§ 2 pm
§ Mr. Mark Lazarowicz (Edinburgh, North and Leith)
I am delighted to have secured this Adjournment debate—it seems to be somewhat amplified—on consumer rights in the European Union. I sought a debate because European institutions and member states are currently discussing several major consumer rights issues. Their decisions will have significant implications for consumers throughout the EU, including in the United Kingdom, and it is vital that the right decisions are taken.
§ Mr. Andrew Robathan (Blaby)
On a point of order, Mr. Cook. Something strange is happening with the microphones. There is quite a lot of feedback, and I would suggest that it is too loud for anyone.
§ Mr. Frank Cook (in the Chair)
It may make things easier if the control room turned off the two additional live microphones—the Opposition spokesman's and mine.
§ Mr. Lazarowicz
Thank you, Mr. Cook. I am not sure whether that has improved matters. Do you wish me to continue?
§ Mr. Lazarowicz
It is vital that the right decisions are taken as a result of the ongoing discussions in the EU and member states. I shall highlight the most important aspects of those discussions, and suggest some of the measures that need to be implemented in the EU. I hope that our Government will support such measures in the European institutions, and that the Under-Secretary of State for Trade and Industry, the hon. Member for Welwyn Hatfield (Miss Johnson), can give some indication of the line that the Government are taking and of how matters stand in the European debate.
In drafting my comments, I have drawn on the ideas of several consumer organisations, arid I thank those that have provided me and other hon. Members with useful briefing material. In particular, I thank Citizens Advice and the Consumers Association.
This debate is important because the EU is developing significant consumer protection proposals. It is worth remembering that it has been the major shaper of much of our recent consumer protection legislation. Until the Enterprise Act 2002 was enacted a few weeks ago, most of our homegrown consumer rights legislation derived from the 1970s. Otherwise, most of the initiatives that have resulted in new rights for UK consumers have come from the EU. Those include protection against unfair terms in consumer contracts, and rights for those who purchase package holidays, timeshares and items at home, over the telephone and on the internet. It might even be said that those new rights are some of the most obvious and direct benefits that individuals in this country enjoy as a result of our EU membership. Most recently, the stop now regulations, which had previously 98WH been brought into play, were incorporated into the Enterprise Act. They originated in EU legislation, and I pay tribute to the Government and to the Minister for setting such great store by those stop now regulations, which will be an important weapon for the consumer in the fight against unfair trading practices.
One of the important debates taking place in the European Union is whether the various measures to protect consumers' interests should be complemented by placing businesses under a general duty to trade fairly with consumers. I am sure that hon. Members are aware that the European Union is consulting on such proposals. The introduction of such a general duty is supported by a wide range of consumer organisations, and I urge the Government to support such a general duty through European regulations.
Citizens Advice, in arguing for such a duty, has told me that its bureaux regularly report inquiries about shoddy and overpriced goods, delivery of substandard services, the use of misleading information, oppressive behaviour and high-pressure selling methods. Many of those complaints clearly involve unfair trading practices, but they cannot readily be addressed under present consumer protection legislation.
I was particularly struck by one example publicised by Citizens Advice in its recent report on doorstep selling. It gave the example of a single parent who was receiving working families tax credit and who was persuaded to sign a £6,000 contract to purchase solar panels. The salesperson had been in her home for five hours, the woman had not eaten and her child was desperate to go to bed, and she signed a contract for solar panels. She had responded to a sales leaflet that had come through her door, and because of that she was held to have solicited the visit from the salesperson. As a result, she had no cancellation rights under the regulations governing doorstep selling. When she tried to cancel the contract the company threatened her with breach of contract.
Such problems occur because under the implementation in the United Kingdom of European regulations on doorstep selling a consumer who signs a contract agreed to during a solicited visit to their home has no right to cancel that contract. A general duty against unfair trading would provide that such a practice could be challenged and that contracts entered into as a result of such unfair practice could be set aside. It has also been suggested that a fair trading duty could be a very powerful weapon in dealing with the many scandals of fuel mis-selling that have been the subject of many debates in the House.
The argument for such a general duty to trade fairly is that it would fill a gap in consumer law between specific rights and business practices that are unfair and are to the detriment of consumers but which may not easily be defined as unlawful practices. This gap exists, as legislation can fail to capture new trends and developments in a market. Unscrupulous traders have always tried to find ways around legislation, and a general duty to trade fairly would enable enforcement agencies to act much more quickly to deal with unfair trading practices. It is important to protect the interests of honest traders while preventing dishonest traders from engaging in unfair trading practices.
99WH The idea of such a duty is not new. Twelve years ago, the Office of Fair Trading published proposals for a flexible tool for tackling unfair, deceptive or misleading practices under proposals for an overhauled Fair Trading Act. Four years ago, the Government, in their White Paper on modernising consumer protection, declared that the current legislation did not deal effectively with traders who demonstrated their lack of regard for legislation that was aimed at protecting consumers. The Government recognised the need to tackle unfair trading practices that harmed consumers yet were legal.
I hope that the Government will support the proposals that are going through the European Union to introduce such a general duty to trade fairly. Were that to be done, it would be a major boost for consumer interest throughout the European Union, including consumers in this country.
Consumer credit has been the subject of considerable debate in the House. It is an area in which the European Union will play an increasingly significant role, both because of its duties to promote the consumer interest and because of the increasing trans-border nature of much of the financial services industry. None of the hon. Members present will need persuading that there has been major, unprecedented growth in consumer credit in this country in the past few years, and that has been paralleled in the rest of the European Union.
The Government have decided to review the law on consumer credit. The Minister is to be congratulated on announcing recently what is to be the biggest shake-up in our consumer credit laws, under the banner of 'Tackling loan sharks and more!'. That Government initiative is welcome. It is also to be welcomed that the European institutions are looking at their consumer credit rules.
§ Jim Sheridan (West Renfrewshire)
People of my age and from my era may remember that loan sharking was a big issue, especially in parts of the west of Scotland in the more traditional shipbuilding industry. Although it has been stamped out in many areas, it is still prevalent where there is low employment. I ask the Government to take whatever steps possible to encourage employers to make loan sharking in the workplace a dismissible and disciplinary offence.
