RESEARCH PAPER 07/16 20 FEBRUARY 2007
The Consumers, Estate Agents and Redress Bill [HL]
Bill 61 of 2006-7
This Bill, introduced into the House of Lords in November 2006, is designed to implement three Government policies. The first, commonly referred to as the “Consumer Voice” proposals, would establish a new National Consumer Council (and abolish the existing National Consumer Council, Postwatch and energywatch and make provision to abolish the Consumer Council for Water). It would also enable regulators to require companies in the gas, electricity, water and postal sectors to join redress schemes. Other provisions in the Bill would allow the Secretary of State to require estate agents to join an ombudsman scheme and change certain regulatory requirements placed on agents. The Bill would also enable to Secretary of State to make regulations to give individuals similar rights to cancel contracts for goods and services made away from business premises as they currently have in relation to contracts made after an unsolicited visit. The Bill had its first reading in the House of Commons on 7 February 2007.
Alexander Horne HOME AFFAIRS SECTION
HOUSE OF COMMONS LIBRARY
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Recent Library Research Papers include:
07/01 07/02 The Local Government and Public Involvement in Health Bill Social Indicators [includes articles: Research and development in the UK; Prison population – summary] 07/03 07/04 North Korea: The Nuclear Issue and Prospects for Change The Planning-gain Supplement (Preparations) Bill [Bill 37 of 2006-07] 07/05 07/06 07/07 07/08 07/09 07/10 07/11 07/12 07/13 The Pensions Bill [Bill 12 of 2006-07] The Sustainable Communities Bill [Bill 17 of 2006-07] Unemployment by Constituency, December 2006 The crisis in Lebanon The Energy Saving (Daylight) Bill [Bill 18 of 2006-07] The Land Use (Gardens Protection etc) Bill [Bill 19 of 2006-07] The UK Borders Bill [Bill 53 of 2006-07] Economic Indicators, February 2007 The Planning-gain Supplement (Preparations) Bill Committee Stage Report 07/14 07/15 Unemployment by Constituency, January 2007 The Disabled Children (Family Support) Protection Bill. [Bill 20 of 2006-07] 14.02.07 20.02.07 11.01.07 15.01.07 17.01.07 19.01.07 22.01.07 31.01.07 31.01.07 01.02.07 14.02.07 10.01.07 10.01.07 09.01.07 10.01.07
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Summary of main points
The Consumers, Estate Agents and Redress Bill was introduced in the House of Lords on 16 November 2006, and had its Second Reading there on 4 December. The Bill is designed to implement four main policies, three of which are essentially freestanding. The first and second parts of the Bill have been referred to as the “Consumer Voice” proposals. The first part of the Bill would establish a new National Consumer Council, which would initially replace the existing National Consumer Council, Postwatch and energywatch (but would also make provision for the subsequent abolition of the Consumer Council for Water and transfer of its functions). The Government has indicated that the Financial Services Consumer Panel and the Office of Communications (OFCOM) Consumer Panel would be left unchanged, reflecting their particular ‘regulator facing’ roles. Some concerns have been expressed, particularly about the timing of the proposed abolition of Postwatch, in the context of the current proposals for the closure of post offices. Part two of the Bill would enable regulators in the gas and electricity sector in Great Britain, the postal sector (in the UK) and the water sector (in England and Wales) to require companies to join redress schemes. The third part of the Bill deals with estate agents. It contains proposals to require estate agents to join an ombudsman scheme. It is also designed to strengthen the regulation of estate agents, through measures such as: • • • requiring estate agents to keep records; allowing trading standards officers to inspect those records; and expanding the circumstances in which Office of Fair Trading can take regulatory action against estate agents.
This part of the Bill has been subject to some criticism, in the House of Lords, and by outside bodies, including the National Association of Estate Agents. These criticisms include that the Bill does not go far enough and bring in a positive licensing regime for all estate agents, and that it does not include letting agents. Finally, the fourth part of the Bill contains a provision to enable the Secretary of State to make regulations giving individuals similar rights to cancel contracts for goods or services made during a solicited sales visit to their home or office as they have in relation to an unsolicited visit. The Bill had its first reading in the Commons on 7 February 2007. The Government has published Explanatory Notes and a Regulatory Impact Assessment to accompany the Bill. The Bill mostly extends to the whole of the United Kingdom (save for certain provisions, mainly contained in Part 1 of the Bill, which are discussed in detail below).
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Introduction The current consumer councils A. The National Consumer Council 1. Introduction 2. The role of the National Consumer Council B. C. The Gas and Electricity Consumers Council (energywatch) The Consumer Council for Postal Services (Postwatch) 1. Introduction 2. The role of Postwatch 3. Aims and objectives 4. Governance 5. Cooperation 6. Public Accounts Committee Report D. Consumer Council for Water (CCWater) 1. Introduction 2. The role of the Consumer Council for Water 3. Initial progress 4. Response to consultation on consumer representation and redress (Consumer Voice) 5. The state of the water industry
7 8 8 8 8 10 12 12 12 13 13 14 14 15 15 16 17 18 19 20
Background to the Consumer Voice proposals B. The timing of the Consumers, Estate Agents and Redress Bill in relation to the Postal Industry The Bill 1. The Second Reading Debate in the House of Lords 2. The clauses
22 23 24 26 38 38 39
Complaint handling and redress schemes 1. Reaction to proposals in respect of Redress Schemes 2. Parliamentary debate
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Estate Agents A. Background 1. Current Regulation of Estate Agents 2. Office of Fair Trading Reviews of Estate Agents (1988-2004) 3. The Ombudsman for Estate Agents (OEA) 4. The National Association of Estate Agents (NAEA) B. The Bill 1. Second Reading Debate 2. Proposed amendments to the Estate Agents Act 1979 3. Regulatory Impact
42 42 42 44 46 47 47 48 50 55 56 56 58 59
Contracts concluded away from business premises A. Background 1. The Regulatory Impact Assessment B. The provisions
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The Explanatory Note to the Consumers, Estate Agents and Redress Bill indicates that the Bill has four main purposes, namely: • To create a new statutory National Consumer Council to replace the existing National Consumer Council (a company limited by guarantee), the Gas and Electricity Consumers Council ("energywatch")1 and the Consumer Council for Postal Services ("Postwatch").2 The Bill also contains a power to dissolve the Consumer Council for Water3 and transfer its functions to the new body established by the Bill; To enable the Secretary of State for Trade and Industry to require service providers in the electricity and gas (GB-wide), postal services (UK-wide) and water (England and Wales) sectors to belong to redress schemes to ensure resolution of complaints in those sectors and to award compensation where warranted. The energy and postal services regulators (the Gas and Electricity Markets Authority and the Postal Services Commission respectively) will also be given the power to prescribe complaint handling standards which will be binding on suppliers in GB (and UK in relation to postal services); To enable the Secretary of State to require estate agents to join an ombudsman scheme and strengthen the regulation of estate agents through measures such as: requiring estate agents to keep records and allowing trading standards officers to inspect those records and expanding the circumstances in which OFT can take regulatory action against estate agents; and To enable the Secretary of State to make regulations giving individuals similar rights to cancel contracts for goods or services made during a solicited sales visit to their home or office as they have in relation to an unsolicited visit.4
A number of these proposals were floated in earlier reports and consultation papers. These include the Office of Fair Trading (OFT) report The Estate Agency Market in England and Wales (March 2004), the OFT Report Market Study on Doorstep Selling (May 2004) and the Department for Trade and Industry (DTI) Consultation Strengthen and streamline consumer advocacy: Consultation on consumer representation and redress (April 2006). These consultation papers are discussed further below. This Research Paper has been divided into five sections to reflect the structure of the Bill. The first, second and third sections deal with the background to the “Consumers Voice” proposals, the plans to merge a number of the current consumer councils and to introduce complaints handling and redress schemes. The fourth section relates to estate agents and the fifth section addresses the introduction of regulation making powers relating to contracts concluded away from business premises.
1 2 3 4
Established under s 2 of the Utilities Act 2000 Established by s 2 of the Postal Services Act 2000 Established by s 27A Water Industry Act 1991 Explanatory Note to HL Bill 2EN
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The current consumer councils
As mentioned above, the Bill makes provision to replace the current National Consumer Council, energywatch, Postwatch (and in the future the Consumer Council for Water). Currently these bodies act independently.
The National Consumer Council
Introduction It is a Non
The National Consumer Council (NCC) was established in 1975. Departmental Public Body (NDPB).
The NCC website indicates that Robert Chilton (the acting chair) chairs the NCC Board (which has 12 members in total). The board is appointed by the Secretary of State for Trade and Industry. The Chief Executive (Ed Mayo) is responsible for the day to day running of the organisation. NCC is mostly funded by the Department for Trade and Industry, although “it receives small amounts of funding from the private sector and other parts of the public sector”.5 NCC is operational throughout Great Britain:
The NCC is comprised of three councils — NCC (London), the Scottish Consumer Council (SCC) and the Welsh Consumer Council (WCC). The NCC (London) takes a UK-wide perspective. Our sister organisations are funded through us and represent the particular concerns of consumers in Scotland and Wales. We also work closely with the General Consumer Council for Northern Ireland.6
The role of the National Consumer Council
The NCC acknowledges that it “has no statutory powers and does not give consumer advice or get involved in individual consumer complaints against providers of goods and services.”7 Instead, NCC indicates that it has two primary roles – carrying out research about consumer issues and developing policy solutions “where change is needed”. It says:
The NCC has two roles. First, we carry out research to find the consumer issues of the future. Second, where change is needed, we develop policy solutions and campaign and work with providers of goods and services to ensure that these policy solutions work.
See http://www.ncc.org.uk/about/faq.htm, in particular, NCC states that “81 per cent of our income is from a grant-in-aid from the Department of Trade and Industry” ibid ibid
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The NCC's main output is policy work. The NCC does not test products or give direct advice to the public or enforce legislation. The NCC's goal is to ensure that consumer needs are acknowledged and represented at decision-making level. Our work, therefore, focuses on influencing decision-makers and we are unable to deal with individual consumers' complaints or requests for information about products and providers of goods and services. We do not have a grants programme and do not provide funding. The NCC's policy work is mainly produced as reports that are carefully researched by specialists and targeted at decision-makers at national, European and global level. Reports are publicised in the press, argued for in parliament, the machinery of government, in the European Commission — through our membership of Consumers International and BEUC (the European consumer organisation) — with global bodies such as the World Trade Organisation.8
The NCC 2004/5 Annual Review (which marked its 30th year of operations) gave some examples of its work:
Dubbed by The Daily Telegraph as ‘Britain’s most influential consumer group’, we have set in motion changes that will help the two out of three people who say that public services do not respond to their needs. The result has been positive, practical action for government. Our Playlist for public services is already winning plaudits from those tasked with public service reform. Ofsted’s David Bell said that the Playlist is ‘[…] sharp, focused and passionate’ and will ‘prove to be incredibly helpful to all those who believe in providing excellent public services.’ In tackling problem markets, the NCC’s work is as much behind-the scenes as it is in the headlines, lobbying regulators and industry to address both longstanding problems and fresh issues introduced by new technologies. For some years, we argued for a duty to be placed on business to trade fairly and were delighted this year to see this obligation given expression in the EU’s Unfair Commercial Practices Directive. We are currently challenging the 30-year failure of regulators to raise standards in car servicing, as well as getting the direct marketing industry to listen to the 160,000 consumers a month who complain about silent calls. The NCC has a special remit to protect disadvantaged consumers. Our campaign – Why do the poor pay more? – led to our investigation of the home credit market and we have used the newly available super-complaint provision to lodge a reasoned case for action with the Office of Fair Trading.9
Prior to the announcement of the Bill in the Queen’s Speech, NCC anticipated proposals to merge the consumer bodies:
Consumer Voice will build on the NCC’s record of effective advocacy by creating a single, powerful, independent consumer champion. […] Bringing together advocacy work into one statutory body has the potential to win change for consumers at the heart of government, business and public services but it is
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important to get it right and ensure that it is well resourced. If this happens, the proposals will unquestionably be good news for consumers.10
The Gas and Electricity Consumers Council (energywatch)
[Donna Gore, Science and Environment Section] The Gas and Electricity Consumer Council (the consumer protection arm of which is known as energywatch) was established in November 2000 under Section 2 and Schedule 2 of the Utilities Act 2000 as a corporate body with members appointed by the Secretary of State. The Council replaced the existing consumer bodies, the Gas Consumers' Council and the electricity consumers' committees, which were abolished by the Act. Energywatch has a statutory duty under the Act to protect and promote the interests of existing and future gas and electricity consumers in England, Scotland and Wales by:
• • •
making proposals, or providing advice and information about consumer matters and representing the views of consumers on such matters; investigating and seeking to resolve consumer complaints; giving advice and information to Ministers, regulatory authorities (particularly Ofgem11); licence holders, and any other body whose activities may affect the interests of consumers such as local authorities; and Publishing information:
on performance of licensed gas and electricity companies against any statutory service standards set by Ofgem; on complaints made against energy suppliers, transporters, distributors (or their agents) both directly to energywatch and also to the relevant license; where it thinks it would be in the consumer interest.
It has a specific duty to “have regard” to the interests of individuals:
• • • •
who are disabled or chronically sick; of pensionable age; with low incomes and on benefits; and residing in rural areas.12
Energywatch’s most recent annual report sets out its achievements in 2005-06:
Consumers recovered £6.7 million in compensation and bill reductions this year thanks to energywatch action.
10 11 12
http://nccdev.keymedia.info/cgi-bin/kmdb10.cgi/-load165673_nccviewcurrent.htm The gas and electricity regulator, the Office of Gas and Electricity Markets, known as Ofgem. See also the energywatch website: http://www.energywatch.org.uk/index.asp.
