers. However, information to make rational choices about suppliers is not always readily accessible to all groups of consumers, particularly more vulnerable or disadvantaged groups who may not have access to the internet and the various comparison and switching services. For consumers to be able to protect their own interests by switching supplier, the process of switching must be simple and hassle-free. There has been some encouraging progress in this regard. In 2006 it was reported that 350,000 customers opted to change supplier following a 22% price rise imposed by British Gas, which appears to highlight more confident consumer behaviour. However, not all groups of consumers are equally likely to take action. In both telecoms and fuel, CAB evidence shows that consumers have experienced significant difficulties when attempting to switch. 4.4 Since 2003, energy consumers have seen huge rises in their annual energy bills: Average household gas bills increased from £330 in January 2003 to £642 in January 2007 (an increase of 94%) Average electricity bills increased from £242 to £388 (an increase of 60%) over the same period. 4.5 Comparing Citizens Advice 2005/6 statistics with Q1 & Q2 of 2006-7 reveals stark increases in number of fuel debt and disconnection cases dealt with: In 2005-6 CABx dealt with approximately 30,000 cases concerning fuel debt repayments. In the first six months of 2006-07 CABx had already dealt with more than 19,000 enquiries. Similarly, enquiries about the disconnection of fuel supplies have already reached 82% of their 2005-6 level in just the first six months of 2006-7. 4.6 In some cases the actions of energy companies have made affordability and debt problems worse. NPower’s decision not to pass on price cuts to those on electricity pre-payment meters (PPMs) is symptomatic of suppliers’ failures to deal fairly with those consumers that use PPMs, many of whom are likely to be among the poorest members of society. Despite this PPM users are charged more for their fuel and fuel suppliers’ have failed to recalibrate token PPM electricity meters in timely manner pushing poorest people into debt. In both instances we consider that Ofgem has proved ineffective in delivering the best deal for vulnerable customers. 4.7 Another example of how suppliers’ practices make worse poorest people’s efforts to pay for their gas and electricity is the practice of three suppliers – npower, Powergen and Scottish Power – in failing to adjust token electricity prepayment meters to reflect increases in price, and then back-dating debts when they finally re-set the meters. CABx deal with many of these cases which cause serious financial detriment to many CAB clients. This practice threatens 750,000
households across the UK with increasing levels of unexpected debt, and leaves some households facing instant arrears of hundreds of pounds in addition to an overnight price shock when their meter is eventually recalibrated. We have urged Ofgem to take appropriate action which they have failed to do. Citizens Advice considers that their actions to date have failed to get the best deal for this group of customers. 4.8 In the fields of electricity and gas, additional protection is provided through the Supply Licence Conditions (SLC), which suppliers must comply with in order to be licensed by Ofgem. Where a company fails to comply with a licence condition, Ofgem is able to take enforcement action, with the possibility of imposing a financial penalty where appropriate. Citizens Advice considers that because of the essential nature of gas and electricity there is a continuing need to protect vulnerable customers by appropriate licence conditions. Where the evidence suggests that the current licence conditions fail to adequately protect consumers (for example in respect of timely recalibration of prepayment meters) we would expect to see Ofgem strengthening the conditions. 4.9 Meanwhile, Ofcom has recently started to pursue a different approach in an attempt to make sure that the consumer interest is at the heart of its work. Often criticised for failing to take speedy and sufficiently strong enforcement action (for example in relation to premium rate scams and rogue diallers), Ofcom pledged to: • • implement an Early Warning System to identify problems at an earlier stage in their development; and develop streamlined processes for the enforcement of consumer regulations since the current procedures, which typically take 6 months, are too slow for the effective enforcement of regulations designed to protect consumers from harm.
4.10 In addition, Ofcom has adopted the Ofcom Consumer Panel’s recent toolkit (Capturing the Consumer Interest) 1 in carrying out its work. The toolkit is intended to assess whether or not the regulator has identified and addressed the consumer interest when forming and implementing policy. These moves are welcome, but the practical impact of the changes remains to be seen. Citizens Advice considers that there is an ongoing need to protect consumers, particularly those who are most disadvantaged, and the sole reliance on competition or consumer choice to fulfil this need is insufficient. 4 May 2007