§ Mr. Lazarowicz
My hon. Friend raises an important point. One problem is that the illegal loan shark will not be covered by consumer credit laws. However, employers still have an important role to play. As well as the measures that my hon. Friend suggests, support for workplace-based credit unions may be a positive way in which employers could deal with the problem that he outlines.
The European Commission has now published its draft consumer credit directive, and it is to be welcomed that the European Union is reviewing the Commission's proposals. However, several consumer groups in this country have expressed anxieties that the current European Union proposals for a new directive may—unintentionally—undermine much of the good work that the Government are doing to protect the interest of the consumer against the unscrupulous provider of credit.
100WH It must be said that there is much to be welcomed, at least theoretically, in the European Union's draft directive. Consumer organisations have expressed concerns that, from a UK consumer's perspective, the directive may offer much less of the positive regulation that is enjoyed by UK consumers at present, and will be enjoyed by UK consumers if the Government's proposals on consumer credit are put into effect.
I wish to draw attention to some of the concerns expressed by consumer organisations, and I hope that the Minister will respond to some of those points at the end of the debate.
My first concern relates to licensing and regulation. As I understand it, the European Union proposals would replace the current positive licensing system for traders with a system of registration for lenders and credit intermediaries, but they do not appear to require debt collectors and debt counsellors to be registered, although they are currently required to be licensed in the UK. Those who operate credit reference agencies and hold personal data on individuals would not need to be licensed under the EU proposals, as they currently are in the UK. Clearly, if such measures were omitted from the European rules, loopholes could open up in our system of protection for borrowers.
A second concern relates to home improvement loans. As I understand it, the draft directive would exclude lending for the transformation of private heritable property or home improvement loans. Consumers who take out loans for that purpose should be protected from unfair trading practices and unfair debt recovery practices. CABs report that that area of the market is often associated with unfair trading practices, extortionate credit and high-pressure sales tactics, so it needs to be covered by the consumer credit directive, when it finally emerges.
There are concerns about extortionate credit, which the EU proposals do not seem to challenge. UK legislation contains at least some limited provisions to challenge extortionate credit rates, and I know that the Government have given some consideration to strengthening legislation in that respect. The fear is that the draft European directive could make it impossible to enforce such restrictions on extortionate credit in the UK.
There are concerns about early settlement charges. It is suggested that, under the EU proposals, there would be no prospect of member states being able to abolish extortionate charges for the early settlement of debt. CABs have often reported outrageous practices by lenders who charge extremely high rates of interest for early termination of loan contracts.
Another important concern, expressed not only by consumer organisations but by some lenders, is the proposed change to the liability of credit card issuers in the event that goods or services purchased with a credit card are substandard. The draft directive seems to offer less protection to consumers in those circumstances than the UK's Consumer Credit Act 1974. Under that Act, both the credit card issuer and the supplier of goods and services are liable, subject to certain qualifications, if those goods or services are substandard. Under the terms of the directive, however, the liability of the supplier and card issuer would apply only if the supplier of goods and services had also acted as the supplier of 101WH credit. As I am sure hon. Members appreciate, consumers who purchase goods and services with a credit card from a supplier often do not also use the supplier as an intermediary to provide the credit. The ability to claim against the credit card provider, as well as against the supplier, for substandard goods and services has been an important fall-back right enjoyed by consumers in this country. If the directive were to remove or restrict consumers' rights to make a claim against a credit card provider, for example when the supplier had not met a claim or had gone out of business, that would be a major loss for the consumer interest. It is not only consumers organisations that have expressed concern about the matter; I received an e-mail last night from the Nationwide building society, a credit card issuer, which expressed concern about the effect of the directive on consumers' rights.
The draft directive raises many questions about the Government's intention to tighten the UK consumer credit regulations. It is important that the European Union rules should not eventually worsen the position of consumers in this country, instead of providing them with additional rights. I hope that the Government will work to ensure that the important EU proposals on consumer credit will result in the improvements for UK consumers that I have suggested.
§ Mr. Kerry Pollard (St. Albans)
My hon. Friend spoke of regulation that can be applied to people in the system. The largest difficulty in my county is the black economy, where cash changes hands. Travellers come across every summer and take millions of pounds from the local economy for shoddy jobs. There is no comeback because they disappear into the ether. Has my hon. Friend given any thought to the idea of educating consumers, rather than regulating the people providing services, who can never be caught?
§ Mr. Lazarowicz
My hon. Friend raises an important point, because a difficulty with tightening regulations is that some people choose not to comply with any regulations, and ignore them all. The measures that the Government are introducing strongly emphasise not only the giving of rights to consumers but the provision of mechanisms to educate them about those rights. Some providers will always flout the law, so it is important that people know when that happens and when to report it to an enforcement agency.
The Government have done much to provide consumers with new rights. The opportunities for consumers that recent measures have brought about may not yet have been as widely recognised as they might be. It is essential, therefore, that the European Union framework should add to, support and strengthen the measures taken by the Government, and should not allow them to be undermined, even inadvertently. I hope that the Minister will be able to commit herself to continuing the fight within Europe to maintain a high level of consumer protection, so that consumers in this country will benefit, as well as those in other countries of the European Union.
§ Mr. Frank Cook (in the Chair)
Order. It will be of interest to hon. Members to know that the volume level on the sound system in this Chamber has been increased in response to complaints made by colleagues before 102WH Christmas that it was too low. However, account has been taken of our experiences this afternoon, and measures are in train to moderate the levels to somewhere between what we have now and what we had then. No expense is spared to ensure the comfort and ease of hon. Members.
§ Ross Cranston (Dudley, North)
I hope that my contribution will be well modulated, Mr. Cook.