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The average award for domestic consumers with billing complaints, which made up two-thirds of the complaints received last year, was £168 per household. This year energywatch had 222,892 in-depth contacts with consumers and received 62,075 complaints that needed detailed investigation with energy companies. These, together with quantitative and qualitative research, gave us a wealth of information about consumers’ concerns. That level of insight has helped us make a difference in three specific areas this year. Firstly, in the energy market, we armed consumers with information that empowered them to act. More than one million people have visited the energywatch website. Through our improved website they obtained the latest facts about the market, and 400,000 consumers logged on in the last three months of 2005-06. We established a tight accreditation system for all commercial sites switching consumers from one supplier to another. And, in solving complaints, we exceeded even the tough targets we had set ourselves, resolving 84% within 35 days, and 95% within 66 days. It is three years since energywatch first called for a competition inquiry into European gas and electricity markets. Finally, the European Commission has confirmed that those markets are not working, cost consumers in Great Britain dearly and require urgent and decisive action. Secondly, we helped more consumers to reduce their energy consumption and consumers saved as much as several hundred pounds a year. Every month we referred more than 1,000 consumers to energy advice bodies. Hundreds of thousands of consumers affected by soaring price rises changed suppliers and many cut their bills by conserving energy and choosing cheaper payment methods. Our Energy Smart campaign is helping an increasing number of consumers to reduce household carbon emissions and save money for themselves. Thirdly, working with vulnerable consumers remained a top priority. Over the last nine months our new priority consumer team has referred over 6,000 consumers to their supplier’s priority service register. We can be especially proud of our role in reducing the number of disconnections due to debt from 26,000 four years ago to 3,000 today.13
Energywatch Annual Report and Accounts 2005-06, at: http://www.energywatch.org.uk/uploads/Annual_Report_2005_2006.pdf
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The Consumer Council for Postal Services (Postwatch)
[Grahame Allen, Economic Policy and Statistics Section] 1. Introduction
The Postal Services Act 200014 provided for the creation of a new independent consumer watchdog body, the Consumer Council for Postal Services (Postwatch), to replace the previous Post Office Users' National Council.15 Postwatch receives Government funding of just under £10 million per annum and employs around 110 people.16 Postwatch differs from the postal services regulator, Postcomm, in that, while Postcomm is responsible for licensing, price controls and enforcing licence conditions, Postwatch concentrates on customers and standards of service. Postwatch has a Memorandum of Understanding with Postcomm, which defines how they work together.17 2. The role of Postwatch
Postwatch's mission statement is: "to protect, promote and develop the interests of all consumers of UK postal services".18 Its main role is: • to have responsibility for all issues of customer representation and the handling of complaints about the services of Royal Mail and licensed services of other licensed postal operators. (Government Ministers expect to be able to refer all complaints to Postwatch and not to be involved in specific complaints, except in the most exceptional of cases involving the national interest); to provide strategic advice to the regulator (Postcomm) on consumer interests; and providing advice and information to users of Royal Mail or licensed postal services.
Postwatch monitors complaints about and, where it considers appropriate, makes representations to the postal services industry regulator, Postcomm, in respect of remedial action, including any financial penalty to be imposed for a failure to meet agreed service performance standards or breaches its licence conditions in any other way. Postwatch also campaigns for a better overall postal service for customers, advising the Government, Postcomm and the Royal Mail Group on consumer views, demands and needs.19 On an individual level, Postwatch helps with complaints about the postal service. Once an individual or business has complained to Royal Mail Group (or any other postal
See HC Library, Postal Services Bill, RP 00/18, 11 February 1999 and the DTI web site: www.dti.gov.uk/sectors/postalservices/UK%20Legislation/page28903.html 15 DTI web site: www.dti.gov.uk/sectors/postalservices/UK%20Consumer%20Body/page28899.html 16 Cabinet Office, Public Bodies Directory, 2006 17 Postwatch/Postcomm, Memorandum of Understanding, April 2002 18 Postwatch, Corporate Plan 2006-9, 1 August 2006 19 Postwatch web site: www.postwatch.org.uk/about/whatwedo.asp
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provider) and has received an unsatisfactory response, or needs help in formulating their complaint, Postwatch will help take these cases further. More information on its complaints section can be found on the Postwatch web site at: www.postwatch.org.uk/complaints.asp 3. Aims and objectives
Postwatch acts as the “voice of the consumer in all postal matters to ensure customers get the best possible service”.20 The aims of Postwatch can be found in its Corporate Plan for 2006-2009.21 Postwatch has five ‘key’ objectives, agreed with the DTI, to “serve efficiently and effectively consumer interests in a rapidly changing postal market”:
• contributing to the development of an effective postal service market by representing the interests of consumers and effectively, comprehensively and promptly commenting on proposals and issues affecting them; pursuing complaints made against postal operators, efficiently and effectively measured by number, quality of response and time; informing consumers about the state of and developments in the postal services market including undertaking research and publicising the outcome; protecting the interests of all consumers including individuals on low incomes, elderly people, disabled people and the chronically sick and those in urban deprived and rural areas; and managing Postwatch effectively. 22
Postwatch has 9 regional committees across the UK, with offices in Scotland, Wales, Northern Ireland and in 6 regions across England. Through its network of contacts, each region builds up a picture of postal service provision and customer needs in its area and ensures that these are properly represented at a national level. Operating in this way, Postwatch indicates that it can gain local knowledge and gauge local customer needs and opinions. More information about Postwatch’s regional activity is available on their website: www.postwatch.org.uk/regional/region.asp The Secretary of State for Trade and Industry appoints the Chairman of the Postwatch National Council under the authority of the Postal Services Act 2000. The Secretary of State then appoints regional chairmen, in consultation with the Chairman, under authority of the Act. The regional chairmen then appoint their regional committee on delegated authority from the Council, subject to any guidance from the Council’s Accounting Officer.
Postcomm web site: www.psc.gov.uk/postcomm/live/legal-framework/codes-and policies/PostcommandPostwatch.pdf 21 www.postwatch.org.uk/pdf/policydocs/08.06Corporate_plan_revised_draft.pdf 22 Postwatch, Corporate Plan 2006-9, 1 August 2006
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The chairman of each regional committee sits on the National Council and feeds back information about people’s concerns and aims for postal services in their area. The current membership of the National Council is:23
Name Howard Webber Millie Banerjee CBE Title Chief Executive Chair
Council members and regional committee chairmen Professor Alan Alexander Christina Baron Dr David Bland OBE Roger Darlington Judith Donovan CBE Dr Maureen Edmondson Najma Hafeez Eifion Pritchard QPM Dr Charles Winstanley Sheila Button Helen Charlton Professor David Croisdale - Appleby Elizabeth Hodder Nigel Walmsley Chairman Scotland Chairman South & West Chairman SE England Chairman Greater London Chairman North of England Chairman Northern Ireland Chairman Midlands Chairman Wales Chairman East of England Council Member Council Member Council Member Council Member Council Member
At a national level, Postwatch meets regularly with other consumer bodies through its Counters Advisory Group to “ensure we know what customers' representatives are saying”.24 It also conducts research to find out what its customers think about specific issues. It has regular contact with competitors to the Royal Mail Group through meetings of its Trade Association Forum and Mailers Consultative Group, where it listens to their perspective of the postal market. This then enables Postwatch to put forward the views of the business community to Royal Mail Group, Postcomm and local and national government. 6. Public Accounts Committee Report
A Public Accounts Committee’s (PAC) report on Energywatch and Postwatch, published on 7 November 2005, concluded (pp4-5) that the role of Postwatch (and energywatch) was not well understood, that Postwatch did not need its headquarters in London, and that Postwatch and energywatch could share some support services to reduce costs:25
The Committee also reported recently on Energywatch and Postwatch, which we described as "feeble". We suggested that those bodies could reduce costs by re-
Postwatch web site: www.postwatch.org.uk/about/council.asp Postwatch web site: www.postwatch.org.uk/about/whatwedo.asp 25 HC Deb 26 January 2006 c1591
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examining their regional structures and sharing administrative functions. In response, Postwatch centralised its complaint handling function in Belfast, and Energywatch, with the support of Postwatch, set up a consumer action network to find ways to achieve better joint working.
The report noted that Postwatch’s costs were higher than those of the postal services regulator, Postcomm, and that the satisfaction ratings for its resolution of complaints had been falling.26 The PAC report followed an NAO report from October 2004. This argued that although Postwatch had successfully been established and had developed efficient systems to handle customer complaints and address the major consumer problems in the sector, there was scope to increase and demonstrate more clearly those benefits, and reduce costs.27 The Treasury Minute, including the Postwatch response to the PAC report, was published in February 2006. Postwatch highlighted the use of its regional network to keep in touch with customer needs. It disagreed that it did not need its headquarters in London.28 It argued that there were significant benefits in certain staff being located close to DTI, Royal Mail’s Headquarters, Postcomm, various TV and radio studios, the NAO, the National Consumer Council, increasingly other consumer bodies and Parliament.
Consumer Council for Water (CCWater)
[Edward White, Science and Environment Section] 1. Introduction
The Consumer Council for Water (CCWater) was set up on 1 October 2005 to represent customers of water and sewerage companies in England and Wales. It replaced Water Voice which was established through a responsibility of OFWAT, the water industry regulator, set out in the Water Industry Act 1991. The Water Industry Act 1991 provided for the establishment of Customer Service Committees (CSC) to represent the interests of customers and to investigate complaints about water and sewerage companies. In April 2002 the CSCs and the non-statutory OFWAT National Customer Council (ONCC) comprising the Chairmen of the ten CSCs adopted, with the support of Ministers and the Director General of OFWAT, the new public name of Water Voice. Following this, the Water Act 2003 provided for the establishment of an independent corporate body, responsible for the representation of the interests of water consumers, with the support of regional committees. This body to replace Water Voice was established as a non-departmental public body, accountable to Parliament through the
26 27 28
Public Accounts Committee, Energywatch and Postwatch, 14 Report, HC 654 Session 2005-06 NAO, Energywatch and Postwatch: Helping and Protecting Consumers, HC 1076 Session 2003-04 Cm 6743
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Secretary of State for Environment, Food and Rural Affairs. CCWater was subsequently established independently of OFWAT. The Secretary of State is responsible for appointing the Chairman and regional Chairmen, where necessary in consultation with the Welsh Assembly Government. The primary function of CCWater is to provide information and advice on matters affecting consumers, and to obtain the views of public authorities and consumers on issues affecting consumers’ interests. The Act also requires the establishment of a minimum of two regional committees, one in England and one in Wales. The primary purpose of the regional committees is to provide advice and information to CCWater on consumer matters affecting their areas. 2. The role of the Consumer Council for Water
The Water Act 2003 confers a range of powers and duties on CCWater, including: • • • • • • A duty to take account of the interests of certain vulnerable groups (for example, people on low incomes and people living in rural areas); A duty to contribute to the achievement of sustainable development; A duty to collate and publish complaints data, including data held by companies and other public bodies; Powers to demand information relevant to consumers’ interests from OFWAT and water companies; Powers to conduct general investigations into matters of interest to water consumers; and A range of other powers and duties to enable it to fulfil its consumer advocacy role.
These powers were described in a speech by the then Minister, Elliot Morley, at the launch of CCWater:
New powers that have been given to CCWater will also ensure that the consumer interest is put firmly at the centre of water regulation at a national level where it quite rightly belongs. An example of this is the power that they will have to investigate any matter of interest to consumers, that will enable CCWater to set the agenda on behalf of consumers rather than merely follow the varying agendas of regulators and companies. This power is underlined by CCWater’s status as a super-complainant under the Enterprise Act 2002. What that means is the Office of Fair Trading or Ofwat will be under an obligation to investigate areas where CCWater feels consumers are being seriously let down by the market. That is an incredibly powerful tool. As I mentioned, the market is currently made up of regional monopolies. However, we are just 2 days away from the beginning of a ground breaking regime that will open up competition in water supply to business customers that consume more than 50 megalitres of water a year.
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CCWater has a statutory role in looking after consumer interests as the market develops and will no doubt earnestly pursue its additional duty of having special regard for consumers that will not be able to switch suppliers under the new competition arrangements. Of course, CCWater also has a duty to have special regard for other vulnerable consumers (I mean those on low incomes, pensioners, the disabled and chronically sick, as well as those living in rural areas). Already CCWater is acting on a review that provided a number of recommendations on helping to improve access to specialist services for older people, consumers with disabilities and others requiring extra help. I very much support CCWater in this work and hope that a greater number of vulnerable consumers will eventually be able to easily access the help they need as a result. CCWater is the first consumer body to have a statutory duty to make a contribution towards the achievement of sustainable development. I very much welcome that and I think that is a very important step forward. And I note that sustainable development is very much a central theme of the CCWater Forward Work Programme that is being published today.29
Information on the work of CCWater is available on the organisation’s website and in its first annual review, which is available online: http://www.ccwater.org.uk/server.php?show=nav.41 Facts and figures about CCWater: • • • • Received 26,980 contacts from customers. 11% increase in the number of complaints compared with the previous year under watchdog WaterVoice. The service will cost each bill payer just 23p for 2006-2007. Out of the 6,274 complaints received, 66% were satisfied with our speed of service, 52% were satisfied with the quality of service and 46% were happy with the outcome of their complaint. Gained substantial publicity for consumers with 200 mentions in newspapers, on the radio and on TV in July 2006 alone.30
Since its inception in October 2005, the watchdog has obtained about £600,000 in compensation and rebates for consumers. This follows more than 6,300 complaints received by CCWater between October 2005 and April 2006.
Elliot Morley MP’s speech at public launch of the Consumer Council for Water, at the Institute of Civil Engineers, London , 29 November 2005: http://www.defra.gov.uk/corporate/ministers/speeches/em051129.htm http://www.ccwater.org.uk/server.php?show=nav.41
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The House of Lords Science and Technology Committee conducted an enquiry into Water Management in 2005-6. The Committee’s report, published in June 2006, commented favourably on the competence of CCWater:
3.9. The evidence presented to us by CCWater increases our confidence that the body will carry out its duties effectively. Its written evidence was some of the most coherent and well-argued that we received, and we draw particular attention to their supplementary written evidence on water affordability. However, if CCWater's performance is to live up to these expectations it must make every effort to engage fully and genuinely with as many consumers as possible. 3.10. No matter how successful CCWater proves to be, however, it is still the case that consumers of water and those interested in the water environment in England and Wales have little direct contact with the water service provider—nor do they have any influence on the companies' modi operandi or the standards with which the companies must comply. This lack of direct contact risks impairing attempts to engage effectively with the public and influence their behaviour, and contrasts with the strong public involvement in water services in countries such as France and the United States of America. For example, in parts of California, citizens committees are involved in developing the water charge structures, leading to a wider understanding of the true cost of water and increased attention to fairness and equity. 3.11. We are optimistic that the independent Consumer Council for Water will be an effective representative of water consumers, but at the same time the Government should examine ways in which there might be more direct consumer involvement in the development of water policy.31
Response to consultation on consumer representation and redress (Consumer Voice)
In the consultation document Strengthen and streamline consumer advocacy: Consultation on consumer representation and redress the Government proposed to undertake a further public consultation in 2008, to assess the views of water stakeholders. It indicated that it would then consider whether CCWater should be dissolved and included in the new Consumer Voice Body. CCWater’s Response to the consultation is available in full online.32 Within this, CCWater argues that a single body, with responsibility for consumer protection across a number of services, would be detrimental to the consumer. In particular, it argues, this is because the regional focus, which is maintained by CCWater, would be lost in setting up a national organisation. CCWater believe that regional circumstances are of importance because they directly impact on the provision of water or sewerage services and can impact on advocacy and policy decisions. Furthermore, CCWater argued that, given that water consumers have contributed over £1m in set-up costs for CCWater as a consumer
Science and Technology Committee, Water Management, 6 June 2006, HL 191-I: http://pubs1.tso.parliament.uk/pa/ld200506/ldselect/ldsctech/191/19102.htm http://www.ccwater.org.uk/upload/pdf/ccwater_dti_response_apr06.pdf
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body separate from the regulator, it would be inappropriate to advocate further change so soon. Issues were also raised which suggest that a consultation in 2008 may be ill timed. Most importantly these are: • The 2009 periodic price review: Ofwat, the water industry regulator, fixes price limits for water companies charging schemes every five years. 2008 will be a year of intense activity for the Consumer Council for Water as these price limits are drafted; and The Water Framework Directive: Draft River Basin Management Plans are to be published and consulted upon in December 2008. CCWater aims to work as codeliverers of these strategies through the regional committees in 2008 The state of the water industry
There are a number of challenges which face the water industry in England and Wales. The management of water companies and their management of water supplies is coming under increasing scrutiny while water and sewerage bills continue to rise faster than inflation. Average bills in England and Wales rose by 11.8% in 2005. For 2006, the average increase is 5.5%.33 A number of other major problems were highlighted by the House of Lords Select Committee report on Water Management, which was published at the height of a drought in the South East of England in June 2006.34 The Committee placed at the heart of these problems the Government’s failure to ensure properly integrated water management at a regional level, with greater consumer and environmental representation, so that the best balance of measures for each part of the country could be worked out. The Committee also called for powers to make it easier for water companies to achieve universal water metering of their customers, whilst providing additional help through the benefits system for those customers who struggle to pay their bills. The issue of water metering is now being taken forward and the Government is currently consulting on compulsory metering in areas of serious water stress.35 However, with the impacts of climate change becoming more apparent and a growing demand for new housing, particularly in the South East, it is likely that further stresses will be placed on both water companies, who will have to manage their supplies and energy needs more efficiently, and consumers who are likely to be charged at growing rates to enable the companies to do this. The implications of climate change on water supplies are considered in the Environmental Audit Committee’s report Climate Change, Water Security and Flooding and in chapter 5 of the Science and Technology Committee’s Water Management Report.36 37
34 35 36
Consumer Council for Water, Review, 2006: http://www.ccwater.org.uk/upload/pdf/CCWater_Annual_Review_2006.pdf See Library Standard Note: Water Shortage in the South East SN/SC/4044 http://www.defra.gov.uk/corporate/consult/water-metering/index.htm Environmental Audit Committee, Climate Change, Water, Security and Flooding, September 2004, HC 558:
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Background to the Consumer Voice proposals
Consultation on the document Strengthen and streamline consumer advocacy: Consultation on consumer representation and redress [DTI, January 2006, URN 06/682] closed on 19 April 2006.38 Responses to the consultation and the Government’s subsequent response can be found in: Strengthen and streamline consumer advocacy: Consultation on consumer representation and redress. Summary of responses and Government response [DTI October 2006, URN 06/1630].39 It was initially anticipated that Consumer Voice would incorporate energywatch, Postwatch, the Financial Services Consumer Panel40 and the Ofcom Consumer Panel.41 It was also proposed that, although responsibility for dealing with general enquiries about postal matters would transfer to Consumer Direct (a telephone and internet advice service funded by the Department for Trade and Industry), complaints would be dealt with by separate Alternative Dispute Resolution (ombudsmen) bodies. As mentioned above, the Government has now indicated that the Financial Services Consumer Panel and the Office of Communications (OFCOM) Consumer Panel would be left unchanged, reflecting their particular ‘regulator facing’ roles. a. Postwatch
Postwatch submitted its finalised response to the proposals in the consultation document and made it clear that certain principles should be met in any new arrangements, including that:
• • it is a critical time for postal consumers and the industry as a whole; there must be no deterioration in the overall standard of consumer representation and advocacy across all the relevant sectors as a result of change;
http://www.parliament.the-stationery-office.com/pa/cm200304/cmselect/cmenvfru/558/558.pdf Science and Technology Committee, Water Management, 6 June 2006, HL 191-I: http://pubs1.tso.parliament.uk/pa/ld200506/ldselect/ldsctech/191/19102.htm The document can be accessed through the DTI Consultation pages at www.dti.gov.uk/files/file29876.pdf. Which can be found at: www.dti.gov.uk/files/file34655.pdf The FSA Consumer Panel says that that it is: “an independent voice for consumers of financial services. We provide advice to the FSA on the interests and concerns of consumers and we assess the FSA's effectiveness in meeting its objectives to protect consumers' interests and promote public understanding of the financial system. As well as being consulted by the FSA on its policy proposals, the Panel also raises its own concerns and initiates its own research.” See: http://www.fs-cp.org.uk/ct_about_panel.html The Ofcom Consumer Panel indicates that: “Ofcom has established a Consumer Panel to advise on the consumer interest in the markets it regulates - a requirement of S.16(2) of the Communications Act 2003. The Panel is independent of Ofcom and operates at full arm's length from it, setting its own agenda and making its views known publicly. The Consumer Panel has a responsibility to understand consumer issues and concerns related to the communications sector (other than those related to content of advertising and programming) and will help inform Ofcom's decision-making by raising specific issues of consumer interest. These will include issues affecting rural and urban consumers, small businesses, older people, people with disabilities and those who are on low incomes or otherwise disadvantaged. To ensure that its recommendations to Ofcom are based on sound evidence, the Panel has an appropriate budget to commission its own research.” See http://www.ofcomconsumerpanel.org.uk/about.htm
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wherever possible, change should demonstrably improve consumer protection in the postal market or any other utility sector; and any proposed savings from reorganisation result in real improvements for the public in value for money terms. 42
Postwatch said that it would work closely with the other consumer bodies concerned to ensure that the above principles were addressed in the DTI's final decisions,43 but argued that the retention of sector-specific consumer bodies was the most effective way of achieving the objective of improved consumer advocacy:
Postwatch welcomes and supports the Government’s desire to make consumer advocacy more effective and efficient. We look forward to working constructively with the Department of Trade and Industry and other stakeholders to achieve this worthwhile objective. […] Customers will not be able to choose to use another postal company to deliver to them and regulation alone cannot be expected to serve consumer interests. In this respect, postal services are fundamentally different from financial services or electronic communications where there is such extensive and effective competition that regulation can be more 'light touch' and consumer representation can be lesser resourced. Likewise, the availability of local access to post office services is an issue that goes beyond being resolved by competition or regulation. 44
Energywatch has made the following comment about the proposals:
Consumer Voice should maintain sufficient expertise to enable it to function as a competent independent advocate in the energy sector.45
Some UNISON members within energywatch added that:
We do not believe these proposals will strengthen consumer advocacy in any way. energywatch has experience in the gas and electricity sector and their knowledge and expertise is vital to resolving complaints, especially for the vulnerable consumer46
The following more general comments have been made by consumer groups on the proposal to abolish energywatch and Postwatch and have a New National Consumer Council assume their functions:
Postwatch, Corporate Plan 2006-9, 1 August 2006 ibid 44 Postwatch, Postwatch Response to DTI Consultation - Strengthen and Streamline Consumer Advocacy, 2 May 2006 45 http://www.dti.gov.uk/files/file34655.pdf 46 ibid
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Citizens Advice Bureaux
“We welcome proposals for the rationalisation of consumer bodies into a new National Consumer Council with a statutory basis. The creation of this body is potentially a huge boost to consumer protection, however at present we feel that the role of the Council is too limited and that its discretionary powers to protect consumers should be imposed as duties.”47
“Which? broadly welcomes the consolidation of a number of bodies representing the consumer interest and wider measures for consumer redress. However we hope the merging of several consumer interest organisations will not see a drop in resources for essential consumer protection.”48
There was also a debate in the House of Commons on 11 May 2006 on “confident consumers” in which the proposals to merge the consumer bodies was presented by Ian McCartney (which is discussed further below).49
The timing of the Consumers, Estate Agents and Redress Bill in relation to the Postal Industry
[Grahame Allen, Economic Policy and Statistics Section] The timing of a Bill to subsume Postwatch into a larger national consumer body has been questioned. The Government is currently consulting on the future of the Post Office Network. The DTI published a consultation document on the future funding, structure and size of the rural and urban deprived post office networks in December 2006: The Post Office Network: A consultation document which can be found at: www.dti.gov.uk/files/file34655.pdf. The consultation period is due to end at 8 March 2007. The Government envisages a planned restructuring of the network and suggests a maximum of 2,500 compensated closures, just under one fifth of the current network. Closures would take place over 18 months from summer 2007, with Post Office Ltd drawing up ‘local area implementation plans’.50 These would then be discussed with subpostmasters, MPs and Postwatch.51 When questioned about the timing of the Bill in a recent evidence session of the Trade and Industry Select Committee, Alistair Darling, Secretary of State for Trade and Industry, told the Committee that he was reflecting on the timing of the Bill:
47 48 49 50 51
http://www.citizensadvice.org.uk/ http://www.which.co.uk/ HC Deb 11 May 2006 cc555-593 HC Deb 8 Jan 2007 c309W ibid
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Rob Marris: […] I understand that Postwatch is due to be merged into some kind of wide consumer body in about mid 2008 which will be when you are still going through or have just gone through the Post Office restructuring and all the sorts of things we have talked about earlier today. Do you think there will be the voice of the consumer or will it get lost because of that merger? Mr Darling: Again, there are two points here. The House of Commons is about to debate the Bill that would achieve this and the House of Commons will express a view as to whether it is a good thing or not. As it is a Government policy ---Rob Marris: It is a Government Bill Mr Darling: It is, therefore it must be a good thing. Amongst other things, we are bringing together Energywatch, Postwatch, National Consumer Council into one single body. Postwatch have said to me, "This is likely to be happening when we are busy giving you advice on post offices." That is something I am reflecting upon. There are downsides to putting it off: costs and uncertainty among staff which they are equally aware of - but obviously that is something I will look at. 52
The Regulatory Impact Assessment on the Bill summarises its purpose as follows:
• strengthen and streamline consumer representation, by bringing together energywatch, Postwatch and the National Consumer Council to form a more coherent and effective consumer advocacy body (which will also be called the ‘National Consumer Council’). The new body will be a more powerful consumer advocate with the critical mass to engage effectively with Government, regulators and industry sectors, and with the benefit of being able to draw on experience and expertise from a number of sectors, as well as providing greater value for money for consumers; enable the Secretary of State to require suppliers in the energy and postal services sectors, (and potentially the water sector after consultation in 2008) to belong to a redress scheme to ensure complaint resolution for consumers and award compensation where warranted; enable regulators in the energy and postal services sectors to make regulations to prescribe complaint handling standards which will be binding on suppliers in those sectors; and extend Consumer Direct to cover enquiries and simple complaints from consumers in the gas, electricity and postal services sectors (and potentially also the water sector after consultation in 2008) to provide a simpler line of communication between a complainant in the regulated sectors and a single consumer advice service.53
Trade and Industry Committee, Uncorrected evidence 24 January 2007, Qq 141-142 Department for Trade and Industry, Consumers, Estate Agents and Redress Bill: Regulatory Impact Assessment, URN 06/2045, pg 8
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The Second Reading Debate in the House of Lords
At Second Reading in the Lords, Lord Truscott introduced the Bill, indicating that the Government believed the current consumer representation regime was too fragmented and highlighting certain cost savings that the proposals should achieve:
Consumer representation in the UK is fragmented. We lack a coherent voice for the consumer to speak with expertise and authority in discussions with companies, with government or in Europe. We need a body that is able to compare different markets and focus on areas of real concern. In addition, any consumer who needs advice or assistance must first work out where to go for help. Promoting the existence of consumer bodies has consistently been a problem, as each of the relevant bodies has sought individually to make consumers aware of its services. A sectoral consumer body cannot necessarily look at all aspects of a company’s service […] Different structures prevent resources or facilities from being shared effectively. To address these issues, we propose to bring together the National Consumer Council, Energywatch and Postwatch to form a stronger, more coherent consumer advocate: the new National Consumer Council. This new body will be independent. It will have the stature to engage effectively with government, regulators and industry. It will be able to look across sectors and give advice on the basis of expert and informed analysis. Responsibility and authority to speak for consumers will rest with a single organisation. That will provide a stronger and more effective voice in the ear of policy-makers in the UK and the European Union. Savings will be achieved by cutting the cost of complaint handling, the consolidation of offices and staff and a reduction in property expenditure. Analysis by KPMG on behalf of the DTI estimates net ongoing savings of about £8.9 million per year, increasing to about £9.5 million per year by around 2015 as redundant property leases come to an end.54
In reply, Baroness Wilcox (Shadow spokesperson for the DTI) expressed a number of concerns:
I declare an interest as the former chair of the National Consumer Council, as the current president of the National Federation of Consumer Groups and the vicepresident of the Trading Standards Institute. I am delighted to open the batting under this brief in a field with which I am familiar […] As we have heard, the Consumers, Estate Agents and Redress Bill exists as a result of a DTI White Paper, A Fair Deal for All—Extending Competitive Markets: Empowered Consumers, Successful Business, the OFT’s two-year report on estate agency, and various DTI consultations. [...] While I am in favour of any plans to improve consumer understanding and create a more transparent system of complaint and redress, I am concerned by the Government’s proposed method of doing it. One needs only to point to Natural England as an example of the creation of a non-departmental public body from
HL Deb, 4 December 2006, c966
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previously independent bodies—it is now over-budget and understaffed—to feel some trepidation at the proposals before us. We are already being lobbied by single-issue and consumer groups which are expressing anxiety about the new body, Consumer Voice. During its 31 years of existence, the NCC has been a low-cost guerrilla force for consumer affairs. It is vital that such a body, funded by and yet independent of government, is not turned into a large, process-led home for government policy. The National Consumer Council has always been consumer driven. It has driven improvements in consumer affairs worldwide. Since its establishment by the noble Baroness, Lady Williams of Crosby, when she was on the Labour Benches in another place, it has provided the benchmark for consumer protection. It has been largely left alone by successive governments of every hue. So I was concerned to read in paragraph 2.108 on page 31 of the regulatory impact assessment that as a result of the merger there is, “a concern that the particular circumstances of individual sectors will be overlooked, particularly where a broadly based body tries to adopt general policies” [...] In its briefing to me, the NCC has been keen to ensure that advocacy, redress and advice should be provided by specialist organisations. Can the Minister, in the light of the regulatory impact assessment’s concerns, assure noble Lords that that vital specialist advice will not be lost? It is vital that this merger is not merely treated as a cost-cutting exercise. I was concerned to read in the regulatory impact assessment that the DTI hopes to make savings on the complaints procedures by cutting complaints.55
The proposals were subject to some other criticism during the debate, for example, Lord De Mauley indicated that:
While the merger is intended in some respects to simplify things for consumers, it creates the potential for some old-fashioned confusion. Why, as my noble friend Lady Byford asked and the noble Lords, Lord Whitty and Lord Razzall, mentioned, should the public assume that post and energy consumer issues are dealt with by one body, but transport, financial services and, for a while anyway, water dealt with by others? Other noble Lords have expressed the anxiety that the new Consumer Voice should not turn out to be a hotchpotch that takes the wide-ranging experience of the NCC, merges it with the relatively new experiences of Engergywatch and Postwatch and, as a result, fails to give consumers the fair deal they deserve.56
HL Deb, 4 December 2006, cc968-970 HL Deb, 4 December 2006, c1009
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The clauses Scope and Powers of the New Consumer Council and the abolition of the current consumer bodies
When the Bill was given its Second Reading in the House of Lords, Lord Truscott acknowledged that the “largest element of the Bill is the ‘consumer voice’ proposals” and that “there has been extensive consultation on consumer voice over the last three years”.57 The rationalisation of the current consumer bodies to create a single statutory body has been welcomed by some observers. As mentioned above, it received approval from Citizens Advice (albeit with the proviso that “discretionary powers to protect consumers should be imposed as duties”), and a slightly more cautious welcome from the consumer group Which? The relevant provisions can be found in clauses 1-41 of the Bill and at Schedules 1-5. This summary section does not provide a comprehensive description of each clause of the Bill and refers to selected clauses only. Readers are referred to the explanatory notes which accompany the Bill.58 Clauses 1-2 (The New “National Consumer Council” and “Territorial Committees”) Clauses 1-2 of the Bill make provision to establish a new National Consumer Council. The Council would be a Non-Departmental Public Body, funded by the Department for Trade and Industry, which would recoup some of the costs through payments made by licensees (gas and electricity providers and postal companies) in the electricity, gas, and postal services sectors. Such costs would be collected from licensees by the sectoral regulators. The Council would have three core functions: • • • A representative function (which would involve representing the views of consumers to Ministers, the European Commission and regulatory bodies); A research function, which would require it to keep under review information about consumer matters and the views of consumers; and An information function, facilitating the dissemination of advice and information to consumers.