I have a puzzle. It began in the 1970s when I first took an interest in this matter. At that stage, this country was a leader in consumer policy and law. The Trade Descriptions Act 1968 was a model, as was the Fair Trading Act 1973, which was introduced by the Conservatives, although a great deal of the work had been done by my right hon. Friend the Member for Swansea, West (Mr. Williams) when the Labour party was in power. People in other parts of the world looked to the Unfair Contract Terms Act 1977. At that time, the National Consumer Council was established and high street consumer advice centres sprung up around the country.
Then we had the great freeze of the 1980s. I remember being part of a small National Consumer Council delegation to the now shadow Leader of the House, who was then at the Department of Trade and Industry. We proposed a manufacturers' guarantee bill, but although that was strongly supported by members of the Conservative party, such as Baroness Oppenheim-Barnes, it got very short shrift. As my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz) said, it was a time when the European Community consumer protection measures came into their own. I had some difficulty with the competence of the European Community. The justification that the measures were somehow fundamental to the completion of the internal market and that they were necessary to empower consumers to shop across borders did not wash with me. However, the substance of the measures was excellent. We received directives on, for example, package holidays and time-shares and, most importantly, we had the unfair terms in consumer contract directive, leading to regulations in 1994 which have been replaced by the 1999 regulations.
That is where my puzzle comes in. Since the great freeze, the consumer measures that have been taken have been largely driven by Europe. My concern is that sometimes we are the odd one out in opposing valuable developments at a European level. In 1999, the Government published a White Paper "Modern Markets: Confident Consumers" which provides a valuable framework for policy. I commend the Government for such measures as section 11 of the Enterprise Act 2002, which introduced the system of super-complainants. There are also provisions in part 8 of the Act in relation to stop now orders, although they were largely prompted by the European Community directive on the matter and by the need, which was identified in 1976, to reform part III of the Fair Trading Act 1986.
However, we should not have needed the 1999 sale of consumer goods and associated guarantees directive to make us change our law to make manufacturers' 103WH guarantees enforceable and to ensure that consumers were legally entitled to repairs to faulty products. We should have taken the initiative many years ago. A number of problems have been identified by my hon. Friend, such as over-indebtedness. In preparing for the debate, I asked Dudley's citizens advice bureau and trading standards department to provide me with examples of that. They cited companies that lend money door to door and encourage people to take out high-interest loans, which they cannot afford to repay, and rogue traders. In my area the phantom tarmackers have been replaced by the block pavers. I am sure that all hon. Members have received complaints about the sale of gas and electricity by various companies.
The most scandalous recent example of high pressure sales in Dudley is that of the 83-year-old widow who received an unsolicited phone call asking about her physical condition, at the end of which she was told that she had won a massage. An arrangement was made for her to receive a visit the next day. She was then pressurised to buy a £4,400 orthopaedic bed, eventually reduced to £2,700. She paid a deposit of £300. After the bed arrived she discovered that she could have bought it for £800 to £900 elsewhere, and that it was not especially helpful to her. The problem of rogue selling is being dealt with as a result of the super complaint brought by NACAB, which is now known as Citizens Advice. In response, the Office of Fair Trading agreed that there was a serious problem. The taskforce set up by the Department of Trade and Industry to tackle over-indebtedness has acknowledged that there is a problem with irresponsible lending. It sets out several practices, and draws the conclusion thateach affects a relatively small proportion of high-risk households. But such practices do tend, quite disproportionately, to attract customers who are at a high risk of over-commitment.In her speech to the money advice liaison group in November, my hon. Friend the Minister acknowledged that there were problems and identified the steps that the Government have taken on financial education and support for financial advice services and the steps of the regulatory agencies in relation to the sale of gas and electricity. However, we should not need a proposed directive from the European Community to tell us that we need a legal instrument to deal with responsible lending, which is what draft article 9 sets out to do.
My hon. Friend the Member for Edinburgh, North and Leith raised some important points about this new consumer credit directive, which I shall not repeat. The directive would create certain difficulties, such as the section 75 difficulty identified by my hon. Friend, whereby the liability of creditors for the acts of retailers might be reduced, which would certainly be a retrograde step for policy in this country.
My hon. Friend the Member for West Renfrewshire (Jim Sheridan) raised an interesting point about marrying employment and consumer credit law. My point is that we have problems in this country that are clearly identifiable. We should be taking action and do not need the European Community to tell us how to do things.
My hon. Friend the Member for Edinburgh, North and Leith raised the issue of a general duty to trade fairly. He rightly pointed out that an OFT paper was 104WH published on the subject in February 1987. In the summer, I read a paper to the Society of European Contract Law in which I traced the issue back even further. The United States and commonwealth countries such as Australia have provisions that could easily form a basis of a general duty to trade fairly. I therefore found it disappointing that, during the passage of the Enterprise Bill, my hon. Friend the Minister made clear the Government's opposition to that duty. That opposition was confirmed by the Government's response in October 2002 to the European Commission's consultation on the follow-up communication to the Green Paper on EU consumer protection.
In the debates on the Enterprise Bill, the Minister referred to the lack of clarity of a duty to trade fairly. It appears that the experience of other countries does not support that proposition. The duty to trade fairly, or its equivalent, operates successfully in other countries. It operates in the United States under the uniform commercial code and in Australia under the Trade Practices Act to pick up problems with which specific legislative provisions do not deal. We need the general duty as a backstop to specific regulations.
The Minister also voiced the objection that the general duty would be too great a burden on business. It does not operate as a burden on business, but merely crystallises once a business acts unfairly. It has no bearing on a business until that business steps out of line.
In the paper that I presented over the summer to the Society of European Contract Law, I argued that the duty should be coupled with a provision for redress. Again, that operates successfully in other countries, so I am puzzled as to why we are not in favour of the duty and why we are not leading by example. I know that other hon. Members have contributions to make, so I shall end where I began—with a puzzle. Why is it that we were once a leader in consumer policy and law, but we are now a laggard?
§ Jim Sheridan (West Renfrewshire)
I congratulate my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz) on securing this debate on an extremely important issue. I shall concentrate on timeshare selling and its impact on many vulnerable people. Going on holiday abroad, they are subjected to attempts to sell them timeshare facilities, which cause them much pain and discomfort. Many of those people are easily identifiable by their white legs when they arrive at these sunny resorts.