These functions are considered in more detail below. b. Territorial Committees
Clause 1(2) would require the Council to establish and maintain a committee in Scotland, to be known as the Scottish Consumer Council; a committee for Wales to be known as the Welsh Consumer Council; and a committee for Northern Ireland, to be
HL Deb, 4 December 2006, c965 Now Explanatory Note to Bill 61 EN 06-07, available at: http://www.publications.parliament.uk/pa/cm200607/cmbills/061/en/index_061.htm and referred to as “the new Explanatory Note
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known as the Northern Ireland Postal Services Committee. These three committees are called "territorial committees". The Explanatory Note to the Bill indicates that:
The Council's functions extend to Northern Ireland only to the extent that it represents the interests of consumers of postal services (see the definition of consumer in Northern Ireland, in clause 3(2)(b)). This is because the existing General Consumer Council for Northern Ireland already has the function of representing the interests of consumers in Northern Ireland in respect of other matters and will continue to perform that function once the Council has been established.59
On 11 January 2007, in answer to a Parliamentary Question from Hywel Francis, about safeguarding the policy development and advocacy functions of the Welsh Consumer Council, Peter Hain indicated that:
The proposals relating to the Welsh and Scottish Consumer Councils are intended to avoid fragmentation in consumer advocacy. However, the Government are aware of concerns that the Welsh and Scottish Consumer Councils should keep functions of policy development and advocacy, rather than depending on the National Consumer Council to delegate to them. The Government are giving this issue further consideration.60
Subsequently, on Report in the Lords (30 January 2007) Lord Truscott moved various amendments to the Bill as it was introduced, saying that:
We have considered carefully the points made in respect of the functions to be accorded to the Scottish Consumer Council, the Welsh Consumer Council and the Northern Ireland Postal Services Committee. The amendments to Clause 1 are designed to provide the territorial committees with the power to exercise the key functions of the council and to enable the committees to exercise these functions within their relevant territories. In defining the functions to be given to the territorial committees under this amendment, I believe that we have gone further than some noble Lords may have envisaged in Committee where there was a focus on the core functions described in the Bill: the representative function, the research function and the information function, as provided in Clauses 7 to 9. This amendment provides these functions to the Scottish Consumer Council and the Welsh Consumer Council, and in addition provides the committees with the powers of investigation set out in Clauses 10 to 15 inclusive, the power to prepare and publish reports in Clause 16, the function of providing advice, information and guidance in Clause 18, the power to co-operate and give assistance in Clause 20, the power to undertake voluntary activities in Clause 21 and the supplementary powers set out in Clause 22. Information gathering powers in Clauses 23 to 26 are also provided to these territorial committees.
Explanatory Note to the Bill, HL Bill 2-EN, hereafter referred to as “the Explanatory Note”. NB These st notes are the earlier explanatory notes which were published with the Bill as it appeared at 1 Reading on 16 November 2006. It is important to note that the clauses have been renumbered since the publication of this earlier note HC Deb, 11 January 2007, c662W
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The powers given to the Northern Ireland Postal Services Committee also extend to the core functions described in the Bill: the representative function, the research function and the information function as provided in Clauses 7 to 9. In addition, the committee is provided with the powers of investigation in Clauses 10 and 11, the function of referring matters to the Postal Services Commission in Clause 14, the function in Clause 15 of making investigations into public post offices, the power to make reports in Clause 16, the provision of advice, information and guidance contained in Clause 18, the power to co-operate and give assistance in Clause 20 and the supplementary powers and information functions described in Clauses 22 to 25. The committee will also be able to exercise the functions of the council under Clause 21—voluntary activities—in relation to relevant postal services in Northern Ireland. In addition, the amendments provide for the council to facilitate or improve co-ordination between the council and the Scottish and Welsh Consumer Councils and the Northern Ireland Postal Services Committee by imposing restrictions or conditions on the territorial committees' exercise of functions and giving directions relating to the exercise of any function to the territorial committees. There are very few instances where the functions of the council are not exercisable by the territorial committees and I should like to take this opportunity to explain to your Lordships' House why this should be. First, in Clauses 4 to 6 there is an obligation for the council to provide a statutory forward work programme and annual report. It is anticipated that the territorial committees will have a very important role in the production of both the forward work programme and the annual report, which will incorporate their proposed activities and reported activities as appropriate and as agreed with the council. Consequently the statutory requirement would remain unchanged by the amendment. Secondly, Clause 19 imposes a duty on the council to enter into co-operation agreements with designated bodies, including the Office of Fair Trading, the Financial Services Consumer Panel and the Ofcom Consumer Panel. We do not consider it necessary or desirable to replicate that requirement for each territorial committee because it would be unduly cumbersome to have a multiplicity of cooperation arrangements. Thirdly, there is a function of the council in Clause 26 to provide information where required to do so by an authorised person. I hope noble Lords will agree that it would be onerous for the person making the request to be required to make the request for information to the council and each of its territorial committees. For that reason we have not provided that function to the territorial committees. The amendments include a proposal to divide Clause 1 into two clauses for the sake of clarity, which I hope will find favour with noble Lords. Amendment No. 42 represents a consequential change to Clause 37 reflecting the proposed allocation of functions to the Northern Ireland Postal Services Committee.61
The relevant provisions implementing these amendments can now be found at Clause 2.
HL Deb, 30 January 2007, cc132-133
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Detailed information about the formation, membership and role of the Council can be found at Schedule 1 to the Bill. This provides that the Council is to consist of a Chairman, to be appointed by the Secretary of State, the chairman of each of the territorial committees and other such members as may be appointed by the Secretary of State. The Council Chairman would have to be a non-executive member of the Council. Schedule 1 also indicates that a non-executive member would have to be appointed for a fixed period, not exceeding five years, and could only be re-appointed as a nonexecutive member once, for a further period not exceeding five years. Part 2 to Schedule 1 makes provision for the Council to employ a Chief Executive. While the first appointment would be made by the Secretary of State, subsequent appointments would be made by the Council with the approval of the Secretary of State. Part 3 to Schedule 1 would allow, inter alia, for the creation by the Council (with approval by the Secretary of State) of territorial and regional committees for areas within the UK. In correspondence with Baroness Wilcox (4 January 2007) Lord Truscott provided some further information about the proposed regional presence of the new Council. In particular he indicated that:
The analysis undertaken on behalf of the DTI by KPMG estimated that the measures in the Bill could result in savings to the energy and postal services industry (and ultimately therefore to their consumers) of about £8.9 million per annum. This estimate was based on the assumption that the new Council would have an office in each of England, Scotland, Wales and Northern Ireland. The analysis assumed that the new body would have some regional presence, such as a number of regionally based staff to replicate the current role of Postwatch to monitor Post Office closures and to ensure the same level of service across the UK as Postwatch currently provides. However, the analysis suggested that permanent regional offices would not be required, and that existing regional offices are closed on expiry of their respective leases. Instead, it was assumed that more cost effective ways of working would be followed, such as staff working from home, or temporarily making use of regionally based private or Government buildings as required. While we do not wish to be prescriptive in terms of the regional presence of the new Council, we do expect the Council to use its resources efficiently. Where the new Council determines that a regional committee is required to represent consumers effectively, that is a separate issue from any requirement to open a new regional office. In the latter case, the Council would need to demonstrate that taking out a lease on a permanent regional office was required. [The Bill] provides that the Council must obtain permission from the Secretary of State before establishing any regional offices.62
Letter from Lord Truscott to Baroness Wilcox, entitled “Consumers, Estate Agents and Redress Bill – Day One of Committee”, 4 January 2007
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Consumer Direct is a telephone and online consumer advice service, supported by the Office of Fair Trading. Consumer Direct indicates that currently, it offers the following services: • • • • • • • • • • Help you sort out a problem or disagreement with a trader; Help you complain to a trader; Help you make a complaint about a trader that you believe has done something wrong; Tell you what your rights as a consumer are; Provide pre-shopping advice before you buy goods or services; Provide general advice on how to avoid unscrupulous traders or "cowboys"; Explain consumer-related issues such as warranties, buying on credit, internet shopping, refunds and replacements etc; provide advice on avoiding trading scams and rip-offs (you can also report any scams you have experienced); Direct you to a regulator or other organisation if it is better suited to assist you; and Refer your case to your local Trading Standards Authority or similar agency if they are better suited to assist you.63
Consumer Direct states that it cannot do a number of things including: complaining to a trader on behalf of a member of the public; providing advice on utilities such as gas, water and electricity; and providing legal advice on government issues or help with debt, welfare benefit and financial mis-selling. It provides a Welsh language website and also has Welsh speaking advisors. During the “Confident Consumers” debate, mentioned above, Ian McCartney stated that:
People clearly like Consumer Direct. A recent customer satisfaction survey reported that 87 per cent. of callers were satisfied or very satisfied with the service. Eight out of 10 callers now feel confident about dealing with similar problems should they occur in future. Because of Consumer Direct, an extra 350,000 people will have access to clear practical advice this year. That means total benefits to consumers through advice on sorting out their problems—for example, money saved on repairs and replacements and through refunds—of at least £135 million.64
Part 5 to Schedule 1 This part makes detailed provision about funding and accounts and sets out the arrangements for the payments by licence holders (which amend both the Utilities Act 2000 and the Postal Services Act 2000). In particular, Part 5 to Schedule 1 of the Bill provides a power to require licensees in the electricity and gas (in Great
See http://www.consumerdirect.gov.uk/about.shtml HC Deb, 11 May 2006, c558
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Britain), postal services (in the United Kingdom) and water (England and Wales) sectors to contribute towards the costs of expanding Consumer Direct, to enable it to operate in relation to those sectors (see Part 5, Sched 1, para 29 (e) and (f), para 31). The Explanatory Note to the Bill explains that:
The service will be extended to replace the existing consumer information and advice lines provided by energywatch and Postwatch. It may be extended to replace the existing consumer information and advice lines provided by the Consumer Council for Water. This will give consumers a single, simple, and understandable way to obtain advice on consumer issues.65
Clauses 3 and 4 respectively define the term “consumer”, “consumer matters” and “designated consumers”. At the Report Stage, there was some debate about whether to extend the definition of consumer to cover sole traders and small businesses. Lord De Mauley moved an amendment, indicating that:
Small businesses rely on postal services and, especially, on energy provision. When they are let down by their providers, their whole businesses can be threatened […] I am concerned that if small businesses are not specified as consumers, they will be neglected.66
Lord Truscott replied that:
There will be no inherent constraints on the consumers which the new council may represent. I believe it is essential that the council should have the opportunity to prioritise its work according to consumer detriment, while taking into account the important functions which we have set out in the Bill, for example on vulnerable consumers […] This amendment has provided me with a very good reason to revisit the provisions relating to the definition of “consumer”. I have reaffirmed that the existing definition of consumers in the Bill does include businesses.67
The Explanatory Note to the Bill indicates that the concept of “designated consumers” is designed to reflect the proposal to merge sectoral consumer bodies with a specific remit into the Council and “the desire to maintain a specific focus on these merged sectors”. Accordingly, designated consumers comprise those consumers in specific sectors previously served by a sectoral consumer body. Clause 4(2)(a) would allow the Secretary of State to amend (by order) the list of designated consumers. Clause 5 provides information about how the Council should go about determining its priorities. It would be required to produce a “forward work programme” which would have to contain certain information including:
65 66 67
Explanatory Note to the Bill, HL Bill 2-EN HL Deb, 30 January 2007, c135 HL Deb, 30 January 2007, cc137-138
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A statement of priorities both in relation to designated consumers generally or “any description of designated consumer” or consumers more generally; A general description of the main activities (including any projects) which it intended to undertake during the year (both in relation to designated consumers or more generally); Estimates of overall expenditure which the Council expected to incur during the following year (including estimates of the amount of money expected to be spent on consumers in relation to gas, electricity, postal services or other consumers designated by an order under clause 4(2)(a)).
Clause 5(7) would oblige the Council to send a draft forward work programme (which would also have to specify a period within which representations about the proposals could be made) to the Secretary of State, Scottish and Welsh Ministers, the OFT and any regulatory body which the Council considered might have an interest in the content of the notice. Clause 6 sets out a number of broad requirements which the Council has to comply with when exercising its functions, including: • • A requirement for the Council to have regard to its Forward Work Programme; A requirement to have regard to the needs of consumers who are disabled, chronically sick, of pensionable age, on a low income or residing in rural areas (although this is not to be taken to exclude the interests of other consumers); A need to use its resources in the “most efficient and economic way” and to take account of the existence of any other public bodies with the same or similar functions.
Clause 7 (An Annual Report) Clause 7 would require the Council to produce and publish an annual report on its activities for each financial year. The report would have to include details of the progress of projects described in the forward work programme; any activities undertaken under clause 22 (voluntary activities); and any other matters which the Secretary of State directed the Council to include. The Council would be obliged to send copies of this annual report to the Secretary of State (who would have to lay copies before Parliament) and to the Scottish and Welsh Ministers and arrange for the report to be published. d. The core functions and powers of investigation
Clauses 8-10 set out the core functions of the Council referenced above. Clause 8 (the representative function) explains that the Council would be able to give advice, make proposals and represent the views of consumers to any Minister of the Crown or Government department, Scottish and Welsh Ministers, any regulatory body, the European Commission and “any other person the Council considers might have an interest in the matter in question”. Clause 9 (the research function) simply provides that the Council “may obtain and keep under review” information about consumer matters, the views of consumers on such matters and “information of such other description as may be prescribed by the Secretary of State”. 32
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Clause 10 (the information function) allows for the dissemination to consumers of information and advice about the Council, its function, about consumer matters and such other matters as may be prescribed. The clause would allow the Council to support or facilitate financially or otherwise “the activities of other persons”. The Explanatory Note indicates that, under Clause 20, the Council would also be required to enter into cooperation agreements with other bodies (including the OFT and Consumer Panels established by the Office of Communications (OFCOM) and the Financial Services Authority (FSA)). Clause 11(General Powers of Investigation) Clause 11 makes plain that, whilst the Council is not obliged to act for individual consumers, there are cases in which the Council would be granted general powers of investigation. These include where complaints have been made on or on behalf of consumers, which raised “issues of general relevance”. Clause 11(2) indicates that an issue is one of general relevance if it raises “a novel issue which affects (or might affect) consumers generally, or consumers of a particular description” or any other issue that has or might have “an important effect on consumers generally or consumers of a particular description”. Clauses 12-13 (Advice and Advocacy in Individual Cases) Clause 12 makes provision for the Council to investigate complaints made by “vulnerable consumers”. The Explanatory Note to the Bill defines a vulnerable consumer as an:
[…] individual whom the Council is satisfied it is not reasonable to expect to pursue the complaint on his or her own behalf. This might apply to persons who are unable to pursue a complaint by reason of a mental or physical disability, a lack of basic skills (such as literacy) or due to their personal circumstances (such as a recent bereavement). If the Council thinks it is appropriate in order to help resolve the complaint, it may provide advice to the individual, or may make representations to the relevant supplier.
Clause 13 makes specific provision for the investigation of complaints relating to the disconnection of gas and electricity and provides that where such a complaint is made to the Council it “must investigate the complaint” for the purposes of determining whether it ought to take any further action. Such action could include: • • Providing advice to the complainant; or Making representations on behalf of the complainant to the person against who the complaint is made.
Clause 13(4) provides that the Council could refuse to investigate a complaint in defined circumstances, such as where: • • It appeared to be frivolous or vexatious; It was being dealt with (or could be better dealt with) under an ombudsman scheme, other redress scheme or through legal proceedings;
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There was undue delay in making the complaint; There were other “compelling reasons” why it would be inappropriate to investigate.
The provisions in respect of the Council’s powers to investigate complaints, contained in Clauses 12 and 13 of the Bill have been criticised by Citizens Advice, who have said that:
[…] the obligation on the NCC to act on disconnection of gas or electricity [now Clause 13] should be matched by a similar duty in reference to vulnerable consumers [now Clause 12]. At present, the Bill provides only that the Council may investigate a complaint made by a vulnerable consumer against a supplier.68
In its briefing paper, Citizens Advice gave a number of examples of “serious cases” where it believed that the Council would not have a duty to investigate if the Bill were passed in its current form. These included the following:
A CAB in Norfolk report that their client bought a new property in December 2002. After a couple of months she chose to change energy supplier, and received a letter acknowledging the transfer and welcoming her as a new customer. Since then she has received no bills and made no payments, despite contacting the supplier on numerous occasions to request a bill. She has been promised that the company will look into the matter and get back to her but on each occasion they have failed to do so. Over three years after the initial enquiry she is now selling her house and wants to resolve the matter before moving but the company is still unable to provide a bill or deal with her calls. A Hampshire CAB reported that two energy suppliers had billed their client for the same period. After considerable research the CAB found that the client had been switched between providers on two occasions and had paid bills to two providers but had also received a bill from a third provider for the same period. It took the CAB 18 months and many letters and telephone calls to unpick this situation and sort out the problem because of the difficulty in getting information from the companies involved. While promising the CAB that the matter would be resolved, the company were simultaneously invoicing the client incorrectly and even threatening extra charges and legal proceedings if the account was not settled within seven days.69
Clause 14 would require the Council to refer a complaint raised pursuant to clause 11(1)(a), clause 12 or clause 13 to the Gas and Electricity Market Authority (OFGEM), where it considered that OFGEM’s enforcement powers might be exercisable in relation to that complaint. If a complaint was referred in such circumstances, the Council would not then be required to investigate further until OFGEM had had a reasonable opportunity to exercise its enforcement powers. Clause 14(4) would require the Council to inform a complainant that the complaint related to a matter which could be so referred. Clause 15 provides for an almost identical requirement in relation to complaints which
Citizens Advice, Briefing for Second Reading Debate (4 December 2006) available at: http://www.citizensadvice.org.uk/index/campaigns/social_policy/parliamentary_briefings/pb_consumeran debt/consumers__estate_agents_and_redress_bill 69 ibid
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indicate that a condition of a licence under Part 2 of the Postal Services Act 2000 may have been breached. In such circumstances, the Council would be required to refer the complaint to the Postal Services Commission. Clause 16 enables the Council to investigate any matter relating to the number and location of public post offices in any part of the United Kingdom. This clause is discussed further (below) as Lord Truscott identified it as a safeguard to ensure consumer interests were represented during the post office network restructuring programme. Clauses 17-24 (Other functions of the Council) These clauses provide for certain other functions, including a power for the Council to make reports in relation to matters falling within the scope of its functions. Clause 18 allows the Secretary of State to direct the Council to prepare and publish such reports. Clause 20 states that “it is the duty of the Council” to enter into co-operation agreements with various designated bodies. Clause 20(2) lists the designated bodies as the OFT, the Financial Services Consumer Panel, the OFCOM Consumer Panel and any other person designated by the Secretary of State. The new Explanatory Note indicates that:
These agreements are intended to enable the Council and the designated regulators to work together in exercising their functions in relation to the provision of advice or information to consumers in areas where functions overlap.70
The new Explanatory Note also indicates that in addition to these co-operation arrangements, Clauses 39, 40 and Schedule 1, para 1(4) all make provision for cross appointments between the Council, the OFCOM Consumer Panel and the Financial Services Consumer Panel to ensure that the Panels and Council work closely together. Clause 22 (Voluntary activities) Clause 22 is broadly worded and allows the Council to undertake various activities. It allows the Council to give advice or assistance to others, including “research or other services, as respects any matter in which the Council has skill, experience or expertise.” The new Explanatory Note suggests that the power is “intended to enable the Council to undertake paid work or other work for other persons (for example research projects).” Clause 22(3) indicates that “the Council may spend any sums as it considers reasonable in the exploitation of commercial opportunities arising from the activities it carries on in the exercise of its functions”. No further information is provided in the Explanatory Note as to what commercial opportunities the Government envisages the Council to exploit. In Grand Committee on 18 December 2006, Lord Truscott explained that the clause:
New Explanatory Note, p13
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[…] provides the council with the power to carry out commissioned work in any area where it has skill and expertise. This clause must stand part of the Bill because it enables the council to give advice and assistance to others and be paid for providing that service […] This provision is intended to give the council the power to participate in voluntary activities of its own choosing and to receive remuneration for the services provided.71
The supplementary powers contained in Clause 23 state that the Council may do “anything (other than borrow money) which is calculated to facilitate, or is incidental or conducive to, the exercise of any of its functions.” This clause is subject to the proviso that the Council should not acquire or dispose of land without the approval of the Secretary of State. Clauses 24-29 (Information) Clauses 24 allows the Council to require the OFT, designated regulator, person who supplies goods and services in the course of a business and any other person specified by the Secretary of State in an order to provide information by service of a notice. The information sought has to be information the Council requires for the purposes of exercising its functions and prior to issuing such a notice, Clause 24(5) notes that the Council has to have regard to “the desirability of minimising the costs, or any other detriment, to the person to whom the notice is being given”. In circumstances where a regulated provider fails to comply with a notice, Clause 25 would allow the Council to refer the matter to “a person prescribed by the Secretary of State” or to the relevant sectoral regulator. That person would be referred to as the “designated investigator” and he or she would be required to consider any representations made by the Council and the regulated provider and would then have to determine whether the provider was entitled to refuse. Where the designated investigator determined that the provider was not entitled to refuse then they would have to direct the provider to supply the information. Such a direction would be enforceable by the sectoral regulator. In circumstances where a supplier of goods and services, or person “specified by the Secretary of State” refused to comply with a request for information, Clause 26 provides that the Council would be able to apply to the High Court (or Court of Session in Scotland) for an order requiring the person to comply with the notice. The Bill also makes provision for the Council to provide information to the OFT under Clause 27. Clause 28 would allow the Secretary of State to make regulations exempting certain categories of person from having to comply with a notice. Those regulations could also contain descriptions of persons to whom the Council could not give a notice under clause 24 and descriptions of information which a person could refuse to supply.
HL Deb, 18 December 2006, c189GC
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A further proviso to clauses 24 and 27 is contained in clause 28(2), which provides that no person served a notice could be required to provide information or documents that he “could not be compelled to supply in evidence in civil proceedings before the High Court or Court of Session.” Clauses 30-36 (The Abolition of Postwatch, energywatch and associated directions) At Report stage, Lord Razzall moved an amendment seeking to delay the introduction of any order to abolish the Consumer Council for Postal Services until 2010. He indicated that the reason for this amendment related to the current difficulties faced by both the Post Office network and the Royal Mail, stating that:
This is not a debate about the decline of the Post Office network, but that decline is highly relevant to the amendment […] We wonder what is the point in transferring en bloc the expertise in the Consumer Council for Postal Services to the new consumer council. If the people with the skills necessary to perform the very effective job done by that organisation over the past few years are to be made redundant, there will be a significant loss of effectiveness over the next three years – which in the public’s eye will be an absolutely crucial period for the future of the Post Office network and Royal Mail.72
In response, Lord Truscott indicated that he recognised the concerns that had been raised but argued that:
On timing, I understand the concerns raised by noble Lords that the postal services sector needs a strong advocacy body in order effectively to represent consumer interests in the post office network restructuring programme. In recognition of the importance of this issue to consumers, the new council will, under Clause 15, maintain the current function assigned to Postwatch of investigating any matter relating to the number and location of public post offices […] We believe that delaying the inclusion of Postwatch in the new arrangements for consumer advocacy would merely prolong the period of uncertainty for existing staff and consumers and would increase the likelihood of staff retention problems and departures.73
The amendment was negatived on division (74 to 138). Clauses 30-36 would, broadly speaking, abolish energywatch and Postwatch and allow the Secretary of State to designate the Consumer Council for Water for abolition. They also provide for the transfer of property and allow the Secretary of State to pay sums by way of compensation to those persons who cease to be members of those bodies (in respect of loss of office and diminution in pension rights).
HL Deb, 30 January 2007, c159 HL Deb, 30 January 2007, c164
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Complaint handling and redress schemes
The Explanatory Note to the Bill explains that Part 2 is designed to:
Enable regulators in the gas and electricity sector (in Great Britain), the postal services sector (in the United Kingdom) and the water sector (in England and Wales) to require companies to belong to redress schemes providing resolution and redress for their consumers.74
The note goes on to say that:
Redress schemes already exist in the financial services and telecommunications sectors and the power in the Bill does not relate to those sectors. There is also an existing redress scheme in respect of billing and transfer disputes in the gas and electricity sectors. The Bill gives the energy and postal services regulators (the Gas and Electricity Markets Authority and the Postal Services Commission respectively) new powers to make regulations to prescribe standards for complaints handling by service providers in the gas, electricity and postal services sectors.75
Reaction to proposals in respect of Redress Schemes Citizens Advice
In its briefing for the Second Reading debate in the House of Lords, Citizens Advice made a number of observations on the provisions relating to redress schemes:
The Alternative Dispute Resolution (ADR) proposals set out in the Bill are very welcome. Until now, many utility type problems have been lost in protracted negotiation, while specialist consumer bodies have lacked the teeth to draw things to a close and to get consistent results. Cases in the utilities market, for example, need prompt decisions rather than months of delay […] Citizens Advice warmly welcomes measures in the Bill to require regulated suppliers to belong to a redress scheme and provide appropriate compensation for consumers. Clause 46 [now clause 47] leaves it to the discretion of the Secretary of State as to the kind of consumer complaints that would be included in any redress scheme. The energy industry has, on a voluntary basis, recently created the Energy Supply Ombudsman, but this scheme does not accept complaints relating to sales and marketing activities. Citizens Advice would urge that such redress schemes should not replicate this. Excluding certain types of [complaint] would confuse consumers unnecessarily since many complaints cover a range of issues and it might not be readily apparent which type of complaints could be referred to
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a redress scheme. For example, if a billing problem results from mis-selling, the bill could be dealt with but not the poor marketing practice. In addition, we would strongly urge government to allow only one redress scheme in any one sector. Proliferation of redress schemes does nothing to improve consumer representation or advocacy, and serves only to create confusion. CABx will find it easier to advise people if there is only one scheme per sector. In addition, giving suppliers choice over which redress scheme to belong to may lead to firms choosing the scheme they think will challenge them the least.