Timeshare has presented a problem for consumer protection policy for a number of years. The Department of Trade and Industry has estimated that there are at least 440,000 timeshare owners in the United Kingdom, more than three quarters of whom have timeshares abroad. There are an estimated 1.14 million owners throughout the European Union, a third of whom are based in the UK. The DTI also estimates that, in the UK alone, the timeshare market is worth more than £108 million per annum.
Attracted by the certainty of holiday accommodation for years to come, consumers often find that, at best, the deal is poor, as service charges rise uncontrollably and 105WH contracts contain restrictive covenants on resale. Worse, contracts often seem to be entered into after high-pressure and misleading sales practices. Often, contracts do not have cooling-off or cancellation rights, and obtaining redress or refunds is extremely difficult, if not impossible.
Many products on the market are designed to fall outside the specific EU consumer protection relating to timeshare, either because they are timeshare-like, such as holiday clubs that do not specify a particular property under the contract, or because the contracts are of less than 36 months' duration. Providers seem to use both those devices to avoid coming within the scope of the EU timeshare directive, which provides the right to cancel contracts.
For many years, consumer bodies have highlighted a range of significant shortcomings in the consumer protection law in this regard, so it comes as no surprise that the Office of Fair Trading reports with alarming regularity that consumer complaints about timeshare continue to increase. In 2000, the complaints totalled 4,860; now, the figure has risen to 6,218. Outside the UK, the European consumer centres report that this is the single largest subject of inquiries from consumers, who often seek help because they want to get out of a very shady deal.
It seemed that the UK Government were on top of the problem and keen to solve it. Just three years ago, the then Consumer Affairs Minister announced a crackdown on unscrupulous holiday timeshare sales techniques. Consultation was promised on a number of key changes, such as widening the scope of timeshare legislation to include holiday and vacation club schemes, floating vessels and timeshares of less than three years' duration, timeshare resales, and protection relating to money paid post sale for items such as maintenance.
At present it seems that all that is likely to materialise in the UK in the face of ongoing consumer detriment is a small change to UK consumers' rights to information about their present cooling-off and cancellation rights. Pulling back from the proposals made three years ago, the DTI only proposes to change the legislation so that instead of customers receiving a separate cancellation notice and form, the notice will be integral to the contract and have a detachable cancellation coupon. While those consumers with cancellation rights may be more likely to be aware of them, it will do nothing to allow those who purchase timeshares that do not fall within the strict limits of the present legislation to cancel after they have experienced the high-pressure sales tactics.
Across the EU, instead of moving to improve this legislation, it seems likely that nothing will happen until it becomes clear whether timeshare problems can be adequately addressed through a proposed framework directive, which will prohibit unfair trading practices but, unfortunately, could take a number of years to appear. In the interim, a self-regulatory code of practice promulgated by the Organisation for Timeshare in Europe has been issued. In fact, it is a collection of so-called codes of ethics relating to different products. Unfortunately, consumer organisations doubt whether the OTE code will ever deliver any tangible benefits.
106WH Indeed, the ECC has provided a joint response, pointing out that the code fails consumers. It says that the code is not consumer friendly. One simple, clear code is needed. The code will only be as affective as its market coverage and enforcement mechanisms. The ECC's experience is that the most problematic firms are not currently and certainly have no intention of becoming members of the OTE. Procedures and commitments on complaint handling and compensation are absent and arrangements for supervision, monitoring and enforcement of the code are either absent or insufficiently transparent to attract confidence. For example, the codes are overseen by an ethics council, but there is no information about how that council will be constituted or whether it will have any independent representation or how cases can be brought to it.
In conclusion, the ECC is extremely unhappy about promoting the proposed code, even if the content is improved considerably, as that could be seen as minimising the extent of problems that consumers face in the market and suggests that the codes are an adequate response. It supports the view that this is a case where a code cannot substitute for effective legislation. An EU directive on timeshares is long overdue.
§ Dr. Vincent Cable (Twickenham)
I congratulate the hon. Member for Edinburgh, North and Leith (Mr. Lazarowicz) on the professional way in which he introduced his subject. It establishes a good precedent. We often deal with European legislation at its later stages, but he has taken up a subject where the issues are still being discussed. The Green Paper thinking is still open. There is no Government commitment. There is no directive, certainly on the duty to trade fairly. It is good that we have discussions in this House at this early stage. I do not know whether that was his intention, but it has certainly been the effect and it is welcome.
I share the hon. Gentleman's enthusiasm for putting consumer issues on the agenda. Like the hon. and learned Member for Dudley, North (Ross Cranston), I feel that the issue has stagnated in recent years. It is fair to give some credit to the Minister. The stop now provisions were a big step forward. I know that she has taken a lot of personal interest in promoting the function of the trading standards officer, which is a low-status backwater in local government that has now been given some valuable impetus and support.
The issue on which I want to focus is specifically the European element. There are good and bad reasons for wanting to introduce consumer provisions at a European level. The good reason is to make the single market work, but the bad reason is that there are people in Brussels who are underemployed and want to create a European framework even though one is not strictly called for. I met some of the people in the division in Brussels about a year ago when the policy strategy was still being drafted, and I had great doubts about whether it was necessary. This is an area of European legislation about which we should be critical and ask whether the principles of subsidiarity are being applied.
On the positive side, there is a case for having a degree of European consumer legislation to make the single market work. There are two basic reasons for that. The 107WH first is in the interests of the consumers, so that people have the confidence to buy across national frontiers. Some useful survey work, quoted in the European Commission document, suggests that only 30 per cent. of European citizens have confidence that they will be protected if they buy across frontiers, whereas in the national domain the figure is 60 per cent. There is clearly a consumer reticence issue with which European provisions could help. Secondly, for the single market to work producers need to be confident that they can sell standard products and do not have to produce 15 different variants. That is why it is important to have a set of European safety standards for cars, so that we do not have 15 different versions of the same car, which would undermine the purpose of the single market. Therefore, some degree of European consumer protection is necessary.
The question is then whether the rules should be applied on what insiders would call the mutual recognition principle. In other words, should we accept that the standards of the country of origin should apply or do we need standardisation and harmonisation? In general, the mutual recognition approach is right. It gives producers the confidence that they can sell throughout the whole of Europe and is valuable in preserving some degree of local identity. Consumer protection rules in Germany means that two-for-the-price-of-one discount sales are illegal, whereas we would regard that as a normal and acceptable market practice. People like to hunt around for bargains, and there is no reason why we should have the same approach as the Germans. Some degree of mutual recognition of different standards is desirable, and we should work and fight for it.
However, there are matters on which it is necessary to go beyond that to maintain consumer confidence. Some have already been listed, and timeshare and package holidays are important examples, for the simple reason that many people take their holidays abroad. They are consuming products in a foreign country and will have no consumer protection unless the rules are standardised throughout Europe. In the holiday trade, it would make sense to have not only mutual recognition but some harmonisation of rules. Furthermore, in order to kick start e-commerce, which currently represents only 2 per cent. of business, there needs to be some degree of confidence that if people buy via the internet from another European country, they will have some consumer protection. Otherwise, such trade will not take off.
A market in financial services has been an EU aspiration for which the British have pushed particularly hard. If people choose to buy shares in the German stock market through a German broker or a pension through a French bank based in Paris, they should be able to enjoy the protection, albeit limited, that we enjoy through the financial ombudsman. There should be some standardisation, but there is a delicate balance to be struck between harmonisation, which is necessary in some trades such as travel, and a process that reflects different national standards in other industries. We cannot be dogmatic about this subject.
108WH I want to link those points to the specific issue of the duty to trade fairly. The Minister will remember that when the Enterprise Act 2002 was debated in Parliament, hon. Members of all parties argued that it was a cause that the Government should take up. The hon. and learned Member for Dudley, North has already explained the reasoning behind it—the existence of many dodgy practices just on the border of legality. I wrote to the Minister recently about a lady with Alzheimer's who received one of the posted-in-Belgium letters offering her, if she sent £10, entry into a prize draw to win a Porsche. She had no idea what she was signing: she sent the cheque because she believed that she had to pay a bill. Within weeks, she was receiving 20 follow-up letters a week from people demanding money in the prize draw business. That is an example of the sort of practices being operated on the fringe of the law. It is not being policed, yet there are dozens of such operations.
It was argued in Committee at the time that, rather than try to pick off each of the individual practices through separate pieces of legislation, it would be better to legislate for an overall duty to trade fairly, but the Government rejected that.
Will the Minister explain the Government's position? Having rejected the opportunity to produce British legislation to meet our particular needs, we now run the risk of being subject to Europe-wide legislation, which is not drafted to deal with our specific problems, but incorporates the requisite principle. Will the Government accept that? How will the European move to create a duty to trade fairly sit with the strong pressures exerted in Committee to incorporate the duty into British law? I would be grateful to hear the Minister's response.
Another question about the proposed European directive is how the Government will apply what is known in the trade as the Lamfalussy doctrine? The Europeans are working towards a system in which a general duty is created at European level and subsequently left to codes of practice at a national level. The problem with national codes of practice, as the Minister will know from mortgage regulation, is that they are often applied ineffectively, requiring detailed prescriptive legislation. How will the balance be struck between a European framework and British regulation? Will the degree of delegation of subsidiarity in this sector be sufficient?
Thirdly, how far have the Government gone towards assessing the costs of regulation? We endlessly debate red tape and regulation here. It is now widely accepted that regulation has to be justified with reference to some sort of cost-benefit analysis. Feedback from retail interests with respect to the duty to trade fairly suggests that the legislation is potentially onerous, coming on top of other provisions such as the temporary workers directive. Questions are being asked about whether the EU is carrying out proper evaluation of the costs and benefits. Are the Government carrying out evaluation and how will the tests be applied?
Finally, what of enforcement? As I acknowledged at the outset, the Minister has generally played a positive role in ensuring that the trading standards profession in local government is properly supported. When the legislation is passed, whether at European or British level, it will depend ultimately on the handful of 109WH individuals in every local authority who have the responsibility for enforcing the law. What appreciation has been done of the additional burdens of enforcement? Can the trading standards system cope with it and do the Government have any further plans to strengthen the service?
§ Mr. Andrew Robathan (Blaby)
I, too, congratulate the hon. Member for Edinburgh, North and Leith (Mr. Lazarowicz), who takes a particular interest in these matters, on securing the debate on consumer rights in the EU. I was unusually interested to hear the comments of the hon. Member for Twickenham (Dr. Cable) and I agreed with almost all of them, although not his views on the duty to trade fairly. I was not a member of the Committee that considered the Enterprise Bill, but I was interested in what he had to say. I shall try not to repeat what has been said already.
EU consumer policy and rights have now moved to a central position in EU policy as a whole, largely as a result of the single market. As hon. Members will know, the single market has 370 million consumers, and the United Kingdom has £132 billion-worth of trade with the EU. The Single European Act, which came into force on 1 July 1987, introduced the notion of the consumer into the treaty, and consumer policy became part of the more general policy of completing the single market. In recent years, measures have been taken in a number of areas, some of which we heard about earlier, including toy safety, general product safety, cross-border payment, unfair contract terms, distance selling and timeshares.
Article 153 of the 1997 Amsterdam treaty stated that theconsumer protection requirements shall be taken into account in defining and implementing other Community policies and activities.That meant that consumer protection became a key EU objective that had to be taken into account whenever new EU laws were developed. I have mentioned the impact of that in general terms. More specifically, in relation to product safety, European rules guarantee minimum quality standards for food and other goods: a guarantee that must be welcomed by everyone. Furthermore, European rules guarantee greater and fairer competition, and the European Commission acts as a watchdog against collusive agreements between companies and abuse of monopoly position.