The Joint Committee on Human Rights
The provisions to introduce redress schemes were also considered by the Joint Committee on Human Rights in its Second Report Session 2006-7, published on 30 January 2007. The Committee indicated that:
Part 2 of the Bill makes provision for the creation of compulsory consumer redress schemes for gas, electricity, postal services and water industries […] There is very little detail in the Bill on how the proposed redress schemes will operate in practice. The Bill enables the Secretary of State to require “regulated suppliers” in the gas, electricity, postal services and water industries to belong to an “approved redress scheme” […] Any approved redress scheme must provide for consumer complaints to be considered by an “independent person”. Delegated legislation will deal with the types of complaints which will be covered by the scheme; the types of consumers who may bring complaints under the scheme and precisely which […] suppliers might be excluded from the scheme.76
The Committee concluded, inter alia, that:
We considered the compatibility of a redress scheme with the right of access to a court for the determination of rights and obligations in Article 6(1) ECHR in our report on the NHS Redress Bill. We concluded that, as there was nothing in the Bill which prevented an individual pursuing his or her claim in Court – as opposed to pursuing a settlement under the redress scheme – there was no incompatibility with Article 6(1) ECHR. The preservation of the possibility of ordinary civil proceedings was crucial to the scheme’s compatibility with Article 6. There is nothing on the face of the Bill which precludes the bringing of proceedings as an alternative to the pursuit of a complaint through a redress scheme. The Minister has confirmed that a consumer will be free to choose to pursue a judicial remedy. We do not consider that these provisions are likely to interfere with the Convention rights of consumers.77
In Grand Committee, in response to concerns about having several redress schemes operating at the same time, Lord Truscott made reference to precedents in the telecoms
Joint Committee on Human Rights, Second Report of Session 2006-7, HC 263, para 4.5 Joint Committee on Human Rights, Second Report of Session 2006-7, HC 263, para 4.6
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sector, stating that the Department for Culture, Media and Sport and the DTI were responsible for the telecoms and broadcasting regime (where two telecoms redress schemes were operating). He went on to add that:
It is our view that regulators are best placed to decide on the appropriate number of schemes to be approved to operate within each of the sectors. In approving a redress scheme, the provisions place a requirement on the regulator to have regard to the total number of qualifying schemes available to the relevant suppliers. But that does not mean that there has to be a plethora of schemes; there can be just one […] In the event that no scheme is set up by the industry, the clause contains provisions for the Secretary of State to establish one. This is an additional guarantee that in the unlikely event that industry is not able to put a scheme in place, the Secretary of State has the power to establish a suitable one [...] The essence of these reforms stems from our firm belief that empowering and protecting consumers is fundamental to the achievement of a successful, fair and competitive market […] In approving the redress schemes, the relevant regulator will be required to have regard to established good practice such as, for example, the guidance published by the British and Irish Ombudsman Association. Regulatory oversight will help to avoid the undue proliferation of schemes and ensure monitoring of standards of performance for consumers seeking redress. On balance, we feel that a regulator is best placed to ensure that sector-specific issues in the interests of relevant current consumers, or indeed those who may become consumers in the future, are captured and considered as part of the approval process.78
At the Report Stage, an amendment was moved by Baroness Wilcox in respect of Clause 43 (Standards for handling complaints) seeking to ensure that “regulators must make regulations requiring its regulated providers to have in place and operate appropriate and effective internal complaint handling procedures.” Baroness Wilcox argued that energy companies “have in place a hopeless complaints system” stating that:
It is almost impossible for an ordinary consumer to complain about and to fight a wrong meter reading […] My amendment would have been one more way to ensure that these mighty energy companies, which can well afford to do it, established a complaints procedure through which it would be possible for an ordinary customer to take complaints through himself. Instead, we have a Bill that is at the other end of the scale. Redress happens when everything has gone wrong, when one has gone as far as one can go and is right at the end of the line.79
In response, Lord Truscott claimed, amongst other things, that:
The Bill confers on the regulator a power to prescribe complaint-handling standards. We believe that this is sufficient to ensure that complaints are
HL Deb, 9 January 2007, c78GC HL Deb, 6 February 2007, c608
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handled effectively, and it is also in line with the Government’s better regulation principles, as it allows each service provider to meet those standards in the way that each provider determines is most suitable for the company, rather than prescribing the procedures that must be followed. Regulators are established as independent bodies and must be allowed to function accordingly. We must take into account the simple fact that a regulator has a duty to protect consumers in its sector and to take consumers’ interests into account in its decision making. With the introduction of redress provisions, which the industry will have to fund – an important consideration – information about the nature and volume of complaints will be placed in the public domain.80
The amendment was withdrawn.
HL Deb, 6 February 2007, c607
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This paper sets out a relatively brief background to estate agency. Two more detailed Standard Notes setting out the current regulation of estate agents are available on the Library Intranet.81 In particular, the second note sets out details of Lord Dubs’ earlier Private Member’s Bill entitled Estate Agents (Independent Redress Scheme) Bill (HL Bill 30) which was introduced in October 2005. The first note sets out the respective roles of the current Ombudsman for Estate Agents (OEA) and the National Association of Estate Agents (NAEA) although some information about these bodies is provided below. 1. Current Regulation of Estate Agents
As the Explanatory Note to the Bill makes plain, the work of estate agents is primarily governed by three current statutes: the Estate Agents Act 1979 (as amended); the Property Misdescriptions Act 1991; and, Part 5 of the Housing Act 2004. Estate Agents are not currently subject to any positive licensing regime. The Government has acknowledged that “this means that anyone can set up as an estate agent.”82 Section 1 of the Estate Agents Act 1979 provides a definition of "estate agency work" rather than defining an "estate agent". It provides that:
1 Estate agency work (1) This Act applies, subject to subsections (2) to (4) below to things done by any person in the course of a business (including a business in which he is employed) pursuant to instructions received from another person (in this section referred to as “the client”) who wishes to dispose of or acquire an interest in land— (a) for the purpose of, or with a view to, effecting the introduction to the client of a third person who wishes to acquire or, as the case may be, dispose of such an interest; and (b) after such an introduction has been effected in the course of that business, for the purpose of securing the disposal or, as the case may be, the acquisition of that interest; and in this Act the expression “estate agency work” refers to things done as mentioned above to which this Act applies. […] (4) This Act does not apply to the publication of advertisements or the dissemination of information by a person who does no other acts which fall within subsection (1) above.
Estate Agents – current regulation SN/HA/3639 and Estate Agents (Independent Redress Scheme) Bill, SN/HA/03886 http://www.publications.parliament.uk/pa/ld200607/ldbills/002/en/07002x--.htm#index_link_1
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Instead of positively licensing or regulating estate agents, they are instead subject to a regime which the Government describes as “negative licensing”. What this means in reality is that where a complaint is made to the Office of Fair Trading (OFT), pursuant to section 3 of the Estate Agents Act 1979, the OFT has the power to ban an agent if it considers him to be unfit to practise. (These powers also exist where the agent has been convicted of certain criminal offences). The OFT states that there are two main forms of order that it currently uses warning orders and prohibiting orders:
Warning orders The OFT can issue a warning order if you break the law relating to: • • • • • • • • • information on charges; definition of terms; your personal interest in a sale; information to clients about offers; information to clients about services provided to buyers; misleading statements; bias against buyers; interest on clients' money; and If you breach the warning order, this could be proof that you are not considered fit to be an estate agent. You could be banned from further work under a prohibition order.
Prohibition orders These orders can ban someone from all, or some aspect of, estate agency work. A prohibition order can be made if you have: • • • • • • • breached a warning order; been convicted of fraud or other dishonesty, or violence; committed racial or sexual discrimination during your work as an estate agent; been convicted of specified offences; been convicted of certain offences under the Act; breached certain provisions of the Act; and engaged in a practice declared undesirable under the Act.
A prohibition order can be issued whether or not a warning order was made previously. If you don't comply with a prohibition order, you have committed a criminal offence, and you could be fined.
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Appeal against prohibition orders You can appeal to the Secretary of State and then, on points of law only, to the High Court. In Scotland you can appeal to the Court of Session.83
In 2003, Gerry Sutcliffe, answering a written question for the Department for Trade and Industry, explained what happened where someone was made subject to an order:
The banning of an estate agent by the Office of Fair Trading results in a press release that alerts other local estate agents and consumers. Local Trading Standards Officers are advised separately, and the OFT relies on them to notify it if the banned agent continues in business or is involved in the management of an estate agency company. It is a criminal offence for an agent banned by the OFT to continue doing estate agency work. No estate agents banned since 1997 have subsequently been discovered to have continued or recommenced estate agency work or been prosecuted for such practices. The OFT does not publicise the issue of warning letters to estate agents, and does not formally monitor estate agents whose conduct has resulted in a warning letter being sent. However, a copy is sent to the local Trading Standards Department to alert them to the action taken. Formal warning orders are treated as per banning orders.84
Office of Fair Trading Reviews of Estate Agents (1988-2004)
The 1979 Act was subject to a review in December 1988, by the Director General of Fair Trading (DGFT).85 That report considered, inter alia, whether the Secretary of State ought to lay down minimum standards of competence for estate agents. The report concluded against this argument, but indicated that:
In the Office’s view the Act, as amended, together with a number of prosciptions by delegated legislation, could form the statutory core of any Code of Practice. Other matters, including an industry-wide redress scheme, could be negotiated on a voluntary basis with the organisations concerned.86
Follow up reports were issued by the DGFT in September 1989 and March 1990. The second of these, entitled Estate Agency: A report by the Director General of Fair Trading, recommended a voluntary code of practice and suggested that agents should be subjected to an industry wide redress scheme.87 In March 2004, the OFT88 published a report entitled the Estate Agency Market in England and Wales.89 The paper noted that over nine out of ten people buying and selling a home in England and Wales use an estate agent. The OFT’s core finding was that:
83 84 85 86 87 88 89
http://www.oft.gov.uk/Business/Legal/Estate/estate+agents+act+enforcement.htm#warning HC Deb, 11 September 2003, c390W Director General of Fair Trading, Review of the Estate Agents Act 1979, December 1988 ibid, pg 21 Office of Fair Trading, Estate Agency: A report by the Director General of Fair Trading, March 1990 The successor to the DGFT Office of Fair Trading, Estate Agency Market in England and Wales, OFT 693, March 2004, available at: http://www.oft.gov.uk/NR/rdonlyres/C60D0986-86B4-4A32-ACE8-41C48865693E/0/oft693.pdf
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Consumers are not happy with the services they receive from estate agents. The industry itself is taking steps to help deal with these concerns through improved codes of practice […] Such moves should be reinforced by more effective enforcement powers, under the Estate Agents Act, to deal with serious offences. The Act needs to be brought up to date and made more effective. Doing so should help reassure consumers that unacceptable behaviour is dealt with.90
The OFT stated that business methods within the market have changed significantly since the Estate Agents Act was introduced in 1979 – arguing that there was a lack of clarity in the industry as to whether some newer business models (such as internet enterprises) are even considered to be estate agents for the purposes of the Act. a. Types of complaints
In its 2004 report, The Estate Agency Market in England and Wales, the OFT indicated that it had to deal with a wide variety of cases. In particular, it conducted a customer satisfaction survey. It commented that a quarter of consumers said that they had experienced a variety of problems and, in general, had not been able to resolve these to their satisfaction. The OFT observed that:
Some of the problems reported by consumers involved alleged breaches of the Estate Agents Act, and some were due to poor service. In a number of cases problems appear to have arisen due to consumers not fully understanding the role of estate agents or having high expectations that were not met. For the most part, consumers had either not been able to resolve their problems or had been deterred from seeking resolution by their low expectations of success.91
The OFT also reported that in 2002, 58% of cases that were presented to it concerning the services provided by estate agents related to an alleged breach of the Estate Agents Act 1979. It noted that “in comparison to the dissatisfaction levels indicated in our consumer survey, the number of complaints reported to the OFT and others appears low. However the survey also shows that only a small percentage of people who experience a problem actually go on to make a formal complaint”.92 The table below, reproduced from that report, identifies the alleged breaches of the Act reported to the OFT, as a percentage of total complaints to the OFT concerning estate agency.
ibid. In particular, the report went on to identify that following a survey, 21% of sellers and 23% of buyers said that “they had experienced a serious problem with an agent, and were able to identify specific practices to support their view.” ibid, para 5.9 ibid
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Figure 1: Complaints to the OFT concerning estate agency
The Ombudsman for Estate Agents (OEA)
The non-statutory OEA Scheme provides an independent service for dealing with disputes between member estate agencies and consumers who are actual or potential buyers or sellers of residential property in the UK. Although not mandatory, any estate agency in the UK can apply to join the OEA scheme provided they meet certain criteria laid down by the OEA Board. The OEA Code of Practice sets out a framework within which members must operate and sets the standards of service they should provide. The Code is mandatory. The Ombudsman may consider a complaint if the allegation is that the member estate agency has: • infringed a client’s legal rights or not complied with the OEA Code of Practice; • treated the client unfairly; • been guilty of maladministration (including inefficiency or undue delay); in a way that results in you losing money or suffering inconvenience. The Ombudsman will not normally consider a complaint unless the client has tried the estate agency’s internal complaints procedure first. If the member agency does not deal with the complaint within three months of receiving it in writing, then the client may take it
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direct to the Ombudsman. If the Ombudsman finds in favour of the claimant, he can require the member agency to pay compensation up to £25,000.93 Following the publication of the Bill, the OEA indicated that:
Now that Trade and Industry Secretary Alistair Darling has fleshed out the bones of the Government’s proposed legislation for estate agents, it has become clear that the planned measures mostly already exist. Under the Consumers, Estate Agents and Redress Bill announced last Wednesday in the Queen’s Speech, estate agents will be required by law to join a redress scheme that has the power to compensate consumers who are victims of bad practice. However, 60 per cent of estate agents in the UK, and 68 per cent in England and Wales, are already covered by such a scheme, the Ombudsman for Estate Agents, which has the Office of Fair Trading approval for its Code of Conduct that binds member firms to high standards.94
The National Association of Estate Agents (NAEA)
The NAEA is the largest professional estate agency organisation in the UK; it represents nearly 10,000 members. It is a professional body, funded by membership subscriptions, with a self-regulatory role. Its remit is to raise professional standards across all aspects of the property market for the benefit of member agents and clients. The NAEA will consider complaints by private individuals about the professional service of estate agents who are members of the Association. Complaints can relate to any aspect of the buying, selling, letting or renting of the property. NAEA members are expected to abide by the NAEA rules of professional conduct, which are in addition to the client’s legal rights. If it is found that a member has failed to comply with the rules of conduct, they may be fined and/or disqualified from membership of the Association. However, the NAEA has no power to award compensation, although in some cases it may recommend that a member company should reimburse its fees.
The proposals in the Bill relating to estate agents seek to address four main issues, namely to:
(a) require estate agents to belong to a redress scheme for the purposes of all complaints relating to estate agency work carried out in relation to residential property;
Although Which? has argued, in its Briefing on the Consumers, Estate Agents and Redress Bill (February 2007) that although the maximum award is £25,000, in 2005 of 477 cases it tracked, only six awards were over £3,000, whilst 192 were between £100-499. Which also indicates that it “doesn’t think the awards made by the OEA are transparent enough” http://www.oea.co.uk/press/pr211106.htm
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(b) require estate agents to make and keep records, including records of offer letters, for a period of six years; (c) give the Office of Fair Trading (OFT) and Trading Standards Officers (TSOs) additional powers to require access to premises and to demand on-site production of records when they have reasonable grounds to suspect that an agent has not complied with the 1979 Act; and (d) expand the circumstances in which the OFT can consider the fitness of an estate agent to practise and consequently to take regulatory action against them under sections 3 and 4 of the 1979 Act.
Second Reading Debate
The Second Reading debate in the Lords took place on 4 December 2006. An issue, raised by both Lord Caithness and Baroness Hansham, was whether estate agents should be properly qualified.95 In particular, Baroness Hansham indicated that representative bodies, such as the National Association of Estate Agents, supported the idea of compulsory membership of an industry regulatory body and minimum entry requirements. Lord Razzall stated that:
Looking at the proposals being brought forward by the Government, it is clear that only very limited changes are to be made to the existing legislation. In summary, the Bill requires estate agents to belong to a redress scheme for the purposes of all complaints relating to estate agency work involving residential property. The Bill requires estate agents to make and keep records, including offer letters, for a period of six years. It will give the Office of Fair Trading and trading standards officers additional powers when they require access to premises to look at the production of records and so forth, and it expands the circumstances in which the Office of Fair Trading can consider the fitness of an estate agent to practice, and consequently to take regulatory action against him. However, the Bill does not contain any of the following: a requirement for an estate agent to have a qualification, a point touched on by the noble Baroness, a requirement for estate agents to have any experience, a direct requirement for estate agents to follow a code of conduct, although that probably would be included in the rules of a proposed redress scheme, a requirement for estate agents to be members of a professional body; or any protection for customers engaging in rental or property management contracts[…]96
In relation to the issue of letting, Lord Truscott, the Parliamentary Under Secretary of State at the DTI, replied that:
There are four reasons for not including lettings. The Bill amends the Estate Agents Act 1979, hence its provisions do not apply to lettings agents. Tenancy deposit scheme, however, are to be introduced in April 2007 under the Housing Act 2004. The Government support voluntary self-regulation of letting agents. Agents who are members of the Association of Residential Letting Agents, the
HL Deb, 4 December 2006, cc991-2 and 1001-2 HL Deb, 4 December 2006, cc1005-6
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Royal Institution of Chartered Surveyors and other groups have provided financial support to the national approved letting scheme. However, we will continue to monitor the operation of the lettings market.97
Following the Second Reading debate, the NAEA issued a statement saying that:
We are extremely grateful to the noble Lords who yesterday expressed concerns that we have already raised. Whilst we are in support of the Bill as far as it goes, it does not do nearly enough for consumers or the industry in its current form. We support the noble Lords in the desire to see minimum standards put in place, the area of residential lettings recognised for redress and a single redress scheme implemented, which we believe should encompass the existing Ombudsman for Estate Agents scheme.98
The British Property Federation (an organisation representing the commercial property industry) has also suggested that the Government should include within the Bill (or at least set up a taskforce to examine) the regulation of lettings agents. It argued that:
It is surprising that an industry which handles over £12 billion of tenants’ and landlords’ money remains completely unregulated – despite the dishonest practices of lettings agents being exposed in the national media – such as double charging for services and over charging tenants.99
The consumer group Which? has also been critical of the proposals, indicating that:
We […] support the provisions in the bill toughen up the enforcement and inspection powers of Trading Standards and the Office of Fair Trading. However, we still do not think this goes far enough and believe there should be full regulation of the estate agency industry, including proper training for estate agents, to prevent the widespread problems occurring in the first place.100
In a briefing note issued in time for the Second Reading of the Bill, Which? was also critical of the OFT, indicating that it believed that the OFT “has a history of inaction in this area”. In particular, it stated that:
As part of our research […] we came across 29 estate agents contracts that we believed breached the EAA [Estate Agents Act] or the Unfair Contract Terms Regulations. It took the OFT over a year to investigate, despite the fact that it upheld all but one of our complaints. Furthermore, although the OFT received 430 complaints about estate agents between March 2004 and March 2006, it only issued 8 notices of warning under the EAA.101 It has also only issued 18 Notices of Prohibition under the EAA, stating in a letter to Which?: “There are very few criminal offences associated with the EAA. Our preference has been to take
HL Deb, 4 December 2006, c1015 See http://www.naea.co.uk/about/latest_news_details.asp?id=291&PageNo=2 99 British Property Federation, Consumers, Estate Agents and Redress: the case for regulating letting agents 100 See: http://www.which.co.uk/reports_and_campaigns/house_and_home/Campaigns/Estate%20agents/Move% 20it%20campaign/Move_it_campaign_overview_559_53904.jsp 101 Although it did issue 273 warning/advisory letters to estate agents
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‘fitness action’ under the EAA or to seek to change conduct using our powers under […] the Enterprise Act 2002.102
Proposed amendments to the Estate Agents Act 1979
Clause 53 Clause 53 of the Bill provides that Schedule 6 to the Bill should have effect. Schedule 6) provides, inter alia, that:
The Secretary of State may by order require persons who engage in estate agency work in relation to residential property (‘relevant estate agency work’) to be members of an approved redress scheme for dealing with complaints in connection with that work.
Schedule 6 also provides that additional sections 23A, 23B and 23C and additional Schedules 3 and 4 would be inserted into the 1979 Act. Subsection (1) of the new section 23A would give the Secretary of State a power to make an order requiring persons who engage in estate agency work in relation to residential property to join an approved redress scheme. Such an order may apply to all who engage in estate agency work, or only to specified descriptions of them. The order may exclude certain types of estate agency work. Subsection (3) provides for an order to limit the types of complaint that could be made under a redress scheme (including being able to limit the types of people who can make a complaint). The order would be subject to the negative resolution procedure (subsection (5)). The new section 23B would allow an enforcement officer other than the OFT (in practice, the Government have indicated that this would be a Trading Standards Officer) to issue a penalty charge notice if he believes a person engaged in estate agency work in relation to residential property was not a member of an approved redress scheme, contrary to an order made under clause 23A(1). The New Schedule 3 The new Schedule 3 to the 1979 Act would make provision for the approval of redress schemes by the OFT. Paragraphs 2, 4 and 5 to the new Schedule 3 set out minimum requirements for a scheme. In particular, sub-paragraph 3 specifies that the OFT must have regard to whether the scheme will be in the interests both of scheme members and of potential complainants and to whether the scheme follows generally accepted principles of good practice in the provision of redress schemes - this might include, for example, the guidelines provided by the British and Irish Ombudsman Association. The Schedule indicates that a scheme should not be approved unless the OFT considers that it makes satisfactory provision about:
Which?, Briefing on the Consumers, Estate Agents and Redress Bill, February 2007
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a) the complaints which may be made under the scheme (which may include complaints about non-compliance with the provisions of a code of practice or other document); b) the ombudsman’s duties and powers in relation to the investigation and determination of complaints (which may include the power to decide not to investigate or determine a particular complaint); c) the redress which the ombudsman may require members to provide to complainants, which must include: the provision of an apology or explanation; the payment of compensation; and, the taking of other actions in the interests of the complainant that the ombudsman may specify); d) the enforcement of any requirement to provide redress imposed on a member in accordance with the scheme. The new Schedule 4 The new Schedule 4 to the 1979 Act would make provision for the imposition of penalty notices under the new s 23B(1). Initially, the maximum penalty charge was going to be set at £500, but at the third reading debate in the House of Lords, Lord Truscott said that:
The Government have listened carefully to the arguments made in Grand Committee, on Report and today. As I said on Report, the objective is to find a sensible balance between the rights of estate agents not to be given a large fine without any due process and ensuring that the penalty charge is not an insignificant amount. Given the views expressed, we believe that setting the maximum level of the fine at £1,000 is a sensible compromise. Although the actual level will be set by regulations, a maximum of £1,000 will allow some headroom to increase the fine over time, therefore future-proofing the legislation.103
Clause 54 (Duty to keep records) Clause 54 would introduce a new duty for estate agents to keep certain records for a period of six years. The Government has indicated that:
At present, it is an undesirable practice under the 1979 Act for an estate agent to fail to pass on an offer to the seller promptly and in writing (except where the client has indicated that he does not want particular types of offer to be passed on), or to misrepresent an offer (see Articles 1 and 2 and Schedule 3 to the Estate Agents (Undesirable Practices) (No.2) Order 1991). An undesirable practice is one of the triggers for considering a person's fitness to engage in estate agency work under section 3(1) of the 1979 Act and hence can lead to a prohibition order. However estate agents are not currently required to maintain records of offers made and passed on.104
The clause inserts a new section 21A in the 1979 Act. Subsection (1) of the new section would introduce a requirement for persons engaged in estate agency work to keep
HL Deb, 6 February 2007, c615-6 Explanatory Note to the Bill
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records (referred to in the section as "the permanent records"). Subsection (3) would require persons engaged in estate agency work to ensure that records of certain information and events are included in those records. The details of what would have to be included are specified in subsection (4) (examples include information to clients regarding their prospective liabilities to the person carrying on estate agency work, information about offers and other information of a description prescribed by the Secretary of State). As mentioned above, the records would have to be kept for a period of six years. The period of six years is the period for which accounting records under the Estate Agents (Accounts) Regulations 1981 have to be kept and is also the basic limitation period for most contractual legal claims. Clause 55 (Grounds for prohibition orders) This clause would amend section 3(1) of the Estate Agents Act 1979. Section 3(1) of the 1979 Act lists the triggers which allow the OFT to consider the fitness of an estate agent and make a prohibition order (see above). Clause 55(2) would amend the 1979 Act so that the OFT would be able to consider the fitness of an estate agent where he had committed an offence even if he had not been convicted of that offence. The Government provides a number of examples where this may occur - the individual may have accepted a police caution or the OFT may have evidence from Trading Standards Officers or the Financial Services Authority of an offence having been committed, where those authorities did not wish to prosecute for some reason (the FSA may decide to revoke someone's authorisation instead). The Joint Committee on Human Rights considered the provisions of this clause in its Second Report Session 2006-7, published on 30 January 2007, it observed that the proposals in clause 55:
[…] extends the circumstances in which the OFT may consider the fitness of an estate agent. The Bill proposes to amend the Estate Agents Act to permit the OFT to consider the fitness of an estate agent who has “committed an offence”. The Explanatory Notes explain that this amendment would allow the OFT to consider the fitness of an individual who is considered to have “committed” an offence, but has not been convicted.[…] Statements on an individual’s guilt of an offence without due process of law (i.e. a conviction by a criminal court); voicing belief in an individual’s guilt before conviction; or throwing doubt on an acquittal through adverse statements on an individual’s guilt are all likely to breach the presumption of innocence guaranteed by Article 6(2) ECHR. Similarly, findings or judicial declarations in parallel or subsequent proceedings based on assumptions of guilt after acquittal by a criminal court will breach Article 6(2) ECHR. The Explanatory Notes rely on the duty of the OFT, in taking a decision on fitness to practice, to act in compliance with Convention rights (Section 6, HRA 1999) […] the Minister relies on Section 6; on similar precedents in Consumer Credit licensing; the “robust procedures” adopted by the OFT in determining whether the
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evidence in the possession of the OFT is sufficient to establish the “required evidential threshold” We are concerned that the Secretary of State chooses to rely on existing domestic legislative precedents in this context. The Minister notes that: “The OFT will exercise its powers in deciding whether an individual has committed an offence in a similar way that it currently does and has done for many years in relation to the Consumer Credit Act 1974. Section 25(2) of that Act allows that in determining whether an applicant for a standard license is a fit person to engage in credit related activities or hold a license, the OFT may have regard to a number of relevant factors including whether the applicant has committed any offence involving fraud or dishonesty or violence.” The Minister does not however explain why, in his view, this precedent is compatible with the Convention.105
The Committee reached the following conclusions:
Where the Government seeks to rely on legislative precedents to support their conclusion that a Bill is compatible with Convention rights, we ask that the Minister explain the underlying reason the Government believes that the precedent is itself compatible with the United Kingdom’s human rights obligations. We draw this to the attention of both Houses [...] In so far as the decision of the OFT adjudicator is expressly based upon the guilt of a defendant or an accused of an offence where they have not been convicted by a criminal court or voluntarily accepted a police caution, it is our view that there is a significant risk that actions and statements of the OFT, acting on its powers both this Bill and Section 25 of the Consumer Credit Act 1974, will breach Article 6(2) ECHR. We draw this to the attention of both Houses […] We consider that, in order to remove the risk of incompatibility with Article 6(2) ECHR, Clause 54(2) [now Clause 55(2)] should be amended to remove any reference to an individual having “committed” an offence. We consider that the policy objectives behind the proposed change could be achieved without risk of incompatibility if the powers of the OFT were extended to include a power to consider fitness to practice with reference to improper conduct (which might incorporate evidence gathered in the course of an investigation by trading standards officers, or by the Financial Services Authority). We draw this to the attention of both Houses.106
The Bill has not been amended to meet this recommendation. Clause 55(3) of the Bill would further widen the circumstances in which the OFT could consider a person's fitness to engage in estate agency work: to include circumstances where an estate agent has breached a statutory undertaking given to the OFT under section 217, 218 or 219 of the Enterprise Act 2002 or breached an enforcement order made against him under section 217 of that Act in relation to estate agency work.