Car prices were briefly mentioned earlier in the debate. Hon. Members will remember that, in July last year, the Commission gave permission for car dealers to solicit or open for business anywhere in the EU. That has had a major impact on the pricing of cars in the UK, and presumably elsewhere.
On 7 May last year, the European Commission adopted a new consumer policy strategy. The objectives of that strategy were a high common level of consumer protection, effective enforcement of consumer protection rules, and the involvement of consumer organisations in EU policy.
I shall briefly mention some of the directives that have already been implemented. I was not aware, until I was briefed on this issue, that under the directive on price indications on foodstuffs and non-food products, it is an 110WH EU requirement that every food product should carry a best date marking. EU directives also cover misleading advertising and distance selling, unfair terms and consumer contracts, and specific measures protecting purchasers of package tours and timeshares. We heard about that last issue from the hon. Member for—
§ Mr. Robathan
I am well aware that it is in Scotland. I am not at all sure that I did not live there for a short period, but I was only two or three-years-old at the time, so I cannot remember.
The Timeshare Regulations 1997 implemented the EU's timeshare directive. Those regulations have been useful, although, as we have heard, there have been some problems.
The Conservative party welcomes most of those directives, because we welcome anything that is concerned with good trading practice and with ensuring that consumers are appropriately protected. However, we have concerns about the EU's methods and about consumer protection as a whole. The hon. Member for Twickenham made some good points about civil servants in Brussels looking for things to do because they did not have sufficient work.
My first concern is unequal enforcement in member states. I am not sure how, with subsidiarity, enforcement can be improved. However, the aim must be equal enforcement, not just because that is why there are international agreements, but for cross-border trading. We know that, in the single market, the financial services and insurance market has not been as free as it should have been.
Interestingly, if we look at the single market scorecard, the UK has been a good implementer of directives. The first scoreboard was published in November 1997, shortly after the Government came to power, when the UK was ranked second in transposition. By the general election of 2001, we had dropped to 12th in the European Union, but by May last year we had gone up to fifth place. The UK has a reasonable record of implementing directives under Conservative and Labour Governments. There is nothing to be ashamed of: indeed, we should be proud of it, but we should beware of gold-plating legislation.
Secondly, as the hon. Member for Edinburgh, North and Leith said in respect of credit card users, UK regulation is often better than EU regulation. As the hon. and learned Member for Dudley, North (Ross Cranston) said, the UK has had a good record in that respect in the past 30 years.
My final concern is that we should be wary of over-regulation because there is a balance between proper consumer protection and an unnecessary, onerous regulatory burden on business. Will the Minister explain the Government's position on the guarantees directive, which is probably still in her pending tray?
§ Mr. Lazarowicz
I think that all hon. Members oppose gold-plating or unnecessary regulations 111WH emanating from Europe or elsewhere. Given the positive list of measures from which consumers in this country have benefited because of European initiatives, to which the hon. Gentleman referred at the start of his contribution, can he identify any gold-plating of regulations in consumer affairs by the European Union?
§ Mr. Robathan
That is a good question. I shall go back to my office and look for several such examples, but I cannot give any at the moment.
Small businesses are groaning under regulatory burdens, as the Minister knows from listening to representations from business organisations. It behoves us not to pile regulation on business, however good the intention may be, and to ensure that there is a proper balance between preventing sharks and cowboys taking advantage of vulnerable people and recognising the importance of business initiatives and improving economic prosperity.
I am not a lawyer, unlike the hon. and learned Member for Dudley, North, but we should all remember the old adage of caveat emptor, and exercise caution. My elderly father, who sadly died a couple of years ago, was persuaded by a cowboy to tarmac his drive, at huge cost. The tarmac broke up the week after it was laid. I tried to get the police to take an interest in the matter, but without success. My father may have been old, but his mind was not feeble and he had entered into a contract.
We welcome EU and international action to stand by consumer protection regulations that benefit business and the consumer. We would be wary of any EU directives that are unnecessary, or that reduce good consumer protection practice current in the UK. We recognise that sharks, cowboys and crooks will always try to make a quick buck, perhaps using modern technology and the internet. We should be vigilant when facing changing circumstances.
§ 3.3 pm
§ The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson)
I join hon. Members in congratulating my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz) on securing the debate on this important subject. As the hon. Member for Twickenham (Dr. Cable) remarked, it gives us an opportunity to have an early debate on matters being considered by the European Union.
My hon. Friend is right to focus on European consumer issues, and I welcome the opportunity to say why my Department and I are working hard to raise the profile of consumers in Europe. One of the United Kingdom's key objectives is to put confident and protected consumers at the heart of our competition regime. Several hon. Members mentioned the role of the Enterprise Act 2002 in that respect. We have done much to create a world-class competition regime, and our aim is to complement it by creating a world-class consumer protection regime. I reassure my hon. and learned Friend the Member for Dudley, North (Ross Cranston) that that is our domestic objective. Of course, the two work together. Confident consumers drive innovation and promote a dynamic and productive economy.
112WH Getting the balance right means empowering consumers as we push ahead with broader economic objectives. Whenever possible, protection needs to be EU-wide or international, because consumers increasingly purchase from overseas or from within EU boundaries, for example on the internet. That enhances competition and gives consumers access to a wider choice of suppliers, and the market will be even larger following enlargement. However, if consumers are to have the confidence to make effective use of those opportunities—the hon. Member for Twickenham commented on this—they need to know that they have appropriate rights in the event that things go wrong. That links in to practices such as alternative dispute resolution, which I shall touch on briefly in a moment.
I want to say something about our overall objectives for the new EU. The EU has made a huge contribution to consumer protection. Consumer policy has developed alongside the progressive establishment of the internal market. Indeed, it is clear from work currently being undertaken by the Commission that it is the internal market in services that is lagging behind, and there are many difficult issues with that. Consumer rights to information, education and representation are enshrined in article 153 of the treaty, and EU consumer protection directives have fleshed out some of the detail of those rights.