Joint Committee on Human Rights, Second Report of Session 2006-7, HC 263, paras 4.15-4.19 Joint Committee on Human Rights, Second Report of Session 2006-7, HC 263, paras 4.19-4.21
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Sections 217-219 of the 2002 Act make provision for the OFT to issue enforcement orders. These measures were designed to improve consumer protection by giving enforcement bodies strengthened powers to obtain court orders against businesses that do not comply with their legal obligations to consumers. Clause 55(4) provides that section 5(4) of the 1979 Act would be omitted. Section 5(4) currently provides for the automatic revocation of orders based on a conviction which becomes spent. Its repeal would mean that if an individual who was subject to a prohibition order (on the basis that he had committed an offence) had been convicted of that offence, but the conviction became spent, he would have to apply to the OFT to have the prohibition order revoked. The Explanatory Note to the Bill indicates that:
The OFT would be expected to revoke the order in these circumstances. An individual who is subject to a prohibition order due to having committed an offence but who has not been convicted of an offence will also have to apply to the OFT to revoke the order, after a suitable period of time, should they wish to practise as an estate agent again.
Clause 56 (Grounds for warning orders) Clause 56(1) is designed to amend s 4 of the 1979 Act in relation to “warning orders” (for a description of a warning order, see above). In particular, it would widen the circumstances in which the OFT could consider issuing a warning order to an estate agent under section 4(1) of the 1979 Act. The Explanatory Note states that:
Section 4(1) currently provides that a warning order may be issued where a person carrying on estate agency work has failed to comply with an obligation imposed on him under sections 15 or 18 to 21, or has engaged in an undesirable practice as mentioned in section 3(1)(d), and were he again to fail to comply with such an obligation or continue to engage in that practice the OFT would issue a prohibition order against him.
Clause 56(2) would extend the circumstances in which a warning order could be issued to include: engaging in estate agency work in breach of a duty to belong to a redress scheme, failure to comply with any requirement imposed under sections 9(1) or 11(1A)(b) and breach of a statutory undertaking or an enforcement order under the Enterprise Act 2002. Clause 57 (Powers of entry and inspection) This clause would introduce additional powers of entry and inspection for enforcement officers. It would amend s 11 of the 1979 Act. At present, under section 11 of the 1979 Act, enforcement officers have the power to enter premises when they have reasonable cause to suspect that an offence has been committed. The Government has indicated that:
This clause extends the power so that enforcement officers can enter premises not only when there is reasonable cause to suspect that an offence has been
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committed but also where the enforcement officer has reasonable cause to suspect that a breach of the obligations listed under subsection (1)(b) of section 11 (as amended), or an undesirable practice, has occurred. The power is to be used to establish that the specified breach or undesirable practice has occurred.107
The Government has stated that the amendments to s 11 would introduce additional powers so that enforcement officers would be able to seize and detain the originals of any books or documents (provided they may be required as evidence for use in proceedings that might follow) and seize and detain a book or document where it is not possible to take a copy of it or of an entry in it. The clause would also widen powers for enforcement officers to gain a warrant to include circumstances where there is reason to believe that an estate agent has breached any of the obligations under the Act specified in subsection (4A)(a), or has engaged in an undesirable practice. At least one of the conditions in subsection (4B) would have to be satisfied for a warrant to be granted. Clause 58 (Failure to provide information) Clause 58 would introduce a new s 11A into the 1979 Act. The section is designed to take effect where an application to the courts has been made by a duly authorised officer of an enforcement authority and it appeared to the court that a person (“the defaulter”) had failed to do something that he was required to do under s 9(1) or 11(1A)(b) of the Act. In effect, the Government has said that this would be in circumstances where “a person has failed to provide to the OFT (under section 9 (1) of the 1979 Act) or to an enforcement officer (under section 11(1A)(b) information, books or documents that have been required to be produced.”108 The provision would allow the courts make an order to require the "defaulter" to produce the information, books or documents asked for, or to take such other steps as may be specified in the order, within a fixed period to be defined in the order. 3. Regulatory Impact
The Government has indicated that it believes that redress scheme membership costs for estate agents would be broadly similar to existing voluntary schemes (an average cost of £130 per annum) resulting in additional costs to those estate agents currently outside the scheme of around £600,000 per annum. The Government has also stated that it considers that the changes proposed in terms of the duty to make and keep records would be “minimal”.
Explanatory Note to the Bill Explanatory Note to the Bill
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Contracts concluded away from business premises
The Consumer Protection (Cancellation of Contracts Concluded Away from Business Premises) Regulations 1987 (as amended) currently provide consumers with a sevenday cooling off period when they agree to buy goods or services worth more than £35 from a trader during an unsolicited visit to their home.109 The Government is proposing to extend this protection to solicited visits, via the Consumers, Estate Agents and Redress Bill, and also to require notice of cancellation to be provided within contracts. In September 2002, the National Association of Citizens’ Advice Bureaux (NACAB, now Citizens Advice) published a report, “Door to door” which looked at a wide range of goods and services sold at the door and problems reported to Citizens’ Advice Bureaux (CAB). They saw the main problems in doorstep selling transactions as being: • • • • • lack of awareness about consumer rights; consumers being misled and subjected to high pressure sales techniques; cancellation rights and cooling off periods being limited to certain types of doorstep sales which can confuse consumers; cancellation rights being ignored by salespersons; and the goods sold to consumers being unsuitable for their needs or do not meet their requirements.
The report was submitted to the Office of Fair Trading (OFT) as a super-complaint within the terms of the Enterprise Act 2002 and the OFT confirmed in November 2002 that they would investigate the doorstep selling market. The OFT published its doorstep selling market study report on 12 May 2004. In that report, the OFT recommended consideration of and consultation on measures to improve protection for consumers purchasing goods or services at the door. The OFT study examined the practice of transactions concluded via doorstep selling and their analysis led them to make recommendations to better protect consumers in this area. Doorstep sales were conservatively estimated by OFT to amount to some £2.4 billion every year in the UK. Of this double-glazing doorstep sales were estimated at £1.6 billion, conservatories at £250 million and mobility products (stairlifts, wheelchairs, powered scooters) at £80 million. During the consultation period representations suggested that replacement windows and doors alone could amount to around £2.5 billion, with conservatory sales amounting to a further £800 million. Kitchens, driveways and insulation are other products typically sold in the home. The vast majority of sales (at least by value) therefore relate to home improvements or property services.110
For further information, see the Library Standard Note SN/HA/3302 Doorstep selling regulation and no cold calling zones See also http://www.dti.gov.uk/files/file35347.pdf
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Following the publication of the OFT report, the Government publicly consulted (from July to November 2004) on the measures recommended by the OFT to better protect consumers from salespersons in the home. It published a statistical summary of the responses in October 2005.111 Subsequently, in November 2005, the DTI held a “stakeholder event” where it sought comments on the implications of both the EC Directive on Unfair Commercial Practices (agreed in May 2005)112 and the Consumer Strategy (published in June 2005). In September 2006, the DTI announced the Government's response to the public consultation on doorstep selling and cold calling along with the updated Regulatory Impact Assessment. The response took into account both the Unfair Commercial Practices Directive and the Consumer Strategy. The response said that the DTI would: (a) extend, to solicited visits, the cancellation rights and cooling-off period that consumers currently enjoy for unsolicited visits; (b) require cancellation notices to be provided within contracts; and (c) encourage greater transparency on prices and greater willingness to provide written quotes. The first measure required primary legislation and was therefore included in this Bill. The DTI has indicated that it intends to consult on the draft statutory instruments which would implement options (a) and (b) in 2007, with a view to implementing the revised Regulations in 2008. The DTI has stated that the third measure (c) is being taken forward through industry self-regulation, by encouraging traders to operate under Codes of Practice that have been approved under the Office of Fair Trading's Consumer Codes Approval Scheme113, or for the building and construction trades through participation in TrustMark.114 These proposals have been welcomed by Citizens Advice, who have commented that:
Citizens Advice is very pleased to see the provisions detailed in clause 58 [now clause 59], which allow the Secretary of State to make regulations that will improve consumer protection where contracts are concluded away from business
Available at: http://www.dti.gov.uk/files/file25481.pdf The DTI, in its regulatory impact assessment, has indicated that: “Both the OFT study and our consultation paper recognised the potential significance of the Unfair Commercial Practices Directive (UCPD), which had yet to be agreed. The Directive was adopted in May 2005 and must be applied in the UK by the end of 2007. The UCPD prohibits unfair commercial practices that harm consumers’ economic interests. It introduces a general prohibition on all unfair commercial practices known as a ‘general duty not to trade unfairly’. The Directive’s general duty is supplemented by additional provisions that prohibit practices that mislead (by action or omission) or are aggressive (by harassment, coercion or undue influence). This means that the Directive will address high-pressure sales and misleading information techniques used by rogue traders in the doorstep selling and cold calling sector. Background on the Unfair Commercial Practices Directive can be found at: www.dti.gov.uk/consumers/buyingselling/Unfair-Commercial-Practices/index.html” See www.oft.gov.uk/Codes See www.trustmark.org.uk
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premises. Consumers need these changes to doorstep selling law, providing comprehensive cancellation rights, to be put in place at the earliest opportunity. The enhancement of doorstep selling legislation will mean that consumers will have cancellation rights in all cases where goods and services are sold as a result of a visit to their home or workplace. At present unsolicited doorstep sales attract a seven-day cancellation right. But where the consumer has solicited the visit, perhaps by responding to an advertisement, prior to the visit the cancellation rights are not a requirement. The change proposed in the Bill reflects the evidence of CABx that all the same pressures to buy and lack of opportunity to shop around are happening whether the doorstep sale was solicited by the consumer or not. In September 2002 we published a report, Door to Door, as part of our role as the UK European Consumer Centre and asked the OFT to investigate this market as a Supercomplaint under their Enterprise Act powers. In addition, Age Concern published a report in 2002, Sharp Selling Practices’, revealing consumer experience of disability aids sold in the home. The OFT undertook detailed research and produced a report in May 2004. All these reports recommended that cancellation rights be extended to solicited sales. When the DTI consulted on changing the law only seven respondents said; ‘no’ to extending cancellation rights to all doorstep sales; 343 said: ‘Yes.’ Including 80% of business respondents.115
The Regulatory Impact Assessment
The DTI’s regulatory impact assessment acknowledged that there would be a number of costs if the proposals were implemented:
There is evidence that some customers currently try unsuccessfully to cancel their contracts, with the distinction between solicited and unsolicited visits being unclear. An increase in cancellations after doorstep sales would be expected. Assessing the impact on the businesses engaging in doorstep selling is difficult because there is no reliable data available on how many companies engage in doorstep selling. Also, there is no accurate, consistent data collected which shows the number of complaints in relation to ‘doorstep selling’ or the ‘1987 Regulations’. Different terms may be used by different enforcement agencies to describe the actions of rogue or bogus doorstep traders such as ‘doorstep complaints’, ‘home complaints’, ‘illigitimate traders, ‘misleading selling’ and so on. The costs involved in adopting this measure are: • Re-printing contracts to include cancellation notices; • Informing/training salespeople of the cooling-off period; and • Potential additional cancellations116
The DTI indicated that:
http://www.citizensadvice.org.uk/index/campaigns/social_policy/parliamentary_briefings/pb_consumerand ebt/consumers__estate_agents_and_redress_bill 116 Department for Trade and Industry, Consumers, Estate Agents and Redress Bill: Regulatory Impact Assessment, URN 06/2045
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Doorstep salespeople will need to be informed about the changes to procedures, but as the procedure will not be new to them, this will again be negligible. The major impact on firms of introducing a cooling-off period for solicited sales visits would be in time spent on sales subsequently cancelled, for example the salesperson’s time, administration time, potential work undertaken by designers/technicians – time that the business could have spent on pursuing other sales leads. Time spent by salespeople in people’s homes can result in a sale, no sale at all or a sale that is later cancelled within 7 days. Success rates vary across different types of doorstep selling. The OFT report found that cold calling yields roughly 1 in 10-12 sales, whilst professional salespersons with a pre-arranged appointment might achieve 1 in 2-3. Extending cancellation rights therefore might have the effect of slightly reducing the success rate of doorstep sales. As a result, additional sales and administration time may be spent on achieving the same number of sales.
The relevant provisions in the Bill can be found at Part 4. The words “consumer” and “trader” in relation to the clauses listed below fall to be defined as they are in Council Directive 85/577/EEC (to protect the consumer in respect of contracts negotiated away from business premises). Clause 59 makes specific reference to contracts concluded away from business premises and gives the Secretary of State the power to make regulations “entitling a consumer who is a party to a protected contract to cancel the contract” provided certain conditions are fulfilled. Clause 59(2) indicates that for the purpose of these regulations, a protected contract would be one between a consumer and a trader made:
(a) during a solicited visit by a trader to the consumer’s home or place of work, or to the home of another individual, or (b) after an offer made by a consumer during such a visit.
Clause 59(3) explains that a visit would be taken to be solicited if it were made at the “express request” of a consumer, while Clause 59(5) sets out a number of issues the regulations will make provision for, including: (i) The circumstances in which a consumer may cancel a contract and the effect of such cancellation; (ii) A requirement for a trader to inform a consumer of his rights to cancel and the effect of such cancellation; and, (iii) provisions for the enforcement of any requirement imposed upon a trader in relation to the abovementioned requirements.