The development of EU consumer policy in the UK has bolstered our existing consumer protection systems, but in many countries EU-inspired legislation provides more or less the only protection that consumers have. Our stop now orders have been a big step forward in advancing consumer protection throughout Europe, and for UK consumers in particular. Since last June, the UK trading standards agencies have used stop now orders in more than 50 cases, but that underestimates the actual role of stop now orders, many of which have been used as negotiating tools to ensure that unfair or illegal practices are ended.
The EU is about to change fundamentally. New countries are joining and they will bring new markets with differing structures into the Union. We must continue to ensure high standards of consumer protection throughout the EU as the single market begins this dramatic change, which will result in it having more consumers than the US and Japan put together.
We have a clear set of objectives for consumer protection in the new Europe. We want existing regulations to be simplified and clarified. We want the consumer voice to be heard in EC policy-making, and to ensure that any changes to EC policy are based on a firm foundation of evidence. We also want those policies to be backed up by effective enforcement mechanisms. Considerable activity is taking place in Europe at the moment, and we are pleased to see that much of it is in line with UK objectives.
I want briefly to respond to the point made by my hon. and learned Friend the Member for Dudley, North. He asked why we were waiting for things to be done in Europe. Obviously, for reasons that I have sketched out, many things need to be done on a Europe-wide basis, so if measures are to be effective, it is only practical to look to the EU as a vehicle for introducing some key aspects of consumer protection. That is especially relevant to timeshare.
113WH The European Commission's consumer policy strategy for the next four years is to be welcomed. The strategy aims to integrate consumer policy into EU policy areas, such as transport, competition and the internal market. We have been advocating such joined-up working for a long time, and it reflects thinking in the UK.
The general duty to trade fairly was the first issue that my hon. Friend the Member for Edinburgh, North and Leith raised and about which others have commented. The Commission's strategy is to achieve a higher common level of consumer protection. A key element of it is the Green Paper on consumer protection, in which the Commission suggested a new approach to EU consumer protection in the form of a wide-ranging, so-called framework directive with a general duty to trade fairly—or a general duty not to trade unfairly.
We welcome the Green Paper's objective of making existing legislation and the internal market work better for consumers and business. However, we must ensure that such a directive is justified by well-quantified evidence, that we limit the potential for adding regulation and increasing internal market barriers and, crucially, that any new rules will be properly enforceable.
The hon. Member for Twickenham and others mentioned the work that was done and the examples that were produced during consideration of the Enterprise Bill. We have carefully reviewed the dossier of case studies that the National Consumer Council and others have produced, and our impression still is that many of the cases cited are covered by existing legislation. I believe that I gave the Committee that information at the time.
We must also consider whether the problem is one of enforcement rather than a need for new legislation. There may well have been a problem in the case of the father of the hon. Member for Blaby (Mr. Robathan), even if he had not signed the contract or something inappropriate or improper had been done that was, in fact, covered by legislation. My hon. and learned Friend the Member for Dudley, North cited the case of an 83-year-old. The issue for elderly people is one of enforcement as much as failures in legislation.
The UK is one of two member states that do not have a general duty to trade fairly. However, it is easier for each member state to arrive at a definition of "fairly" than it is to agree across the EU on such a definition. That problem must be addressed.
There are also different legal and redress systems among the member states, and we must focus as much effort as we possibly can on preventing problems arising in the first place. I share the concerns of all hon. Members about the treatment of vulnerable consumers and the redress that is available to them. Such people would rather avoid the problem than have to deal with some redress mechanism when they experience unfairness or difficulty.
We have maintained our reserve on the principle of the general duty to trade fairly on the grounds that we want to produce a provision that is workable, enforceable and practical, and that provides a clear definition for businesses and genuine protection to 114WH consumers who trade or buy across borders. The definition of "fairly" must be applied on a common basis in all member states.
§ Ross Cranston
I accept my hon. Friend's point that enforcement is crucial to consumer protection. Without enforcement, the laws on the statute books are absolutely worthless, although they might produce an educative effect.
The consumer contracts directive covers unfair terms. It includes a wide duty to act fairly and in good faith, and not to the detriment of consumers. That has been adopted in all member states, as it had to be. There was not the same difficulty in implementing that, although on the Minister's argument it was a vague provision, so why should there be difficulty with the duty to trade fairly?
§ Miss Johnson
To answer my hon. Friend's point, it is necessary to consider the issue historically. We are now in a slightly different time, with much more cross-border trading than there was a few years ago when the unfair contract terms directive came into force. There is now, too, much more buying of goods and services over the internet, which raises further issues. The duty in that directive was a very specific one, focused on contract terms. We are discussing a very general duty, and we are concerned, in this as in other fields, because it is often still quite difficult—the timeshare directive is a case in point—for provisions that are genuinely meaningful to consumers to be enforced across different member states.
For all those reasons, we want to see real, practical issues addressed in the discussions. That is the UK's position. The hon. Member for Twickenham was a little unkind in saying that the Government are opposed to the general duty. The Government's line has always been—this was my expressed view when we considered the Enterprise Bill—that we must consider what we are trying to tackle, and how it can best be tackled effectively. We are handling the negotiations on the general duty to trade fairly on that basis. Of course, we have to ensure that businesses are aware of the definitions so that they can be sure that they comply with the law, especially as many business transactions take place across various different member states, as several hon. Members have mentioned.
Turning to the consumer credit directive, I welcome the concerns that consumer organisations have raised. Our officials are in regular contact with the organisations and with representatives of the lending industry to ensure that our negotiations address the points raised. I have considerable sympathy with the points made by my hon. Friend the Member for Edinburgh, North and Leith and by my hon. and learned Friend the Member for Dudley, North on such matters as the promotion of responsible lending and borrowing. We want to see all loans secured on property excluded from the scope of the directive, a point that my hon. Friend the Member for Edinburgh, North and Leith made.
We also want credit unions to be exempted from the scope of the directive, and we are fighting hard to ensure that we maintain the joint and several liability protections that currently govern credit card use in the 115WH UK. This is an example of where European legislation could be in danger of watering down current protections in the UK. We want to see a levelling up, not a levelling down, which is the basis of all the work behind our discussions.
We are certainly not prepared to see this important and valuable piece of consumer protection removed. Our aim is to get the best possible outcome, and I was delighted recently to chair a seminar for several MEPs and other interested parties in Brussels, which was attended by representatives of the credit industry and people with a particular knowledge of and concern in the matter. Some effective presentations were made about concerns such as those that hon. Members have rightly raised in this debate.
On redress, as Members have said, effective enforcement by public authorities is vital. We also encourage codes of practice and self-regulation. As part of that approach, we believe that alternative dispute resolution schemes, such as ombudsmen and arbitration, can be efficient and low-cost ways of settling contractual disputes between consumers and business. The United Kingdom is a firm supporter and leading contributor to the European Extra-Judicial Network, which covers all member states, plus Iceland and Norway. It will help consumers to access ADR schemes if they have disputes with traders in other member states. It is not yet fully operational, but the UK national clearing house, which is run by Citizens Advice, is already handling cases and has dealt with about 200 to date. Throughout Europe, some 1,100 consumer cases have been dealt with by EEJ-Net.
My hon. Friend the Member for West Renfrewshire (Jim Sheridan) raised issues on the timeshare directive. The directive is a good example of a popular cross-border product, and changing UK law alone would not help consumer detriment. The importance of effective cross-border legislation remains high. The Commission proposes to review the directive, and we are working closely with it to ensure that consumer protection is balanced with industry competitiveness. Meanwhile, existing legislation needs to be more effectively enforced because, as my hon. Friend said, it seems that consumers still find enforcement of their rights difficult in this area.
The stop now orders give new powers to EU enforcement authorities to tackle cross-border disputes. The Office of Fair Trading has already begun to work closely with its European counterparts to crack down on rogue timeshare traders who target UK holidaymakers. That is particularly true in Spain, and is an example of effective working with another member state's enforcement authorities to secure the protection that our consumers have every right to expect and should receive under the law.
There are limits to the extent that legislation can tackle the problems because it can quickly become outdated, which goes back to the point made by the hon. Member for Twickenham about the Lamfalussy principles, and about self-regulation and secondary legislation rather than primary legislation. The difficulty with primary legislation is that it can rapidly become outdated in today's modern world where matters move quickly and legislation does not always move as quickly. 116WH Rogue traders, as my hon. Friend the Member for West Renfrewshire said, are inventive in finding ways to circumvent the law.
The timeshare industry could do a lot more with better self-regulation. That would be to its advantage and it is important to provide more information for consumers, but I am pleased that the industry has taken note and begun to introduce further codes of practice. We are examining that further. The best means of tackling rogue traders and bad practice is to have well-informed consumers, so an information campaign conducted in partnership with the Office of Fair Trading is being undertaken to get our message across to consumers and to give them as much security as can be achieved.
It is important to recognise that there are limits to the protection that legislation can provide people, because, sadly, rogues quickly invent ways of getting round those provisions. That may be a point that hon. Members want to reinforce, and I would not disagree with them about the attraction of a general duty not to trade unfairly.
I am pleased to note that regulations under the sale of consumer goods and associated guarantees directive were presented to Parliament on 11 December 2002 and will come into force on 31 March 2003. The regulations make manufacturers' guarantees legally binding, although we were not aware that that was a problem in the UK. None the less, that sets the record straight.
Effective enforcement is an absolute priority for the UK, and I am pleased that it is being increasingly taken up by the Commission. We warmly welcome its focus on the mechanisms of protection, which mirrors our priorities. Those mechanisms will be relied upon more heavily to deliver protection as the EU enlarges and shopping across borders becomes ever more prevalent and popular.
The Green Paper on consumer protection set out the Commission's thinking on a possible framework for improving co-operation between EU consumer enforcement authorities. We expect that to be worked up into a separate draft regulation early this year. We look forward to that development, because there is much more o be done in improving communication and co-operation between European enforcement agencies. The UK has a strong tradition of consumer protection through public bodies, so we are in a good position actively to support the proposal, which we shall continue to do.
On the general duty to trade fairly, the Government are pressing the European Commission for an extended impact assessment on additional burdens and so-called red tape. We will also prepare our own impact assessment, which will include more on enforcement. My officials are in close touch with trading standards, which is now represented by the Local Authorities Coordinators of Regulatory Services. It has not expressed concern about additional burdens. We should demand that the EU and in particular the Commission carry out comprehensive impact assessments when they introduce legislation. Impact assessments, evidence-based policy making and effective enforcement are all key issues.
Our officials work closely with the European Commission in discussions on a proposal for a general duty. In particular, an expert group has been set up to 117WH consider national law and how the EU regime will interact with domestic law. The European Commission has also begun a study of national systems with prominent academics, including an academic from the UK.
Before I conclude, I shall address the point about scam prize draw mail shots. Last summer, I launched a campaign warning against scam prize draws. It obtained quite a lot of media coverage, including a number of television interviews. We have now distributed tens of thousands of warning leaflets and posters via citizens advice bureaux and others. It is possible to take action by taking complaints to the Advertising Standards Authority. The ASA has also worked with the Royal Mail to curtail the activities of various companies, as has the Office of Fair Trading. It has been possible to close down quite a lot of scams, but the inventiveness of rogues will always drive things forward to the detriment of the consumer. Consumer understanding and education are as important as consumer protection.
We are working hard in Europe to push those objectives forward and to influence the agenda. As we have seen, there is much activity around consumer rights and protection, and we are keen to see that go forward. Where we are cautious, we will ensure that our reservations are well articulated and taken into account by other member states in the Commission, and that protections that the UK has enjoyed are maintained. The UK is a leader in Europe in evidence-based policy making, workable policy and the enforcement of policy. British consumers are well served by recent legislation and by the Europe-wide activities that we undertake on their behalf.
§ Mr. Frank Cook (in the Chair)
Having concluded today's exchanges on consumer rights in the EU, we must turn our attentions to the next topic. Will those Members who are not staying to participate in the next debate leave the Chamber quietly and expeditiously?